The European Commission on April 12, 2016, proposed an initiative to require large multinational companies to disclose publicly — for at least five years on the company's website, and on an official register in the EU — their profits, taxes, employee headcount and other information for each European Union country in which they operate, and for certain tax haven jurisdictions (not yet identified). In addition, they would have to disclose aggregated information regarding their business outside the European Union and the designated tax havens.

"Today's proposal will respond to the intense public demand to combine openness on company accounts and the level of corporate income tax actually paid with the need to safeguard the competitiveness of EU businesses," the Commission said in a fact sheet detailing the proposal.

The initiative is separate from the OECD Base Erosion and Profit Shifting action on country-by-country reporting, which requires more detailed information to be shared between tax authorities and that would not be made public. The Commission also made clear in its announcement today that the purpose of the reporting regimes is different, with the EU initiative aimed at helping EU citizens understand how much and where EU companies pay taxes, while the OECD reporting is aimed at assisting tax authorities in tax compliance. Like the BEPS Action 13 on country-by-country reporting, this proposal would require reporting by a multinational company with annual revenue in excess of EUR 750 million. The European Commission's reporting requirement is proposed to apply to any multinational company — European or not — that is currently active in the EU's single market with a permanent presence in the Union. Groups based outside the EU could designate a single EU subsidiary or branch to file the group's information in the EU.

The Commission's release said the information — which, in addition to taxes (both paid and accrued), includes the nature of activities conducted, the number of employees, net revenue, profit before tax, and accumulated earnings — would have to be disclosed for every EU country in which a company is active, "as well as for the so-called tax havens;" and that aggregate figures must be provided for operations in other non-EU tax jurisdictions, along with an explanation of differences between taxes accrued and taxes paid.

The initiative is being proposed as an amendment of the EU Accounting Directive, which is not a tax measure, and therefore can be adopted by the EU Council with the support of only a qualified majority (55%, or 16 member states) of the 28 EU member states. After adoption, all EU member states would have one year in which to enact conforming national legislation.

The proposal was not precipitated by the release of the so-called "Panama Papers" detailing the use of shell companies by clients of a Panamanian firm whose records were leaked, though the Commission's action is seen as being influenced by the development. The fact sheet said the Panama Papers highlight the need to develop lists of jurisdictions that pose specific tax challenges, which the Commission is in the process of doing, and that companies operating in such jurisdictions will be subject to special transparency requirements. The Commission is evaluating all non-EU countries' laws from a good governance perspective, with a view to publishing "scoreboard results" in autumn 2016.

The fact sheet is available here.

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