#Tax: Corporate tax avoidance - Council adopts rules on the exchange of tax-related information on multinationals

The directive is the first element of a January 2016 package of Commission proposals to strengthen rules against corporate tax avoidance. The directive builds on 2015 OECD recommendations to address tax base erosion and profit shifting (BEPS).

The directive will implement OECD anti-BEPS action 13, on country-by-country reporting by multinationals, into a legally binding EU instrument. It covers groups of companies with a total consolidated group revenue of at least €750 million.

The principal aim of the directive is to prevent multinationals from exploiting the technicalities of a tax system, or mismatches between different tax systems, in order to reduce or avoid their tax liabilities.

Information to be reported by multinationals 

Increasing transparency, the directive requires multinationals to report information -- detailed country-by-country -- on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees.

This information must be reported, already for the 2016 fiscal year, to the tax authorities of the member state where the group's parent company is tax resident.

If the parent company is not EU tax resident and does not file a report, it must do so through its EU subsidiaries. Such "secondary reporting" will be optional for the 2016 fiscal year, but mandatory as from the 2017 fiscal year.

Information exchange 

The directive requires tax authorities to exchange these reports automatically, so that tax avoidance risks related to transfer pricing^[1] can be assessed. For this, it builds on the EU's existing framework for automatic exchange between tax authorities, established by directive 2011/16/EU. An existing common communications network will be used, thereby saving implementation costs.

The directive sets deadlines of:

• 12 months after the end of the fiscal year for companies to file the information;
• a further three months for tax administrations to automatically exchange the information.

It also requires the member states to lay down rules on penalties applicable to infringements.

A common EU approach 

The directive will ensure harmonized implementation in the EU of the OECD recommendation on country-by-country reporting.

The directive was adopted without discussion at a meeting of the Economic and Financial Council, following an agreement reached on 8 March 2016.

Other initiatives 

The January 2016 anti-tax-avoidance package follows on from a number of EU initiatives in 2015. These include a directive, adopted in December 2015, on cross-border tax rulings.

In December 2014, the European Council cited “an urgent need to advance efforts in the fight against tax avoidance and aggressive tax planning, both at the global and EU levels”.

^[1] Transfer pricing is the price paid for goods and services exchanged between entities that make up a corporate group.