The consultation, together with ongoing impact assessment work by the Commission on the same topic, will help to shape future policy decisions. In this context, it was an important opportunity for CESI to recall that taxes are being collected in the general interest and that tax avoidance and tax evasion by large enterprises affect all members of society, depriving tight public finances from much needed resources.
The current CBCR requirements are insufficient
The following background applies: With a view to regain trust in the financial sector, a CBCR obligation already exists for financial institutions established in the EU. This will soon be extended to large extractive and logging industries. By the end of 2015 the OECD and the G20, which have taken the lead on the subject matter, will finalise a 15-point action plan on this as part of a base erosion and profit shifting (BEPS) project. Once agreed, point 13 of the action plan, which is on country-by-country reporting, would oblige very large multinational enterprises (with turnovers above €750 million) to provide a country-by-country report to the relevant tax authority from 2017 onwards. Tax authorities could then share the CBCR documents submitted to them to perform a more substantial risk assessment in the area of transfer pricing. However, it is important to highlight that:
1. not all EU Member States are OECD members;
2. the recommendations of the BEPS project are not binding; and that
3. the information provided would be only available to tax authorities and not to the public.
An extended CBCR, disclosure of tax rulings and whistle-blower protection are key
As a trade union confederation representing numerous tax administration employees, CESI believes that it is crucial to go beyond the above and, through a legally binding instrument, to extend the CBCR obligation to all sectors and to all major companies (e.g. by lowering the existing threshold for large companies of €750 million). CESI President Romain Wolff, himself a member at the European Commission’s expert advisory Platform for Tax Good Governance, says: “Extended CBCR obligations would help create greater transparency and allow tax administrations to effectively understand and control where economic activities are located and avoid illegitimate transfer pricings.”
Moreover, as the recent tax scandals have revealed, CESI notes that the mobilisation of the public and especially the protection of whistle-blowers is crucial in the fight against tax fraud. As part of a legitimate democratic control and in order to restore public trust CESI also calls for a disclosure of tax-related information (including tax rulings) not only to tax authorities but also to the public.
From a trade union perspective, an automatic public CBCR mechanism would also save time and resources for tax administrations which, due to budget cuts, in many places already lack the necessary resources to carry out their duties effectively. In this context, a CBCR tool would greatly support tax administration workers with their investigation work and make them more independent from cooperation with other national tax administrations. Furthermore, CESI believes that using a dedicated online register with important information would allow data to be more easily accessible to a variety of stakeholders. This would not only enhance cooperation at EU-level in a number of respects but also have an important deterrent effect.
Finally, CESI is convinced that while mandatory and public CBCR is necessary, it is only a first step in the fight against tax avoidance and tax evasion. It must necessarily be coupled with further measures. Romain Wolff adds: “I welcome the proposals of the European Commission in its recent tax transparency package and action plan for fairer and more efficient corporate taxation in the EU. This is particularly true for the proposed re-launch of discussions on a common consolidated corporate tax base (CCCTB). More than ever, the European Commission must now show political determination at the highest level to coordinate the fight against harmful tax practices with the EU Member States.”
For more information on CESI’s position, please see its consultation contribution and consult its recent opinion paper ‘Collecting what is due: For fair and effective tax systems in Europe’.