COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT assessing the potential for further transparency on income tax information Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches
Date: 2016-04-12
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: European tax cooperation, corporation tax, exchange of information, multinational enterprise, single market, tax avoidance, tax evasion, tax inspection, tax law

EN 

   EN 

   EUROPEAN COMMISSION  Strasbourg, 12.4.2016  SWD(2016) 117 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  assessing the potential for further transparency on income tax information Accompanying the document Proposal for a Directive of the European Parliament and of the Council   amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches {COM(2016) 198 final} {SWD(2016) 118 final}  
 
 
Table of Contents 

1 

2 

INTRODUCTION ....................................................................................................... 6 

POLICY CONTEXT, PROBLEM DEFINITION AND SUBSIDIARITY ................ 7 

2.1  The OECD BEPS: A multilateral approach endorsed by the G20 .................... 7 

2.2  The US model .................................................................................................... 8 

2.3  State of play in the EU ...................................................................................... 8 

2.4  Problem definition ........................................................................................... 12 

2.4.1  Drivers ............................................................................................... 12 

2.4.2 

The problem identified ...................................................................... 12 

2.4.3  Direct consequences .......................................................................... 14 

2.4.4 

Indirect consequences........................................................................ 15 

2.4.5  Affected stakeholders ........................................................................ 16 

2.5  Baseline Scenario ............................................................................................ 16 

2.6  The EU's right to act, subsidiarity check ......................................................... 17 

2.6.1 

Subsidiarity ........................................................................................ 17 

2.6.2 

International dimension ..................................................................... 18 

2.6.3 

Legal base .......................................................................................... 18 

3  OBJECTIVES ........................................................................................................... 19 

4 

POLICY OPTIONS................................................................................................... 19 

4.1  Preliminary approach on the definition of options .......................................... 19 

4.1.1  Content of the information that should be disclosed ......................... 19 

4.1.2 

Transparency: provided by whom? ................................................... 21 

4.1.3  Which companies should be in the scope of a potential initiative .... 22 

4.1.4 

Labelling system................................................................................ 24 

4.1.5 

Publication ......................................................................................... 24 

4.1.6 

Enforcement and Audit ..................................................................... 25 

4.1.7 

Link  with  the  existing  CBCR  requirements  for  banks  and 
extractive industries ........................................................................... 25 

4.2  Option 1 - Baseline Scenario ........................................................................... 26 

4.3  Option 2 – Public CBCR on EU controlled operations ................................... 26 

4.3.1  Option  2A:  Public  CBCR  on  EU  controlled  operations  broken 

down by EU Member State and aggregated for non-EU operations . 26 

4.3.2  Option  2B:  Public  CBCR  on  EU  controlled  operations  broken 

down by Member State and third country ......................................... 26 

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4.4  Option 3 – Public CBCR on worldwide operations ........................................ 26 

4.4.1  Option  3A:  Public  CBCR  on  worldwide  operations  broken  down 

by EU Member State and aggregated for non-EU operations. .......... 27 

4.4.2  Option  3B:  Public  CBCR  on  worldwide  operations  broken  down 

by Member State and third country ................................................... 28 

4.5  Summary of the Options ................................................................................. 29 

5  ANALYSIS OF IMPACTS ....................................................................................... 30 

5.1  Economic impacts ........................................................................................... 30 

5.1.1 

Impact on Growth and Jobs ............................................................... 30 

5.1.2 

Impact on Market efficiency ............................................................. 31 

5.1.3 

Impact in terms of level playing field ............................................... 32 

5.1.4 

Impact on the competitiveness of EU companies ............................. 35 

5.1.5 

Impact in terms of misinterpretation risk. ......................................... 35 

5.1.6 

Tax adjustments and disputes resulting in double taxation ............... 36 

5.1.7 

Impact on tax revenues ...................................................................... 38 

5.2  Social and societal impacts.............................................................................. 39 

5.3  Fundamental rights .......................................................................................... 40 

5.4  Compliance costs and other costs .................................................................... 41 

5.4.1  Compliance costs ............................................................................... 41 

5.4.2  Other costs for companies ................................................................. 42 

5.4.3  Costs for authorities........................................................................... 42 

5.5 

Impacts on third countries ............................................................................... 42 

5.6  Summary of the impacts .................................................................................. 44 

5.6.1  Comparison between Options by categories of impact ..................... 44 

5.6.2  Comparison between Options by affected stakeholder groups ......... 45 

6  COMPARING THE OPTIONS ................................................................................ 45 

6.1  Effectiveness  of  the  options  in  the  context  of  existing  international  and 

European initiatives on tax avoidance ............................................................. 45 

6.1.1 

6.1.2 

Potential  impacts  of  further  corporate  tax  transparency  on  the 
multilateral approach of the G20 and the OECD .............................. 46 

Effectiveness  in  the  context  of  the  G20/OECD  approach  and  the 
ATAP................................................................................................. 46 

6.2  Comparison of policy options against effectiveness and efficiency criteria ... 50 

6.2.1  Assessing the effectiveness and efficiency of Option 2A ................. 50 

6.2.2  Assessing the effectiveness and efficiency of Option 2B ................. 51 

6.2.3  Assessing the effectiveness and efficiency of Option 3A ................. 51 

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6.2.4  Assessing the effectiveness and efficiency of Option 3B ................. 51 

6.3  Preferred option ............................................................................................... 52 

6.4  Overall impacts of the package ....................................................................... 53 

7  MONITORING AND EVALUATION .................................................................... 54 

8  GLOSSARY .............................................................................................................. 55 

9  REFERENCES .......................................................................................................... 60 

ANNEX  A:  PROCEDURAL  ISSUES  AND  CONSULTATION  OF  INTERESTED 

PARTIES ................................................................................................................... 70 

ANNEX  B:  SYNOPSIS  REPORT  ON  THE  CONSULTATION  ACTIVITIES 
UNDERTAKEN  BY  THE  EUROPEAN  COMMISSION  TO  ASSESS  THE 
POTENTIAL FOR FURTHER TRANSPARENCY ON CORPORATE INCOME 
TAXES ...................................................................................................................... 72 

ANNEX  C:  FEATURES  OF  A  COUNTRY-BY-COUNTRY  REPORTING 

ACCORDING TO OECD BEPS ACTION 13 ......................................................... 79 

ANNEX  D:  BACKGROUND  AND  CONTEXT:  OVERVIEW  OF  LEGISLATIVE 

AND NON-LEGISLATIVE FRAMEWORK .......................................................... 83 

ANNEX  E:  TAX  ADJUSTMENTS,  TAX  DISPUTES  AND  RESOLUTION 

MECHANISMS ...................................................................................................... 104 

ANNEX F: IFRS NOTES: GEOGRAPHICAL INFORMATION AND CORPORATE 
INCOME  TAX  –  ILLUSTRATIVE  EXAMPLE  (ABSTRACT,  SOURCE: 
DELOITTE) ............................................................................................................ 108 

ANNEX  G:  FORM  10-K:  ILLUSTRATIVE  EXAMPLES  OF  GEOGRAPHIC 

INFORMATION ..................................................................................................... 110 

ANNEX H: PARLIAMENT'S INQUIRIES ................................................................... 112 

ANNEX  I:  COMPATIBILITY  WITH  THE  CHARTER  OF  FUNDAMENTAL 

RIGHTS - DETAILED ANALYSIS ....................................................................... 115 

ANNEX J: COMPARISON OF EXTANT COUNTRY-BY-COUNTRY MODELS .... 118 

ANNEX K: ANALYSIS OF INFORMATION TO BE DISCLOSED IN A CBCR ...... 119 

ANNEX L: ANALYSIS OF THE CORPORATE INCOME TAX GAP ....................... 125 

ANNEX M: BREAKDOWN OF MNES BY COUNTRY/REGION ............................. 131 

ANNEX N: U.S. SEC DEFINITION OF A SIGNIFICANT SUBSIDIARY ................. 132 

ANNEX  O:  WORLDWIDE  PUBLICATION  REGIME  OF 

INDIVIDUAL 

ACCOUNTS ........................................................................................................... 134 

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ANNEX  P:  INTERACTION  WITH  CBCR  REQUIREMENTS  FOR  BANKS  AND 

EXTRACTIVE INDUSTRIES ............................................................................... 135 

ANNEX Q: ADDITIONAL BACKGROUND ANALYSIS SUPPLEMENTING THE 
ECONOMIC  ANALYSIS  SECTION  OF  THE  IMPACT  ASSESSMENT  OF 
INCREASED CORPORATE INCOME TRANSPARENCY ................................ 139 

ANNEX R: DESCRIPTION OF A POSSIBLE LABELLING SYSTEM. .................... 152 

ANNEX S: COMPLIANCE COSTS .............................................................................. 153 

ANNEX T: WHO IS AFFECTED BY THE INITIATIVE AND HOW ........................ 156 

ANNEX U: PROFIT SHIFTING .................................................................................... 159 

5 

 
 
 
1 

INTRODUCTION 

This  impact  assessment  explores  the  case  for  further  transparency  vis-à-vis  the  public  with 
respect to the way companies manage taxable profits per jurisdiction and the related amounts 
of corporate income tax paid. Corporate income tax revenue for each of the 28 Member States 
of the Union amounted to an average of 2.6% of GDP in 20121. According to a study by the 
European Parliament2 the EU loses EUR 50-70 billion in revenues each year due to corporate 
tax avoidance. 

The  fact  that  certain  multinational  enterprises  (MNEs)  appear  to  pay  little  tax  in  relation  to 
their  income  and  profits,  while  many  citizens  have  been  heavily  impacted  by  fiscal 
adjustments  has  been  met  with  public  criticism.  Some  of  the  criticism  concerns  also  tax 
rulings,  as  well  as  the  extent  of  competition  among  States  which  translate  into  specific 
features of tax laws. 

The  Commission's  analysis  shows  that  pricing  of  intra-firm  transactions  and  strategic  IP 
location  could  explain  about  70%  of  profit  shifting3.  That  said,  there  is  no  conclusive 
evidence  that  this  has  led  to  the  prevalence  of  low  effective  CIT  rates.  For  instance,  the 
overall effective tax rates of the largest 100 MNEs based in the United States has been found 
to average 30% between 2001-2010, and approximately 34% for the largest MNEs based in 
the  EU4.  This  is  in  spite  of  the  fact  that  the  United  States'  statutory  rate  is  more  than  ten 
percentage points higher than the EU average. Various sources point to average effective CIT 
rates in the EU of about 20%5, however with significant differences between Member States. 

The  European  Commission,  the  European  Parliament,  the  Council, the OECD,  the  G20  and 
many  governmental  organisations  are  committed  to  the  fight  against  tax  evasion  and  tax 
avoidance6. The work in this document takes as given the fact that while MNEs’ profits are 
managed  globally,  their  taxation  is  local.  Under  this  premise,  only  a  number  of  combined 
measures could put an end to base erosion and profit shifting (BEPS), many of which lie in 
the field of taxation rules, international treaties, intra-EU co-operation and transparency, some 

1   Eurostat - Taxation trends in the European Union, 2014 
2   "Bringing transparency, coordination and convergence to corporate tax policies in  the European Union, I  - 
Assessment  of  the  magnitude  of  aggressive  corporate  tax  planning"  prepared  by    Robert  Dover,  Dr 
Benjamin Ferrett, Daniel Gravino, Professor Erik Jones and Silvia Merler, September 2015, a study referred 
to  in  the  European  Parliament  “Draft  Report  with  recommendations  to  the  Commission  on  Bringing 
transparency,  coordination  and  convergence  to  Corporate  Tax  policies  in  the  Union”  (2015/2010(INL)), 
Committee on Economic and Monetary Affairs, Rapporteurs: Anneliese Dodds, Luděk Niedermayer 

3   Commission Staff Working Document, Corporate Income Taxation in the European Union, 2015 
4   University of Michigan Law School, Avi-Yonah & Lahav, The Effective Tax Rate of the Largest US and 

EU Multinationals, 2011 

5   The  Effective  Average  Tax  Rate  was  20.9%  in  the  EU  in  2012,  according  to  European  Commission's 
Taxation Trends in the European Union, 2013 edition. See also analysis made by John Vella for Committees 
of the European Parliament, Nominal vs. Effective Corporate Tax Rates Applied by MNEs and an Overview 
of Aggressive Tax Planning Tools, Instruments and Methods, 2015 

6   Tax evasion is defined as illegal arrangements where the liability to tax is hidden or ignored. Tax avoidance 
is defined as the arrangement of a taxpayer’s affairs in a way that is intended to reduce his or her tax liability 
and that although the arrangement may be strictly legal is usually in contradiction with the intent of the law 
it purports to follow. See also the Glossary. 

6 

 
 
                                                 
of  which  may  interplay  with  this  impact  assessment.  In  2011,  for  instance,  the  European 
Commission  proposed  a  Common  Consolidated  Corporate  Tax  Base  (CCCTB)  as  a 
framework  for  ensuring  effective  taxation  where  profits  are  generated7,  which  is  being 
relaunched.  On  28  January  2016,  The  Commission  also  published  the  Anti-Tax  Avoidance 
Package (ATAP)8. 

The Commission wants to ensure that the country in which a business’ profits are generated is 
also  the  country  of  taxation9.  This  impact  assessment  examines  different  options  for  further 
corporate tax transparency under the umbrella of the Commission's work program. 

2  POLICY CONTEXT, PROBLEM DEFINITION AND SUBSIDIARITY 

2.1  The OECD BEPS: A multilateral approach endorsed by the G20 

MNEs' taxation is a global issue. The G20 calls for a global solution to fight tax evasion and 
avoidance  on  corporate  income  taxes  by  multinational  enterprises.  According  to  the  G20 
international cooperation and integrity of national tax systems are key. The G20 shaped its tax 
agenda  around  three  main  elements10:  1)  Base  erosion  and  profit  shifting  (BEPS),  2) 
Automatic exchange of tax information (AEOI) and 3) Tax and development. 

The  G20  leaders  and  the  OECD  have  put  substantial  hope  into  the  efficiency  of  the  OECD 
BEPS Action Plan developed by the OECD. The Plan was endorsed by the G20 leaders at the 
Antalya  summit  in  November  2015.  Leaders  said:  "To  reach  a  globally  fair  and  modern 
international tax system, we endorse the package of measures developed under the ambitious 
G20/OECD  Base  Erosion  and  Profit  Shifting  (BEPS)  project.  Widespread  and  consistent 
implementation will be critical to the effectiveness of the project".  

The  BEPS  initiative  includes  15  proposals  for  action,  a  number  of  which  are  designed  to 
enhance transparency – in the sense of transparency towards and between tax authorities by 
exchange  of  information.  BEPS  Action  1311  is  particularly  relevant  from  the  angle  of 
corporate  transparency,  as  it  contains  features  of  country-by-country  reporting  even  if  the 
disclosure  will  be  done  on  a  confidentiality  basis  to  tax  administrations.  BEPS  Action  13 
includes  guidance  on  Transfer  Pricing  Documentation  and  CBCR,  a  model  legislation,  and 
proposes a Multilateral Competent Authority Agreement (MCAA) on the Exchange of CBCR. 

7   Common Consolidated Corporate Tax Base (CCCTB), European Commission, Directorate General Taxation 

and Customs Union, 2011   

8   European  Commission,  Anti-Tax  Avoidance  Package,  January  2016.  This  package  proposes  inter  alia  to 
revise  the  Directive  on  Administrative  Cooperation  to  include  a  country-by-country  reporting  to  be 
exchanged between Member States' tax authorities on key tax-related information submitted by MNEs. 
9   A New Start: The 2015 Commission Work Program: "While recognising the competence of Member States 
for  their  taxation  systems,  the  Commission  will  step  up  efforts  to  combat  tax  evasion  and  tax  fraud  and 
respond to our societies' call for fairness and tax transparency. Starting from the work done on base erosion 
and profit shifting at OECD and G20 levels, the Commission will set out an Action Plan including measures 
at EU level in order to move to a system on the basis of which the country where profits are generated is 
also the country of taxation." 

10   G20  Response  to  2014  Reports  on  Base  Erosion  and  Profit  Shifting  and  Automatic  Exchange  of  Tax 

Information for Developing Economies 

11   OECD BEPS Action 13 – Transfer Pricing Documentation and Country-By-Country Reporting, 2015 

7 

 
 
                                                 
In  addition,  BEPS  Action  1112  seeks  to  address  weaknesses  in  the  existing  data,  as  well 
establish  methodologies  to  collect  and  analyse  data  on  BEPS  in  the  future,  which  could 
provide indications of the scale and economic impact of BEPS. 

2.2  The US model 

In  the  US,  disclosure  by  companies  is  regulated  at  Federal  level  mainly  for  issuers  of 
securities  on  capital  markets.  The  geographical  breakdown  of  information  to  be  given  by 
these issuers is structured in terms of US versus non-US activities. It is limited to a few key 
items: revenues, long-lived assets and corporate income tax expense. Per US GAAP, issuers 
must provide a breakdown of their revenues (and certain long-lived assets) on a geographical 
basis showing separately the revenues in the country of domicile and, as the case may be, in 
material  countries.  A  total  figure  must  be  given  for  revenues  in  the  remnant  countries.  In 
addition,  the  Securities  and  Exchange  Commission  requires  the  disclosure  by  the  issuers  of 
their corporate income tax expense (current and deferred) on a geographical basis as follows: 
domestic (US State level and Federal level), and foreign (total figure for other countries).  

2.3  State of play in the EU 

The Commission has tabled comprehensive and ambitious packages in the course of 2015 and 
2016  to  tackle  tax  evasion13.  The  Anti-Tax  Avoidance  Package  (ATAP)  proposed  on  28 
January 2016 is particularly relevant in that it addresses the submission of a CBCR by certain 
MNEs  to  their  tax  authorities,  as  well  as  the  exchange  of  that  information  between  tax 
authorities, as described in the baseline scenario.  

Particularly  relevant  as  well  in  the  frame  of  this  impact  assessment  is  the  CCCTB.  The 
legislative process on the proposal made by the Commission back in 2011 has stalled largely 
because  of  its  scale.  The  CCCTB  aims  to  allow  businesses  to  compute  their  tax  base 
according to a set of common rules, which would replace the current setting of different rules 
in each Member State where they operate. An important advantage of the CCCTB is the fact 
that  within  the  Union,  tax  consolidation  makes  transfer  pricing  largely  obsolete  and 
discourages  profit  shifting  for  MNEs  within  the  consolidated  group.  This  should  render  tax 
competition more transparent in the EU because, the tax base being the same across the group, 
differences in  tax rates  become  evident.  In  defending the internal  market  against  aggressive 
tax planning, the CCCTB will also allow Member States to implement a common approach 
vis-à-vis third countries. Clearly, with the CCCTB, there will be less room for tax planning. 
The re-launch of the CCCTB has been announced by the Commission in the fourth quarter of 
2016,  in  two  stages.  This  would  reduce  the  added  value  of  a  CBCR  to  a  certain  extent, 
whether submitted to tax authorities or public. However, CBCR would continue to have added 
value  in  terms  of  tax  competition  within  the  EU  (tax  rates)  and  as  regards  the  EU  vis-à-vis 
third countries. 

Under EU law, limited liability companies established in the EU are required to publish their 
financial  statements.  Their  content  is  driven  by  Generally  Accepted  Accounting  Principles 

12   OECD BEPS Action 11 – Measuring and Monitoring, 2015 

13

   See 

Annex D: Background and context: overview of legislative and non-legislative FRAMEWORK 

8 

 
 
                                                 
(GAAP)14  and  other  rules  adopted  by  the  EU  (Accounting  Directive,  IFRS,  Transparency 
Directive…)15.  This  information  is  mainly  designed  to  inform  and  protect  shareholders, 
investors and other stakeholders.  

As per the relevant GAAP, the financial statements disclose information on CIT with varying 
degrees  of  details.  For  instance,  the  IFRS  require  disclosures  and  reconciliation  on  the 
effective tax rate. In the EU, large companies must in addition disclose the average number of 
employees, net assets, stated capital, accumulated earnings and a complete list of companies 
consolidated  in  the  financial  statements.  However,  GAAP  applied  in  the  EU  require  no 
geographical breakdown of tax-related information per country16. 

Given  that  companies  in  the  EU  publish  their  individual  financial  statements,  it  should  be 
possible  in  theory  for  any  stakeholder  to  reconstruct,  for  a  given  EU  MNE  group,  the 
breakdown  on  a  country-by-country  basis  of  information  such  as  the  profit  before  tax,  tax 
expense, headcount and assets. However, this ability is hampered by the limited availability of 
information (generally observed in third countries) and the resources necessary to engage in 
such  exercise,  even  as  regards  information  publically  available  in  the  EU.  Consequently,  a 
detailed geographical breakdown of information is not carried out, except for companies that 
have volunteered to disclose the information17. 

On several occasions, the European Parliament recommended corporate transparency by ways 
of a CBCR by all industry sectors18. This call follows that of many civil society organizations 
campaigning  for  country-by-country  reporting.  Among  others,  these  include  Tax  Justice 
Network,  Transparency  International,  Financial  Transparency  Coalition,  Eurodad,  Christian 
Aid  and  Oxfam  International.  These  organizations  pursue  a  number  of  different  goals:  to 
increase governments' accountability, to flag up corruption risks, to aid developing countries, 
to help tax authorities, concerned citizens and journalist in their investigation, to ensure fair 
amounts  of  taxes  paid…19  Eurosif,  a  pan-European  sustainable  and  responsible  investment 
(SRI)  organisation  whose  mission  is  to  promote  sustainability  through  European  financial 
markets,  also  supports  a  public  CBCR  in  order  to  arrive  at  an  effective  tax  system20. 
Investigations  conducted  in  the  French  Parliament  in  2013  have  led  the  rapporteurs  to 
recommend  expanding  CBCR  to  all  industry  sectors21.  However  in  2015,  the  French 

14   Accounting  Directive,  Transparency  Directive,  and/or  IFRS  as  adopted  in  the  EU  either  stand  alone  or  in 

combination depending on the situation of each firm. 

15

   See 

Annex D: Background and context: overview of legislative and non-legislative FRAMEWORK 
16   See Annex D,  
17   See Annexes D and O 
18   In July 2015, the European Parliament adopted an amendment to the Commission's proposal for a Directive 
on shareholders' rights promoting a CBCR by EU large companies, as a way to promote corporate trust and 
facilitate the engagement of shareholders and citizens in companies. Support for a CBCR was reiterated in 
motions  adopted  by  the  EP  in  November  and  December  2015,  upon  proposals  made  by  respectively  the 
TAXE and ECON Committees. 

19   Why Public country-by-country reporting for large Multinationals is a Must, coalition of NGO, July 2015; 

Exposing the lost billions, Eurodad, November 2011 

20   Eurosif - Country-by-country Reporting: Eurosif’s position, 2015 
21   See Annex H 

9 

 
 
                                                 
Parliament decided to not introduce a public CBCR22. Further to investigations made in 2012 
and  2013,  select  committees  of  the  UK  Parliament  supported  greater  transparency  by 
companies, but did not include a public CBCR in their recommendations.  

The  demand  for  more  detailed  information  on  corporate  tax  generally  hinges  on  the 
assumption that it would assist any stakeholder to assess whether MNEs have paid their fair 
share of taxes. Neither international standard setters nor Member States have thus far catered 
to  this  demand.  The  demand  is  not  regarded  as  something  to  be  addressed  in  the  financial 
statements, given that the objectives of the former (tax oriented) do not fit with those of the 
latter  (investor  protection).  Some  private  initiative  have  nevertheless  flourished  such  as  fair 
trade  &  transparency  labels  (Fair  Tax  Mark  in  the  UK,  Taxparency  in  the  Czech  Republic) 
and a few companies in the EU volunteer to publish a CBCR23. However, the scale and scope 
of these initiatives have thus far remained limited24. 

Transparency on taxes paid, in the form of country-by-country reporting, is already in place 
for certain sectors and industries. From 2015 onwards, credit institutions and investment firms 
(hereafter referred to under the generic term "banks") established in the EU must publish their 
CBCR reports. The aim of the reporting requirement is to regain (public) trust in the financial 
sector25. Large extractive and logging industries will also be obliged to publish their payments 
to governments on a country-by-country basis from 2017 onwards. In this regard, the CBCR 
aims to empower local communities of resource-rich countries through disclosing information 
about the payments made to their governments26. 

In a review clause relating to the possible extension of the CBCR in the Accounting Directive, 
the Commission has been requested to consider any extension of the current CBCR regimes, 
"taking  into  account  developments  in  the  OECD  and  the  results  of  related  European 
initiatives27". 

Two  years  after  this  request  was  formulated,  the  world  has  been  moving  fast  towards 
improving tax schemes and multilateral cooperation, under the aegis of the G20. 

Besides,  a  few  lessons  can  be  drawn  on  the  basis  of  CBCR  published  by  banks  in  the  EU 
since  2015.  The  measure  was  not  intended  to  be  a  tax  measure,  but  a  tool  'essential  for 
regaining  the  trust  of  citizens  of  the  Union  in  the  financial  sector'.  The  financial  sector  is 
reported  to  be  a  significant  contributor  by  way  of  corporate  income  tax28.  In  2014  the 

22   See Annex D 
23   Examples: Legal & General (http://reports.legalandgeneralgroup.com/2013/ara/strategic-report/our-
progress/delivering-our-social-purpose/tax-matters/country-by-country-reporting.html), SSE 
(http://sse.com/media/270586/Improving-Tax-Transparency_2.pdf),Vodafone 
(https://www.vodafone.com/content/sustainability/operating_responsibly/tax/our_contribution_country_by_
country.html), Telefonica (http://www.crandsustainability.telefonica.com/responsible-
management/taxes/#.VidAL_7smUk). Further examples of company disclosure in taxes are provided by the 
PRI organisation in their report: Engagement Guidance on Corporate Responsibility, 2015 (page 27)  

24   See Annex D 
25   Capital Requirement Directive, Recital 52 and Article 89 
26   Accounting Directive, Recitals 45 to 54 and Chapter 10 / Transparency Directive, Recital 7 and Article 6. 
27   Accounting Directive, Article 48 
28   PWC  Study,  2014,  page  95:  Prior  to  the  recent  financial  crisis,  the  financial  services  sector  contributed  a 
significant amount of corporate taxes, accounting for around 18% of total corporation taxes paid in the G20 

10 

 
 
                                                 
 
Commission  reported  that  CBCR  was  not  expected  to  have  significant  negative  impacts 
economically, in particular on competitiveness, investment, credit availability or the stability 
of the financial system. It could even result in a slight positive impact by lowering the cost of 
capital. Costs relating to a CBCR did not appear to be a key factor29. 

Building  on  the  limited  experience  gained  in  2015  with  banks'  CBCR,  civil  society  sees 
CBCR  as  a  useful  tool  to  assess  the  alignment  of  profits  with  places  of  actual  business 
activity, thus enabling e.g. NGOs to ask targeted questions to banks30. Banks have confirmed 
that  CBCR  is  indeed  used  as  a  tool  by  civil  society,  including  NGOs,  researchers  and 
journalists.  Even  though  disclosing  'commercially  sensitive'  information  is  a  problem  for 
businesses,  banks  tend  to  be  less  concerned  by  this  than  other  industries31.  Nevertheless,  a 
number  of  banks  are  anxious  of  the  risks  of  tax  disputes  arising  from  CBCR  and  urge  for 
more to be done to improve dispute resolution mechanisms32. Banks report that the first year 
of public CBCR (2015) entailed no noticeable effect in terms of tax planning, investment or 
strategies33. A survey commissioned by Members of the European Parliament on the basis of 
the  2015  CBCR  of  26  banks  points  to  indicators  of  artificial  profit  shifting  in  the  banking 
sector34. A key assumption of this analysis is to determine which countries are tax havens and 
in doing so better track any profit-shifting behaviour. The financial statements of the 26 banks 
surveyed yet show tax rates in the region of 30% overall, and no significant variation overall 
in that rate from 2013 to 201435. Banks, and surveys36 all point to technical difficulties leading 

economies. However, extensive tax losses and declining profitability will place downward pressure on the 
level of taxes paid for some years to come." 

29   See Section 5.4.1 
30   A non-Member State member of the European Commission's Platform for Tax Good Governance, Sept 2015 
31   Based on consultation activities of the European Commission. Other evidence includes: Barclays bank and 
HSBC  confirmed  that  they  could  cope with  the  CBCR  at a  hearing before  the  Special Committee  on  Tax 
Rulings and other Measures similar in Nature or Effect (TAXE), European Parliament, 16 November 2015. 
Likewise, the PwC report reads (p. 137): "Only one bank expressed concerns around the confidential nature 
of some of the data to be made public, particularly with regard to the disclosure of profit or loss before tax 
and  of  public  subsidies  received  ".  In  contrast,  businesses  in  other  sectors  have  constantly  expressed 
concerns  to  divulging  commercially  sensitive  information.  A  non-Member  State  member  of  the  European 
Commission's  Platform for Tax Good Governance, Sept 2015, summarised the view that banks may more 
easily cope with the disclosure due to their specific business model. Indeed, financial institutions compete in 
a market with a "safety net" (Deposit  guarantee scheme, lender of last resort liquidity from central banks, 
etc.). Non- financial companies do not benefit from equivalent safety nets and implicit subsidies, hence their 
operations  are  less  prone  to  public  disclosure.  Due  to  their  value  chains,  CBCR  can  divulge  more 
commercially sensitive information to competitors about products, pricing policies and process innovations 
of  industries  other  than  credit  institutions;  the  latter  have  less  to  lose  on  this  account  as  they  tend  to  be 
shaped by similar prudential rules, processes and financial infrastructure in many jurisdictions. 

32   This  was  highlighted  by  Barclays  bank  and  HSBC  at  a  hearing  before  the  Special  Committee  on  Tax 
Rulings and other Measures similar in Nature or Effect (TAXE), European Parliament, 16 November 2015 

33   European Banking Federation, as part of consultation activities 
34   Tax  Research  LLP  /  Murphy,  R.,  European  Banks'  Country-by-Country  Reporting:  A  review  of  CRD  IV 

data, 2015 
35   See Annex C 
36   As reported by the European Banking Federation, Tax Research LLP / Murphy, R. 

11 

 
 
                                                                                                                                                         
to inconsistent implementation of CBCR by banks, despite the constructive work done by the 
European Banking Authority and the European Commission to overcome these difficulties37. 

2.4  Problem definition 

2.4.1 

 Drivers 

Taxation is at the core of countries' sovereignty, yet it is becoming increasingly difficult for 
Member  States  to  protect  their  tax  base.  Domestic  rules  cannot  be  fully  effective  given  the 
cross-border  dimension  of  many  tax  planning  structures  and  the  use  of  arrangements  which 
enable  the  relocation  of  tax  base  to  another  jurisdiction  within  or  outside  the  Union.  In 
addition, relying on unilateral and domestic measures may fragment the Single Market. The 
interaction  of  28  national  corporate  tax  systems  offers,  by  their  very  heterogeneity, 
opportunities for aggressive tax planning.  

On the other hand, tax competition exists to encourage the inflow of productive resources and 
to prevent capital flight.  

Moreover, the globalisation of the economy has made the corporate structure of multinational 
companies more complex and more difficult to understand given the number of entities and 
ownerships  in  different  countries.  Globalisation  and  the  digitalization  of  the  economy  pose 
specific challenges for ensuring taxes are paid where economic activity actually takes place. 
Some companies exploit the fact that corporate tax rules have not kept up with our globalised 
and digital economy. Companies are incentivized by their shareholders to reduce costs where 
this includes the taxes paid by companies.  

2.4.2  The problem identified 

An  environment  of  complex  tax  rules,  fiscal  secrecy  and  non-cooperation  between  Member 
States  in  the  context  of  globalisation  and  fast  evolving  business  models  allows  MNEs  to 
exploit legal loopholes in tax systems and discrepancies between national rules to reduce the 
amount of their corporate income tax. These shortcomings are exploited to a varying extent by 
a  number  of  MNEs  in  a  non-transparent  manner.  Although  limited  liability  companies 
established  or  listed  in  the  EEA38  must  disclose  information  on  CIT  in  their  publically 
available  financial  statements,  it  is  difficult39  for  the  public  to  obtain  a  full  picture  of 
companies' tax strategies in this area. 

The  international  community  strives  to  improve  the  current  setting  through  consensus.  The 
OECD/BEPS  initiative  endorsed  by  the  G20  (and  implemented  in  the  EU  by  the  ATAP) 
proposes the disclosure of CBCR information. It is however limited towards tax authorities, 
recognising at the same  time the need  to  maintain appropriate safeguards and to  protect the 
confidentiality of taxpayer information. The CBCR requirements proposed in the ATAP is a 
tool that is expected to trigger more and better tax audits with the effect of ensuring further 
compliance of MNEs with national tax laws, depending on each tax authority. However tax 

37   The European Banking Authority published 6 Q&As aiming for the consistent and effective application of 

the policy Single Rulebook Q&A, including on the CBCR  

38   See Annex D 
39   See Annex D and Section 5.1.4 

12 

 
 
                                                 
authorities  may  face  some  limits  given  that  MNEs  can  afford  an  array  of  non-abusive  tax 
avoidance practices which are not illegal, yet are questionable. 

This non-transparency will allow some companies to engage in tax planning strategies which 
are  not  in  line  with  their  corporate  responsibilities  and  which,  if  they  were  known  by  the 
public  (consumer,  investor,  civil  society…),  would  often  not  be  accepted.  Furthermore,  this 
opacity does not allow for a proper assessment of the roots and consequences of this situation 
which  therefore  provides  little  room  for  informed  democratic  debates  on  how  to  prevent 
mismatches, loopholes and harmful tax measures upon which such strategies can flourish. 

The problem identified is the lack of public scrutiny on Member States and MNEs as regards 
corporate  income  tax,  due  to  the  absence  of  broadly  accessible  information.  Public  scrutiny 
could  be  an  additional  tool  enabling  to  fight  base  erosion  and  profit  shifting,  building  on 
reputational effects and democratic debates. 

Figure 1: Problem definition 

13 

 
 
 
 
2.4.3  Direct consequences 

Aggressive  tax  planning  by  enterprises  is  a  direct  consequence.  It  is  defined40  as  taking 
advantage  of  the  technicalities  of  a  tax  system  or  of  mismatches  between  two  or  more  tax 
systems for the purpose of reducing tax liability. Aggressive tax planning can take a multitude 
of forms. Its consequences include double deductions (e.g. the same loss is deducted both in 
the state of source and residence) and double non-taxation (e.g. income which is not taxed in 
the  source  state  is  exempt  in  the  state  of  residence).  Aggressive  tax  planning  is  a  major 
concern in the EU as it leads to lost tax revenues for countries.  It is facilitated by a lack of 
transparency  and  public  scrutiny,  where  in  conjunction  with  harmful  tax  competition,  this 
creates incentives for multi-national taxpayers to set up structures that channel taxable profits 
from high tax countries (where profits are originally generated) to low tax countries. 

Taking  into  account  a  number  of  caveats41,  a  study  by  the  European  Parliament  Research 
Service  (2015)42  estimates  revenue  losses  at  the  EU  level  to  be  EUR 50-70 billion.  A  short 
overview  on  the  estimation  of  corporate  income  tax  gap  is  presented  in  Annex  L,  which 
explains the drawbacks and limitations of current estimations and methods used. 

According  to  a  recent  study43,  70%  of  profit  shifting  is  carried  out  through  transfer  pricing 
between  different  parts  of  a  company  and  the  intellectual  property  located  in  low  tax 
countries.  

A  recent  study  on  aggressive  tax  planning44  identifies  the  seven  most  commonly  used 
structures of aggressive tax planning and a series of tax provisions (or lack thereof) necessary 
for  these  structures  to  work.   They  include  structures  that  rely  on  debt  shifting,  exploiting 
hybrid mismatches, location of intangible assets and IP, and partly strategic transfer pricing. 
Further explanations on profit shifting are provided in Annex U.  

Potentially harmful tax measures45: Certain measures are targeted by Member States towards 
non-residents  and  provide  them  with  more  favourable  tax  treatment  than  what  is  generally 

40   The definition is provided in the Commission Recommendation on aggressive tax planning (C(2012) 8806 

final). 

41   Recent  academic  literature  includes  attempts  to  estimate  a  corporate  income  tax  gap.  The  availability  and 
reliability of the corporate tax gap estimates depend significantly on the quality of data, assumptions made 
and  methodology  applied.  Despite  incomplete  data,  there  are  a  few  estimates  in  the  public  domain. 
However, these estimates should be read with caution and considered only as an indication that corporate tax 
shifting  activities  appear  to  exist41.  None  of  the  estimates  should  be  regarded  as  a  precise  or  accurate 
measure of revenue lost from profit shifting. See also Annex L 

42   Dr Robert Dover, Dr Benjamin Ferrett, Daniel Gravino, Professor Erik Jones and Silvia Merler,(2015) 
'Bringing     
       transparency, coordination and convergence to corporate tax policies in the European Union; Part I: 
Assessment  
       of the magnitude of aggressive corporate tax planning, EPRS | European Parliamentary Research Service 

43   European Commission, Staff Working Document, Corporate Income Taxation in the European Union, 2015 
44   Ramboll  Management  Consulting  and  Corit  Advisory  (2016),  Study  on  Structures  of  Aggressive  Tax 

Planning and Indicators, European Commission Taxation Paper, p61 

45   This concept is defined in the Glossary 

14 

 
 
                                                 
 
 
 
available  in  the  Member  State  concerned  in  order  to  attract  investments.  This  may  unduly 
distort the internal market. 

2.4.4 

Indirect consequences 

Public  concern:  Honest  taxpayers  (individuals  and  companies)  have  to  shoulder  a 
disproportionate amount of the tax burden. Because of this, they might loose trust in the tax 
system and become less inclined to abide by the rules. Recent reports on the past and present 
use  of  aggressive  tax  planning  structures  by  certain  multinational  enterprises  have  led  to 
public  criticism  and  public  dissatisfaction.  Both  NGOs  and  Member  States  have  urged  the 
European  Institutions  to  reform  the  system  governing  corporate  tax  avoidance46.  There  is  a 
perception  of  unfairness,  i.e.  that  companies,  and  particularly  multinationals,  avoid 
contributing  their  fair  share  to  the  funding  of  public  goods  by  artificially  lowering  their 
taxable income47. According to  a 2012 Eurobarometer48, 88%  of the EU population  support 
tighter measures against tax avoidance and tax havens.  

Recent press reports on the current use of aggressive tax planning structures have also led to 
growing discontent. The widespread view that companies may not be paying their fair share 
of taxes is nurtured by the lack of public transparency on tax issues. Negative sentiment has 
been exacerbated in particular in countries that have had to achieve fiscal consolidation. Many 
citizens resent that companies avoid taxes while themselves are faced with higher tax burdens. 
Indeed, data shows that implicit tax rate on labour rose from 35% to 36% between 2009 and 
2012 and the average standard VAT rate increased from 19.3% to 21.5% between 2000 and 
2012. Citizens compare the mandatory increases in their taxes payments with allegations that 
some multinationals have managed to drastically reduce their effective tax rate49. 

Lack of a level playing field for businesses: While some businesses engage in aggressive tax 
planning,  others  do  not.  This  is  particularly  true  of  small  and  medium-sized  enterprises 
(SMEs),  both  listed  and  non-listed.  Companies  with  no  cross-border  activities  (including 
SMEs)  have  often  neither  the  means  nor  the  possibilities  to  develop  a  tax  optimization 
strategy at the international level. The consequence is a distortion of competition. According 
to various studies50, a company with cross-border operations in the EU pays on average 30% 
less tax than a similar firm active in the same country with high CIT rate. Studies show that 
the  level  of  internationalisation  is  correlated  with  the  size  of  the  firm51.  Because  SMEs  are 

46   See  for  example  the  letter  by  European  non-governmental  organisations  written  in  December  2014  to  the 
members of the European Parliament, or the letter drafted by the Finance Ministers of France, Germany and 
Italy of November 2014 

47   See  for  instance  European  Parliament  resolution  of  25  November  2015,  Tax  rulings  and  other  measures 
similar  in  nature  or  effect,  paragraph  AA;  UK  House  of  Lords,  Select  Committee  on  Economic  Affairs, 
Tackling corporate tax avoidance in a global economy: is a new approach needed?, July 2013 

48  Eurobarometer 78, Autumn 2012, Europeans, the European Union and the Crisis, p 36  
49   Commission  Staff  Working  Document  on  technical  analysis  of  focus  and  scope  of  the  legal  proposal 
accompanying  the  Proposal  for  a  Council  Directive  amending  2011/16/EU  as  regards  exchange  of 
information in the field of taxation  of 18 March 2015, (SWD (2015) 60 final) 

50   See Annex L  
51   European Commission, Study on the level of internationalisation of European SMEs, 2009 

15 

 
 
                                                 
 
 
more  domestically-based  relative  to  large  companies,  their  aggressive  tax  planning 
possibilities are fewer. 

The  comparable  disadvantage  of  competitors  is  further  worsened  when  Member  States 
impacted by aggressive tax planning are forced to shift to less mobile tax bases which affect 
national businesses, including SMEs. A lack of transparency exacerbates this as it increases 
the challenges Member States' face in re-establishing a level playing field.  

Tax base erosion: The result of aggressive tax planning and harmful tax practices is that some 
countries'  tax  bases  are  expanded  at  the  expense  of  others  who  might  lose  part  of  their  tax 
bases. Similarly, at EU level, there will be a loss when such third countries are involved, and 
the  tax  base  will  shift  outside  the  EU.  From  an  EU  point  of  view  this  jeopardizes  the 
functioning of the Internal Market as well as the application of growth-friendly tax policies at 
the national level.  

2.4.5  Affected stakeholders  

Member  States/Tax  administrations:  Before  the  implementation  of  the  BEPS  13  initiative, 
Member States’ tax administrations had insufficient information on companies' tax strategies. 
This lack of information has put them in a position where they are less able to defend their tax 
base.  Attempts  by  tax  administrations  to  improve  tax  collection  resulted  in  higher 
administrative  costs  and  the  design  of  complex  counter-measures  (e.g.  introduction  of 
complex  anti-abuse  measures,  or  special  tax  regimes  to  incentivise  firms  to  shift  profits  to 
their jurisdictions)  

Businesses  not  applying  aggressive  tax  planning  techniques:  The  current  system  induces 
market distortion as the lack of transparency allows some multinational companies to reduce 
the  amount  of  tax  paid  thanks  to  complex  and  non-transparent  structures.  This  results  in  a 
competitive  disadvantage  for  companies  unwilling  or  unable  to  engage  in  aggressive  tax 
planning. This is the case for the vast majority of companies (including SMEs) which may not 
have the means to engage in international tax planning techniques. 

Citizens:  Individual  taxpayers  are  indirectly  affected.  Where  a  multinational  enterprise  that 
uses  aggressive  tax  planning  structures  does  not  pay  a  proportionate  share  of  taxes  in  the 
Member States where they are based, this affects the tax revenues of these Member States. In 
the  context  of  tight  fiscal  policy  and  budget  deficits,  reduced  taxes  on  companies  forces 
governments to raise taxes on the least mobile tax bases, such as labour income.  

Third countries: Third countries (except tax havens) are affected in a similar way to Member 
States.  According  to  the  International  Monetary  Fund  (IMF)52,  tax  base  spill-overs  are 
particularly marked when it comes to developing countries. 

2.5  Baseline Scenario 

The  OECD  BEPS  Action  Plan  released  in  October  2015  and  adopted  by  G20  in  November 
2015  does  not  constitute  a  legal  requirement  for  member  jurisdictions  to  implement.  The 
OECD BEPS Project includes Action 13 that would encompass, for the purpose of improving 
risk  management  in  the  area  of  transfer  pricing,  the  reporting  of  certain  obligations  by 

52   IMF (2014), Policy Paper, "Spillovers in International Corporate Taxation".   

16 

 
 
                                                 
enterprises  to  tax  authorities,  including  country-by-country  reporting.  However,  not  all  EU 
Member  States  are  members  of  the  OECD53.  And  due  to  national  variations,  consistent 
implementation within the EU may not be achieved. So far, a number of Member States have 
started to develop and adopt legislation in order to enable data collection and exchange within 
the time frame agreed at the OECD. The Commission is determined to facilitate the consistent 
implementation  of  BEPS  13  by  all  EU  Member  States.  The  recent  Anti  Avoidance  Tax 
Package adopted on 27 January 2016 includes a legislative proposal for the implementation of 
BEPS 13 Action through an  amendment of the Directive on Administrative Cooperation.  In 
March 2016, the ECOFIN Council reached a political agreement on this proposal. As a result, 
MNE  groups  with  a  turnover  above  EUR 750  million  will  report  to  tax  authorities  on  a 
country-by-country basis by 2017. Information reported to Member States' tax authorities will 
have to be exchanged between EU tax authorities, but should not be published.  

BEPS Action 13 encompasses 2 elements: a) a filing obligation for companies of a defined set 
of  information  consisting  of  a  master  file,  a  local  file  and  a  country-by-country  report  to 
national tax administrations and b) an agreement between tax administrations to exchange the 
information  (Multilateral  Competent  Authority  Agreement  (MCAA)  on  the  exchange  of 
country-by-country  reports).  The  country-by-country  reports  shall  be  filed  in  the  Member 
State  of  the  tax  residence  of  the  ultimate  parent  entity  and  shared  between  Member  States 
through the automatic exchange of information. 

The ATAP provides tax authorities with data relating to transfer pricing risks and other BEPS 
related  issues.  The  CBCR  to  be  submitted  to  tax  authorities  by  MNEs  pursuant  to  the 
implementation of the ATAP, will assist them primarily in orienting their tax audits, and thus 
be instrumental in ensuring further compliance with their national tax legislation. 

In the baseline scenario, there would be no specific initiative by the EU to introduce further 
public  disclosure  obligations  for companies.  The  existing  CBCR  regimes  in  the  Accounting 
Directive  and  the  Capital  Requirements  Directive  would  remain  in  force  so  that  public  tax 
transparency would only be ensured for certain industries. 

2.6  The EU's right to act, subsidiarity check  

2.6.1  Subsidiarity 

In an increasingly globally integrated economy, corporations have grown into entities that are 
freer  from  national  contingencies  and  for  which  value  chains  are  not  necessarily  regional 
tax  policies  and  administration  remain  primarily  a  national 
matters.  By  contrast, 
responsibility.  Due  to  the  cross-border  nature  of  many  tax  planning  structures  and  transfer 
pricing  arrangements,  tax  bases  can  be  easily  relocated  by  MNEs  from  one  jurisdiction  to 
another  within  or  outside  the  Union.  The  international  nature  of  tax  planning  suggests  the 
need for multilateral and co-ordinated actions by countries hosting multinational firms. One of 
these actions, supported by the G20, consists of further transparency towards tax authorities. 

53   The following five EU Member States are not members of the OECD and do not participate directly in the 
BEPS project: Bulgaria, Cyprus, Malta, Romania and the Slovak Republic. Croatia is not an OECD member 
but does participate directly to the BEPS project through participation to the Committee on Fiscal Affairs 
and the Working Party meetings on the BEPS Project. 

17 

 
 
                                                 
 
This  global  issue  is  also  relevant  within  the  Single  Market.  The  EU  Single  Market  has 
provided  extensive  opportunities  for  businesses  to  locate  their  activities  according  to  their 
needs.  This  freedom  may  have,  to  an  extent,  given  rise  to  mismatches  that  require  counter-
measures,  one  of  which  possibly  consists  of  further  corporate  tax  transparency.  National 
provisions  in  this  area  cannot  be  fully  effective,  as  Member  States  in  isolation  will  be  ill-
equipped to address cross-border issues. 

EU action is therefore justified on the grounds of subsidiarity. 

2.6.2 

International dimension 

The  G20  take  up  of  this  issue  is  a  clear  indication  of  a  common  international  problem.  As 
formulated  in  Article  21  of  the  Treaty  on  European  Union54,  the  EU  should  have  regard  to 
multilateral  solutions.  However,  there  is  no  international  consensus  on  public  corporate  tax 
transparency. 

2.6.3  Legal base 

This  work  has  been  undertaken  to  contribute  to  the  Commission’s  overall  objective  of 
ensuring  that  the  country  in  which  a  business’  profits  are  generated  is  also  the  country  of 
taxation55. However, measures on corporate transparency on payment of taxes would have no 
direct  effect  on  the  taxation  of  companies:  transparency  is  expected  to  only  indirectly 
contribute  to  this  overall  objective.  For  this  reason,  measures  on  corporate  tax  transparency 
cannot be regarded as relating to fiscal provisions affecting the establishment or functioning 
of the internal market in the sense of Article 115 TFEU. Therefore, there would be no need to 
have recourse to Article 115 TFEU as a legal basis. 

Article  50,  paragraph  1  TFEU,  and  paragraph  2,  sub-paragraph  (g)  (ordinary  legislative 
procedure)  provides  powers  for  adopting  Directives  in  order  to  regulate  the  freedom  of 
establishment, in particular by coordinating to the necessary extent the safeguards which, for 
the  protection  of  interests  of  members  and  others,  are  required  by  Member  States  of 
companies and firms with a view to making such safeguards equivalent throughout the Union. 
According  to  case  law  (C-97/96),  Article  50  TFEU  has  a  broad  application  and  may  be 
applied not only for the protection of the creditors of the company but also in order to protect 
other interests. Therefore, Article 50 TFEU may serve as a legal basis for the initiative on tax 
transparency.  It  seems  feasible  to  include  ancillary  reporting  obligations  for  companies  into 
the  existing  regimes  on  reporting  in  the  Accounting  Directive,  an  approach  which  would 
facilitate the implementation and application of the rules by the companies. 

As  an  alternative,  the  adoption  of  measures  on  reporting  on  taxes  may  be  based  on  Article 
114,  paragraph  1,  TFEU  (ordinary  legislative  procedure)  concerning  the  functioning  of  the 
internal  market.  However,  recourse  to  article  114  TFEU  as  a  legal  basis  requires  that  the 
measures would harmonise existing national rules of the Member States in this field and that 
the  reporting  on  taxes  would  have  a  direct  effect  on  the  functioning  of  the  internal  market. 

54   Treaty on European Union - Article 21 General provisions on the union's external action. This Article calls 
on the “Union's action on the international scene to be guided by […] respect for the principles of the United 
Nations  Charter  and  international  law”.  In  addition  “the  Union  shall  promote  multilateral  solutions  to 
common problems”. 

55   See A New Start for Europe: Political Guidelines for the next European Commission - July 2014 

18 

 
 
                                                 
Article  50  TFEU  and  Article  114  TFEU  are  non-mutually  exclusive  legal  bases  and  may 
therefore be combined. 

A  final  assessment  of  the  question  of  the  legal  basis  should  be  decided  on  the  basis  of  the 
objectives and content of a draft proposal.  

3  OBJECTIVES 

The issue identified is a lack of public scrutiny. The specific objective is therefore to increase 
corporate tax transparency, i.e. to make broadly accessible information on corporate income 
tax  to  the  public  including  shareholders.  If  an  option  is  effective  in  achieving  this  end,  the 
behavioural  responses  of  companies  and  Member  States  will  contribute  to  meeting  the 
broader objectives listed below: 

1.  To geographically align corporate income taxes paid by MNEs with actual profits. In 

summary, that: enterprises should pay tax where they actually make profit; 

2.  To enhance the responsibility perceived by corporates to contribute to local welfare by 
paying taxes, and thus spread responsible practices on tax as part of corporate social 
responsibility. In summary: to foster corporate responsibility to contribute to welfare 
through taxes; 

3.  Through  an  informed  democratic  debate,  contribute  to  remedy  the  lack  of  level 
playing  field  between  businesses56  in  the  EU  resulting  from  MNEs’  comparative 
advantage in having the capacity to exploit tax regimes for the purpose of tax planning 
– building on a potentially harmful combination of those regimes. In summary: fairer 
tax competition in the EU through democratic debate. 

4  POLICY OPTIONS  

4.1  Preliminary approach on the definition of options  

4.1.1  Content of the information that should be disclosed  

The  type  of  information  to  be  disclosed  should  be  related  to  corporate  income  taxes.  This 
information  should  help  demonstrate  that  the  country  in  which  profits  are  actually  made 
corresponds  to  the  country  of  taxation.  Country-by-country  reporting  is  therefore  the  most 
appropriate approach. 

Basic information 
The annual corporate income tax accrued is the key information. It corresponds to the amount 
of corporate income tax expense shown in the profit and loss statement. To build disclosure 
on tax accrued offers the following benefits: (i) it is easy for MNEs to obtain and compute this 
information internally as it already appears in the income statements of entities comprised in 
the consolidated financial statements; (ii) the amount of tax can be consistent with the state of 
affairs reported overall by the MNE in its financial statements; (iii) the amount of tax accrued 

56   See Section 0 

19 

 
 
 
                                                 
is consistent across an MNE group if based on the group's GAAP, and therefore consistent on 
a country-by-country basis.  

The  amount  of  tax  paid  was  reported  by  many  during  the  consultation  stage  as  equally 
necessary  information  enabling  to  ensure  that  income  taxes  accrued  are  actually  paid  by 
companies.  Indeed,  due  to  timing  differences,  a  company  may  in  some  instances  pay  taxes 
only years after accrual in the financial statements, or even never at an extreme. Information 
on  tax  paid  tends  to  be  costlier  to  collect  and  more  prone  to  misinterpretation  than  tax 
accrued.  This  is  due  to  the  following  reasons:  (i)  tax  payments  depend  heavily  on  local  tax 
regulations,  which  vary  from  one  jurisdiction  to  another;  (ii)  tax  payments  are  often 
inconsistent with tax accruals in the financial statements; and (iii) as it is cash based (whereas 
financial  statements  are  accruals  based),  the  collection  and  preparation  of  information  on 
taxes paid are generally less readily available in a company's systems. 

Contextual information  
As explained in Annex K, contextual information is useful for analysing more precisely the 
fundamental  information  (income  tax).  In  combination,  contextual  information  is  useful  for 
instance to apportion the total profits of a given MNE per geographic region, hence enabling a 
benchmark  with  which  to  compare  profits  actually  reported  per  region  in  the  CBCR. 
Likewise,  the  tax  amounts  can  be  reported  to  profits  in  order  to  establish  a  comparison  per 
jurisdiction between the statutory tax rate and the effective tax rate. 

Some  of  the  contextual  information  may  be  considered  by  businesses  to  be  commercially 
sensitive  either  in  isolation,  or  because  the  combination  of  those  can  deliver  information  to 
any  party  for  other  purposes  than  assessing  tax  amounts.  Moreover,  certain  contextual 
information  may  be  prone  to  misinterpretation.  For  this  reason,  the  case  for  disclosing 
information other than income tax accrued needs to be filtered against criteria relating to the 
relevance of the information to the objective, as well as its proportionality. These aspects have 
inter alia regards to information that very large MNEs worldwide will prepare in any event as 
a result of the international implementation of the OECD BEPS plan endorsed by the G20 and 
at EU level for the purpose of fighting tax avoidance57. Other criteria have to do with the fact 
that  information  is  made  public,  including  the  sensitivity  of  information  as  regards 
competitiveness,  and  risks  associated  with  potential  misinterpretation  of  the  information  by 
the readers. Table 1 below summarises findings based on the above approach. 

Based on this exercise, the following information can reasonably be envisaged to be given per 
country: location (country name), description of the nature of activities per country, turnover 
(total  including  sales  with  related  parties),  profit  or  loss  before  tax,  income  tax  accrued, 
income tax paid and the number of employees. 

Two possibilities are envisaged: sub-Option (i) would require companies to report, besides the 
location (country) and a description of the nature of activities in that country, the income tax 
accrued and income tax paid (essential information). Sub-Option (ii) would require companies 
to report in addition to (i): Net turnover, Profit before tax, Number of employees. 

57    An  amendment  of  the  Council  Directive  as  regards  administrative  cooperation  in  the field  of  taxation  has 
been proposed by the Commission by the Adoption of the Commission of the Tax Avoidance Package on 27 
January.  

20 

 
 
                                                 
Table 1: Analysis of the information to be disclosed in a CBCR 

Item 

Availability 

BEPS 
13 

CRD4 

GAAP 
consolidated 

Relevance 
to the 
objectives 

Competi-
tiveness 
risks58 

Mis- 
interpret
ation 
risks58 

Overall 
assessment 
of risks of 
disclosure 

Informa-
tion 
retained 
disclo-
sure 

Name 

YES 

"name(s)" 

Location (country)  YES 
Nature of activities  YES 

YES 
YES 

Net Turnover (total)  YES 

"Turnover" 

Turnover solely 
with related parties 
Purchases 
Number of 
employees 
Profit or Loss 
Before Tax 
Income tax accrued 
(current) 
Income tax accrued 
(deferred) 

YES 

- 

- 

- 

YES 

YES 

YES 

YES 

YES 

NO 

"Tax on 
P&L" 
"Tax on 
P&L" 
"Tax on 
P&L" 
- 

- 

- 

- 

YES 

- 

- 

- 

- 

Income tax paid 

YES 

Stated Capital 
Accumulated 
earnings 
Tangible assets 
List of subsidiaries 
of the parent 
enterprise operating 
in each country 
Public subsidies 
received 
Tax rulings 
Employees working 
through 
subcontractors 
Pecuniary tax-
related penalties 
administered by a 
country 
Narratives 
explaining tax-
related information 

YES 

YES 

YES 

YES 

- 

- 

- 

- 

YES 

YES 

YES 
YES 

YES 

NO 

YES 

YES 

YES 

YES 

HIGH 

MEDIUM 

LOW 

MEDIUM 

YES 

HIGH 
HIGH 

HIGH 

HIGH 

LOW 

LOW 
LOW 

HIGH 

HIGH 

HIGH 

LOW 
LOW 

LOW 

HIGH 

LOW 

LOW 
LOW 

MEDIUM 

HIGH 

HIGH 

YES 
YES 

YES 

NO 

NO 

HIGH 

MEDIUM  MEDIUM  MEDIUM 

YES 

HIGH 

HIGH 

LOW 

MEDIUM 

YES 

HIGH 

LOW 

LOW 

LOW 

YES  

YES (IFRS)  MEDIUM 

LOW 

HIGH 

MEDIUM 

NO 

YES (IFRS) 

HIGH 

LOW 

HIGH 

MEDIUM 

YES 

YES 

YES 

YES 

LOW 

MEDIUM 

HIGH 

LOW 

MEDIUM 

HIGH 

MEDIUM 

HIGH 

HIGH 

HIGH 

HIGH 

HIGH 

NO 

NO 

NO 

YES 

MEDIUM  MEDIUM 

LOW 

MEDIUM 

NO59 

- 

- 

- 

- 

- 

LOW 

MEDIUM 

HIGH 

MEDIUM 

HIGH 

HIGH 

HIGH 

HIGH 

LOW 

MEDIUM 

HIGH 

HIGH 

NO 

NO 

NO 

LOW 

MEDIUM 

HIGH 

HIGH 

NO 

HIGH 

LOW 

LOW 

LOW 

YES 

4.1.2  Transparency: provided by whom? 

In case of public disclosure, the information could be provided directly by either companies, 
tax  administrations  or  both.  Tax  administrations  are  the  primary  recipients  of  corporate  tax 

58   See Section 5.1.4 on competitiveness risks for EU companies and Section 5.1.5 on misinterpretation risks 
59   Further  explanations  in  Annex  K.  The  information  should  not be  retained  for  disclosure  in  CBCR  as  it  is 
already disclosed by medium-sized and large EU companies in their individual financial statements (or in a 
separate  statement)  as  well  as  in  the  consolidated  financial  statements,  pursuant  to  respectively  Article 
17(1)(g) and 28(2) of the Accounting Directive 

21 

 
 
 
 
 
 
 
                                                 
information.  However,  the  onus  of  preparation  will  in  any  case  fall  on  companies,  and  tax 
administrations  are  bound  by  international  treaties  and  conventions  regarding  the  use  and 
confidentiality of tax related information. There was limited support in the public consultation 
for a solution whereby tax authorities would deliver information to the public on taxes paid by 
companies. It should therefore be for companies to directly inform the public. 

4.1.3  Which companies should be in the scope of a potential initiative 

A  first  alternative  is  to build  on  the  OECD  approach  to  cover  only  very  large  MNE  groups 
(with  turnover  >EUR 750 million),  i.e.  at  least  6,500  MNE  groups60.  About  1,900  (lower 
bound  estimate)  of  these  are  EU  MNE  groups61.  Table  2  provides  a  breakdown  of  MNE 
Groups for the largest economies/regions. 

Table 2: Number of very large MNE groups 

Country/Region 

Total number of 
MNE groups 
1881 
1549 
746 
709 

EU & EEA 
USA 
Japan 
China 

The  OECD  approach  offers  a  number  of  benefits.  First, 
the OECD threshold has been designed to capture 90% of 
the  MNEs  global  revenues,  whereas  only  10-15%  of 
those would be required to submit a CBCR62. Secondly, 
there  would  thus  be  no  additional  administrative  burden 
for those companies to comply with an EU obligation to publish a CBCR as it is assumed that 
they would already be submitting similar information to their respective tax authorities if, as 
recommended by the G20 and the OECD, countries do implement the BEPS actions. Thirdly, 
the  EU  initiative  would  remain  consistent  with  the  international  approach.  Finally,  only  top 
tier companies which, due to their size and complexity, are the best equipped to engage in tax 
planning, would be covered. It is worth noting for instance that the MNE groups testifying to 
the  TAXE  committee  of  the  European  Parliament  in  2015  would  all  be  included  under  this 
threshold. 

A second alternative would be to capture the parent companies of 'large groups' as defined in 
the Accounting Directive (Article 3). Large groups exceed at least two of the following three 
criteria  applied  to  the  consolidated  balance  sheet  of  the  parent  entity:  (a)  balance  sheet 
totalling EUR 20 million, (b) net turnover: EUR 40 million, (c) average number of employees 
during the financial year: 250. This would involve at least 20,000 EU groups63. This threshold 
was  in  the  CBCR  amendment  introduced  in  July  2015  by  the  European  Parliament  in  its 
report  on  the  Commission  proposal  for  the  revision  of  the  Shareholder  Rights  Directive  in 
July,  building  on  existing  definitions  in  EU  acquis.  Whereas  this  alternative  would  cover  a 
significantly higher number of companies, the additional benefits may be more limited as this 
will have an impact on companies which may not have multinational operations, and are less 
able to engage in aggressive tax planning. 

60   Source:  S&P  Capital  IQ;  this  figure  can  be  considered  a  lower  bound;  there  are  important  data  gaps  that 

imply that the actual figure could be substantially higher. See Annex M. 

61   See Annex M 
62   Source: OECD 
63   Source:  ORBIS  database  and  impact  assessment  accompanying  a  proposal  for  the  Accounting  Directive, 
2011, p. 19. In the latter, large companies preparing consolidated financial statements in accordance with the 
7th Directive and the IAS Regulation amount to 14,095 + 6,115 = 20,210. Out of these 20,000 companies, 
some may operate only in one Member State, i.e. not all are necessarily MNEs. 

22 

 
 
 
 
                                                 
A third alternative would be to cover issuers of securities admitted to trading on a regulated 
market in the EU. This would cover around 8,500 companies, SMEs included64, which have 
voluntarily decided to get public funding. However, such an approach would not be consistent 
with  the  objectives  of  the  initiative  as  the  problem  defined  is  not  one  in  connection  with  a 
funding decision of a company, but one in connection with the operations of companies in the 
EU  single  market.  This  alternative  would  also  mean  covering  listed  SMEs  for  which  this 
transparency requirement would generate considerable administrative burden and discourage 
them from going public. This approach is therefore not considered. 

A fourth alternative would be to cover large public-interest entities. Public interest entities are 
defined by the Accounting Directive65 as undertakings which are (a) governed by the law of a 
Member State and whose transferable securities are admitted to trading on a regulated market 
of any Member State; (b) credit institutions as defined in Article 4 of Directive 2006/48/EC; 
(c) insurance  undertakings  within  the  meaning  of  Article  2(1)  of  Council  Directive 
91/674/EEC; (d) designated by Member States as public-interest entities. For the purposes of 
non-financial  reporting  the  additional  criterion  of  more  than  500  employees  applies.  Under 
this alternative, the measure would concern around at least 7,500 public-interest entities66 in 
the  EU.  Despite  the  public-interest  element,  this  alternative  would  not  be  appropriate  if  the 
objective is to ensure a cross-sectorial level playing field, i.e. not focused on specific sectors 
or sources of funding. 

The first and second alternatives will therefore be considered in the design of options focusing 
on EU MNE groups. Sub-Option (a) would cover large EU MNE groups (at least 20,000 EU 
groups), sub-Option (b) would cover very large EU MNE groups (at least 1,900 EU groups). 
Should  a  global  approach  covering  EU  and  non-EU  MNE  groups  be retained,  only  the  first 
alternative can be considered as proportionate and consistent on the global scene, building on 
a widespread implementation of the OECD BEPS actions by countries. 

Establishment in the EU should be based on the EU approach defined by the EU legislation, 
in  particular  the  Treaty  on  the  Functioning  of  the  EU,  as  opposed  to  concepts  such  as 
"permanent establishment" used for tax purposes. The policy should focus on establishments 
commonly used by MNEs, that is branches, subsidiaries, companies and firms.  

The concept of "permanent establishment" would not be used to identify the reporting entities. 
This  is  a  tax  concept,  which  builds  on  international  consensus,  but  which  is  not  clearly 
defined in EU law. It is mainly enforced by national tax authorities. As a result, an entity may 
have no certainty whether it is a permanent establishment or not. This would imply significant 
issues on the scope of the CBCR as well on the enforcement of such policy. On the contrary, 
an approach based on company law would ensure legal certainty and clarity. In addition, the 
coverage  of  reporting  entities  based  company  law  (targeting  companies,  subsidiaries  and 
branches) can be functionality similar to a system building on the tax concept of a permanent 
establishment. 

64  ESMA ESEF Consultation document, p.25 / World Bank, Listed domestic companies, total, 2014 
65    Article 2 (1) of the Accounting Directive 2013/34/EU 
66    Approximately  6,000  large  listed  companies  (source:  impact  assessment  accompanying  a  proposal  for  the 
Accounting  Directive,  2011)  and  an  estimation  of  at  least  1,500  large  unlisted  single  entities  credit 
institutions (source: S&P Capital IQ). 

23 

 
 
                                                 
4.1.4  Labelling system 

It is worth examining labelling systems as an option given the array of private initiatives that 
have  flourished  lately67.  The  European  Parliament  has  shown  support  for  a  voluntary 
European 'Fair Tax Payer' label, as a 'soft measure' to promote tax compliance68.  

A labelling system could offer benefits. Such a system could prima facie bring about similar 
benefits to current private initiatives with the benefits of harmonisation and greater trust at EU 
level. Companies wishing to indicate they are fully tax compliant would be encouraged to act 
accordingly69. A through description of a possible EU labelling system is given in Annex R. 

This option is however discarded for two main reasons: first, there are more chances to reach 
the objectives with a mandatory reporting regime than with a regime with which only willing 
companies will adhere to. For instance, after a few years of existence, the Fair Tax mark in 
the UK attracted 17 companies, of which one is in the FTSE 100 and one in the FTSE 250. 
Those  figures  might  however  increase  due  to  further  incentive  that  will  arise  with  the 
implementation  of  the  BEPS/ATAP  initiative.Second,  if  used  as  a  complement  to  an 
obligation to disclose publicly it would be pointless to require at the same time companies to 
provide  a  public  CBCR  and  to  promote  a  voluntary  labelling  system,  should  they  have  the 
same  features.  A  differentiation  may  be  relevant  on  the  condition  that  each  system  pursues 
different objectives. This cannot be the case with this initiative which pursues a single specific 
objective.  

The  potential  for  added  value  of  labelling  systems  based  on  market  initiatives  will  remain 
however,  especially  for businesses  outside the  scope  of  an  EU  mandatory  reporting  regime, 
with a view to pursue additional objectives, or for other reasons determined by the markets. 

4.1.5  Publication 

A CBCR may be part of the management report, of the financial statements (a note), or be a 
separate report. Much would depend on the intended users as well as publication timeline and 
channels. As no clear driver has ben identified to constrain those features,.flexibility could be 
offered to companies to have a separate report or to accompany their financial / non-financial 
reporting.  This  model  has  been  retained  for  the  sectoral  CBCRs70.  To  ensure  certainty  and 
availability over time, the publication of tax-related information should be filed in a register 
managed by Member States71, as is currently the case for the sectoral CBCRs.  

Digitalised reporting by companies could facilitate access and processing by any party (civil 
society,  tax  authorities;  investors…).  For  this  reason,  it  should  be  envisaged  that  CBCR  be 

67   See Annex D  
68   European  Parliament,  Report  on  Bringing  transparency,  coordination  and  convergence  to  Corporate  Tax 

policies, 2015  

69   A description of a possible labelling system is described in annex R 
70   Article  89(4)  CRD4  purports  that  the  CBCR  should  be  "published,  where  possible,  as  an  annex  to  the 
financial statements of the banks. Chapter 10 of the Accounting Directive gives no indication on the place of 
the CBCR in relation to other reporting to be published by the extractive companies. 

71   Central register, commercial register or companies register are established in each Member State pursuant to 

Directive 2009/101/EC 

24 

 
 
                                                 
published  as  well  on  each  MNE's  website,  however  not  imposing  a  particular  format  or 
language. 

4.1.6  Enforcement and Audit 

There appears to be no need for deep enforcement measures as the aim is primarily to increase 
public  awareness  of  an  MNE's  tax  affairs,  that  is,  for  indicative  purposes.  For  very  large 
MNEs,  a  public  CBCR  will  necessarily  contain  information  that  is  consistent  with  their 
CBCR  submitted  to  tax  authorities.  Even  though  the  OECD  model  requires  no  specific 
reconciliation of the data with e.g. the financial statements, submission to tax authorities will 
offer guarantees on the enforcement, consistency and accuracy of data in a public CBCR. If, 
as  proposed,  CBCR  are  filed  with  business  registers  and  on  the  MNE's  web  sites  for  the 
purpose of publication, this will enable further enforcement by competent authorities as well 
as enable the public at large to trace non-compliance cases. Finally, a system of appropriate 
penalties  should  be  devised.  For  these  reasons,  it  may  not  be  commensurate  to  specifically 
require e.g. an audit, but it could be envisaged to have light-touch involvement of an MNE's 
auditor72. 

4.1.7  Link with the existing CBCR requirements for banks and extractive industries73 

Based on an analysis in Annex P, it appears that the EU could mandate the publication of a 
CBCR by all industry sectors, including to extractive and logging industries. This is supported 
by the fact that the objectives, content and scope of this sectorial CBCR differ considerably 
from  the  general  CBCR  sought  in  this  document,  and  hence  the  objectives  would  not  be 
fulfilled by the sectoral CBCR. Part of these industries would be subject to both public CBCR 
regimes, but this would cause no major problems. 

EU  credit  institutions  and  investment  firms  must  publish  as  from  2015  a  sectorial  "bank" 
CBCR  pursuant  to  Article  89  of  the  CRD4.  There  is  an  apparent  similarity  between  that 
regime and a general regime in terms of data to be reported. However there are likely to be a 
few  differences  in  the  details.  An  important  question  is  whether  the  existing  "bank"  CBCR 
should continue to apply or not following the adoption of the new "general" CBCR regime. 
As  explained  in  Annex  P,  if  the  existing  "bank"  CBCR  would  cease  to  apply,  significantly 
less banks would fall under the CBCR reporting requirement. Such limitation of the scope of 
application does not seem justified given the specific objective of the "bank" CBCR which is 
to  regain  trust  in  the  financial  sector.  The  "bank"  CBCR  regime  should  therefore  remain  in 
force. To avoid a possible double CBCR reporting obligation for those banks that fall within 
the  scope  of  application  of  both  regimes,  it  seems  appropriate to  exclude  from  the  scope  of 
application  of  the  new  regime  EU  banks  that  report  CBCR  on  the  basis  of  Article  89  of 
CRD4.  In  this  setting,  non-EU  MNE  banking  groups  should  not  be  excluded  from  the  new 
"general" regime given that under CRD4, they are only required to report CBCR for a small 
part of their group (namely for the EU controlled operations). 

72   See for example Article 19a of the Accounting Directive: the statutory auditor should check whether a report 

has been provided. 

73   See Annex P for a complete analysis 

25 

 
 
                                                 
4.2  Option 1 - Baseline Scenario 

As mentioned in Section 2.4, the country-by-country reporting to tax authorities will be made 
compulsory for very large MNEs in the EU, in line with the BEPS 13 Action74. The Anti-Tax 
Avoidance  Package  adopted  by  the  Commission  in  January  will  provide  the  necessary 
framework  for  all  EU  Member  States  to  implement  the  OECD  requirements  in  the  most 
consistent  way.  Ultimately  this  will  drive  the  overall  framework  of  transfer  pricing 
documentation, of which CBCR is a key component.  

4.3  Option 2 – Public CBCR on EU controlled operations 

In this scenario, the ultimate parent of a MNE group, insofar that parent is established in the 
EU  would  have  to  publish  tax-related  information  on  a  country-by-country  basis  on  the 
operations  it  controls.  Likewise,  the  reporting  would  have  to  be  done  by  any  intermediate 
parent(s) established in the EU that is ultimately controlled by a non-EU MNE group. 

In order to avoid undue administrative burden, any undertaking in the EU could be exempted 
from  such  obligation  where  an  intermediate  or  ultimate  parent  company  would  include  its 
own information in a consolidated report. In order for subsidiaries/branches of non-EU MNEs 
to enter in the scope of a possible EU initiative, the defined scope would be preferably set by 
reference to the turnover determined at the level of ultimate parent companies, thus ensuring 
that  subsidiaries  and  branches  of  any  size  have  the  reporting  obligation  in  the  first  place, 
before any application of exemptions. 

Two sub-Options are envisaged: 

4.3.1  Option 2A: Public CBCR on EU controlled operations broken down by EU Member 

State and aggregated for non-EU operations  

EU  MNEs  would  have  to  report  publicly  the  breakdown  of  tax  related  information  on  a 
country-by-country basis. The information would be itemised on a country-by-country basis 
as regards operations made in the Member States, and aggregated as regards activities outside 
the European Union. Aggregated means that for each caption (tax amount, turnover, number 
of  employees,  etc…),  the  MNE  would  add  up  the  figures  relating  to  its  operations  in  each 
third country, thus publishing a single aggregated amount per caption relating to its non-EU 
operations.  

4.3.2  Option 2B: Public CBCR on EU controlled operations broken down by Member State 

and third country 

The  EU  would  require  EU  MNE  groups  to  publically  disclose  tax-related  information  on  a 
country-by-country basis for all their operations. 

4.4  Option 3 – Public CBCR on worldwide operations 

In this scenario, the CBCR would be published by the ultimate parent of a EU MNE group, 
insofar that parent is established in the EU. The non-EU ultimate parent (established in a third 
country) of a non-EU MNE group would see the obligation fall on its subsidiaries/branches in 

74   Proposal  by  the  EU  Commission  in  January  2016  by  means  of  a  new  amendment  to  the  Directive 

2011/16/EU for Administrative Cooperation 

26 

 
 
                                                 
the EU to publish that ultimate parent's CBCR. On both accounts, the obligation would arise 
where  the  ultimate  parent's  turnover  exceeds  EUR  750  million.  This  would  cover  at  least 
6,500 MNE groups representing more than 90% of the MNEs' global turnover (EU and non-
EU). It is estimated that a maximum of 10% (and probably even less) of the very large MNEs 
worldwide have no subsidiaries in the EU75. This does not preclude that some of these may 
operate through branches in the EU, though, and option 3 would seek to capture them as well 
in order to avoid loopholes. 

The Option would impose on the subsidiaries/branches in the EU of a non EU MNE a duty to 
publish the consolidated CBCR of their ultimate parent company. Certain mechanisms could 
be designed to mitigate or avoid the unnecessary duplication of requirements. For instance, to 
address branches tend to be necessary only in the cases where a non-EU MNE would operate 
solely through branches in the EU. 

In  order  to  avoid  undue  burden,  yet  remain  effective,  it  should  be  envisaged  that  only 
medium-sized  and  large  EU  entities  (subsidiaries  and  branches)  of  a  non-EU  MNE  group 
have the above obligation.  

This  takes  account  of  the  current  situation  in  the  EU,  as  described  in  Annex  D:  small 
subsidiaries of a  non-EU MNE group  have  currently  no obligation to  identify their ultimate 
parent, whereas medium-sized and large already have this obligation (Accounting Directive). 
The efficiency of this filter is ensured by the relative  size of the turnover of MNEs covered 
(> EUR 750 million)  which  warrant  that  generally  at  least  one  subsidiary  will  exceed  the 
thresholds to be regarded as medium-sized (EUR 8 million as per the Accounting Directive). 
A clause in the policy could be envisaged to avoid abuses of this setting. Besides, a branch 
opened in a Member State by a company which is not governed by the law of a Member State 
shall  file  the  financial  statements  of  that  company  in  the  relevant  business  register  of  a 
Member State76. That branch is generally considered to be a permanent establishment for tax 
purposes in the country. Possible ways to address only branches of a comparable size could 
have regards to their turnover of the size of the company that opened the branch. 

With this setting, in any event, the operations of all subsidiaries and branches, disrespect of 
their size, would be consolidated by the parent in its CBCR. 

The enforcement of Option 3 on non-EU MNEs would undoubtedly be more challenging than 
on EU MNEs. 

Two sub-Options are envisaged: 

4.4.1  Option 3A: Public CBCR on worldwide operations broken down by EU Member State 

and aggregated for non-EU operations.  

This scenario would require all very large ultimate parent MNE groups with a medium-sized 
or  larger  subsidiary/branch  in  the  EU  to  disclose  publicly  tax-related  information  on  a 
country-by-country  basis  on  their  EU  operations.  This  information  would  be  aggregated  in 
third-countries.  

75   Analysis by the Commission staff of data from the S&P Capital IQ database.      
76   11th Company Law Directive on branches (89/666/EEC) 

27 

 
 
                                                 
4.4.2  Option 3B: Public CBCR on worldwide operations broken down by Member State and 

third country 

It would require that all very large ultimate parent MNE groups with a medium-sized or larger 
subsidiary/branch in the EU disclose tax-related information on a country-by-country basis on 
all their operations (no aggregation). 

28 

 
 
 
4.5  Summary of the Options 

Table 3: Summary of the Options 

OPTIONS 

of 
Type 
transparency 

Who  should  do 
it?  

Information covered  Granularity 
the reporting 

of 

Legal 
basis 

Option 1:  
Status quo: 
implementation of 
BEPS 13 

Option 2A:  
Public CBCR on 
EU controlled 
operations broken 
down by EU 
Member State and 
aggregated for non-
EU operations  

Option 2B:  
Public CBCR on 
EU controlled 
operations broken 
down by Member 
State and third 
country 

Transparency 
towards 
tax 
administratio
ns 
a 
on 
country-by-
country basis 
Transparency 
towards the 
public on a 
country-by-
country basis 

Very large 
companies of 
EU Member 
States + 
G20/OECD 
countries 
Sub-Option (a):  
Large EU parent 
companies 
Sub-Option  (b): 
Very  large  EU 
parent 
companies.  

Transparency 
towards the 
public on a 
country-by-
country basis 

Sub-Option (a):  
Large EU parent 
companies 
Sub-Option (b): 
Very large EU 
parent 
companies.  

Option 3A:  
Public CBCR on 
worldwide 
operations broken 
down by EU 
Member State and 
aggregated for non-
EU operations 

Option 3B:  
Public CBCR on 
worldwide 
operations broken 
down by Member 
State and third 
country 

Transparency 
towards the 
public on a 
country-by-
country basis 

Very large 
parent 
companies with 
a subsidiary/ 
branch in the 
EU.  

Transparency 
towards the 
public on a 
country-by-
country basis 

large 

Very 
parent 
companies  with 
subsidiary/ 
a 
branch 
the 
in 
EU.  

E
U  

C
O
N
T
R
O
L 
L 
E 
D  

O
P
E
R
A
T 
I 
O
N
S 

G
L
O
B
A
L 

O
P
E
R
A
T 
I 
O
N
S 

BEPS 13 information  All countries 

/ 

covered 

Art 
114/ 
50 
TFEU 

Split information 
on EU controlled 
operations by EU 
MS and report 
aggregated figure 
for the rest of the 
world.  

Split information 
by country on all 
operations 
controlled from 
the EU. 

Art 
114/ 
50 
TFEU 

Art 
114/ 
50 
TFEU 

Split information 
on all operations 
of the ultimate 
parent company 
by EU MS and 
report aggregated 
figure for the rest 
of the world. 

Split information 
by country on all 
operations of the 
ultimate parent 
company 

Art 
114/ 
50 
TFEU 

Sub-Option (i):  
- Income tax accrued 
- Income tax paid 
Sub-Option (ii): 
- Income tax accrued 
- Income tax paid 
- Turnover 
- Profit before tax 
- Number of 
employee 
Sub-Option (i):  
- Income tax accrued 
- Income tax paid 
Sub-Option (ii): 
- Income tax accrued 
- Income tax paid 
- Turnover 
- Profit before tax 
- Number of 
employee 

Sub-Option (i):  
- Income tax accrued 
- Income tax paid 
Sub-Option (ii): 
- Income tax accrued 
- Income tax paid 
- Turnover 
- Profit before tax 
- Number of 
employee 
Sub-Option (i):  
- Income tax accrued 
- Income tax paid 
Sub-Option (ii): 
- Income tax accrued 
- Income tax paid 
- Turnover 
- Profit before tax 
- Number of 
employee 

29 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
5  ANALYSIS OF IMPACTS 

5.1  Economic impacts 

5.1.1 

Impact on Growth and Jobs77 

Regarding  the  impact  of  increased  corporate  tax  transparency  on  productivity  growth,  the 
analysis  is  based  on  the  assumption  that  further  tax  transparency  will,  on  average,  increase 
substantially  corporate  income  tax  revenue78.  If  this  is  the  case,  the  overall  impact  on 
productivity growth will depend on the use of the extra revenue. If the additional tax revenue 
were  used  to  ensure  and  potentially  increase  the  provision  of  public  infrastructure  and/or 
policies  and  institutions  that  increase  the  productivity  of  capital  this  would  be  expected  to 
have a positive impact on growth and employment. Alternatively, those Member States facing 
an increase in corporate income tax revenue could apply a tax shift approach where the fiscal 
pressure on labour is reduced in a revenue-neutral manner. 

Under competitive market conditions, increasing fiscal pressure at the level of the firm may 
impact investment decisions as, at least in the short run, a lower level of investment may be a 
feasible  option  for  the  firm  to  protect  its  profitability  (share  dividend).  Alternatively,  firms 
may  choose  to  increase  their  financial  leverage  sufficiently  as  to  restore  the  previously 
prevailing level of distributed profits. In the worst case, the economy goes to a new situation 
where firms have reduced their average investment spending and at the same time increased 
their financial leverage79. Obviously, this scenario hinges on the assumption of a competitive 
market environment; it should not be taken for granted in the case of industries characterized 
by super-normal profits/economic rents, and/or high implicit subsidies (e.g. banking).  

Otherwise, based on the findings in the economics and corporate finance literature, the impact 
of  higher  transparency  on  firms'  behaviour  seems  to  depend  to  a  large  degree  on  the  power 
relations  between  firms’  management  and  its  shareholders,  and  there  more  precisely  on 
shareholder  structure.  In  principle,  shareholders’  bargaining  power  vis-à-vis  the  firm’s 
management is presumed to increase with additional public transparency. However, according 
to  the  findings  in  the  literature,  the  impact  on  firm  behaviour  of  such  a  reduction  in  the 
informational asymmetry between management and shareholders is ambiguous. The academic 
literature  has  in  particular  identified  two  main  channels:  first,  in  firms  where  shareholders 
have  strong  influence  on  management  decisions80,  there  is  statistical  evidence  that 
shareholders positively sanctioned additional effort on behalf of the management to lower the 
firm's  fiscal  pressure;  the  literature  explains  this  with  shareholders'  expectation  to  capture  a 

77   See Annex Q for details and references to sources 
78   Without  this  assumption  there  is  not  much  to  be  said  under  this  sub-heading;  however,  a  working 
assumption to analyse and discuss possible impacts should not be confounded with an economic forecast of 
corporate  tax  revenues  in  the  EU  which  would  require  a  very  different  set  of  assumptions  (e.g.  about 
expected international developments) as well as analysis 

79   Currently  ongoing  committee  work  at  the  OECD  suggests  that  in  particular  low  productivity  –  low 
profitability firms will choose to increase further their (already high) financial leverage making them even 
less resilient   

80   The use of the term "corporate governance" in the referenced academic literature (see Annex L for details) 
refers indeed to the degree of control shareholders can exercise over managerial decision making; this is not 
synonymous  and  should  not  be  confounded  with  terms  such  as  "corporate  social  responsibility"  or 
"responsible business conduct"  

30 

 
 
                                                 
large part of the resulting increase in distributed profits. In contrast, in more opaque firms, no 
such  positive  sanctioning  was  identified.  Second,  in  firms  where  the  shareholder  base  is 
characterized  by  large  (institutional)  shareholders  with  (nominal)  short-term  revenue 
objectives, the firm may face higher pressure to “eat up” its capital stock in order to protect 
the level of distributed profits. In cases where both circumstances are united, and despite this 
pressure  an  increase  in  transparency  that  could  motivate  a  continuation  of  aggressive  tax 
planning  behaviour  of  firms,  as  well  as  sub-optimal  (from  a  growth  and  employment 
perspective) firm responses in terms of investment and financial leverage81. Nevertheless, an 
increased public scrutiny would make it less likely that in extremis this could then result in 
lower  levels  of  investment,  employment,  and  growth  of  the  economies  these  firms  are 
operating  in.  Where  such  circumstances  do  not  apply,  based  on  findings  in  the  relevant 
literature,  one  would  not  expect  significant  and  lasting  changes  in  firm  behaviour  after  the 
increased public transparency, while in the short run an increase in financial leverage could 
signal either strategic profit stabilization by the firm, or improved access to external funding, 
or both82.  

Whereas,  based  on  this  analysis  overall  outcome  on  growth  and  jobs  is  uncertain,  a  fairer 
distribution  of  fiscal  pressure  across  the  size  spectrum  could  further  SMEs'  capacity  to 
support growth and job creation, and could further market entry, competition, and innovation. 
It  could  for  instance  certainly  be  more  rewarding  and  motivating  for  start-ups  to  no  longer 
face  the  stark  contrast  in  effective  tax  rates  compared  to  well-established  incumbents,  and 
certainly corporate income taxation should not, as it seems to do currently, give incumbents 
further means to protect their market against new entrants. 

5.1.2 

Impact on Market efficiency83 

5.1.2.1  Threshold effects 

For some of the large, or very large MNE groups that come just marginally under the scope of 
a  public  CBCR  scheme  there  could  emerge  a  trade-off  between  firm  size  and  corporate 
disclosure,  and  for  some  firms  facing  this  trade-off  it  may  become  more  attractive  to  scale 
down  sufficiently  to  remain  outside  the  scope  of  the  CBCR  requirement84.  Given  the  high 
threshold defined by the OECD/BEPS initiative (EUR 750 million annual turnover), while the 
decision to remain below the threshold could be relevant from the firm’s point of view, e.g. to 
avoid  reputational  risk  attached  to  public  CBCR,  it  is  not  expected  to  be  harmful  from  the 
perspective of optimal firm size. However, this benign  assessment cannot be made  with  the 
same level of reassurance in the case of the lower threshold that applies in the option of public 
CBCR  for  large  MNEs.  A  negative  (growth-adverse)  threshold  effect  could  potentially 
materialize  were  firms  to  limit  their  growth  in  order  to  remain  outside  of  the  public  CBCR 

81   Egger et al (2010a) find that MNEs increase financial leverage in response to an increase in fiscal pressure 
82   We are not aware of empirical studies that would allow to disentangle the two possible effects with respect 

to financial leverage 

83   See Annex Q for details and references to sources 
84   Indeed  Hasegawa  et  al  (2013)  find  evidence  for  such  effects  based  on  experience  with  corporate 

transparency requirements in Japan 

31 

 
 
                                                 
scope, and where such behaviour resulted in a sub-optimal firm size in a specific sector85.  

5.1.2.2 

 Impact on cost of capital 

A traditional argument calling for more public transparency is that it helps firms gain access 
to sources of finance and as a consequence reduces firms’ cost of capital86. According to this 
line of reasoning firms could (i) benefit from more competition among potential lenders, (ii) 
broaden  the  investor  base87,  (iii)  lower  the  cost  of  credit  and  improve  access  to  external 
finance more broadly. This can be expected to produce benefits in particular for private firms 
falling under the scope, i.e. private firms’ access to finance could improve relative to public 
firms.  However,  given  that  public  transparency  will  increase  for  all  firms  entering  into  the 
scope of the initiative simultaneously, the measure cannot be expected to improve any given 
firm's visibility relative to other firms entering the scope of the requirement.  

5.1.2.3  Impact on market monitoring 

Another  possible  consequence  is  the  intensification  of  market  monitoring.  Indeed  increased 
transparency about the geographical complexity of MNEs could expose managerial decisions 
to  increased  market  scrutiny88,  e.g.  on  behalf  of  investment  fund  managers.  This  may 
incentivize managers to optimize the structure of their firms and better align the incentives of 
both  managers  and  shareholders.  However,  in  the  case  where  shareholders  have  strong 
influence on management decisions, investors could exploit this additional monitoring power 
over  managers.  As  a  result  depending  on  the  investor  interest  it  may  increase  or  decrease 
incentive to reduce tax costs. 

5.1.2.4  Impact on organisational efficiency 

Increased  transparency  could  help  reduce  costly  and  management  failure-prone  complexity 
especially in the case of very large MNEs. Long-term oriented shareholders are more likely to 
be critical about highly aggressive tax avoidance practices. To the extent that these practices 
require  highly  complex  corporate  structure;  the  latter  could  lead  to  excessive  costs  of 
complexity as well as additional reputational risks.  

5.1.3 

Impact in terms of level playing field 

Impact in terms of level playing field could differ widely depending on the options analysed. 
Within the public consultation, the business respondents have emphasised the need to achieve 
a level playing field in terms of reporting requirement. 

85   The artificially constrained firm could forego economies of scale and scope that would be realized by firms 
threshold  effect  could  also  become  relevant  from  a 

jurisdictions;  in 

in  other 
competitiveness/level-playing field perspective discussed below  

this  sense 

the 

86   Ellul, Jappelli, Pagano and Panunzi (2013) 
87   This is different from the discussion of transparency and the structure of existing shareholders in a preceding 

Section 

88  See e.g. Boot, Gopalan and Thakor (2006) 

32 

 
 
                                                 
5.1.3.1  Level playing field in terms of size – Implication for SMEs 

Studies89 have shown that in the case of high CIT jurisdictions a cross-border company pays 
on  average  30%  less  tax  than  a  company  active  in  only  one  country90.  The  additional 
transparency  requirement  would  be  imposed  only  on  large  or  very  large  companies,  and 
would therefore avoid administrative burden on smaller companies (SME). This difference is 
justified  as  smaller  companies  have  typically  less  capabilities  to  shift  profit  and  erode  tax 
bases  as  they  have  less  financial  means  and  operate  in  fewer  jurisdictions.    Hence  the 
disclosure would help to mitigate this issue. The MNEs that are not very large that will not 
have this disclosure obligation should potentially keep an advantage over the larger ones, at 
the expense of SMEs. This risk seems acceptable since they represent only 10% of the total 
activities of MNEs. 

5.1.3.2  Level playing field between EU and third country companies 

In  combination  with  the  existing  geographical  disclosure  requirements  in  the  financial 
statements of EU MNEs (IFRS 8), Option 2A and 3A with only essential tax information in 
CBCR  (sub-option  (i))  would  put  EU  geographical  reporting  standards  nearly  on  par  with 
those required by the US from issuers of listed securities (10-K form). Sub-option (ii) on these 
options would require in addition the geographical break down of the number of employees 
and  profit  before  tax,  such  breakdown  not  being  required  by  US  standards.  This  limited 
distortion  of  the  level  playing  field  for  EU  companies,  mainly  confined  to  Option  2A,  is 
mitigated  given  the  focus  on  EU  activities.  Option  3B  goes  similarly  beyond  US  standards 
and  despite  high  granularity,  ensure  an  acceptable  level  playing  field  as  EU  and  non-EU 
MNEs in the EU market would have similar reporting obligations. 

Illustration: Scope of CBCR according to the different options 
 illustrated in figure 2.  

Option  2B  entails  the  highest  risks  of  "un-levelling"  the  global  playing  field,  including  in 
comparison  to  US  standards,  as  it  would  require  EU  MNE  groups  to  disclose  publicly  their 
operations with the highest geographical granularity (within and outside the EU), whereas the 
disclosure would be confined to a 
(possibly tiny) portion of their EU 
for  non-EU  MNE 
operations 
groups.  This  could  have 
far 
reaching  impacts  on  EU  MNE 
groups'  global  activities,  as  the 
playing  field  would  be  unlevelled 
even outside the EU (e.g. non-EU 
MNE  group  competing  with  an 
EU  MNE  group  on  the  Brazilian 
market).  Businesses 
consulted 
have constantly reported this as an 
acute risk. 

Option 2B: 'XYX LU' would have to report on all its controlled operations within the 
EU ('XYX BE', 'XYX FR', 'XYX PL'…) and outside the EU ('XYX ZW', 'XYX TU'). 
In addition, 'XYX UK', 'XYX FR Publishing' and 'XYX FR R&D' would each have to 
report on their operations. 

Option 3A:EU subsidiaries of XYX Inc (US) would have to report on a country-by-
country basis all the group operations within the EU. In addition aggregated 
information would have to be provided on the non-EU operations 

Option 3B: EU subsidiaries of XYX Inc (US) would have to report on a country-by-
country basis all the group operations (within and outside the EU). 

Option 2 A: 'XYX LU' would have to report on all its controlled operations within the 
EU. In addition aggregated information would have to be provided on the non EU 
operations controlled from the EU. Furthermore, 'XYX UK', 'XYX FR Publishing' 
and 'XYX FR R&D' would each have to report on their operations. 

Under  Option  2A,  the  obligation 
would fall again primarily on EU MNE groups. However a fair level playing field would be 
ensured  as  under  this  Option,  this  information  would  be  aggregated  for  operations  located 

89   See Annex L 
90   As  a  result  of  their  (successful)  profit  shifting  activities,  the  same  group  of  MNEs  pays  above  average 

corporate income tax in jurisdictions with low statutory CIT rates (Egger et al (2010))  

33 

 
 
                                                 
 
outside the EU. Therefore, EU MNEs would not have to provide disaggregated information in 
markets  where  their  competitors  do  not  have  to  do  so.  Furthermore  non-EU  MNEs  would 
neither have to provide aggregated information on their operations in third countries. 

The level of consolidated reporting of non-EU MNE groups under Options 2A and 2B depend 
largely on the group structure. Figure 2 below shows that the information provided by a third 
country  MNE  group  could  be  completely  fragmented  if  it  has  no  intermediate  parent  in  the 
EU  or  partly  fragmented  if  it  has  an  intermediate  parent  in  the  EU.  If  there  are  several 
intermediate  parents,  each  EU  intermediate  parent  within  an  MNE  group  would  have  to 
provide a country-by-country report. This would have as a consequence that the information 
of a non-EU group would be disclosed in several reports (one for each intermediate EU parent 
company).  

Figure 2: Scope of CBCR for a non-EU MNE group according to the different options 

At  the  extreme,  should  a  non-EU  MNE  have  no  EU 
intermediate  parent,  the  information  would  be  very 
scattered in potentially hundreds of reports with option 
2. A very large MNE may have numerous subsidiaries 
in  the  EU.  They  may  be  controlled  by  a  few 
intermediate  EU  parent  companies  (see  box  on  the 
left), or not. In the latter case, the group's structure may 
make  the  information  difficult  to  obtain,  read  and 
interpret.  

Number  of  EU  subsidiaries  controlled  by  non-
EU groups:  

information  of 

It  is  currently  difficult  for  the  public  to  obtain 
details  on  subsidiaries  of  very  large  non-EU 
the  number  of 
groups.  Figures  even  on 
subsidiaries  are  generally  not  available.  In  the 
U.S.  for  example,  public  companies  have  to 
provide 
their  "significant" 
subsidiaries (see SEC rules in annex N). A group 
can  have  many  more  subsidiaries  beyond  the 
significant  ones.  General  Electric  for  examples 
controls directly 40 subsidiaries in the EU out of 
the 120 significant subsidiaries declared. Oracle 
declares 9 significant subsidiaries, 6 of them are 
located  in  Ireland.  PepsiCo  declared  191  EU 
significant 
subsidiaries  out  of 
subsidiaries directly controlled.   

the  621 

Option  3  would  alleviate  all  those  concerns  and  level 
the playing field as all MNE groups with a subsidiary / 
branch in the EU would be in the scope of the Option, 
the  consolidated  reporting  would  be  done 
and 
exclusively  at  the  level  of  the  ultimate  parent  of  each  MNE  group  (EU  and  non-EU).  Size-
criteria could apply equally to EU and non-EU MNE groups. Indeed, EU MNEs operate on a 
global scale, including in non-EU markets. Certain MNEs operating in the EU without an EU 
branch  or  subsidiary,  as  made  possible  e.g.  in  the  digital  economy,  may  not  be  subject  to  a 
disclosure obligation. 

34 

 
 
 
 
  
Options  3  would  ensure  in  addition  a  level-playing  field  because  the  consolidated  CBCR 
prepared  at  the  level  of  a  non-EU  MNE  would  have  the  same  features  and  content  as  the 
CBCR prepared by an EU MNE. 

5.1.4 

Impact on the competitiveness of EU companies  

The impact on companies in this area has mainly to do with information publically delivered 
by MNEs to their competitors with possible impact(s) on competitiveness where a competitor 
is  not  subject  to  the  same  disclosure  requirement.  Options  2B  could  heavily  distort  the 
competition  to  the  detriment  of  EU  MNEs,  as  could  Option  2A,  although  to  a  much  lesser 
extent. 

This  impact  would  depend  on  the  type  of  information  made  available.  Information  on 
geographical location of 'revenue' and 'profit before tax' are considered by some companies as 
commercially  sensitive  information.  According  to  companies,  the  publication  of  such 
information on a country-by-country basis would provide information on companies' business 
models,  the  value  chain,  operating  strategy,  contracts  and  geographical  profit  margins.  This 
impact could be even  more important in the case of companies active in a mono-activity as 
this  disclosure  requirement  would  give  direct  information  on  the  profit  margins  of  products 
and services.  

Accounting information of a group's subsidiaries being publicly accessible only in Europe91, 
the impact is consequently more important regarding operations in third countries. The impact 
on the competitive advantage of European companies is therefore more important in Option 
2B  where  the  information  has  to  be  made  available  on  third  countries  operations  controlled 
from  the  EU.  This  is  even  more  the  case  with  sub-Option  2B(ii)  with  additional  contextual 
information. The impact is less important in Option 2A and 3A as the information would only 
be disaggregated on EU operations. The impact of Option 3B would be similar to Option 2B 
but  mitigated  by  the  fact  that  all  MNE  groups  operating  in  the  EU  (including  third  country 
MNEs) would be required to provide this information.  

5.1.5 

Impact in terms of misinterpretation risk.  

When data is scrutinized, it may be difficult for non-professionals to evaluate it and be able to 
understand  the  sources  of  possible  variability  and  legal  deductions.  Data  on  tax  payments 
alone,  without  full  contextual  knowledge  (i.e.  knowledge  of  a  firm's  investment  levels  and 
profit record across Europe) can be challenging to decode by laymen. It requires well-trained 
analytical  skills  and  background  information  on  the  history  of  the  enterprise  to  decode  this 
information. Typically tax administrators are experts in accounting or taxation with at least an 
advanced  degree  in  the  field,  a  level  of  expertise  difficult  to  attain  for  individuals  of  the 
general  public,  and  have  the  right  to  audit  companies.  Besides,  national  tax  systems  are 
diverse since each country has its own specific tax policies and rules. Moreover, accounting 
rules and definition differ from one country to another, and the concept of transfer pricing is 
highly technical and requires in-depth knowledge of tax laws. 

The  public  consultation  showed  the  fear  from  businesses  that  disclosed  data  may  not  be 
properly understood and could be misinterpreted by laymen due to its complexity. This could 
potentially  lead  to  unjustified  claims  and  accusation  which  could  damage  the  reputation  of 

91   See annex D and O 

35 

 
 
                                                 
companies.  Furthermore,  for  some  companies,  especially  those  with  direct  dealings  with 
consumers,  this  might  entail  greater  damage  than  for  others.  Companies  will  be  free  to  add 
narratives to explain the context of the data disclosed in the CBCR report and help reduce the 
risks  involved  of  raw  data  being  misinterpreted  by  the  public.  Furthermore,  the  different 
options have been designed in order to mitigate the misinterpretation risk.   

Nevertheless,  information  could  be  used  by  investigative  journalism  or  civil  society 
organisation to spot severe tax avoiders92. 

5.1.6  Tax adjustments and disputes resulting in double taxation 

The OECD sees CBCR as a valuable component of the documentation on transfer pricing for 
the attention of tax authorities, and invites tax authorities to use this information solely for the 
purpose of orienting tax audits93. To ensure proper use and to avoid disclosing trade secrets or 
other  confidential  information  as  well  as  to  avoid  unintended  use  of  a  CBCR94,  the  OECD 
proposes  that  the  CBCR  submitted  by  MNEs  to  their  respective  tax  authorities  remain 
confidential, and that proper use be guaranteed prior to the exchange of the CBCR among tax 
authorities. 

In  January  2016,  31  countries  have  agreed  to  share  with  other  tax  authorities  the  CBCR 
submitted  to  the  tax  authorities  by  MNEs  within  their  country,  by  signing  up  to  the  OECD 
MCAA  for  BEPS  1395.  Among  these,  22  are  EEA  countries.  Among  the  remaining  9  non-
EEA countries,  Japan's presence is  noticeable for it representing  a major  economy. In  these 
early  days,  not  considering  countries  that  may  join  in  the  future,  tax  authorities  will  soon 
exchange the CBCR of 47% of the very large MNEs groups worldwide, including 99% of the 
EU very large MNE groups and more than 25% of the non EU ones. 

Tax  authorities  are  expected  to  use  these  CBCR  to  orient  tax  audits,  as  this  is  the  primary 
purpose of the CBCR inclusion by the OECD in the documentation on transfer pricing. MNEs 
reported  during  the  consultation  stage  that  this  might  trigger  an  increased  number  of  tax 
audits. However, they expect their rights to a proper tax audit to be respected under the aegis 
of  the  international  consensus  that  no  improper  use  of  a  CBCR,  such  as  formulary 
apportionment, is allowed. 

With a public CBCR, businesses report much increased risks or even non-proportionate risks 
of tax adjustments, for three main reasons: 

1.  Access  to  CBCR  would  be  widely  expanded:  a  public  CBCR  would  double  the 
number  of  MNEs  preparing  a  CBCR,  from  47%  up  to  more  than  90%96  of  MNEs 

92   Fengler and Ruß-Mohl 2008, Andersson and Wadbring 2015 
93   The  OECD  has  designed  inter  alia  the  Multilateral  Competent  Authority  Agreement  on  the  Exchange  of 
CBCR so as to avoid misuse of a CBCR by tax authorities of other countries than the country of residence of 
an MNE.  

94   OECD, Discussion Draft On Transfer Pricing Documentation And Cbc Reporting, p9, 2014 
95   OECD, A boost to transparency in international tax matters: 31 countries sign tax co-operation agreement to 

enable automatic sharing of country by country information, January 2016 

96   assuming  10%  of  those  have  no  activities  in  the  EU  and  no  obligation  under  the  OECD  BEPS  scheme 

(higher bound) 

36 

 
 
                                                 
worldwide.  In  parallel,  further  details  on  their  operations  country  would  be  made 
accessible to tax authorities of 16497 countries which otherwise would not have had no 
access to this information. 

The primary purpose of a CBCR is to assist tax authorities in orienting their tax audits. 
By expanding the number of recipient tax authorities and the amount of information, it 
is expected that public CBCR will entail more tax audits. 

2.  The  public  dimension  of  the  CBCR  would  add  pressure  on  tax  authorities  to  audit 
certain MNEs for which CBCR will have shed light on apparently doubtful practices 
in  the  public's  eyes.  A  tax  audit  is  the  best  tool  to  determine  whether  practices  are 
justified; and 

3.   Limits  imposed  by  the  OECD  scheme  on  tax  administrations  for  the  use  of  CBCR 
would not  apply  to  a public  CBCR.  Whereas the OECD  limits their use  to  orienting 
tax  audits,  it  will  be  up  to  each  tax  authority  to  determine  how  it  reacts  to  a  public 
CBCR.  

CBCR is a new piece of information. Few tax authorities have had access to CBCR in 
the  past.  There  is  scarce  information  on  how  tax  authorities  would  react.  Some  tax 
authorities  might  decide  not  to  use  the  CBCR.  Some  might  see  the  CBCR  as  an 
instrument  fostering  a  sounder  dialogue  with  MNEs  on  its  affairs  in  their 
jurisdiction98.  A  number  may  use  the  CBCR  as  expected,  that  is  to  orient  their  tax 
audits. Businesses assert that in addition, a number of tax authorities will in the long 
run  directly  assess  and  impose  tax  adjustments  by  ways  of  geographical  formulary 
apportionment  of  profits,  i.e.  without  the  preliminary  step  of  a  proper  risk 
assessment/audit required by the OECD scheme. 

Further tax audits will naturally result in further tax adjustments99. Some of those adjustments 
are  in  turn  expected  to  further  generate  double  taxation  of  the  same  profits  by  different 
jurisdictions100.  To  avoid  double  taxation,  an  MNE  has  to  typically  challenge  the  tax 
authority's adjustments, i.e. to enter into a dispute with the latter, and to seek the activation of 
dispute resolution mechanisms between tax authorities, included in tax treaties. Tax disputes 
may not necessarily result in avoiding double (or multiple) taxation of the same profits as it 
depends  on  the  outcome  of  the  dispute.  Besides  ,  in  any  event,  they  entail  administrative 
burden, and legal uncertainty which impacts businesses' investments and export decisions101. 
In the EU double taxation risks are lower, given the higher degree of common understanding 

97   That is all countries, less 31 countries which have signed up to the MCAA 
98   One  MNE  which  already  publish  a  CBCR  confirmed  that  the  CBCR  assisted  in  having  a  better  dialogue 

with the respective tax authorities in the countries in which it operates. 

99   See  for  instance  Brian  J.  Arnold,  Bulletin  for  International  Taxation,  2014  (Volume  68),  No  11:  "this  is 

frequent due to the inherent subjectivity of transfer pricing" 

100   Ibid: "this is due to differences in tax rules from one country to another" 
101   See Annex E 

37 

 
 
 
 
 
 
                                                 
and  cooperation  between  authorities102.  The  EU  has  the  most  effective  dispute  resolution 
mechanisms in place and is seeking to improve them103. 

Outside the EU but still within the OECD, risks will be more acute than within the EU. The 
OECD104 supports that all tax treaties include methods for elimination of double taxation and 
a  Mutual  Agreement  Procedure  (MAP)  with  arbitration  mechanisms.  These  procedures  and 
mechanisms  are  generally  to  be  found  in  Double  Tax  Conventions  (DTC)  signed  between 
countries. MAPs are not as widespread as the OECD would wish, and these procedures have 
proved so far to be insufficiently efficient. The stock of pending disputes is currently growing 
in the OECD105. There are 5,423 unresolved MAP cases among OECD Member Countries as 
of the end of 2014, more than double the figure for 2006 due to the fact that new cases are 
increasing and their number exceeds the cases are resolved. This figure may not portray the 
situation exactly as the OECD recognises - that there are also obstacles to access to MAP by 
MNEs. It takes on average a little more than two years to resolve a dispute by ways of MAP. 
There is anecdotal evidence that on balance, MNEs often chose to settle cases and bear some 
of  the  double  taxation  (e.g.  via  transaction  with  tax  authorities)  in  order  to  avoid 
administrative burden and uncertainty. This indicates that MAP procedures do not fully meet 
their objective of avoiding double taxation. To remedy this, the OECD has tabled the BEPS 
14  Action.  It  will  hopefully  improve  the  system.  But  businesses  tend  to  doubt  this  will  be 
sufficient, absent further obligation in this Action for tax authorities to effectively and timely 
solve disputes, for instance by ways of mandatory arbitration. 

Beyond  the  OECD  and  the  EU,  those  risks  are  exacerbated  given  that  existing  DTCs  and 
MAP are less likely to comply with the OECD standards, and that tax treaties are scarcer on 
average: out of 231 countries for which information is available on tax treaties106, 27 countries 
have  no  tax  treaty,  and  95  have  less  than  10.  There  are  87  tax  treaties  per  OECD  member 
country on average, compared with 26 outside the OECD. 

Double  taxation  risks  are  higher  for  MNEs  with  Options  2B  and  3B  given  the  extent  and 
granularity  of  information  disclosed  on  their  worldwide  operations,  and  especially  where 
contextual information  is provided. Such risks would be borne exclusively by EU MNEs in 
the case of Option 2B, and be shared also by non-EU MNEs with Option 3B. Risks will be 
exacerbated if public CBCR is applied to large MNEs, as many more companies would attract 
attention beyond very large MNEs currently in the scope of the MCAA. Options 2A and 3A 
infer  much  lower  risks  as  the  granularity  of  the  CBCR  would  be  confined  to  MNEs' 
operations  in  the  EU,  thus  lowering  the  risk  that  third  country  tax  authorities  seek  tax 
adjustments on third country operations. 

5.1.7 

Impact on tax revenues  

To the extent that enhanced transparency, via the threat of potential public pressure, reduces 
the  use  of  tax  avoidance  strategies  a  positive  impact  on  corporate  tax  revenues  can  be 
expected. Evidence in this direction has been found in studies on transparency measures in the 

102   European Commission, Joint Transfer Pricing Forum 
103   The Arbitration Convention in the EU deals exclusively with transfer pricing disputes 
104   OECD model convention on taxes, Mutual Agreement Procedures 
105   See Annex E 
106   Source: IBDF 

38 

 
 
                                                 
UK and the US.107 Both studies analyse effective taxation levels around changes in reporting 
regimes,  either  from  voluntary  reporting  to  compulsory  reporting  of  tax  information  or  vice 
versa. For those firms that do not report on a voluntary basis (the suspected tax avoiders) they 
find  a  positive  impact  of  transparency  measures  on  effective  taxation  levels.  However,  the 
results  are  not  one-to-one  transferable  to  the  present  case  since  the  transparency  measures 
differed in terms of their scope. There is also some supporting evidence in the area of personal 
income  taxation,  where  transparency  measures  have  led  to  increases  in  reported  income108. 
The  extension  to  the  corporate  context  is  however  not  straightforward  as  account  must  be 
taken  of  the  more  complex  decision-making  process  and  cost-benefit  analysis  for  a  firm, 
including with respect to its various stakeholders. 

A  deeper  understanding  of  MNE  groups'  activities  and  geographical  location  would  place 
stakeholders  in  a  stronger  position  to  assess  if  taxes  are  being  paid  where  business  activity 
takes place. Asked whether transparency may indirectly result in reduced profit shifting, that 
is  a  better  alignment  of  taxes  with  economic  activity,  the  results  of  our  public  consultation 
suggest that there is widespread belief that further corporate tax transparency will result in an 
increase in taxes paid by MNEs. However, the responses to the public consultation give little 
indication of whether companies would pay more taxes in the EU simply due to country-by-
country  reporting.  Many  respondents  believe  however  that  public  CBCR  will  result  in  a 
reallocation of tax bases within Europe as a result of the above mentioned re-alignment. Such 
re-alignment  and  increased  tax  revenues,  should  they  actually  materialise,  may  increase  the 
tax  receipts  available  for  spending  on  public  sector  goods  and  services  in  a  number  of 
countries, including in certain Member States. 

5.2  Social and societal impacts 

Against  the  background  of  the  recent  focus  on  certain  MNEs'  tax  practices,  the  public 
consultation has shown an increased demand for more transparency in the tax affairs of MNE 
groups. Indeed, recent reports on the low amount of taxes paid by multinationals109 have led 
civil  society  to  believe  that  a  disclosure  of  tax  information  might  be  the  only  solution  to 
maintain  public  trust  in  the  efficiency  and  fairness  of  the  tax  system,  as  shown  during  the 
consultation stage. For these reasons, NGOs & the media, citizens as well as certain investors 
have advocated for CBCR to be made public. They argue that public disclosure would paint a 
more  accurate  description  of  a  company's  contribution  to  the  society  in  which  it  operates, 
enabling  stakeholders  to  make  better  informed  economic  decisions.  They  also  argue  that  a 
public  CBCR  would  contribute  to  maintaining  public  trust  on  the  tax  collection  system  and 
tax authorities. 

During the consultation stage, civil society organisations also reported that a CBCR could be 
instrumental  for  promoting  accountability  –  through  its  ability  to  identify  corruption,  tax 
agreements and illicit tax practices by shedding light on relevant information.  

107   Dyreng, Hoopes, Wilde (2015), 'Public Pressure and Corporate Tax Behaviour', Fisher College of Business 
Working Paper No. 2014-02-003; Hope, O.-K., M. (Shuai) Ma, and W. B. Thomas (2013) 'Tax avoidance 
and geographic earnings disclosure', Journal of Accounting and Economics 56 (2–3): 170–189. 

108   Bo, Slemrod, Thoresen (2015), 'Taxes on the Internet', American Economic Journal: Economic Policy 2015, 

7(1): 36-62. 

109   For  instance,  a  journalistic  investigation  conducted  by  the  International  Consortium  of  Investigative 
Journalists  triggered  in  November  2014  international  attention  about  tax  schemes  implemented  by  certain 
MNEs 

39 

 
 
                                                 
Whereas the work undertaken in this document is not premised on the role which corporate 
tax  transparency  could  play  as  an  anti-corruption  tool,  it  is  undeniable  that  a  CBCR  brings 
about transparency. NGOs contend that this would assist in determining corrupt practices in 
certain  circumstances.  Whether  a  CBCR  may  have  deterrent  effects  on  certain  corrupt 
practices  is  a  possibility.  However  it  is  doubtful  that  a  CBCR  alone  would  help  identify 
corruption. Given the size of MNEs, this would require that corrupt practices, if any, are of 
such scale and pervasiveness that they would become apparent, which is unlikely relatively to 
the  size  of  very  large  MNEs.  In  most  cases  a  CBCR  will  not  give  enough  evidence  per  se. 
Usually, only persons with forensic abilities and access to evidence such as bank accounts, tax 
rulings, contracts, tax returns, personal files, etc. would be able to determine corrupt practices. 
It is also important to remember that CBCR as envisaged would focus on the narrow area of 
corporate  income  tax,  whereas  corrupt  practices  may  be  much  broader.  As  a  result,  for 
instance, the corruption of a civil servant would have little chance to be detected by a CBCR. 
Likewise, a CBCR may be used to identify offshore jurisdictions in which an MNE operates, 
and  be  thus  of  assistance  to  fight  e.g.  money-laundering,  however  only  in  conjunction  with 
proper enquiries. Overall, labelling public CBCR as a functional stand-alone anti-corruption 
tool could be one step too far. 

NGOs also contended during the consultation stage that monitoring by civil society could in 
addition  help  tax  authorities  in  their  daily  affairs.  The  latter  assertion  however  can  be 
contested given the limited investigation powers of the public or shareholders in a company's 
affairs compared to those of a tax authority. 

Mandatory  reporting  on  CIT  could  also  be  seen  as  an  important  element  underpinning  the 
corporate  responsibility  of  companies.  Indeed,  the  contribution  that  businesses  make  in  the 
form of taxation is increasingly seen as part of their corporate social responsibility110. 

In  the  long  run,  CBCR  could  also  help  to  drive  a  more  informed  democratic  debate  over 
corporate  income  tax.  Concerned  sectors  of  society,  as  well  as  governing  or  legislative 
institutions  are  in  need  of  information  to  fuel  this  debate.  Such  debate  may  well  help  to 
increase  the  global  fairness  of  tax  systems  altogether  by  addressing  loopholes  and  unfair 
competition at MNE and State levels. This could in turn contribute to avoid shifting the tax 
burden towards ordinary workers and smaller firms that embody the least mobile tax bases.  

Based on the above,  all options would  contribute positively to  a varying degree to soothing 
societal dissatisfaction associated with the suspicion of unfair tax practices. This effect would 
increase in line with the granularity of information on non-EU operations (Option 2B) or with 
coverage extended to non-EU groups (Option 3A). With both features, Option 3B would have 
the most positive contribution to societal impacts. 

5.3  Fundamental rights 

The relevant fundamental rights include the right to the protection of personal data, the right 
to  conduct  a  business  and  the  right  to  property.  When  companies  are  obliged  to  publically 
disclose certain information, this may amount to a restriction of the above mentioned rights, 
which may however be justified by the EU co-legislators. The essential element is the level of 
detail of the information reported. 

110   See for example OECD Observer, Corporate responsibility and paying tax  

40 

 
 
                                                 
The  compatibility  of  the  present  work  with  the  Charter  of  Fundamental  Rights  of  the 
European Union111 (CFR) is examined in more detail in Annex I. The right to the respect for 
private and family life (Art. 7) of companies would generally not be affected by the present 
work. The right to the protection of personal data (Art. 8) might however be affected. Legal 
persons  can  claim  the  right  to  the  protection  of  personal  data  together  with  Directive 
95/46/EC when their official title identifies one or more natural persons. As it is proposed to 
limit the scope of transparency/reporting obligations to large or very large MNEs, and given 
that the information considered for inclusion in a CBCR draws upon information available in 
the financial statements of companies within a group, the risk that the obligations in question 
would trigger disclosure of personal data is very limited.  

As regards the right to conduct a business and the right to property, the information retained 
for a CBCR in Section 4.1.1 may be seen to a certain extent as allowing the drawing of certain 
concrete  conclusions  on  the  companies'  business  strategies  –  however  not  on  its  R&D 
projects. Those risks are very limited with sub-Options (i), and limited with Option (ii), still 
proportionate with the objectives. 

Overall,  the  extent  of  contextual  and  other  information  that  has  been  examined  is 
proportionate to the objectives of enhancing public transparency and scrutiny. This does not 
go beyond what is strictly necessary. In addition, most of the information is an aggregation of 
information published in the financial statements of most of a group's components, at least in 
the EU. 

5.4  Compliance costs and other costs 

5.4.1  Compliance costs 

Businesses are wary of the administrative burden that would arise if they were being asked to 
prepare  different  types of  CBCR.  They  call  for consistent  reporting  requirements  across  the 
board,  irrespective  of  the  sector  and  the  recipient.  When  asked  whether  the  OECD  type  of 
CBCR may represent a sound basis for MNEs of all sectors to report publically, members of 
the  Platform  for  Tax  Good  Governance112  recognised  that  the  OECD  had  developed  its 
template conscious of the need of tax authorities, but at the same time expressed the view that 
unnecessary  costs  would  arise  for  MNEs  of  any  misalignment  of  reporting  obligations, 
between  an  OECD  type,  a  CRD4  type,  and  possibly  other  types  of  CBCR.  Assuming  a 
successful take up worldwide of the OECD BEPS action plan, the same would go for non-EU 
MNEs that may be affected by an EU policy towards public CBCR. 

Considering  the  Anti-Avoidance  Package  proposed  by  the  European  Commission  to 
implement BEPS Action 13 in the EU, the Options considered in this document for a public 
CBCR regime would only entail insignificant additional costs for very large EU MNEs given 
the  similar  scope  and  consistency  of  the  content  of  a  CBCR  under  both  regimes.  Indeed, 
information  in  a  public  CBCR  as  anticipated  in  those  Options  would  be  either  similar,  or  a 

111   Charter of Fundamental Rights 
112   The Platform for Tax Good Governance is a working group of the Commission. Members of the Platform 
are the tax authorities of all Member States and 15 organisations representing business, civil society and tax 
practitioners. Representatives from accession countries and from the OECD may be invited to the Platform 
as observers. The Platform assists the Commission in developing initiatives to promote good governance in 
tax matters in third countries, to tackle aggressive tax planning and to identify and address double taxation. 

41 

 
 
                                                 
subset,  or  an  aggregation  of  the  information  to  be  reported  in  a  BEPS  13  CBCR113.  A 
worldwide  implementation  of  the  plan  is  expected,  at  the  G20  and  OECD  level,  and  also 
beyond.  With  Options  3A  and  3B,  it  is  estimated  therefore  that  costs  would  equally  be 
minimal for non-EU MNE groups.  

Should  the  CBCR  requirement  also  be  extended  to  large  MNEs,  there  would  be  some 
additional costs for each large MNE group. The cost of a CBCR is estimated to be on average 
around EUR 100,000 for a large MNE group114. An extension to large groups would therefore 
require  a  further  7,200  to  18,000  large  MNEs  to  publish  a  CBCR115,  beyond  the  very  large 
ones. Overall recurring costs imposed on EU companies would be in the range of EUR 720 to 
1,800 million per year. 

5.4.2  Other costs for companies 

Costs incurred by MNEs with a public CBCR may also result from an increased level of press 
and  NGOs  questioning  the  disclosures  they  make,  which  could  result  in  higher  levels  of 
spending on press and public relation activities as determined during consultations. This could 
lead  to  e.g.  lower  sales,  higher  cost  of  capital  or  higher  communications  costs  for  these 
MNEs. MNEs may also face an increased level of interaction with tax authorities – however it 
is estimated that this would be no higher than a situation where a CBCR would be for the eyes 
of tax authorities only. Those additional costs are difficult to estimate, as they depend heavily 
on  circumstances.  Overall,  administrative  costs  are  expected  to  be  reasonable  in  relation  to 
companies'  size  and  could  be  handled  through  existing  public  relation  or  tax  department 
functions within MNEs. Other costs resulting from damage to business due to reputational or 
other effects could be of a much higher magnitude. However these are mitigated by the fact 
that  this  impact  assessment  has  sought  to  avoid  cases  where  such  costs  could  result  from 
misinterpretation of the data disclosed publically or other unintended use. It leaves therefore 
the risks for MNEs to bear such costs only in justified cases. 

As  seen  in  Section  5.1.2.3,  there  may  be  some  potential  reduction  in  costs  that  could  result 
from an increased awareness of organizational complexity especially of the largest MNEs. 

5.4.3  Costs for authorities 

For  all  options,  the  additional  impact  on  Member  States  and  EU  tax  administrations  is 
assumed to be marginal. Tax authorities would indeed already have the CBCR of very large 
MNEs following the implementation of the BEPS 13 initiative, which is the baseline scenario. 

5.5 

Impacts on third countries  

MNEs  operate  by  definition  internationally,  i.e.  potentially  in  any  country  worldwide.  A 
transparency  initiative  in  the  EU  addressing  the  operations  of  MNEs  is  bound  to  have 
ramifications beyond the EU. This section aims to examine the impacts of such ramifications 

113   See Annex J for a comparison of the CBCR as required for banks in CRD4, extractive industries by Chapter 

10 of the Accounting Directive, and very large MNEs by the OECD action BEPS 13. 

114   See Annex S. 
115   According  to  the  Orbis  database,  7,168  large  companies  in  the  EU  have  subsidiaries  in  at  least  one  other 
country;  due  to  data  gaps  the  actual  figure  of  such  companies  can  be  considerably  higher.  The  figure  of 
18,000 is in the higher range, considering 20,000 large EU groups in the EU less 1,900 very large ones. 

42 

 
 
                                                 
stemming from the various options designed at the EU level to cater for the objectives defined 
in section 3. 

It  is  anticipated  that  a  purely  EU-focused  CBCR  will  raise  no  major  concerns  from  an  EU 
international  and  bilateral  relationship  perspective.  EU  third  country  partners  will  have  no 
difficulty with the less granular CBCR published by EU MNEs, as envisaged in Option 2A. 
The same would go with a more granular CBCR as envisaged in Option 2B. It would require 
only EU MNE groups to report and, even if providing granular information on operations in 
third  countries  might  be  of  certain  sensitivity,  the  level  of  acceptance  is  expected  to  be  fair 
given  the  fact  that  ultimately,  EU  persons  are  responsible  for  these  operations.  Should  a 
global  reporting  model  be  retained  as  envisaged  with  Option  3A,  no  major  concerns  are 
expected  either  on the side  of  third countries  given  the  clear  focus  on EU  operations  of  the 
reporting. This could be seen by third country partners as a proportionate condition to access 
the EU market with CBCR focusing on EU preoccupations over taxes paid in the EU area as a 
result  of  these  operations.  By  contrast,  option  3B  may  impinge  on  EU  international  and 
bilateral  relationships  as  it  would  require  non-EU  MNE  groups  to  provide  granular 
information on their operations worldwide, including where there is no link with the EU. 

Developing countries tend to derive a greater proportion of their revenue from corporate tax 
than  developed  countries  (in  extreme  cases,  up  to  90%).  Consequently,  the  sums  lost  from 
corporate tax avoidance are proportionately larger for developing countries (relative to their 
overall revenues) than in developed countries116. 

Developing countries are generally reported as being less effective than developed countries 
in recovering their fair share of taxes117. Weak administrative capacities to manage complex 
tax regimes and to deal with profit-shifting by MNEs can lead to huge revenue losses.  

In the public consultation, many business respondents have indicated that CBCR is likely to 
increase  taxes  paid  in  'source'  countries  (where  the  income  is  actually  generated),  at  the 
expense  of  'resident'  countries  (the  country  of  residence  of  the  recipient  of  the  income). 
Developing countries, which are nowadays increasingly source countries, could well benefit 
by narrowing their tax revenue gap. 

For  developing  countries,  access  to  further  information  on  corporate  income  tax  by  MNEs 
operating on their territory could assist tax authorities in these countries address their tax gap. 
For the tax authorities of these countries, getting access to information is reported by NGOs 
be the first challenge. However there are in principle no barriers to those tax administrations 
getting full access to the same complete country-by-country information as the one which is 
available to any other country. The G20 leaders have urged the timely implementation of the 
OECD BEPS plan and encouraged all countries and jurisdictions, including developing ones, 
to participate118. Barriers, if any, would be found on other accounts, such as lack of resources. 

116   The IMF found in 2014 that base erosion due to profit shifting is 2-3 times larger for developing countries 
than  for  OECD  countries,  causing  losses  amounting  to  1.75%  of  their  GDP  (IMF  (2014),  Policy  Paper, 
"Spillovers in International Corporate Taxation".  A newer estimate by the IMF in May 2015 is 1.3% of GDP). 
UNCTAD finds that poor countries lose USD 100 billion each year, a figure exceeding the amount received 
in overseas development assistance (World Investment Report, 2015) 

117   An IMF working paper estimates that average tax effort in developing countries is about 65% of tax capacity 
(Fenochietto,  R.  and  Pessino,  C.  (2013),  Understanding  countries'  tax  effort,  IMF  working  paper 
(WP/13/244)) 

118   G20 Leaders’ Communiqué, Antalya Summit, 15-16 November 2015 

43 

 
 
                                                 
Public access to the information could compensate for this by enabling private initiatives to 
collect and digitalise information delivered by MNEs in order to give easier access to data to 
tax authorities of developing countries119. Whatever the option, that information would be less 
complete than the one accessible to tax authorities. It would be fairly granular under options 
2B  and  3B,  and  less  granular  with  Options  2A  and  3A.  By  all  means,  any  further  public 
transparency  initiated  by  the  EU  could  represent  an  additional  assistance  to  developing 
countries. 

Overall,  public  disclosure  of  country-by-country  reporting  could  reinforce  the  EU’s 
commitment to assisting developing countries raise additional tax revenues for development 
purposes – an aim outlined in the UN Financing for Development Conference in July 2015. 
Relations with developing countries would improve if the EU is perceived as a more credible 
partner. 

5.6  Summary of the impacts 

The following tables have been drawn up based on the analysis conducted in sections 5.1 to 
5.5. 

5.6.1  Comparison between Options by categories of impact 

Table 4: Comparison by categories of impact 

Impacts 

Growth 
and 
Jobs 

Social 

Tax conflicts and 
double taxation 

Policy option  

Option 1: No policy change 

Option 2A:  
Public CBCR on EU controlled 
operations broken down by EU 
Member State and aggregated for 
non-EU operations  

Option 2B:  
Public CBCR on EU controlled 
operations broken down by 
Member State and third country 

Option 3A:  
Public CBCR on worldwide 
operations broken down by EU 
Member State and aggregated for 
non-EU operations 

Option 3B:  
Public CBCR on worldwide 
operations broken down by 
Member State and third country 

Level playing 
field and 
competitiveness 
of EU companies 

Administrative 
burden for EU 
companies 

0 

- 

0 

Large 2A(a): - 
Very large 2A(b): 
≈ 

0 

≈ 

Basic info 2Bi: - 
Contextual info  
2Bii: -- 

Basic info 2Bi: - 
Contextual info 
2Bii: --- 

Large 2B(a): - 
Very large 2B(b): 
≈ 

0 

≈ 

0 

+ 

≈ 

++ 

≈ 

++ 

≈ 

≈ 

+++ 

Basic info 3Bi: - 
Contextual info  
3Bii: -- 

≈ 

≈ 

≈ 

≈ 

Magnitude  of  impact  as  compared  with  the  baseline  scenario:  +++  strongly  positive;  ++  positive;+  slightly  positive;  --- 
strongly  negative;  --  negative;  -  slightly  negative  ≈  marginal/neutral;  ?  uncertain;  n.a.  not  applicable;  +?  Uncertain  but 
positive 
assumed 
groups) 
Sub-Option 

to 
parent 

companies 

20,000 

covers 

large 

least 

the 

(at 

EU 

EU 

(a) 

be 

in 

44 

 
 
 
 
                                                 
 
(b) 
(i) 

groups) 
Sub-Option 
Sub-Option 
accrued. 
Sub-Option  (ii)  would  require  disclosing  income  tax  paid,  income  tax  accrued,  turnover,  profit  before  tax  paid  and  the 
employees.  
number 

covers 
would 

(at 
and 

companies 

EU 
paid 

disclose 

income 

income 

require 

parent 

large 

1900 

least 

very 

the 

tax 

tax 

EU 

to 

of 

in 

5.6.2  Comparison between Options by affected stakeholder groups 

Table 5: Comparison by affected stakeholders 

Stakeholders 

Member States / EU 
Tax administration 

Citizens / civil society 

EU Enterprises 

Third countries 

Policy Options  

Option 1: No policy change 

Option 2A:  
Public CBCR on EU controlled 
operations broken down by EU 
Member State and aggregated 
for non-EU operations  

Option 2B:  
Public CBCR on EU controlled 
operations broken down by 
Member State and third 
country 

Option 3A:  
Public CBCR on worldwide 
operations broken down by EU 
Member State and aggregated 
for non-EU operations 

Option 3B:  
Public CBCR on worldwide 
operations broken down by 
Member State and third 
country 

0 

≈ 

≈ 

≈ 

≈ 

0 

+ 

++ 

++ 

+++ 

0 

Large 2A(a): -- 
Very large  
2A(b): - 

Large 2B(a):--- 
Very large 
2B(b): --  

≈ 

-- 

0 

≈ 

+ 

- 

-- 

Magnitude  of  impact  as  compared  with  the  baseline  scenario:  +++  strongly  positive;  ++  positive;  +  slightly  positive  --- 
strongly  negative;  --  negative;  -  slightly  negative  ≈  marginal/neutral;  ?  uncertain;  n.a.  not  applicable;  +?  Uncertain  but 
to 
positive 
assumed 
Sub-option 
groups) 
parent 
(at 
Sub-option (b) covers very large parent companies in the EU (at least 1900 EU groups) 

companies 

20,000 

covers 

large 

least 

the 

(a) 

EU 

EU 

be 

in 

6  COMPARING THE OPTIONS  

6.1  Effectiveness of the options in the context of  existing international and European 

initiatives on tax avoidance 

The  analysis  below  examines  the  additional  results  expected  with  enhanced  corporate  tax 
transparency, having regards to other tax avoidance initiatives at international and EU level. 
Namely, these are the G20/OECD multilateral approach, the ATAP and the re-launch of the 
CCCTB. 

The  implementation  of  the  OECD  BEPS  plan  has  just  begun  internationally  and  at  the  EU 
level.  The  reach  and  concrete  results  of  this  initiative  have  yet  to  be  substantiated  and 
analysed  in  the  coming  years.  With  the  ATAP,  the  European  Commission  has  proposed 

45 

 
 
 
 
 
measures to endorse the plan at the EU level, including as regards a CBCR being part of the 
transfer pricing documentation for the attention of tax administrations by very large MNEs. It 
is expected that beyond the EU, there will be a general uptake of the multilateral BEPS Action 
plan by a fair proportion of the G20 and OECD member countries, sparking a new era in the 
fight against base erosion and profit shifting. 

6.1.1  Potential impacts of further corporate tax transparency on the multilateral approach 

of the G20 and the OECD 

Based  on  BEPS  Action  13  on  transfer  pricing  documentation,  the  OECD  recommends  that 
CBCR be mandatory only for MNEs with a turnover of, or which exceeds EUR 750 million. 
An  EU  approach  to  public  CBCR  building  on  this  threshold  would  facilitate  the  swift  and 
seamless  implementation  by  MNEs,  and  ensure  a  more  level  playing  field  with  non-EU 
MNEs since it is assumed that because most of them are established in a member country of 
the G20 or the OECD, most will be subject to the OECD type of obligation. 

An EU transparency approach building on information to be disclosed in a BEPS 13 CBCR 
would also certainly be most helpful in ensuring a worldwide standardisation of the data (or of 
sources  of  data)  which  could  benefit  companies  (overlapping/multiple  CBCR  obligations 
depending on country, size, sector…) as well as recipients of the information (easier analysis, 
trust,  digitalisation).  The  public  CBCR  as  examined  under  Options  2  and  3  would  contain 
generally either the same information as a BEPS 13 CBCR, or a subset and/or an aggregation 
of it. The EU should therefore certainly have regard for the BEPS 13 template when and if it 
elaborates on a public CBCR in the follow up of this impact assessment. In addition, similar 
or  consistent  reporting  standards  would  mean  that  any  additional  costs  attached  to  these 
Options (for MNEs reporting under the OECD scheme) would not be significant. 

The  OECD  expressed  concerns  that  if  the  EU  contributes  to  making  all  the  information 
provided under the OECD BEPS 13 scheme public, some OECD members which have agreed 
to the compromise could withdraw their pledge to exchange information on a confidential and 
protected basis. Thus the effect that the Multilateral Competent Authority Agreement, which 
constitutes  the  basis  for  the  exchange  of  information  between  OECD  members'  tax 
authorities,  might  be  weakened120  with  Option  3B  which  purports  that  much  of  the 
information being exchanged between tax authorities under the OECD BEPS scheme would 
become public. This not the case with the other options examined here, as the public CBCR 
would be less complete than the BEPS 13 one, thus leaving much of its added value intact. 

Overall, given their complementary purposes, the OECD BEPS 13 model and public reporting 
could well co-exist, so long as their purposes and features remain sufficiently differentiated. 

6.1.2  Effectiveness in the context of the G20/OECD approach and the ATAP 

In terms of purposes, section 2.4.2 explains why and how, in addition to compliance effects 
associated with the G20/OECD actions and the ATAP, public scrutiny in the EU would be a 
tool enabling to fight base erosion and profit shifting. This tool builds on reputational effects 

120   Hearing  before  the  Economic  and  Monetary  Affairs  Committee  of  the  European  Parliament,  the  OECD 
Secretary  General,  OECD:  "Don't  let  legal  dentists  take  the  teeth  from  the  transparency  package",  March 
2015 

46 

 
 
                                                 
and democratic debates. How this tool could affect companies' behaviour and Member States 
is further analysed below. 

6.1.2.1  Companies' behaviour  

It is a well-established finding  in  experimental economics121  that even  a slight indication of 
being observed increases positive social behaviours such as cooperation and trustworthiness. 
This  would  suggest  that  information  provided  to  tax  authorities  (Coricelli  et  al.  2014)  will 
contribute to the general objectives pursued, possibly by ensuring further compliance with tax 
laws. According to a Thomson Reuters-Euromoney survey of 180 tax professionals across 35 
countries,  to  know  that  tax  administration  staff  will  look  at  the  figures  should  increase 
businesses'  tax  perceived  exposure  and  consequently  compliance.  Large  companies  are 
planning to overhaul their tax arrangements to comply with proposals for new global tax rules 
even before they become legally enforceable122. This may be why businesses largely believe 
that the EU need not go beyond the implementation of the OECD BEPS.  

On  the  other  hand,  some  promote  public  CBCR  on  the  assumption  that  the  OECD  CBCR 
model  may  not  achieved  the  intended  objectives,  or  on  the  assumption  that  only  public 
disclosure could contribute to them  123. For instance, the BEPS model may not put an end to 
special  tax  arrangements,  if  any,  between  companies  and  tax  authorities  since  the  OECD 
BEPS  is  not  published.  Besides,  as  tax  administrations  tend  to  focus  on  the  cases  they  can 
most  certainly  win,  one  NGO  opined  in  the  public  consultation  that  "CBCR  for  tax 
administrations will most likely only discourage the very worst practices, or lead companies 
to  infuse  a  bit  more  substance  in  subsidiaries  in  low-tax  jurisdictions,  while  not  changing 
practice". That is, MNEs can  "push the letter as far as  it can go,  and  settle before it gets  to 
court".  By  contrast,  many  believe  that  public  CBCR,  because  of  reputational  damage  risks, 
could  achieve  more  than  a  CBCR  for  tax  authorities  only.  Reputation  is  increasingly 
considered as an important asset in our economy. Today, intangible assets of a firm, including 
its brand, may account for up to 75% of a firm's market value124. In a survey released jointly 
by the World Economic Forum and the Fleishman-Hillard public relations firm, three-fifths of 
chief executives said they believed corporate brand and reputation represented more than 40% 
of their company’s market capitalization125.Therefore a public CBCR could encourage MNEs 
to "comply with the spirit as well as letter of the law". For instance, public CBCR could shed 
light  on  special  arrangements  between  companies  and  governments126.  The  public 
consultation  has  shown  that  in  addition  to  reducing  harmful  tax  practices,  almost  three-
quarters of NGOs and trade unions feel firms would opt under reputational risks pressure to 
also shift profits back to where they were generated. Such response may well go beyond the 
mere compliance with tax laws, a point where the OECD model would normally stop. 

121   For example Andreoni and Petrie 2004; Milinski et al. 2002; Haley and Fessler 2005 
122   Thomson  Reuters  –  2015  Global  BEPS  Readiness  Survey  report,  a  clear  perspective,  from  every  angle,  

2015 

123   Eurodad - An assessment of the G20/ OECD BEPS outcomes: Failing to reach its objectives, 2015 
124   Haigh, D. and Knowles, J., 2004. What’s in a Brand? Marketing Management 13: 22 
125   http://web.worldbank.org/archive/website00818/WEB/OTHER/CORPORAT.HTM 
126   Transparency International coalition, Why Public Country-By-Country Reporting for Large Multinationals 

is a Must, 2015 

47 

 
 
                                                 
However such statements should certainly be nuanced: 

  On  the  one  hand,  it  has  been  found  that  the  wide  public  knowledge  of  tactics 
implemented  by  MNEs  to  avoid  or  delay  taxation  does  not  necessarily  result  in 
tangible reputational costs127. On the other hand, the Starbucks case in the UK tends to 
exemplify  the  contrary:    in  2010128,  the  public  discussion  of  the  tax  affairs  of  this 
company increased its behavioural response (through reputational leverage). 

  The  effect  on  companies  would  differ  greatly  from  one  company  to  another, 

depending on circumstances: 

o  As  far  as  the  type  of  industry  is  concerned,  "B2C"  companies  usually  attract 
more public scrutiny than "B2B" companies. The former will naturally have a 
higher  reputational  leverage  as  their  end  consumers  are  expected  to  be  more 
demanding  in  terms  of  tax  justice  than  businesses.  Nevertheless,  higher 
corporate responsibility standards may as well become increasingly pervasive 
for  all  types  of  very  large  businesses,  including  "B2B".  For  instance,  given 
their size, MNEs are natural candidates to seek external funding, and there is 
growing investors' demand for fair tax planning. These increasingly see taxes 
as  "a  vital  investment  in  the  local  infrastructure,  employee-base  and 
communities".  They  want  to  assess  the  risks  associated  with  aggressive  tax 
planning129.  Investors  in  this  way  may  increasingly  become  agents  of  the 
public scrutiny. 

o  Public  reactions  to  information  publically  disclosed  will  differ  from  one 
country to another, depending on the public or democratic sensitivity to taxes 
as well as on historical or cultural reasons. This may entail varied responses by 
given MNEs from one country to another. 

6.1.2.2  Effects on Member States 

A public CBCR could undeniably nurture a sound democratic debate on corporate income tax 
including with regards to companies and States' policies – an area beyond the usual remit of 
tax authorities130. The public at large lacks information. Bodies such as Parliaments have been 
able  to  get  hold  of  limited  information  at  a  high  cost  (investigations,  subpoenas,  hearings, 
etc.). Public CBCR could be "the only option that would enable accountability of government 

127   Gallemore, Maydew and Thornock (Reputational Costs of Tax Avoidance, 2014) 
128   In  the  follow  up  of  a  hearing  in  2012  before  the  House  of  Commons'  public  accounts  committee  and 
campaigns by civil society, the Starbucks company in the UK volunteered to pay £20m to the UK Treasury 
in 2013 and 2014 by not claiming tax deductions for royalties or payments even though the company would 
have had the right to do so if merely complying with tax laws. Starbucks elected then in 2015 to move its 
European  headquarters  from  the  Netherlands  to  London  and  to  make  Britain  the  base  of  its  intellectual 
property rights, thus repatriating royalties from EU operations (France, Germany, ...). Starbucks is expected 
to  pay corporation  tax on  profits  in  the  UK on  a regular  basis  in  the  future,  after  years of  losses. Foreign 
sales  represented  around  31%  of  Starbuck  Inc's  net  revenues  from  external  customers  for  the  fiscal  year 
ended  on  28  September  2014,  whereas  12%  of  the  total  income  tax  expense  of  $1.1  billion  was  due 
overseas. Revenues from countries other than the US consist primarily of revenues from Canada, the UK, 
and China, which together account for approximately 65% of net revenues outside the US for fiscal  2014. 
The operating income in Europe, Middle East, and Africa is relatively lower (9% of revenues) than in other 
areas (23% overall for the group).  

129   See for instance Change in Context, Why investors are joining consumers and NGOs on tax evasion, 2016 
130   Friedrich Ebert Stiftung (FES), Recasting the Die, 2015 

48 

 
 
                                                 
 
policies,  facilitate  the  assessment  of  their  efficacy,  and  help  to  restore  public  trust  in  large 
companies" claimed a respondent to the public consultation. 

Through  a  better  informed  democratic  debate  on  the  causes  and  consequences  of  tax 
avoidance, the initiative should contribute to promote fairer tax competition in the European 
Union. A public CBCR should enable a better evaluation of possible weaknesses in Member 
States'  income  tax  policies.  Public  pressure  will  incentivize  Member  States  to  reduce 
mismatches and loopholes between tax systems, to promote less harmful tax measures and to 
increase the global fairness of tax systems.  

49 

 
 
6.2  Comparison of policy options against effectiveness and efficiency criteria 

Table 6: Comparison against effectiveness and efficiency criteria 

EFFECTIVENESS 

Specific 
objective 

Increase 
corporate 
tax transpa-
rency 

Objective 1 

Objective 2 

Objective 3 

Enterprises 
should pay 
tax where 
they 
actually 
make profit 

Foster corporate 
responsibility to 
contribute to 
welfare through 
taxes 

Fairer tax 
competition in 
the EU 
through 
democratic 
debate 

EFFICIENCY 

(cost-
effectiveness) 

0 

+ 

0 

+? 

0 

+ 

++ 

+? 

++ 

0 

+ 

+ 

0 

- 
Large 2A(a):  
Very large 2A(b):  + 

Large 2B(a): 
-- 
Very large 2B(b):  - 

++ 

+? 

++ 

++ 

++ 

+++ 

+? 

++ 

++ 

+ 

Objectives 

Policy Options  

Option 1: No policy 
change 

Option 2A:  
Public CBCR on EU 
controlled operations 
broken down by EU 
Member State and 
aggregated for non-EU 
operations  

Option 2B:  
Public CBCR on EU 
controlled operations 
broken down by Member 
State and third country 

Option 3A:  
Public CBCR on 
worldwide operations 
broken down by EU 
Member State and 
aggregated for non-EU 
operations 

Option 3B:  
Public CBCR on 
worldwide operations 
broken down by Member 
State and third country 

Magnitude of effectiveness/efficiency as compared with the baseline scenario: +++ strongly positive; ++ positive; + slightly 
positive; ---strongly negative; -- negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable; +? Uncertain but assumed to 
be positive 
Sub-Option (a) covers large parent companies in the EU (at least 20,000 EU groups); Sub-Option (b) covers very large 
parent companies in the EU (at least 1,900 EU groups) 

6.2.1  Assessing the effectiveness and efficiency of Option 2A  

This option would undoubtedly increase the level of information made publicly available by 
companies.  The  impact  of  public  reporting  on  Objective  1  is  uncertain  but  could  deliver 
additional  incentives  compared  to  the  BEPS  initiative  (baseline  scenario)  by  which  CBCR 
would  be  provided  to  only  tax  authorities,  and  would  also  increase  the  companies'  sense  of 
corporate  social  responsibility  (CSR)  in  terms  of  tax  practices.  Impacts  in  terms  of  fair  tax 
competition  is  slightly  positive  as  the  public  would  have  access  to  the  information  of  EU 
MNE groups on their EU operations and it could trigger a public debate and exert pressure in 

50 

 
 
 
 
 
 
 
favour  of  fairer  tax  competition.  Applying  Option  2A  to  large  MNES  would  result  in  cost 
estimated to EUR 100,000 per additional MNE131. Overall, the efficiency of option 2A(a) is 
therefore  negative  given  that  benefits  in  terms  of  effectiveness  do  not  seem  to  be 
commensurate  with  imposing  such  additional  burden  on  large  companies.  The  efficiency  of 
this  measure  is  on  the  contrary  slightly  positive  for  Option  2A(b),  as  the  narrower  scope 
would prevent those caveats, yet ensure a fair level of information on a fairly high percentage 
of operations controlled from the EU.  

6.2.2  Assessing the effectiveness and efficiency of Option 2B 

Option  2B  would  have  a  positive impact  in  terms  of  corporate tax transparency  as  it  would 
increase  the  information  made  publicly  available  by  companies.  As  with  Option  2A,  it  is 
expected  –  but  not  completely  known  –  if  the  measure  will  incentivise  companies  to 
geographically  align  profits,  this  time  with  a  wider  geographical  coverage.  The  effect  of 
Option  2B  is  expected  to  be  positive  on  companies  as  regards  Objective  2  as  the  sense  of 
corporate  responsibility  would  be  further  fostered  with  a  reporting  including  third-country 
operations.  As  regards  Objective  3,  its  effectiveness  would  be  similar  to  Option  2A.  The 
efficiency of such Option is however assumed to be negative in the case of sub-Option 2B(b) 
because  of  the  risks  in  terms  of  level  playing  field,  competitiveness  for  EU  companies,  tax 
conflicts  and  double  taxation  especially  in  third  countries  that  will  not  be  part  of  the  BEPS 
scheme.  However,  this  would  be  mitigated  if  only  essential  information  (income  tax 
accrued/paid) be required as envisaged with sub-Option (i). These negative impacts would be 
more  widespread  with  Option  2B(a),  hence  causing  additional  administrative  burden  for 
companies not covered by the BEPS scheme.  

6.2.3  Assessing the effectiveness and efficiency of Option 3A 

Option 3A would have a positive effectiveness in terms of corporate tax transparency as most 
very large MNE would have to report tax related information on EU operations. Similarly to 
Option 2 the impact on Objective 1 is uncertain but assumed to be positive. The information 
about the amount of  tax paid being publicly available, this would have  a positive impact in 
terms of the consistency with the corporate CSR communication. As regards Objective 3, the 
effectiveness  of  Option  3  is  assessed  as  positive  as  all  very  large  MNE  group  operating  in 
Europe would have to publish a CBCR on their EU activities. This could trigger a democratic 
debate  and  favour  fairer  tax  competition.  The  efficiency  of  Option  3A  is  assumed  to  be 
positive given the positive effectiveness and the absence of important risks.  

6.2.4  Assessing the effectiveness and efficiency of Option 3B 

Option 3B would have a strongly positive effectiveness in terms of corporate tax transparency 
as  all  very  large  MNE  operating  in  the  EU  would  have  to  publish  a  CBCR  on  all  their 
operations. The effectiveness of this Option on Objectives 1, 2, and 3 is assessed to be similar 
than Option 3A. Indeed, a public CBCR as envisaged in Option 3B would foster democratic 
debate in the EU which could enable fairer tax competition in the EU in the same way that 
Option A (they have the same coverage when it comes to country-by-country reporting within 
the  EU).  Furthermore,  this  option  could  positively  spread  responsible  communication  and 
practices on tax as part of corporate social responsibility. Overall, the efficiency of Option 3B 
is assumed to be slightly positive, as the positive social impacts are heavily counter-balanced 

131   See Annex S 

51 

 
 
                                                 
by  significant  risks  in  terms  of  double  taxation/tax  conflicts  for  MNEs  and  potential 
downsides in relation with third country partners. The balance of this overall slightly positive 
assessment  would  remain  even  with  less  disclosure  (sub-Option  (i))  as  risks  associated  to 
reduced transparency would be lower. 

6.3  Preferred option 

While there may be value to pursuing Option 3B (requiring all MNEs to publically disclose 
information regards their operations both within and outside of the EU) in terms of the social 
awareness/impact  it  may  bring,  this  proposal  runs  the  risk  of  subjecting  companies  to 
increased  double/multiple  taxation.  In  addition,  the  publication  of  extensive  information 
stemming  from  a  coverage  of  all  multinational  operations,  both  within  and  outside  the  EU 
(Option  3B)  might  depart  considerably  from  the  expectations  of  Europe’s  key third  country 
partners. Requiring European firms operating in the EU to provide a public breakdown of tax-
related  information  (Option  2A)  would  achieve  the  goals  and  objectives  with  some 
effectiveness, but focus only on EU MNEs and thus create an unlevelled playing field. 

The more desired Option would be to require both EU and non-EU firms operating in the EU 
to  comply  with  public  CBCR.  Therefore,  Option  3Aii  is  the  preferred  Option.  The  latter 
would promote a more level playing field between all multinational firms – EU and global – 
active  in  the  European  Economic  Area  (EEA),  building  on  a  sub-set  of  the  information 
required  to  be  provided  to  tax  authorities  (by  BEPS  13  and  the  Commission's  proposed 
amendments to the Directive on Administrative Cooperation of 27 January 2016). 

Option  3A  with  only  essential  tax  information  in  CBCR  would  put  the  EU  requirements 
reasonably  on  par  with  US  standards.  There  would  be  few  differences  though.  The  CBCR 
prepared  by  MNEs  in  the  EU  would  include  the  geographical  breakdown  of  the  turnover, 
number  of  employees,  profit  before  tax,  current  tax  expense  and  tax  paid.  As  a  point  of 
comparison,  per  US  standards132,  the  geographical  analysis  given  by  issuers  focuses  on  the 
turnover, the current tax expense and the deferred tax expense133. 10-K forms are US centric 
(domestic=Federal and united State level) whereas EU reports would be EU centric (Member 
State level). 

Operationally, the objective is that in the future, any very large MNE group operating on the 
EU markets files annually a Country-By-Country Reporting with at least one business register 
in  the  EU,  and  publishes  it  as  well on  its  web  site.  The  report  should  comprise  information 
relating  to  corporate  income  tax  (Number  of  employees,  Net  turnover,  Profit  before  tax, 
Current income tax accrued, Income tax paid) on the complete operations of an MNE group, 
consolidated at the level of the ultimate MNE parent. Each information disclosed should be 
broken down by Member State and aggregated as regards operations in third countries. Each 
MNE is expected to have the information already at hand on the basis of the CBCR submitted 
to tax authorities as a result of the G20/OECD plan. No specific audit would be required. This 

132   Unless a US issuer decides to structure its segmental information on a geographical basis 
133   Deferred taxes and taxes paid both help determine the reality of taxes, although in different ways: deferred 
taxes apportioned in a given fiscal year enable a better vision of the actual tax expense relating to the profit 
in  the  P&L.  In  the  long  run,  tax  paid  should  equal  tax  expenses,  including  current  and  deferred.  For  this 
reason,  it  seems  reasonable  to  disclose  one  or  the  other,  but  not  necessarily  both.    The  preferred  option 
retains the approach of the OECD and the ATAP for consistency reasons, i.e. the disclosure of taxes paid, no 
disclosure of deferred taxes. 

52 

 
 
                                                 
requirement  would  not  apply  to  EU  credit  institutions  and  investment  firms,  which  would 
continue to publish their specific CBCR pursuant to the CRD4. 

A model based on recommendations does not seem to be a promising avenue. There is a high 
chance of uneven implementation in the EU, not only between Member States, but possibly 
also between companies or industry sectors. This would contradict the intended objectives and 
premises of this work. 

Thus the preferred Option could be implemented by either a directive or a regulation134. Both 
instruments  have  benefits.  A  regulation  has  the  advantage  that  once  adopted  by  the  co-
legislators,  the  reporting  requirement  would  immediately  be  applicable  and  enforceable  by 
law preventing a gap of several years between the adoption of a directive and the publication 
of  the  first  report  by  companies.  However,  a  directive  would  enable  each  Member  State  to 
devise  its  own  laws  on  how  to  reach  the  reporting  requirements.  It  would  also  foster 
democratic debate on corporate income tax and fairer tax competition in each Member State 
which is related to one of the above objectives135.  

6.4  Overall impacts of the package 

There  is  without  doubt  that  an  EU  approach  to  public  CBCR  would  deliver  greater 
transparency  on  corporate  tax  issues,  compared  to  the  baseline  scenario.  Enhanced 
transparency, in allowing public scrutiny to play a greater role in the monitoring and oversight 
of  companies'  tax  practices,  is  likely  to  change  firms’  awareness  of  and  behaviour  in  these 
areas,  beyond  improvements  in  compliance  with  tax  laws  expected  with  the  EU's  uptake  of 
the OECD BEPS 13 Action. A logical conclusion to draw from this is that the obligation to 
report  to  the  public  will  certainly  raise  companies'  perception  of  their  own  commitment  to 
corporate social responsibility (CSR). 

More  crucially,  granting  the  public  access  to  CBCR  will  serve  to  fuel  public  debate  and 
strengthen  the  democratic  process  by  deepening  civic  engagement.  With  the  costs  of 
publically disclosing CBCR expected to be insignificant for MNEs, NGOs, journalists and the 
wider  public  alike  would  welcome  the  opportunity  to  be  able  to  better  contribute  to 
discussions on company tax, corporate behaviour and tax policies governing the decisions of 
multinational enterprises. Indeed, it has been suggested that a public disclosure of CBCR may 
be the only way to restore public faith in companies, some of which have suffered negative 
publicity in light of recent allegations. 

Beyond  providing  society  with  information  to  carry  out  their  own  analysis  of  corporate 
behaviour,  public  CBCR  will  enable  key  legislative  and  governing  bodies,  such  as 
Parliaments, to engage in a more robust/informed debate on tax issues. This would certainly 

134   A regulation shall be based only on article 114 TFEU 
135  In July 2015, the European Parliament adopted an amendment to the Commission's proposal for a Directive 
on  shareholders'  rights introducing, by  way  of  amendment  to  the  Accounting Directive,  a  requirement  for 
EU  large  companies  to  provide  country  by  country  reporting  as  a  way  to  promote  corporate  trust  and 
facilitate  the  engagement  of  shareholders  and  citizens  in  companies.  The  shareholder  rights  directive  is 
currently in trilogue negotiations. However, given the wider objectives of this initiative as well as the scope 
of the option chosen, it is considered that a specific legislation is the best instrument to achieve the desired 
goal. 

53 

 
 
                                                 
 
strengthen democratic decision-making. Where the interaction of tax laws provides companies 
with  opportunities  for  engaging  in  (possibly  aggressive)  tax  planning,  a  set  of  country-by-
country indicators serves as an important benchmark for assessing if profit allocation is truly 
aligned with the actual creation of value.  

Since the debate on public CBCR cannot be confined to the national level, discussions taking 
place at the EU level are already a positive step towards achieving greater coordination. It can 
be  said  that  while  public  disclosure  of  CBCR  may  not  guarantee  an  overhaul  or  significant 
reform  of  tax  practices,  it  will  be  key  to  nurturing  a  democratic  debate,  promoting  public 
participation  in  the  wider  discussions  on  corporate  governance  and  how  to  address  tax 
avoidance.  While  this  impact  assessment  suggests  that  a  (positive)  change  in  corporate 
attitudes  and  behaviour  towards  tax  is  likely,  it  will  be  more  difficult  to  determine  the 
magnitude of specific impacts i.e. on companies' geographic allocation of profits and on the 
tax revenues of each Member State. These may, however, be affected. 

7  MONITORING AND EVALUATION 

The  Commission  will  monitor  the  implementation  of  the  policy  in  cooperation  with  the 
Member  States.  In  compliance  with  the  principle  of  subsidiarity,  the  relevant  information 
should  be  gathered  primarily  by  the  Member  States,  possibly  with  the  assistance  of  the 
Accounting Directive Committee. It is expected that the costs of such activity would be met 
from existing operational budgets, and would not be significant.  

An  evaluation  of  whether  the  report  on  income  tax  information  delivers  appropriate  and 
proportionate results should be made, taking into account the need to ensure a sufficient level 
of transparency and the need for a competitive environment for undertakings. The evaluation 
should examine the effectiveness, efficiency, relevance, coherence and EU added value. The 
evaluation  of  effects  of  the  preferred  policy  should  consider  the  extent  to  which  the 
anticipated objectives have been met (i.e. to enhance public scrutiny), and measure if possible 
the  expected  impacts  on:  companies'  competitiveness,  whether  or  not  the  risks  of  double 
taxation and tax disputes have materialised, as well as possibly whether there were any effect 
on  third  countries,  including  developing  countries,  and  costs.  The  evaluation  should  also 
consider  international  multilateral  developments  in  the  intervening  period,  and  consider 
broadly the overall scope of CBCR. It should determine whether companies are reporting in a 
consistent manner and in compliance with EU standards, including where non-EU MNEs are 
involved. It should also determine the compliance level, especially as regards non-EU MNEs, 
as well as the effectiveness of enforcement measures. Finally, the evaluation should consider 
the objectives of MNEs to pay their tax in countries where they make their profits, fostering 
corporate responsibility and fairer competition of MNEs versus other companies.  

Sample  reviews  could  be  based  on  CBCR  published  by  EU  and  non-EU  MNEs  on  the 
internet.  A  survey  of  MNEs,  including  their  management  and  auditors,  as  well  as  Member 
States' administrations, representatives of civil society, third country administrations and other 
stakeholders  would  represent  an  additional  useful  source  of  data  and  information.  Data 
retrieved  from business registers and other  sources of subsidiaries or  branches in  the EU of 
non-EU MNEs could assist in determining the completeness of reporting. 

In order to ensure effective measures, the evaluation should be carried out a few years after 
companies have started to publish information. It could form the basis of a report to the EP 
and Council. 

54 

 
 
 
8 

 GLOSSARY 

Accounting Directive 

APA / Advance pricing 
arrangements 

Directive  2013/34/EU  on 
financial  statements, 
consolidated  financial  statements  and  related  reports  of  certain 
types of undertakings 

the  annual 

Means any agreement, communication or any other instrument or 
action with similar effects, including one issued in the context of a 
tax  audit,  given  by,  or  on  behalf  of,  the  government  or  the  tax 
authority of  one or  more Member States,  including any  territorial 
or  administrative  subdivision  thereof,  to  any  person  that 
determines  in  advance  of  cross-border  transactions  between 
associated  enterprises,  an  appropriate  set  of  criteria  for  the 
determination  of  the  transfer  pricing  for  those  transactions  or 
determines 
to  a  permanent 
establishment. 

the  attribution  of  profits 

ATAP 

Anti-Tax  Avoidance  Package,  proposed  by 
Commission on 28 January 2016 

the  European 

B2C / B2B 

BEPS 

Business to Consumer / Business to Business 

Base Erosion and Profit Shifting.  

This acronym refers to tax planning strategies that exploit gaps and 
mismatches in tax rules to artificially erode the taxable base and/or 
shift  profits  to  low  or  no-tax  locations  where  there  is  little  or  no 
economic  activity,  resulting  in  little  or  no  overall  corporate  tax 
being paid 

CBCR 

Country-By-Country Reporting 

For  a  given  MNE,  a  CBCR  will  typically  break  down  certain 
consolidated  information  relating  to  the  the  MNE  group  (such  as 
taxes paid, turnover, …) into geographical areas the granularity of 
which is based on existing countries.  

CIT 

Corporate Income Tax 

Taxes levied  on the net profits (gross income minus allowable tax 
reliefs)  of  enterprises.  It  also  covers  taxes  levied  on  the  capital 
gains of enterprises (source: OECD). 

Company, 
corporation, 

enterprise, 
undertaking, 

Refers to an economic entity doing business 

55 

 
 
 
 
 
 
 
 
 
 
 
entity, business, firm 

CRD4 / Capital Requirements 
Directive 

Directive 2013/36/EU on access to the activity of credit institutions 
and 
institutions  and 
investment firms 

the  prudential  supervision  of  credit 

/ 

Directive 

DAC 
on 
Administrative  Cooperation 
(DAC) 

Council  Directive  2011/16/EU  of  15  February  2011  on 
administrative cooperation in the field of taxation 

DTC / Double Tax 
Convention 

A bilateral agreement between two countries under that regulates 
each countries rights to taxation on the income generated within 
their territory. The main objective of a DTC is to avoid the double 
taxation of persons who have income in both countries. 

EBIT / EBITDA 

Earnings Before Interest & Taxes / & Depreciation & Amortisation 

EEA 

EITI 

ETR / Effective tax rate 

European  Economic  Area  (including  the  EU  Member  States, 
Iceland, Liechtenstein and Norway) 

Extractive Industries Transparency Initiative 

There is no worldwide generally accepted formula to calculate this 
rate.  The  effective  corporate  tax  rate  (ETR)  measures  the  taxes  a 
corporation  pays  as  a  percentage of  its  economic  profit. This  rate 
may  differ  from  the  Statutory  tax  rate  for  various  reasons 
(temporary  or  permanent  differences  between  accounting  and 
taxable  profit,  specific  tax  regimes,  tax  credits,  etc.).  For 
corporations,  the  effective  tax  rate  may  be  calculated  by  dividing 
total tax expenses by the company's profit before taxes.  

'The  taxpayer's  actual  tax 

The  IBFD  tax  research  platform  defines  the  Effective  Tax  Rate  as 
follows: 
liability  (or  a  reasonable 
estimate  thereof)  expressed  as  a  percentage  of  a  pre-tax  income 
base rather  than  as  a  percentage of  taxable  income,  i.e. tax  rates 
that  take  into  account  not  only  the  statutory  tax  rate,  but  other 
aspects of the tax system that determine the amount of tax paid. It 
is calculated by dividing by dividing the taxpayer's total tax liability 
by his taxable income and multiplying by 100. 

EU 

FDI 

G20 

GAAP 

GDP 

European Union 

Foreign Direct Investment 

Group of twenty 

Generally Accepted Accounting Principles 

Gross Domestic Product 

Harmful tax practices 

The Code of Conduct Group (Business Taxation) defined in 1999 in 
its report to the ECOFIN Council (SN 4901/99) harmful tax 
competition and harmful tax measures as follows:  

56 

 
 
"(…) tax measures which provide for a significantly lower effective 
level of taxation, including zero taxation, than those levels which 
generally apply in the Member State in question are to be regarded 
as potentially harmful and therefore covered by this code. Such a 
level of taxation may operate by virtue of the nominal tax rate, the 
tax base or any other relevant factor. When assessing whether such 
measures are harmful, account should be taken of, inter alia:  
1. whether advantages are accorded only to non-residents or in 
respect of transactions carried out with non-residents, or  
2. whether advantages are ring-fenced from the domestic market, so 
they do not affect the national tax base, or  
3. whether advantages are granted even without any real economic 
activity and substantial economic presence within the Member State 
offering such tax advantages, or  
4. whether the rules for profit determination in respect of activities 
within a multinational group of companies departs from 
internationally accepted principles, notably the rules agreed upon 
within the OECD, or  
5. whether the tax measures lack transparency, including where 
legal provisions are relaxed at administrative level in a non-
transparent way."  

International Financial Reporting Standards 

Inter-Governmental Organisation 

International Monetary Fund 

Intellectual Property 

Key Performance Indicator 

Mutual Agreement Procedure 

Multilateral  Competent  Authority  Agreement  developed  by  the 
OECD  for the automatic exchange of Country-by-Country reports 

Stands  for  Multinational  Enterprise.  In  this  document, the  MNE  is 
deemed to be the ultimate parent company of an MNE group. 

An EU MNE is an MNE established in the EU. A non-EU MNE is an 
MNE established in a third country. 

IFRS 

IGO 

IMF 

IP 

KPI 

MAP 

MCAA 

MNE 

MNE group 

Companies  /  entities  /  undertakings  comprised 
controlled by an MNE, which altogether form an MNE group 

in  a  group 

An  EU  MNE  group  is  a  group  whose  ultimate  MNE  parent  is 
established  in  the  EU.  A  non-EU  MNE  group  is  a  group  whose 
ultimate MNE parent is established in a third country. 

57 

 
 
 
 
NGO 

OECD 

PE /Permanent 
establishment 

R&D 

SME 

SPE 

Non-Government Organisation 

Organisation for Economic Co-operation and Development 

A fixed place of business through which the business of an 
enterprise is wholly or partly carried on (Article 5, OECD Model 
Convention on Income and on Capital). This definition is used for 
tax purposes. 

Research and development 

Small and Medium-sized Enterprises 

Special Purpose Entity 

STR / Statutory Tax Rate 

The nominal tax rate imposed by law. Different statutory rates may 
apply for different income levels.  

Tax avoidance 

Tax competition 

Tax evasion 

According  to  the  OECD  glossary  of  tax  terms,  tax  avoidance  is 
defined as the arrangement of a taxpayer’s affairs in a way that is 
intended  to  reduce  his  or  her  tax  liability  and  that  although  the 
arrangement  may  be  strictly  legal  is  usually  in  contradiction  with 
the intent of the law it purports to follow 

Refers to a form of regulatory competition between States aiming 
to  attract  foreign  direct  or  indirect  investments,  skilled  labour,  or 
other  assets  by  ways  of  low  taxation  level  and/or  special  tax 
preferences. 

See also Harmful tax practices. 

According to the OECD glossary of tax terms, tax evasion is defined 
as  illegal  arrangements  where  the  liability  to  tax  is  hidden  or 
ignored. This implies that the taxpayer pays less tax than he or she 
is legally obligated to pay by hiding income or information from the 
tax authorities 

Tax Gap 

The  difference  between  total  amounts  of  taxes  owed  to  the 
government versus the amount they actually receive. 

Tax planning (aggressive) 

Tax ruling 

In  the  Commission  Recommendation  on  aggressive  tax  planning 
(C(2012)  8806  final),  aggressive  tax  planning  is  defined  as  “taking 
advantage  of  the  technicalities  of  a  tax  system  or  of  mismatches 
between two or more tax systems for the purpose of reducing tax 
liability. Its consequences include double deductions (e.g. the same 
loss  is  deducted  both  in  the  state  of  source  and  residence)  and 
double non-taxation (e.g. income which is not taxed in the source 
state  is  exempt  in  the  state  of  residence)”.  Tax  planning  can 
become "aggressive" in a multitude of forms and extent. 

A  document  which  entails  any  communication  or  any  other 
instrument  or  action  with  similar  effects,  by  or  on  behalf  of  the 
Member  State  regarding  the  interpretation  or  application  of  tax 

58 

 
 
Transfer pricing 

Transparency Directive 

UNCTAD 

US SEC 

VAT 

WTO 

laws 

Transfer  pricing  refers  to  the  terms  and  conditions  surrounding 
transactions  within  a  multi-national  company.  It  concerns  the 
prices  charged  between  associated  enterprises  established  in 
different  countries  for  their 
i.e. 
transfer  of  goods  and  services.  Since  the  prices  are  set  by  non-
independent  associates  within  the  multi-national,  it  may  be  the 
prices do not reflect an independent market price. This is a major 
concern  for  tax  authorities  who  worry  that  multi-national  entities 
may  set  transfer  prices  on  cross-border  transactions  to  reduce 
taxable profits in their jurisdiction. 

inter-company  transactions, 

Directive  2004/109/EC  of  the  European  Parliament  and  of  the 
Council  of  15  December  2004  on 
the  harmonisation  of 
transparency requirements in relation to information about issuers 
whose  securities  are  admitted  to  trading  on  a  regulated  market 
and amending Directive 2001/34/EC 

United Nations Conference on Trade and Development 

Securities and Exchange Commission of the United States 

Value Added Tax 

World Trade Organisation 

59 

 
 
 
 
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ANNEX A: PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

Procedural issues 

The  European  Commission  set  up  an  Inter-Service  Steering  Group  (ISSG)  to  assist 
Directorate  General  Financial  Services,  Financial  Stability  and  Capital  Markets  Union  (DG 
FISMA),  Directorate  General  Economic  and  Financial  Affairs  (DG  ECFIN),  Directorate 
General Taxation and Customs Union (DG TAXUD) in preparing this document. Directorates 
General  which  participated  in  this  group  consisted  of  the  Secretariat  General,  the  Legal 
Service,  Directorate  General  Competition,  Directorate  General  Justice,  Consumers  and 
Gender  Equality,  Directorate  General  Trade,  Directorate  General  Internal  Market,  Industry, 
Entrepreneurship  and  SMEs,  Directorate  General  Digital  Economy  and  Society.  The  Joint 
Research  Centre  of  the  European  Commission  also  contributed.  Over  the  course  of  the 
initiative the Group convened five times. 

The  Regulatory  Scrutiny  Board  was  consulted  on  17  February  2016.  The  present  document 
has  been  amended  based  on  the  Board's  recommendations.  This  report  has  been  improved 
with  regards  to  (1)  the  complementarity  and  additionally  of  the  envisaged  measures  with 
regards to other relevant corporate tax avoidance measures such as the BEPS/ATAP and the 
announced  relaunch  of  the  Common  Consolidated  Corporate  Tax  Base  (CCCTB);  (2)  the 
voluntary disclosure option; (3) the assessment of impacts with regards to other tax avoidance 
measures included in the baseline scenario. 

External expertise and consultation of interested parties 

The Commission Services have built a robust expertise on two EU policies on Country-By-
Country  Reporting136.  It  also  called  for  external  expertise  in  the  area  of  CBCR  for  credit 
institutions  through  a  study  carried  out  by  PwC137  in  2014  (commissioned  by  the  EC). 
Considering  the  extensive  literature,  documents,  debates  and  hearings  that  are  publicly 
available, the Commission Services felt that limited additional expertise from external sources 
was needed. 

The Commission Services undertook the following consultation activities:  

  A public consultation (17 June – 9 September 2015)138. 

  An exchange of views at the Platform for Tax Good Governance139 on a number of 

technical issues (24 September 2015)140. 

136   Report on Payments to Governments, Accounting Directive 2013/34/EU, Chapter 10 – Country-by-country 

reporting, Capital Requirement Directive 2013/36/EU, Article 89. 

137    Study  "General  assessment  of  potential  economic  consequences  of  country-by-country  reporting  under 

CRD IV", PWC, 2014 

138   European Commission, Public consultation on further corporate tax transparency – June 2015 
139   European Commission, Platform for Tax Good Governance 
140   See in particular a Discussion Paper on Tax Transparency and the Summary Record of the meeting. 

70 

 
 
 
 
 
 
                                                 
  Ad hoc exchanges with a limited number of relevant parties on certain topics, such 
as  the  costs,  or  the  follow  up  of  existing  CBCR  practices.  In  this  regard,  the 
Commission  services  had  contacts  with  representatives  from  an  array  of  MNEs, 
credit institutions' representatives, and NGOs between June and December 2015.  

  A Roundtable where Commissioners Dombrovskis, Hill and Moscovici met with an 
array  of  stakeholders  (1  October  2015),  including  representatives  of  the  business 
community, intergovernmental organisations, academics and civil society. 

71 

 
 
 
ANNEX B: SYNOPSIS REPORT ON THE CONSULTATION ACTIVITIES UNDERTAKEN BY THE 
EUROPEAN COMMISSION TO ASSESS THE POTENTIAL FOR FURTHER TRANSPARENCY ON 
CORPORATE INCOME TAXES 

The  Commission  services  consulted  widely  the  opinions  of  stakeholders  between  June  and 
December  2015.  This  report  summarises  the  contributions  shared  with  the  Commission 
through  ad  hoc  exchanges,  meetings  (list  of  stakeholders  given  below),  and  the  public 
consultation which took place over summer 2015. The latter garnered the views of over four 
hundred respondents representing firms, industry associations, NGOs, citizens and think tanks 
141. All inputs received during the consultation have been carefully considered and taken into 
account. None have been discarded or neglected, but due to the wide array of views voiced by 
different  stakeholders,  the  policy  options  explored  in  the  Impact  Assessment  may  not 
necessarily reflect the views of all parties. 

General Views  

1. In terms of possible corporate transparency initiatives, how should the EU position itself 
in relation to its international partners such as the OECD/G20?  

Virtually  all  NGOs  &  trade  unions  and  the  vast  majority  of  private  individuals  who 
participated  in  the  public  consultation  believe  that  the  EU  should  be  at  the  forefront  and 
possibly go beyond the multilateral approach supported by the G20. In their view, this can be 
achieved on the basis of the OECD BEPS Action Plan by furthering public disclosure. This is 
supported by a view that emerged from discussions at the Platform for Tax Good Governance, 
which  cited  the  purpose  of  country-by-country  reporting  (CBCR)  as  being  larger  than  tax 
issues  –  that  its  broader  objective  is  to  give  people  a  better  understanding  of  MNEs' 
contribution to society, in terms of growth, jobs and investment.  

The business community (firms and industry associations) are generally less keen on public 
disclosure,  concerned  that  this  approach  would  place  European  companies  at  a  competitive 
disadvantage relative to their non-EU counterparts. While 45% of business respondents in the 
public consultation believe that the EU should implement international initiatives at the same 
pace as global partners – to ensure a level the playing field – a third deem current reporting 
requirements to be sufficient.  

2. What objectives, if any, should a new EU initiative on corporate tax transparency aim to 
achieve?  

Almost all individuals and civil society organisations believe that a new EU initiative should 
aim to achieve the following objectives: ensure firms pay tax where profits are made, help tax 

141 The Commission Services: 1) undertook a public consultation that garnered the views of over four hundred 
stakeholders, launched June 2015; 2) participated in a Roundtable with Commissioners Dombrovskis, Hill 
and Moscovici, which convened Members of the Commission, representatives of the business community, 
an intergovernmental organisation (IGO) and civil society, held October 2015; 3) engaged in an exchange of 
views on technical issues at the Platform for Good Tax Governance in September 2015; and 4) held bilateral 
ad hoc discussions with companies, NGOs and other stakeholders. 

72 

 
 
 
 
 
 
 
 
 
 
                                                 
authorities  orient  their  audits  on  firms,  ensure  firms  invest  based  on  economic  merit,  and 
promote fairer competition between multinationals and SMEs. Three-quarters of these groups 
agree  that  a  new  initiative  should  aim  to:  stop  harmful  tax  competition  between  Member 
States and that firms should act as they say in terms of aligning corporate tax planning with 
contribution to welfare.  

Approximately  a  third  of  business  respondents  agree  with  all  of  the  above  objectives,  even 
though almost half do not support the aim that firms should pay taxes where profits are made. 
Only a quarter of firms believe a new initiative should ensure taxes are paid where profits are 
generated. Roughly a third of companies disagreed with the objectives proposed in the public 
consultation. 

3. Which options would be most effective in achieving the stated objectives?  

Most businesses and industry associations do not believe that implementing BEPS 13 at the 
EU  level  would  achieve  the  stated  objectives,  let  alone  public  transparency.  A  considerable 
number nevertheless believe it would be effective for 1) ensuring firms pay taxes where profit 
is  made,  2)  stopping  harmful  tax  competition  between  Member  States  and  3)  helping  tax 
authorities  orientate  their  audits  on  firms.  There  is  virtually  no  support  for  disclosure 
requirements  beyond  BEPS  13  as  firms  argue  that  public  CBCR  would  distort  competition 
between very large multinationals & smaller enterprises and be counterproductive to the aim 
of aligning profits with economic activity.   

On the contrary, there is unanimous agreement from individuals, NGOs and trade unions that 
"No EU Action" would be counterproductive towards achieving the objectives. Three quarters 
of  NGOs  and  trade  unions  insist  that  the  most  appropriate  course  of  action  would  be  a  full 
public  disclosure  of  tax  information.  These  respondents  believe  this  would  be  the  most 
effective  way  for  achieving  all  the  objectives.  While  a  non-Member  State  participant  at  the 
Platform for Tax Good Governance suggested that public CBCR is useful for detecting base 
erosion and profit shifting, another wondered whether public disclosure was necessary at all 
for meeting the objectives. 

Transparency towards Tax Authorities  

4. What effect would a BEPS-like initiative have on companies’ tax practices?  

Very  few  in  the  private  sector  agree  that  more  transparency  towards  tax  authorities  would 
encourage  businesses  to  widespread  compliance  with  tax  rules  and  end  the  use  of  tax  gaps, 
mismatches and loopholes etc.  

Unlike  the  business  community,  80%  of  NGOs  &  trade  union  and  over  half  of  private 
individuals  in  the  public  consultation  argue  that  greater  transparency  towards  authorities 
would  increase  tax  compliance  and  reduce  the  exploitation  of  tax  gaps,  mismatches  and 
loopholes designed to minimise payments. A large proportion of business respondents suggest 
that a) impact on tax behaviour will depend on the individual company and b) the few groups 
with  the  most  aggressive  tax  practices  are  more  likely  to  re-evaluate  their  tax-planning 
strategies. 

73 

 
 
 
 
 
 
 
 
 
 
 
 
 
5.  What  would  be  the  impacts  of  having  a  BEPS-like  initiative?  Is  there  likely  to  be  any 
effect on public finance?  

Impact on competitiveness and level playing field  
Reference was made at the Platform for Tax Good Governance to a letter sent by members of 
the US Congress to the US Treasury, challenging the Federal government's right to implement 
CBCR.  The  member  argued  that  if  the  US  does  not  comply  with  CBCR  it  would  result  in 
asymmetric  information  between  EU  and  US  firms.  More  information  on  the  part  of  US 
companies  would  tilt  the  playing  field  in  their  favour  i.e  against  EU  companies.  The 
implications  of  this  could  be  profound  as  the  US  is  regarded  as  by  far  the  EU's  largest 
competitor.   

Impact on public finance 
Half of all  businesses  that responded to  the public consultation believe this would lead to a 
relocation  of  tax  bases  between  Member  States.  Two-thirds  of  private  individuals  and  a 
quarter of NGOs and trade unions argue that further transparency would lead to an increase in 
tax  paid  in  Europe  (against  15%  individuals  and  just  one  NGO  who  believe  European  tax 
receipts  will  fall).  However,  many  business  respondents  have  indicated  that  the  full  BEPS 
package is likely to increase taxes paid in 'source' (mostly non-EU) states and decrease taxes 
paid in 'resident' (mostly EU) states. 

Impact on costs 
A  coalition  of  NGOs  brings  to  attention  an  estimate  by  the  UK  Treasury  that  one-off  costs 
would  be  negligible  and  that  costs  to  affected  businesses  would  be  £200,000  a  year.  An 
individual commented in the public consultation that costs will be minute if existing resources 
are  simply  reshuffled  or  reorganised.  Non-profit  organisations  conclude  that  the  small  or 
negligible  costs  of  CBCR  would  be  far  outweighed  by  the  wider  benefits  to  society  of 
cracking down on base erosion and profit shifting. 

An  individual  respondent  remarked:  “firms  will  claim  that  the  costs  of  preparing  a 
consolidated  CBCR  are  considerable  but  I  doubt  whether  they  will  exceed  the  costs  of  the 
complicated structures presently employed to escape tax!”. 

Impact on business-friendliness and attractiveness to invest  
Virtually all NGOs and trade unions believe that transparency under BEPS 13 would foster a 
pro-growth environment, and interestingly, half of all SMEs and microenterprises agree. Not a 
single  one  of  these  feels  that  BEPS  would  have  a  negative  impact  on  the  business 
environment.  In  contrast,  however,  only  a  few  firms  and  industry  associations  reaffirm  this 
view.  The  vast  majority  of  the  firms  and  industry  associations  in  the  public  consultation 
believe that there is not likely to be significant change to firms’ willingness to invest in the 
EU.   

Transparency towards the Public  

6.  What  would  be  the  advantages/benefits  of  a  public  disclosure  of  CBCR  compared  to  a 
disclosure to tax authorities only? Would a public disclosure of CBCR be more effective in 
meeting the objectives than a disclosure to tax authorities only? 

74 

 
 
 
 
 
 
 
 
 
 
 
 
According to some NGOs and tax justice campaigners, the importance of information being 
made public is grounded in the fact that one should not have to rely on information leaks and 
the  work  of  whistleblowers  to  tackle  the  issues  presented  by  BEPS:  “without  leaks  and 
whistleblowers, even governments see only a little into the inner workings of companies”.  

NGOs and trade unions see largely only benefits to having public transparency. To illustrate, 
one said: “We see only potential benefits. If the public sees the tax contribution of MNEs to 
society,  the  revenue  from  income  tax  will  increase  –  levelling  the  playing  field  between 
MNEs and SMEs”. In their opinion, public CBCR would provide information to a wide range 
of  stakeholders,  thereby  strengthening  efforts  to  monitor  governance,  corporate  social 
responsibility, tax payments, and potentially corrupt practices. NGOs also claim that there is 
strong interest from investors wishing to gain more insight into the geographical location of 
business activities and risks arising from aggressive tax planning. 

Furthermore, a public CBCR would allow public interest groups and investigative journalists 
to verify whether companies are paying their share of tax in the countries where they conduct 
business, especially where tax authorities lack the capacity. This would enable third parties to 
support the monitoring and analysis that will be carried out by the tax authorities participating 
in  BEPS.  Civil  society  organisations  highlight  that  perhaps  more  importantly  than  anything 
else,  public  disclosure  of  tax-related  information  is  the  only  option  that  would  promote 
accountability and restore public trust in large companies.  

A  commonly  held  view  is  the  ability  of  public  CBCR  to  help  tackle  the  pervasive  tax 
arrangements made between large multinationals and tax authorities. One individual opined: 
“Tax  authorities  in  numerous  countries  have  been  known  to  make  secret  deals  with  large 
organisations. This is inherently undemocratic and unjust. Only by exposing data to the public 
(citizens, NGOs & the media etc.) will businesses be forced to act”. 

Businesses on the other hand, are not so convinced and fear the consequences of publicised 
tax information (see question 8). One view which reflects the general sentiment of firms and 
industry  associations  is  that  the  EU  should  focus  on  ensuring  that  the  corresponding 
legislative  implementation  of  BEPS  will  be  coordinated  and  not  lead  to  further  unilateral 
differentiation  amongst  its  Member  States:  “working  towards  a  greater  degree  of 
harmonisation and producing practical guidance and tools to enable implementation would be 
far more effective than reporting CBCR information to the public. There is no need for the EU 
to  introduce  additional  transparency  requirements  that  go  beyond  BEPS  as  this  would  not 
combat aggressive tax planning, harmful tax regimes and tax fraud but will indeed harm the 
competitiveness of the EU as a region”.  

7. What could be the social impacts? 
 (increases transparency/accountability & public trust in firms, CSR)  

NGOs and trade unions have advocated for public CBCR on the grounds that it may be the 
most effective option for enabling the public to make informed judgements about a company's 
contribution  to  the  society  in  which  it  operates.  They  reason  that  a  better  understanding  of 
groups'  activities  and  geographical  location,  public  CBCR  would  place  stakeholders  in  a 
stronger  position  to  assess  if  taxes  are  being  paid  where  business  activity  takes  place,  and 
possibly serve as a tool for identifying the risk of tax avoidance and tax evasion. 

75 

 
 
 
 
 
 
 
 
 
Public  disclosure  of  tax-related  information,  they  argue,  is  also  instrumental  for  promoting 
their own awareness of the need to pay taxes – through its ability to identify corruption, tax 
agreements and illicit tax practices by shedding light on relevant information. The increased 
means  through  which  civil  society  are  able  to  help  authorities  in  monitoring  improves 
regulatory  oversight  and  provides  valuable  information  to  lawmakers  regarding  if  and  how 
laws should be changed to reduce exploitative tax practices and secretive tax arrangements.  

Business  leaders  expressed  concerns  of  misinterpretation  of  the  information  disclosed  in  a 
CBCR, due to limited understanding of technicalities by the public. This, they argue, would 
cause  undue  and  unfair  damage  to  firms’  reputations.  Some  industry  representatives  were 
emphatic  in  their  view  that  pressure  groups  might  well  leverage  this  to  bring  law-abiding 
firms to disrepute – with negative consequences on corporate image and business profitability. 

8. What could be the impacts for companies in term of Competitiveness, Level playing field 
(impact on attractiveness to do business/invest in EU?) and costs? 

Impact on business-friendliness and attractiveness to invest 
There is unanimous agreement (93%) among NGOs and trade unions who participated in the 
public consultation that the impact on business-friendliness from tax information made public 
would be positive. Roughly three-quarters of private individuals share this view, with opinion 
divided  between  the  remaining  respondents.  Almost  three-quarters  (72%)  of  firms  and 
industry  associations,  however,  assert  that  a  public  disclosure  would  hamper  the  business 
environment,  scaring  off  foreign  direct  investment.  The  EU  would  become  a  less  attractive 
place to invest.  

Impact on competiveness & level playing field 
At  the  Roundtable  on  Corporate  Transparency  business  leaders  argued  that  public 
transparency  runs  the  very  real  risk  of  exposing  trade  secrets:  one  firm  claimed  it  was 
expropriated after investment plans were exposed in the media. Among the risks highlighted 
include:  a)  the  exposure  of  business  strategies  of  EU  firms;  b)  distorted  competition 
undermining the success of European multinationals, especially vis-à-vis US firms; c) double 
taxation and increased opportunity for tax disputes.  

In  a letter to the Commissioner  (also submitted as  feedback to  the public consultation),  one 
business association stressed the need to ensure that any additional transparency initiatives are 
taken and implemented at the global level, and that country-by country reporting be primarily 
a  risk  assessment  tool  for  tax  administrations  to  better  understand  the  global  context  of  an 
MNE group and improve their tax audits process. 

Impact of costs arising from public CBCR  
The  costs  of  dealing  with  a  greater  number  of  tax  disputes  could  also  place  firms  at  a 
competitive  disadvantage  vis-à-vis  those  that  are  not  subject  to  reporting  obligations, 
businesses asserted. 

Moreover, they point out that governments participating in the OECD process have agreed to 
allow flexibility over where the data can be gathered from to mitigate some of the additional 
costs:  “Any  requirement  to  provide  more  granular  data  over  the  OECD’s  proposals,  or  to 
publically disclose the information will likely substantially increase the cost of reporting”.  

76 

 
 
 
 
 
 
 
 
 
 
 
9. What other impacts can one expect with public disclosure? 

Developing Countries  
Comments  put  forward  by  NGOs  and  individuals  generally  suggest  a  positive  impact  on 
relations with developing countries. These would improve if the EU would be seen as a more 
credible partner. A key idea reiterated in the feedback was that clamping down on harmful tax 
practices via enhanced transparency would help free up resources for development purposes – 
infrastructure, health, education and financing of SMEs to name a few. 

One think tank pointed out that: “A recent IMF report estimates the impact of multinationals’ 
profit reallocation on developing countries to be over $200 billion a year, three times as high 
as on OECD countries in terms of GDP”. Firms and business associations, however, are less 
certain of the benefits.  

Impacts on BEPS  
An IGO called for the swift implementation of the OECD BEPS Action Plan by the EU and 
pointed  out  the  risks  a  unilateral  measure  could  have  on  the  multilateral  approach,  for 
example that it could remove the incentive for non-EU states to report tax information.  

List  of  stakeholders  with  whom  the  Commission  services  had  ad  hoc 
exchanges 

Firms 
Amazon 
Fortum 
General Electric (GE) 
Repsol   
Legal and General 
SSE Corp  

Industry Associations 
Association Française des Entreprises Privées (AFEP) 
BDI/BDA, the German Business Representation 
Business Europe 
Confederation of Finnish Industries 
European Association of Tax Law Professors (EALTP) 
European Banking Federation (EBF) 
European Issuers 
Federation of European Accountants 
International Regulatory Strategy Group (IRSG) 

Commission Expert Groups 
Platform for Tax Good Governance (see below) 

Intergovernmental Organisations 
Organisation for Economic Cooperation & Development (OECD) 

77 

 
 
 
 
 
 
 
 
 
 
 
 
 
NGOs, Trade Unions and Think Tanks  
ActionAid 
Cologne Institute for Economic Research  
Eurodad 
Friedrich-Ebert-Stiftung 
International Regulatory Strategy Group  
One Campaign 
Oxfam 
Transparency International  

Members of the Platform for Tax Good Governance  
The  Platform  consists  of  the  tax  authorities  of  each  of  the  28  EU  Member  States  and  15 
organisations representing business, civil society and tax practitioners listed here:  

American Chamber of Commerce 
Association of Chartered Certified Accountants  
Business Europe  
Bund Deutscher Unternehmen 
Christian Aid  
CIDSE 
Confédération Européenne des Syndicats Indépendants 
Confédération Fiscale Européenne 
Dutch Association of Tax Advisors  
European Association of Tax Law Professors 
European Federation of Public Service Unions 
Federation of European Accountants 
International Chamber of Commerce  
Mouvement des Entreprises de France  
Oxfam International  

78 

 
 
 
 
 
  
ANNEX C: FEATURES OF A COUNTRY-BY-COUNTRY REPORTING ACCORDING TO OECD 
BEPS ACTION 13 

to 

information  relating 

Economic coverage of the G20 and OECD 

The  G20  and  OECD  combined  account  for 
most of the world's economic output.  

A typical OECD CBCR is a stand-alone document, prepared by an MNE (ultimate parent of 
an MNE group) with a consolidated turnover of over EUR 750 million. It is submitted to the 
relevant  tax  authority  by  that  parent  MNE  as 
part of the documentation on transfer pricing. 
The  CBCR  provides  aggregate  jurisdiction-
wide 
the  global 
allocation of corporate income, taxes paid and 
other indicators relating to an MNE in a fairly 
standardised  way.  Confidentiality  (no  public 
disclosure)  and  appropriate  use  of 
the 
information  will  be  guaranteed  by  each 
jurisdiction  under 
the  MCAA  or  other 
bilateral  agreements  or  conventions.  No 
independent  audit  is  required,  as  well  as  no 
reconciliation  with  an  MNE's  consolidated 
In  cases  where  a 
financial  statements. 
jurisdiction  fails  to  collect  and  share  the 
information,  a  secondary  mechanism  will  be 
accepted (for example by moving requirement 
to next tier parent country or local filing). 

The  G20  consists  of  19  countries  and  the 
European  Union,  accounting  for  about  two-
thirds  of  the  world’s  population,  85  per  cent  of 
global  gross  domestic  product  and  over  75  per 
cent of global trade. 

The  OECD  has  34  Member  countries  from 
across 
the  world,  from  North  and  South 
America  to  Europe  and  Asia-Pacific.  The 
OECD works closely with emerging economies 
like  the  Brazil,  Russia  India  &  China  and 
developing  economies  in  Africa,  Asia,  Latin 
America and the Caribbean. Together with key 
the  People's 
partners 
Republic  of  China,  Indonesia  and  South 
Africa),  the  OECD  brings  around  its  table  39 
countries  that  account  for  80%  of  world  trade 
and investment. 

India  and 

(Brazil, 

The  OECD  supports  a  swift  implementation 
of  BEPS  13  beginning  on  or  after  1  January 
2016.  This  would  imply  that  MNEs  would 
have  to  submit  the  first  CBCR  in  2017. 
Exchange  of  information  would  reach  full 
speed in 2018. 

The  following  six  EU  Member  States  are  not 
members  of  the  OECD:  Bulgaria,  Croatia, 
Cyprus,  Malta,  Romania  and 
the  Slovak 
Republic. 

The  OECD  members  came  to  the  consensus 
that it is necessary to guarantee confidentiality 
and  deter  the  inappropriate  use  of  potentially  sensitive  information  exchanged  between  tax 
authorities.  The  OECD  explains  that  this  is  consistent  with  the  treatment  other  taxpayers' 
information142. 

The Multilateral Competent Authority Agreement ("CbC MCAA") is a key proposal for the 
exchange  of  CBCR  among  tax  authorities  in  participating  countries.  Non-participating 
countries  would  not  be  provided  with  such  information.  A  forthcoming  OECD  standard 
facilitating the electronic exchange of CBCR is expected in 2016. The instrument will be open 
for signature to all interested countries in 2016 – including countries that are currently neither 
a member of the G20 nor the OECD. 

142   OECD – BEPS - Frequently Asked Questions #80, 2015 

79 

 
 
                                                 
 
 
 
 
  
 
G20 Leaders at the November 2015 Antalya Summit underscored the importance of coherent 
and timely implementation within and beyond the G20 and OECD. In October in Lima, Peru, 
Chinese Finance Minister Lou Jiwei said China seeks to actively promote the implementation 
of  the  plan.  US  Treasury  Secretary  Jacob  J.  Lew  acknowledged  the  "wide  agreement  that 
these recommendations should be successful when implemented in cooperation", and asserted 
that  the  US  is  "already  engaged  in  the  process  of  BEPS  implementation".  Commissioner 
Moscovici underlined progress made in the EU on the automatic exchange of information on 
tax rulings and reiterated the European Commission's support for the BEPS actions. 

Further OECD BEPS actions may be relevant to furthering transparency, but these fall outside 
of  the  scope  of  this  Impact  Assessment:  BEPS  5  –  Counter  harmful  tax  practices  more 
effectively,  taking  into  account  transparency  and  substance;  BEPS  11  –  Establish 
methodologies to collect and analyse data on BEPS and the actions to address it; BEPS 12 – 
Require taxpayers to disclose their aggressive tax planning arrangements. 

The main features of a typical OECD CBCR are as follows: 

  Stand-alone document: distinct from master or local transfer pricing documentation 
  Prepared by an MNE (ultimate parent of an MNE group). According to the OECD, an 
MNE  usually  comprises  companies  or  other  entities  established  in  more  than  one 
country.  As  these  are  linked  they  may  co-ordinate  their  operations  in  various  ways. 
While  one  or  more  of  these  entities  may  be  able  to  exercise  a  significant  influence 
over the activities of others, their degree of autonomy within the enterprise may vary 
widely from one multinational enterprise to another. Ownership may be private, public 
or a combination of both. 

  All  industries  covered:  no  exemption  based  on  structure,  ownership  or  funding 
structure.  The  OECD  recommends  however  that  MNEs  with  an  annual  consolidated 
turnover of less than EUR 750 million or equivalent be exempt from reporting. Even if 
just 10 to 15% of MNEs are covered, these would account for around 90% of the total 
global revenue. 

  Standardised /consistent report: the OECD provides a template, materiality principle, 
language  features  (under  local  laws  –  but  use  of  commonly  used  language  is 
encouraged), list of information, etc. Companies are given leeway in certain aspects. 

  Annual report: covers a fiscal year (financial statements) of the reporting MNE 
  Confidential  report:  should  be  guaranteed  by  legal  protection,  public  disclosure  of 

sensitive information not allowed 

  Appropriate use only by authorities: the CBCR should be used by authorities only for 
the  appropriate  enforcement  of  transfer  pricing  rules  or  other  BEPS  related  risks, 
economic/statistical  analysis.  It  should  not  be  used  e.g.  as  a  substitute  for  a  detailed 
transfer  pricing  analysis  by  an  authority  as  it  is  deemed  not  to  constitute  conclusive 
evidence. 

  Provides jurisdiction-wide aggregate tax information relating to  the  global allocation 
of  income,  taxes  paid  and  certain  indicators  of  the  location  of  economic  activity 
among tax jurisdictions in which the MNE group operates 

  Provides  information  on  the  global  operations  of  an  MNE  possibly  headquartered 

elsewhere 

  Considers that the permanent establishment data should be reported by reference to the 
tax  jurisdiction  in  which  an  entity  is  situated  and  not  be  reference  to  the  tax 
jurisdiction of residence of the business unit of which the permanent establishment is 
part. 

  No audit by an independent party 

80 

 
 
  No  reconciliation  with  figures  of  MNE's  consolidated  financial  statements  is  to  be 

made. 

According to the OECD, a typical CBCR would comprise the following information: 

  An  overview  (table)  of  allocation  of  income,  taxes  and  business  activities  by  tax 

jurisdictions in the following template: 

In the sixth column of the template, the Reporting MNE should state the total amount of 
income  tax  actually  paid  during  the  relevant  fiscal  year.  In  the  seventh  column  of  the 
template, the MNE should report the accrued tax expense recorded on taxable profits or 
losses  for the  reporting year  –  excluding  the  effect  of  deferred  taxes  or  provisions  for 
uncertain tax liabilities. It is not necessary to reconcile the revenue, profit and tax to the 
consolidated financial statements.  

  A list of all entities of an MNE for which financial information is reported, using the 

following template:  

81 

 
 
 
  Additional information, if deemed necessary by a reporting MNE 
  A brief description of sources of data used 

82 

 
 
 
ANNEX  D:  BACKGROUND  AND  CONTEXT:  OVERVIEW  OF  LEGISLATIVE  AND  NON-
LEGISLATIVE FRAMEWORK 

D.1 International context (other than G20/OECD BEPS initiative)  

D.1.1  United Nations 

On 27 July 2015, the General Assembly of the United Nations endorsed the solutions of the 
Addis  Ababa  Action  Agenda  of  the  Third  International  Conference  on  Financing  for 
Development143. Among other pledges outlined in point 27 of the Agenda, participating States 
commit to scaling up international tax cooperation and strengthening transparency by way of 
country-by-country reporting to tax authorities where MNEs operate. 

D.1.2  G20 

The action plan endorsed by the G20 at a Leaders Summit in Saint Petersburg in September 
2013 aimed to ensure profits are taxed where value is created. 

1.   Base  erosion  and  profit  shifting  (BEPS)—addressing  international  tax  avoidance  and 
reforming  the  international  tax  system,  by  working  through  its  finance  track  with  the 
Organisation for Economic Co-operation and Development (OECD) in 2014 and 2015 to 
deliver a 15-point BEPS Action Plan.  

2.   Automatic  exchange  of  tax 

tax 
transparency,  by  working  through  its  finance  track  with  the  Global  Forum  on 
Transparency and Exchange of Information for Tax Purposes (Global Forum) to develop 
a Common Reporting Standard (CRS) for automatically exchanging taxpayer information 
between jurisdictions.  

information  (AEOI)—promoting 

international 

3.   Tax  and  development—supporting  effective  domestic  resource  mobilisation  (DRM) 
within  developing  economies  by  working  through  its  Development  Working  Group 
(DWG)  to  ensure  developing  economies  can  fully  and  effectively  participate  in,  and 
benefit  from,  the  G20  international  tax  agenda.  This  includes  working  with  the  finance 
track on the implementation of BEPS and AEOI reforms in developing economies. 

At  the  Antalya  Summit  in  November  2015,  the  G20  endorsed  the  full  set  of  actions 
recommended  by  the  OECD  Base  Erosion  and  Profit  Shifting  (BEPS),  as  defined  by  the 
Organisation  for  Economic  Co-operation  and  Development  (OECD).  The  BEPS  initiative 
includes 15 proposals for action, a number of which are designed to enhance transparency – in 
the sense of transparency towards and among solely tax authorities by ways of exchange of 
information.  

143   Resolution adopted by the General Assembly on 27 July 2015, A/RES/69/313. The process is supported by 
the Financing for Development Office (FfDO) established within the Department of Economic and Social 
Affairs (DESA) of the United Nations Secretariat. 

83 

 
 
 
                                                 
D.1.3   Extractive Industries Transparency Initiative (EITI) 

The EITI is a voluntary private initiative with the objective of improving the transparency and 
accountability of companies in countries rich in oil, gas, and mineral resources144. The EITI 
standard  mandates  the  disclosure  of  various  types  of  payments  to  governments,  including 
corporate income taxes. 

As  of  mid-2015,  31  countries  are  complying  with  the  EITI  requirements  and  15  other 
countries have candidate status. Most countries are developing countries rich in resources, but 
the standard is gaining momentum in developed countries with Norway's membership and the 
application of the United Kingdom, the US and others under consideration (France, Germany, 
Australia).  

The Country-By-Country reporting introduced by the EU for extractive and logging industries 
in 2013 aimed inter-alia to support the initiative, with requirements that are broadly consistent 
with the EITI standard. In doing so, the EU hopes that this will serve to help governments of 
resource-rich  countries  to  implement  the  EITI.  Some  major  jurisdictions  such  as  Brazil, 
Russia, India and China are not yet involved. 

D.1.4  Third countries 

Other  than  CBCR  for  extractive  industries  in  a  few  jurisdictions,  no  major  third-country  is 
currently  contemplating  further  corporate  tax  transparency  for  other  industries.  The  U.S.A. 
nevertheless  intends  to  ensure  that  listed  companies  disclose  slightly  more  information  than 
what is required in the EU. 

D.1.4.1 US 

In  the  US,  the  federal  securities  laws  require  listed  companies  to  disclose  an  annual  report, 
known as "Form 10-K". The completion of this form is mandatory for US issuers as well as 
foreign issuers if over 50% of their shares are traded on a US exchange. Typically, this form 
provides much more details than the annual report and gives a comprehensive overview of the 
company's business and financial condition. Companies have to file the form within 90 days 
of the end of their fiscal year. 

The  10-K  form  contains  (a)  the  business  summary  describing  the  business'  operations  with 
inter  alia the  total number of employees;  (b) a  management  discussion and analysis;  (c) the 
annual  audited  US  GAAP  financial  statements;  and  (d)  other  information.  Item  (c)  must 
contain  the  breakdown  of  certain  information  on  a  segmental  basis  (not  necessarily 
geographically  based)  and  the  breakdown  of  revenues  on  a  geographical  basis  showing 
separately at least revenues in the country of domicile and in material countries. A total figure 
must be given for revenues in remnant countries145. The same goes with long-lived assets in 
order to provide information on risks and uncertainties in certain geographic areas. It is worth 

144   https://eiti.org/  
145   US Financial Accounting Standards Board (FASB), Accounting Standards Codification Topic 280, Segment 
Reporting.  In  order  to  ensure  minimum  comparability  of  the  financial  information,  the  standard  requires 
disclosure of an MNE's revenues from external customers attributed to the listed entity's country of domicile 
(most  likely  the  US)  and  revenues  attributed  to  all  foreign  countries  in  total  from  which  the  listed  entity 
derives revenues by certain countries. 

84 

 
 
                                                 
noting that IFRS 8, which has been adopted by the EU, was converged with these US GAAP 
requirements in 2006. 

A reconciliation of the actual tax charge to the theoretical amount based on U.S Federal tax 
rate (currently 35%) is also given, part of which may be due to foreign tax rates differences, 
as  well  as  a  reconciliation  and  disclosure  of  an  issuer's  effective  tax  rate.  The  latter 
reconciliation is also provided by foreign private issuers where less than 50% of their shares 
are  traded  on  a  US  exchange  (form  20-F  instead  of  10-K).  It  is  worth  noting  that  IFRS  12, 
which has been adopted by the EU, includes similar reconciliation obligations. 

Due  to  an  additional  SEC  disclosure  obligation146,  corporate  income  tax  amounts  must  be 
disclosed  on  a  geographical  basis,  i.e.  tax  incurred  (i.e.  current  and  deferred)  in  the  US 
(Federal, States  altogether)  vs non-US countries (international altogether).  The geographical 
breakdown of taxes is not provided by foreign private issuers if less than 50% of their shares 
are traded on a US exchange (form 20-F instead of 10-K). 

Illustrative examples of the geographical information and the tax reconciliation to be provided 
by a US issuer of listed securities are provided in Annex G. 

In  July  2010,  the  U.S.  Congress  passed  Section  1504  of  the  Dodd-Frank  Act,  a  measure 
requiring  companies  registered  with  the  US  Securities  and  Exchange  Commission  (SEC)  to 
report how much they pay governments for access to oil, gas and minerals. A final SEC rule 
to implement the reporting is pending. 

D.4.1.2  Other third countries 

Information  on  corporate  income  tax  is  generally  available based  on  GAAP  in  the financial 
statements  of  companies,  where  these  are  available  to  the  public.  Beyond  the  EU, 
approximately 90 countries and reporting jurisdictions permit or require IFRS (or IFRS like 
GAAP)  for  domestically  listed  companies.  These  include  large  economies  such  as  China, 
Brazil or Russia. 

Canada  also  permits  the  use  of  IFRS.  In  addition,  Canada  has  adopted  a  law  requiring 
extractive  industries  to  publish  a  country-by-country  report  on  payments  to  governments 
starting  in  2016.  In  June  2013,  Australia  introduced  legislation  designed  to  improve  tax 
transparency  requiring  e.g.  the  publication  of  tax  payable  by  large  corporations  subject  to 
natural  resource  rent  tax.  In  Japan,  public  disclosure  of  individual  and  corporate  tax  return 
data was mandatory from 1950-2004, but this has since been dropped147. 

D.2 EU context 

In the EU, many enterprises' tax disclosures are those made in the annual financial statements, 
the content of which is driven by accounting principles or standards adopted by the EU. As 
explained  above,  CBCR  has  been  required  very  recently  from  banks  and  extractive/logging 
enterprises. Market led initiatives remain shy, whilst leaks in the press and public dismay are 
abundant, fuelling Parliamentary enquiries.  

146   Code of Federal Regulations of the United States of America, §210.4-08 
147   ZEW Discussion Papers - Transparency in Financial Reporting: Is Country-by-Country Reporting Suitable 

to Combat International Profit Shifting?, 2014 

85 

 
 
                                                 
D.2.1 National GAAP, Accounting Directive and IFRS 

Under  EU  law148,  the  information  disclosed  on  corporate  income  tax  in  the  financial 
statements remains limited. There is no requirement to break  down the tax expenses or paid 
geographically.  

Each  limited  liability  company  (whether  a  parent  or  subsidiary)  established  or  listed  in  the 
EEA  must  disclose  in  its  annual  or  consolidated  financial  statements  at  least  (a)  the  tax 
expense, (b) amount payable or recoverable at year end (at least an aggregated amount), and 
(c) information on deferred taxes where appropriate (Accounting Directive). These companies 
are also required to disclose figures for the average number of employees149, net assets, stated 
capital,  accumulated  earnings150,  and  for  larger  companies,  a  complete  list  of  companies 
included in the consolidation as well as information on participating interests151, a breakdown 
of net turnover by activity and into geographical markets where those differ substantially and 
insofar as the information disclosed is not biased152. 

The financial statements are to be filed with the relevant national public register, and/or with 
the nationally-appointed mechanism attached to regulated capital markets where an enterprise 
may have securities listed. Registers and mechanisms ensure public access to the information, 
usually for a small fee. 

Likewise, a branch opened in a Member State by a company which is not governed by the law 
of a Member State shall file documents with the relevant business register of a Member State, 
including  the  accounting  documents  of  the  company  managing  the  branch,  which  have  to 
equivalent to EU company law153. 

The  International  Accounting  Standards  Board  (IASB)  is  an  independent  standard-setting 
body  located  in  London,  and  is  responsible  for  the  development  and  publication  of  the 
International Financial Reporting Standards (IFRS). The IFRS are developed with a view to 
bring transparency, accountability and efficiency to financial markets around the world. There 
are  currently  116  jurisdictions  which  require  IFRS  for  all  or  most  domestically  listed 
companies in their capital markets, including the EU Member States, Australia, Russia, Hong-
Kong,  New  Zealand,  Singapore,  South  Africa  and  Brazil154.  The  consolidated  accounts  of 
listed EU companies have to be prepared in accordance with IFRS issued by the IASB, and 

148   GAAP in the EU are shaped mainly by the Accounting Directive, Transparency Directive, and the IFRS as 

adopted in the EU, either stand alone or in combination depending on the situation of each enterprise 

149   Accounting Directive, Article 16(1)(h)  
150   Accounting Directive, Annex III and IV 
151   Accounting Directive, Article 17(1)(g), 17(1)(k), 28(2) 
152   Accounting Directive, Article 18(1)(a) 
153   Section II of the 11th Company Law Directive on branches (89/666/EEC) 
154   Some countries such as Canada or China are converging domestic accounting standards towards the IFRS. 
The US SEC accepts IFRS financial statements filed by foreign private issuers. Japan permits, rather than 
require IFRS. See also the IFRS Foundation/IASB's web site: Analysis of the IFRS jurisdiction profiles 

86 

 
 
                                                 
adopted by the EU155. Beyond this, the IFRS are required or permitted for certain enterprises 
in the EU depending on Member States' approach156. 

Two  IFRS  are  relevant  in  the  context  of  corporate  tax  transparency:  IFRS  8  Operating 
Segments, and IAS 12 Income taxes.  

IFRS 8 Operating Segments requires the breakdown of certain information by segment. The 
IASB  issued  IFRS  8  Operating  Segments  on  30  November  2006  (adopted  by  the  EU  in 
November  2007  and  effective  from  1  January  2009).  Based  on  input  by  a  coalition  of  over 
300  organisations  from  more  than  50  countries  (a  Publish  What  You  Pay  campaign),  the 
IASB considered whether CBCR could be useful in the financial statements of the oil, gas and 
mining  industries,  but  rebuffed  such  reporting  at  the  time.  The  IASB  clearly  intended  to 
converge IFRS 8 with  segment disclosure required by the US GAAP (then SFAS 131, now 
ASC 280) 

The final standard requires information on revenues and taxes paid by segment. An operating 
segment  is  often  not  a  function  of  geographical  area,  as  it  should  be  based  on  an  entity's 
business activities whose operating results are regularly reviewed by the entity's management 
and for which discrete financial information is available. It may be for instance a product line. 
Information  is  sought  as  well  as  regarding  an  entity's  functions,  products  and  services,  the 
identification  of  geographical  areas  in  which  it  operates  and  of  key  customers.  Required 
disclosures include, inter alia: 

  how the entity identified its functions, products and services by function; 

 

information about the profit or loss per function/segment of activity, including certain 
specified  revenues  and  expenses  such  as  revenue  from  external  customers  and  from 
transactions  with  other  segments,  interest  revenue  and  expense,  depreciation  and 
amortisation, income tax expense or income and material non-cash items; 

  a  measure  of  total  assets  and  total  liabilities  per  segment,  as  well  as  capital 

expenditure; 

 

reconciliations with the entity's financial statements. 

Limited geographical analysis is required, quite similarly to the US GAAP: 

 

revenues  from  external  customers  and  certain  non-current  assets  attributed  to  the 
country  of  domicile,  and  to  all  foreign  countries  in  total.  There  is  an  expanded 
requirement to disclose revenues/assets by individual foreign country, if material157. 

IFRS 8 as it currently stands cannot be seen as a proper proxy for a CBCR. This is because (i) 
a  geographical  approach  may  not  constitute  a  proper  reflection  of  a  company's  operating 

155   Regulation (EC) No 1606/2002/EC, Article 4 
156   Regulation (EC) No 1606/2002/EC, Article 5. See also Commission Staff Working Document, Evaluation 
of Regulation (EC) N° 1606/2002 of 19 July 2002 on the application of International Accounting Standards, 
2015, page 23 

157   See illustrative example in Annex F 

87 

 
 
                                                 
segments158;  (ii)  only  revenues  and  certain  assets  are  to  be  disclosed  mandatorily  on  a 
geographical  basis,  and  (iii)  country  reporting  is  limited  to  the  country  of  domicile  and 
material countries. 

In  July 2013, the IASB carried out a post implementation  review of IFRS 8. It did not  find 
any  need  to  revise  the  standard,  including  for  example,  more  disclosures  on  geographical 
information, as the Standard was believed to be functioning as anticipated159. 

Additional disclosures required under IAS 12  Income taxes include e.g. a breakdown of the 
key  components  of  tax  expense,  details  on  deferred  taxes,  numerical  reconciliation  between 
actual tax expense and expected expense or between the effective tax rates and the applicable 
tax rates, an explanation of changes in the tax rates, as well as a number of other items. To 
illustrate, an example is provided in Annex F. The IFRS approach may be seen to a certain 
extent as comparable to the US model. However unlike the US SEC model, the IFRS does not 
require a geographical breakdown of the income tax charge. 

In 2011-13, the EFRAG160 explored ways to improve the information given to investors under 
IAS 12 with e.g. additional disclosures related to income tax including by ways of disclosure 
(e.g.  forward  looking  and  sensitive  information,  uncertain  tax  positions,  …).  This  did  not 
include  a  geographical  breakdown  of  information.  The  EFRAG  did  not  pursue  this  project 
based on a public consultation showing little support for a change161. The IASB is currently 
looking  into  whether  to  review  IAS  12  as  regards  the  decision-usefulness  of  some  of  the 
information provided by this standard and hopes to consider the findings of the research late 
in  2015162.  It  is  not  anticipated  that  a  geographical  breakdown  of  tax  information  would  be 
considered under this exercise. 

In practice, the IASB is the only body that can deliver a coercive instrument dealing with the 
disclosure  of  financial  information  whilst  maintaining  a  level  playing  field.  However,  no 
developments from the IASB are expected in the short to medium term. Given that CBCR is 
not  on  the  IASB's  current  work  programme,  any  IASB  initiative  is  likely  to  require  several 
years to reach a final standard. There would be, in addition, a further implementation period 
of at least two years. While the Commission  supports  worldwide harmonisation, there is  no 
certainty that a global consensus will be found. Indeed, the expected timeframe for any such 
action is long. 

Beyond the above considerations, the table below illustrates the kind of disclosures that can 
be (legitimately) conceived to enhance corporate transparency via CBCR. Such information is 
usually provided in a company's financial statements. 

158   Commission analysis of potential effects – IFRS 8 – Sept. 2007, page 14  
159   IASB, Post-implementation Review of IFRS 8 Operating Segments, 2013   
160   European  Financial  Reporting  Advisory  Group.  The  group  provides  input  into  the  development  of  IFRS 
issued  by  the  IASB  and  provides  the  European  Commission  with  technical  expertise  and  advice  on 
accounting matters.  

161   EFRAG Proactive - Financial Reporting for Corporate Income Taxes, 2011-13 
162   IASB, Request for Views, 2015 Agenda Consultation, 2015 

88 

 
 
 
 
 
 
                                                 
Table 7: Contemplated CBCR information vs information required by GAAP or otherwise 

Item 

Name 

Nature of activities 

Location 

Revenue 

Revenue with related parties 
only*** 

Number of employees 

Profit or Loss Before Tax 

Income tax accrued / charge / 
expense for the reporting year 
(current) 
Income tax accrued / charge / 
expense for the reporting year 
(deferred) 
Income tax paid 

Stated Capital 

Accumulated earnings 

Tangible assets 

GAAP / LEGAL REQUIREMENT 
National GAAP / Accounting 
Directive  
(large companies) 
Yes 
Identification of the financial 
statements 
Article 5 
Yes 
Management Report 
Article 19 
Yes 
Identification of the financial 
statements 
Yes 
P&L Statement 
Yes** 
Notes 
Article 17(1)(r) 
Yes 
Notes 

Yes 
P&L Statement 
Yes 
P&L Statement 

Permitted (Member State option) 

No 

Yes 
B/S Statement 
Annex III and IV 
Yes 
B/S Statement 
Annex III and IV 
Yes 
B/S Statement 
Annex III and IV 

IFRS 

Yes 
Identification of the financial 
statements IAS 1.49 

Yes 
Notes 
IAS 1.138.b 
Yes 
Notes 
IAS 1.138.a 
Yes 
P&L Statement 
Yes 
Notes 
IAS 24.17 and 20 
Yes (by application of EU law, as 
the disclosure is not required by 
IFRS ) 
Notes 
Yes 
P&L Statement 
Yes 
P&L Statement 

Yes 
P&L Statement 

Yes 
Cash Flow statement 
IAS 7.35 
Yes 
B/S Statement 
IAS 1.54 
Yes 
B/S Statement 
IAS 1.54 
Yes 
B/S Statement 
IAS 1.54 

89 

 
 
 
Item 

List of subsidiaries of the parent 
enterprise operating in each 
country 

Public subsidies received 

Tax rulings 
Employees working through 
subcontractors 
Pecuniary tax-related penalties 
administered by a country 

Narratives explaining certain key 
features of the tax-related 
information 

National GAAP / Accounting 
Directive  
(large companies) 
Yes 
Notes or separate statement 
Article 17(1)(g) 
Article 28(2) 

IFRS 

Yes (by application of EU law, as 
the disclosure is not required by 
IFRS ) 
Notes 

No 

No 
No 

Yes 
Notes 
IAS 20.39 
No 
No 

No 
unless exceptional 
(notes) 
Article 16(1)(f) 
No 
unless necessary to give a true and 
fair view 

No 
unless material  
(notes) 
IAS 1.29 
Partly covered 
by explanation to be disclosed in 
the notes 
IAS 12.81 - 85 

P&L: Profit and Loss 
B/S: Balance Sheet  
(*): Business registers are regulated by Directive 2009/101/EC 
(**): Member States may permit or require that only transactions with related parties that have not been 
concluded under normal market conditions be disclosed. Member States may in addition permit that 
transactions entered into between one or more members of a group be not disclosed, provided that 
subsidiaries which are party to the transaction are wholly owned by such a member. 
(***): Revenues with related parties are eliminated in consolidated financial statements 

In  light  of  the  information  to  be  published  by  companies,  at  least  in  the  EU,  it  should  be 
possible for any stakeholder to reconstruct, the breakdown on a country-by-country basis of 
the  profit  before  tax,  tax  expense,  headcount,  assets,  etc.  for  a  given  EU  MNE  group.  The 
possibility  of  constructing  these  figures,  hypothetically-speaking,  however,  is  severely 
hampered by the following limitations: 

  Search  costs:  the  time  and  resources  necessary  to  obtain,  gather  and  compile  the 
information can be daunting. Some MNE groups might comprise thousands of entities. 
Accessing information in national business registers in the EU, on the internet, through 
other means or other parties (databases, …) can prove costly (fees to be paid) and time 
consuming (registration, itemised search, etc.); 

  Limited or no available information: the identification of a group's structure can be a 
deterrent to gathering information. This is outlined by NGOs, who generally praise the 
increased  transparency  of  EU  MNEs  compared  to  non-EU  MNEs.  Moreover,  the 
individual  financial  statements  of  a  group's  entities  located  outside  the  EU  are 
generally  not  publically  available  as  seen  in  Annex  O.  Neither  are  tax  returns 
submitted by companies to their tax authorities generally in the public domain. Finally, 
companies  of  the  unlimited  liability  type  are  not  obliged  by  EU  law  to  publish  their 

90 

 
 
 
 
financial statements163. It has been reported in the press that the taking on of this status 
is used within some MNE groups164; 

 

Inconsistency  of  information  from  one  country  to  another  (different  GAAP  in 
individual  financial  statements165)  can  prevent  obtaining  the  exact  picture  on  a 
country-by-country basis. Figures in a subsidiary's financial statements will generally 
include  intra-group  transactions  which  are  not  eliminated  at  this  stage,  but  are 
eliminated in an MNE group's consolidated financial statements; 

  Language  barriers:  the  individual  financial  statements  of  a  company  are  generally 

prepared in the language of the country of establishment. 

De  facto,  the  wider  public  has  only  limited  access  to  information  concerning  corporate 
structures / geographical breakdown of financial information for which transfer pricing laws 
apply in the first place, and to determine the extent to which transfer pricing corresponds to 
economic reality. 

The EU is currently working on several strands in order to improve public access to company 
information in the EU. A database integrating registers of Member States, a central European 
platform  and  the  European  e-Justice  portal  will  ensure  the  interconnection  of  central, 
commercial and company information, serving as a central European access point. This will 
be operational by mid-2017 when Directive 2012/17/EU is implemented.  

This Directive provides for the interconnection of business registers in the EU as regards the 
company  types  and  documents  covered  by  Directive  2009/101/E,  including  accounting 
documents,  and  for  the  functionalities  provided  for  under  BRIS,  in  particular  search  of 
company  information.  Under  the  Transparency  Directive,  the  European  Securities  and 
Markets  Authority  (ESMA)  has  undertaken  two  complementary  actions  regarding  the 
electronic  filing  by  listed  companies,  including  their  financial  statements:  the  European 
Electronic  Access  Point  (EEAP),  and  the  European  Single  Electronic  Format  (ESEF).  In 
particular,  ESMA  will  set  technical  requirements  regarding  the  access  to  regulated 
information at the EU level. With effect from 1 January 2020, the annual financial reports of 
issuers will be prepared in a single electronic reporting format. 

It  may  be  sought  to  further  address  the  above  listed  shortcomings  by  ways  of  publishing 
further details in order to help any stakeholder wishing to prepare itself e.g. a CBCR However 
this does not seem to be a proper route. First, this would mean either imposing a systematic 
publication of financial statements on companies established in third countries, or to have the 

163   The  obligation  for  limited  liability  companies  to  publish  annually  their  financial  statements  is  set  by  the 
Accounting  Directive  (Article  30).  The  limited  liability  types  of  companies  are  listed  in  Annex  I  of  the 
Accounting Directive. Annex II lists in addition certain types of companies with unlimited liability which 
might be in the scope of the Directive if certain conditions are met. 

164   Alex  Barinka  and  Jesse  Drucker  -  Etsy  Taps  Secret  Irish  Tax  Haven  and  Brags  About  Transparency  at 

Home, 2015 

165   This barrier is overcome at group level as generally, the parent company requires each subsidiary to prepare 
a set of financial statements (' a consolidation package') in accordance with the group GAAP. The package 
comes in addition to the individual financial statements/tax returns that subsidiaries may prepare pursuant to 
their local fiduciary duties, usually in compliance with local GAAP and rules. Third parties are generally not 
in a position to restate a subsidiary's financial statements in accordance with group GAAP, given the amount 
of insider information required. 

91 

 
 
                                                 
detailed individual financial statements of a group's components published by an MNE. The 
former  would  not  seem  realistic  due  to  the  extraterritorial  reach  implied,  let  alone  the 
language barrier, whereas the latter would involve a disproportionate inflation of documents 
to  be  published  by  an  MNE.  Second,  to  require  more  information  on  an  MNE's  group's 
structure  would  amount  to  producing  detailed  information  that  would  not  necessarily  be 
readily usable by stakeholders to compute financial information  on this basis, absent  details 
on  each  individual  component  of  a  group.  Overall,  this  route  would  be  costlier  for 
stakeholders  and  companies,  compared  to  a  CBCR  directly  computed  and  published  by  a 
company. 

D.2.2  Civil society 

Stakeholders have sought to gather data on corporate and other information that is publically 
available. Below is an overview of some of the findings of select NGOs:  

  Transparency in corporate reporting, Transparency International, 2014166.  

The  report  assesses  the  disclosure  practices  of  companies  with  respect  to  their  anti-
corruption  programmes,  company  holdings  and  the  disclosure  of  key  financial 
information  on  a  country-by-country  basis.  It  reports  that  7  of  the  top  10  best 
performing companies in terms of transparency are from Europe. EU companies score 
highest in organisational transparency. This is mainly explained by the differences in 
GAAP  requirements  between  the  EU  and  other  jurisdictions.  The  EU  disclosure 
obligations  as  regards  group  structure  (list  of  subsidiaries  and  other  entities)  are 
comprehensive  in  the  EU,  due  to  the  EU  Accounting  Directive  and  the  IFRS.  By 
contrast,  and  for  instance,  the  US  GAAP  require  the  disclosure  of  only  material 
subsidiaries.  Transparency  International  highlights  weaknesses  in  general  on  the 
reporting  of  geographical  breakdown  (which  garners  an  average  score  of  6%  for 
CBCR).  

  Aux paradis des impôts perdus, ccfd-terre solidaire, 2013167. 

The focus of the survey is on the presence of subsidiaries of EU MNEs in tax heavens. 
It points to a general lack of available geographical information given by companies, 
as  none  of  the  surveyed  MNEs  provided  a  CBCR.  In  addition,  ccfd-terre  solidaire 
criticises  the  sometimes  incomplete  list  of  subsidiaries,  as MNEs  sometimes  provide 
only a partial list, or a list with partial information on each subsidiary, or a list with 
both  issues.  In  many  instance,  the  information  was  available  at  a  cost  (request  to  a 
company's seat, search in public registers, …)  

  FTSEcrecy:  the  culture  of  concealment  throughout  the  FTSE,  Christian  Aid,  May 

2014168. 
In  its  report,  Christian  Aid  deplores  generally  weak  corporate  transparency.  For 
instance, data on turnover, assets, employees or shareholders' funds could be accessed 

166   Transparency  International,  Transparency  in  corporate  reporting:  assessing  the  world's  largest  companies, 

2014 

167   http://www.christianaid.org.uk/images/FTSEcrecy-report.pdf 
168   http://www.christianaid.org.uk/images/FTSEcrecy-report.pdf 

92 

 
 
 
 
 
 
                                                 
at no cost for 26% of all FTSE subsidiaries. For the remaining 74%, either data was 
not available, or limited data was available but could only be accessed after payment 
of a fee. 

  Hidden  profits:  the  EU's  role  in  supporting  an  unjust  global  tax  system,  Eurodad, 

2014169. 
The  report  reviews  national  policies  as  regards  financial  and  corporate  transparency. 
This includes information on whether countries publish information about the real – or 
beneficial  –  owners  of  companies  and  trusts,  and  whether  they  support  increased 
transparency  around  the  economic  activity  and  tax  payments  of  transnational 
corporations. Eurodad recommends that EU Member States and EU institutions adopt 
full  country-by-country-reporting  for  all  large  companies  and  ensure  that  this 
information is publicly available. 

  Offshore Shell Games, Citizens for Tax Justice, 2015170. 

The  report  examines  the  use  of  tax  havens  by  U.S.-based  multinationals.  Most  of 
America’s largest corporations maintain subsidiaries in offshore tax havens. As of the 
end  of  2014,  at  least  358  companies,  nearly  72  percent  of  the  Fortune  500,  had 
subsidiaries located in tax haven jurisdictions.. It claims that Fortune 500 companies 
are holding more than $2.1 trillion in accumulated profits in offshore accounts for tax 
purposes. The organisation calls on the U.S. Congress to take strong action to prevent 
corporations  from  using  tax  havens,  as  this  would  restore  basic  fairness  to  the  tax 
system, reduce the deficit and improve market efficiency. 

Many  civil  society  organizations  are  campaigning  for  a  country-by-country  reporting 
requirement.  These  include  Tax  Justice  Network,  Transparency  international,  Financial 
Transparency  Coalition,  Eurodad,  Christian  Aid  and  Oxfam  international,  among  others. 
These  argue  that  enhancing  transparency  in  the  way  transnational  companies  report  and 
publish their accounts would help tackle tax avoidance, and other issues.  

According  to  NGOs  and  other  civil  society  organisations  it  is  difficult  to  establish  an 
overview of what is happening within a transnational group since each business entity reports 
and is taxed individually. They argue it would be different if reporting was carried out on a 
'country-by-country'  basis  as  it  would  shed  light  on  MNEs'  tax  strategies  and  strengthen 
efforts by tax authorities, investors, journalists and citizens around the world to better assess 
the  risks  related  to  tax  payments,  world  trade  flows,  corporate  governance,  and  corrupt 
practices.  

Civil  society  organizations  believe  that  it  would  be  a  cost  effective  solution  to  induce 
significant change in global corporate transparency - for the benefit of citizens, tax authorities, 
investors,  economists,  and  many  others.  Doing  so  would  provide  benefits  well  beyond  the 
arena of tax.  

169   http://www.eurodad.org/hiddenprofits 
170   http://ctj.org/ctjreports/2015/10/offshore_shell_games_2015.php 

93 

 
 
 
 
 
                                                 
Some  however  question  the  overall  concept  of  CBCR:  one  think  tank  comments  that 
"expected costs for CBCR would exceed expected benefits and therefore […] CBCR cannot 
be regarded as a convincing measure to combat international profit shifting"171. 

D.2.3  Country-By-Country Reporting in the EU 

D.2.3.1 State of play 

Transparency  on  taxes  paid  to  governments,  in  the  form  of  country  by  country  reporting, 
already exists for financial institutions established in the EU under the Capital Requirement 
Directive with a view to regaining trust in the financial sector172. Large extractive and logging 
industries also have the obligation to report their payments to governments on a country-by-
country  basis  as  a  result  of  the  implementation  of  the  Accounting  Directive  and  the 
Transparency  Directive  by  the  Member  States.  The  CBCR  aims  to  empower  local 
communities  of  resource-rich  countries  via  transparency  on  payments  made  to  their 
governments173. 

During the legislative adoption process of these Directives, the question arose as to whether to 
extend the CBCR requirement to enterprises of all sectors. The question remained unanswered 
at the time (2013), and the Commission was asked to consider the extension of the CBCR to 
other sectors before 2018, with additional contextual disclosure that could assist analysing the 
geographical  breakdown  of  payments  to  governments  such  as  the  average  number  of 
employees, the use of subcontractors, pecuniary penalties administered by a country, profits 
made, taxes paid on profits and public subsidies received. The Commission was asked to take 
into  account  developments  in  the  OECD  and  the  results  of  related  European  initiatives174. 
There is a "boomerang" clause175 in the CRD4 to cater for such extension, if any. 

Whereas  extractive  and  forestry  industries  do  not  yet  have  the  obligation  to  publish  their 
CBCR,  banks  established  in  the  EU  have  on  the  contrary  generally  started  to  publish  their 
CBCR in 2015, based on fiscal year 2014.  

D.2.3.2 Preliminary assessment of extent CBCR in the EU 

This  preliminary  assessment  focuses  on  CBCR  published  by  banks  since  2015.  In  the 
extractive sector, the CBCR has not yet produced full effects in the EU as the first reports are 
expected in 2016. 

As  regards  banks  (i.e.  "credit  institutions"),  the  Commission  undertook  in  October  2014  a 
general  assessment  of  economic  consequences  of  country-by-country  disclosure 

171   ZEW Discussion Papers - Transparency in Financial Reporting: Is Country-by-Country Reporting Suitable 

to Combat International Profit Shifting?, 2014 

172   Capital Requirement Directive, Recital 52 and Article 89 
173   Recitals 44 and 45, Accounting Directive 
174   Accounting Directive, Art. 48 
175   See discussion in Annex P. Art. 89(5) CRD4 on CBCR reads: "To the extent  that future Union legislative 
acts for disclosure obligations go beyond those laid down in this Article, this Article shall cease to apply and 
shall be deleted accordingly." 

94 

 
 
                                                 
requirements176.  It  was  based  on  a  public  consultation,  a  study177,  and  preliminary  limited 
reports submitted by certain banks at the time privately to the European Commission178. The 
Commission  opined  that  "the  public  country-by-country  reporting  of  information  [by  credit 
institutions] is not expected to have a significant negative economic impact, in particular on 
competitiveness, investment, credit availability or the stability of the financial system. On the 
contrary, it seems that there could be some positive impact". It was also observed at this early 
stage  that  banks'  CBCR  could  be  increased  by  addressing  some  elements  related  to  the 
implementation  of  that  provision.  The  European  Banking  Authority  and  the  European 
Commission have thereafter played a constructive role in this by publishing Q&As aimed at 
the consistent and effective application of the policy179. 

The Commission noted in its report that "CBCR should help understanding of whether taxes 
are being paid where the actual business activity takes place". It reported that independently 
from  the  financial  crisis,  there  are  increasing  calls  on  companies  to  take  responsibility  for 
their  impact  on  society  and  the  contribution  businesses  make  in  the  form  of  taxation  is 
increasingly  seen  as  part  of  corporate  social  responsibility:  "this  has  increased  demand  for 
more  transparency  in  the  tax  affairs  of  large  enterprises  in  particular  where  they  have 
significant cross-border activities.  

While  the  Commission  noted  that  some  stakeholders expect  CBCR  obligations to  affect  the 
effective tax rate of banks, it insisted that a bank's "CBCR in itself is not a tax measure but a 
tool for assessing transparency and corporate responsibility. It will have no direct effect on the 
tax rate imposed on reporting institutions. Any increase in effective taxation would only be an 
indirect result. It is very difficult to predict the likelihood of a possible increase of (effective) 
tax rates indirectly resulting from CBCR. This would depend on various factors such as the 
institution’s current approach to tax matters, the response by authorities to the disclosure of 
the information on all the tax payments on a country-by-country basis and the public response 
to the published CBCR data. Even if a reporting institution should change its tax approach, it 
would still be difficult to determine whether this was an indirect effect of CBCR, or rather the 
result from other developments in the area".  

The external contractor, PWC, also recognised that the probability and magnitude of any such 
change are impossible to predict at the time its report was drafted. It continued to explain that 
the  financial  services  sector  contributed  a  significant  amount  of  corporate  taxes,  accounting 
for  around  18%  of  total  corporation  taxes  paid  in  the  G20.  In  addition,  it  points  out  that 
corporate income taxes paid by banks represent only a portion of the overall taxes borne by 
them and the taxes they collect. 

In  August  2015,  a  survey  from  Tax  Research  UK  commissioned  by  the  Green  group  in  the 
European Parliament concluded, based on the CBCR published by 26 EU banks in 2015, that 

176   Commission's  Report  "General  assessment  of  economic  consequences  of  country-by-country  disclosure 

requirements set out in Article 89 of Directive 2013/36/EU", 2014 

177   All documents available on the Commission web site - Corporate Governance in financial institutions 
178   As per Article 89 of the CRD4, global systemically important institutions had to submit to the Commission 
by  1 July  2014,  on  a  confidential  basis,  a  CBCR  limited  to  profit  before  tax,  tax  amount,  and  public 
subsidies. 

179   Single Rulebook Q&A, European Banking Authority's web site 

95 

 
 
                                                 
despite  certain  limitations,  the  banks'  CBCR  provide  useful  information180.  Inter  alia,  the 
information  allowed  the  author  to  propose  a  ranking  of  each  bank  surveyed  along  with  the 
potential  risk  of  base  erosion  and  profits  shifting.  The  contextual  information  provided  in 
CBCR (revenues, number of employees, etc.) proved useful in determining such ranking, with 
the use of e.g. ratio such as turnover per employee or profit per employee. The author also felt 
necessary to identify low-tax jurisdictions or potential havens.  

The report highlights that the 26 banks surveyed may have been systematically over-reporting 
their  profits  in  some  low  tax  jurisdictions  or  places  identifiable  as  tax  havens,  whilst 
appearing to under-report them in those places where they have major centres of operation. – 
one  of  the  main  points  of  the  report  is  that  turnover  and  profits  per  employee  in  certain 
offshore jurisdictions are higher than those in onshore jurisdictions which backs up a possible 
claim  that  turnover/profits  do  not  follow  real  economic  activity  when  using  employee 
numbers as a proxy.  

A widespread absence of CBCR reporting by banks over the 2013 fiscal year means that the 
allocation  of  profits  per  country  could  not  be  surveyed  over  time.  This  is  however  key  as 
profit  shifting  can  only  be  tracked  over  a  number  of  years.  Surveys  of  this  nature  will 
certainly  gain  additional  clout  over  the  next  years.  As  seen  in  table  6,  there  were  no 
significant  variations overall in tax rates observed on the basis of the consolidated financial 
statements of the same 26 banks surveyed in the Tax Research UK report. Apparent tax rates 
increased from 2013 to 2014 across 13 banks and decreased in 12. The overall tax rate fell by 
2% from 33% to 31%. 

180   European Banks’ Country‐by-Country Reporting, a Review of CRD IV data, Tax Research UK 

96 

 
 
                                                 
Table 8 Apparent tax rate in 2014 compared to 2013 for the 26 EU banks surveyed 

This table indicates that the CBCR may have entailed no clear "crowd" behavioural changes, 
if  any,  at  least  to  the  effect  of  banks  paying  more  or  less  taxes  in  total.  Many  factors  can 
influence the effective tax rate of a bank over time, including changes in tax statutory rates, 
non-deductible expenses, business restructuring, and other factors. The table above therefore 
provides insufficient evidence for firm conclusions. 

The  Commission  services  asked  the  Platform  for  Tax  Good  Governance  at  a  meeting  on 
24 September  2015181  for  views  on,  or  experience  with  CBCR  published  by  banks  in  2015. 
According to a non-Member State member, public CBCR is very useful for detecting BEPS: 
by  analysing  information  disclosed in  CBCR  for  banks  –  such  analysis would  be  facilitated 
with  a  common  electronic  reporting  format  –  some  issues  have  been  detected  and  have 
triggered  their  direct  dialogue  with  banks.  The  view  was  also  expressed  by  a  non-Member 
State  member  that  for  banks,  disclosing  geographical  location  does  not  say  much  about  the 
bank's strategy, while for other types of companies, disclosing this type of information might 
give  an  advantage  to  competitors  that  are  not  submitted  to  CBCR.  There  was  no  indication 
from  Member  States  members  as  to  whether  tax  authorities  had  yet  made  use  of  such 
information. 

Asked by the European Banking Federation about the consequences of a public CBCR, banks 
generally take the view that there have been no unintended consequences, but that there may 

181   European Commission, Platform for Tax Good Governance 

97 

Country of main residence€'000201420132014201320142013ABN AMRO1,198,0001,279,00065,000117,0005%9%NetherlandsBanco Bilbao Vizcaya Argentaria3,980,276954,262898,493-15,94523%-2%SpainBankia SA912,132131,437226,172-156,83325%-119%SpainBanque Fédérative du Crédit Mutuel2,525,0002,295,000824,000811,00033%35%FranceBarclays2,799,6843,378,4981,751,0431,850,63563%55%UKBNP Paribas3,149,0008,101,0002,642,0002,680,00084%33%FranceBPCE5,279,0004,878,0001,913,0001,892,00036%39%FranceCaixabank SA202,173-979,753-417,752-1,288,358-207%131%SpainCommerzbank AG623,000238,000253,00066,00041%28%GermanyCredit Agricole3,235,0002,927,000470,00098,00015%3%FranceDekabank871,700517,600265,500173,60030%34%GermanyDeutschebank3,116,0001,457,0001,425,000775,00046%53%GermanyDZ Bank AG2,867,0002,221,000710,000754,00025%34%GermanyHelaba Landesbank Hessen-Thuringen607,000483,000210,000148,00035%31%GermanyHSBC Holding plc14,084,09716,997,8952,997,0183,589,40721%21%UKING3,707,0004,107,000971,0001,013,00026%25%NetherlandsKBC Bank2,420,0001,708,000657,000678,00027%40%BelgiumKfW1,609,0001,336,00095,00063,0006%5%GermanyLBBW Landesbank Baden-Wurttemberg477,000473,00043,000134,0009%28%GermanyLloyd Banking Group plc2,186,633488,869326,3821,433,62415%293%UKNIBC Bank30,00028,0006,0006,00020%21%NetherlandsRabobank1,681,000430,000-161,00088,000-10%20%NetherlandsRoyal Bank of Scotland3,279,949-10,424,1052,369,059219,10872%-2%UKSantander10,679,9077,377,5053,718,3552,033,71235%28%SpainSociété Générale4,354,0002,922,0001,376,000528,00032%18%FranceStandard Chartered3,193,0494,567,9251,153,5691,404,12536%31%UKTOTAL79,066,60057,893,13324,786,83919,094,07531%33%Source: SNL FinancialSource for BNP Paribas 2014 figures: https://invest.bnpparibas.com/sites/default/files/documents/2014-audited_financial_statements.pdfProfit before taxCorporate Tax Paid%  tax rate 
 
 
                                                 
still be some room for misinterpretation. Neither was there any noticeable effect in terms of 
their tax planning, investment or  strategies. Banks report that their CBCR had been used  in 
some  countries  by  researchers  and  journalists,  with  questions  and  clarifications  being  asked 
mainly  by  NGOs.  Banks  believe  that  the  obligation  was  disproportionate  in  scope  (small 
banks)  and  repetitive  (subsidiaries  and  parent  basically  report  the  same  information).  They 
draw attention to the risks of inconsistent implementation due to the CRD4's lack of clarity.  

The CRD4 includes a provision that stipulates  the CBCR provisions will cease to  apply  for 
banks, should future Union legislative acts for disclosure go beyond those in the CRD4. It is 
unclear  for  banks  whether  and  how  this  'boomerang'  clause  would  apply  if  the  EU  extends 
CBCR  to  all  sectors,  but  calls  on  the  need  to  ensure  the  consistency  of  reporting  between 
sectors to avoid costly and even confusing measures (several sets of overlapping disclosure). 

D.2.4 Relevant Actions under the current Commission Action plans 

On  18  March  2015,  the  Commission  presented  a  package  of  measures  to  boost  tax 
transparency182. This included a proposal for the automatic exchange of information on cross-
border  tax  rulings  between  Member  States.  In  the  package,  the  Commission  also  proposed 
reviewing  the  Code  of  Conduct  on  Business  Taxation  to  make  its  work  more  effective  and 
assessing  possible  (new)  transparency  requirements  for  multinationals.  This  Impact 
Assessment addresses the latter.  

On 17 June 2015, the Commission adopted in the follow-up of the package an Action Plan for 
Fair  and  Efficient  Corporate  Taxation  in  the  EU183.  The  Action  Plan  seeks  to  reform  the 
corporate  tax  framework  in  the  EU,  tackle  tax  avoidance,  ensure  sustainable  revenues  and 
support  a  better  business  environment  in  the  Single  Market.  Collectively,  the  series  of 
initiatives  announced  in  the  Action  Plan  should  significantly  improve  the  corporate  tax 
environment  in  the  EU,  making  it  fairer,  more  efficient  and  growth-friendly.  Key  actions 
include  a  strategy  to  re-launch  the  Common  Consolidated  Corporate  Tax  Base  and  a 
framework to ensure effective taxation where profits are generated.  

The  Commission  also  published  the  Anti-Tax  Avoidance  Package  (ATAP)  on  28  January 
2016. One of the objectives of the package is to transpose into EU law, the G20/ OECD BEPS 
Action 13 in order to boost transparency on the taxes that companies are paying. This will be 
done  through  a  revision  of  the  Administrative  Cooperation  Directive.  Under  the  proposed 
rules, national authorities will exchange tax-related information on multinational companies' 
activities, on a country-by-country basis. As such, all Member States (however not the public) 
will have crucial information to identify risks of tax avoidance and to better target their tax 
audits. 

In 2011, the Commission tabled a proposal for a Common Consolidated Corporate Tax Base 
(CCCTB), a single set of rules that companies operating within the EU could use to calculate 

182   European  Commission,  Communication  From  The  Commission  To  The  European  Parliament  And  The 
Council on tax transparency to fight tax evasion and avoidance, Proposal for a Council Directive amending 
Directive  2011/16/EU  as  regards  mandatory  automatic  exchange  of    information  in  the  field  of  taxation, 
March 2015 

183   Action Plan on Corporate Taxation, Commission Action Plan, June 2015 

98 

 
 
                                                 
their taxable profits in each Member State184. The legislative process has been stalled and the 
Commission is set to re-launch the proposal with a staged approach consisting of 2 steps. The 
aim  is  to  first  focus  on  agreeing  common  rules  for  computing  the  tax  base  (taxable  profit) 
without  taking  yet  consolidation  into  account.  This  should  make  the  proposal  easier  for 
Member States to agree. Once the common base is secured, Member States will start debating 
consolidation.  The  CCCTB  does  not  touch  upon  statutory  tax  rates,  meaning  that  Member 
States would be allowed to tax their share of the base at their own corporate tax rate. 

The re-launch of the CCCTB scheme in 2015, which is planned on a two-step approach - first 
harmonisation of the tax base and then the element of consolidation - is of particular relevance 
to  the  objectives  pursued  in  this  impact  assessment.  In  particular,  the  introduction  of  a 
CCCTB would provide a solution to many cases of base erosion and profit shifting as well as 
to aggressive tax planning in general in the Union. 

Finally,  following  the  adoption  of  the  fourth  Anti-Money  Laundering  Directive185,  Member 
States will be obliged to ensure that certain information on businesses, legal entities and legal 
arrangements such  as trusts are held in  a central register at  the national level. This includes 
adequate, accurate and current information on their beneficial ownership, including the details 
of  the  beneficial  interests  held.  This  register  will  be  accessible  to  relevant  authorities  and 
financial  intelligence  units  without  restriction,  "obliged  entities"  which  need  to  apply 
customer  due  diligence  and  other  persons  that  can  demonstrate  a  legitimate  interest.  This 
information can be stored for example in a commercial register, company register or a public 
register.  The  Commission  will  also  assess  the  possibility  for  a  safe  and  efficient 
interconnection of the central registers via the European central platform186. 

D.2.5 European Parliament 

In July 2015, the European Parliament flagged support for transparency by way of a CBCR by 
adopting  an  amendment  to  the  Commission's  proposal  for  a  Directive  on  Shareholders' 
Rights187.  The  amendment  requires  a  CBCR  by  large  EU  companies  and  all  issuers  of 
securities  in  an  EU  regulated  market.  The  work  undertaken  in  this  document  has  strong 
connections  with  this  amendment,  as  it  is  believed  that  the  amendment  is  reflected  in 
Option 2B.  In  an  accompanying  Recital,  the  Parliament  explains  that  this  is  essential  for 
promoting trust in companies and facilitating the engagement of shareholders and other Union 
citizens,  and  that  mandatory  reporting  can  be  seen  as  an  important  element  of  the 
responsibility of companies to their shareholders and society. 

184   With  the  CCCTB,  a  company  would  have  to  comply  with  just  one  EU  system  for  computing  its  taxable 
income, rather than different rules in each Member State in which they operate. In addition, groups using the 
CCCTB would be able to file a single consolidated tax return for the whole of their activity in the EU. The 
consolidated  taxable  profits  of  the  group  would  be  shared  out  to  the  individual  companies  by  a  simple 
formula.  That  way,  each  Member  State  can  then  tax  the  profits  of  the  companies  in  its  state  at  their  own 
national tax. 

185   Directive  (EU)  2015/849  of  20  May  2015  on  the  prevention  of  the  use  of  the  financial  system  for  the 

purposes of money laundering or terrorist financing. See in particular articles 30 and 31.  

186   By  26  June  2019,  the  Commission  shall  submit  a  report  to  the  European  Parliament  and  to  the  Council 
assessing the conditions and the technical specifications and procedures for ensuring such interconnection of 
the central registers via the European central platform. See Article 4a(1) of Directive 2009/101/EC. 

187   Proposal for a Corporate governance: long-term shareholder engagement; corporate governance statement, 

2014/0121(COD) 

99 

 
 
                                                 
The  European  Parliament  also  set  up  an  ad  hoc  Committee,  TAXE188  in  February  2015  to 
examine tax ruling practices in Member States. In November 2015, TAXE recommended that 
Parliament189 reiterate its view that MNEs should publish a CBCR, possibly via a central EU 
register. 

The  Economic  and  Monetary  Affairs  Committee  of  the  European  Parliament  also  supports 
enhanced  transparency  predominantly  in  the  form  of  country-by-country  reporting  based  on 
OECD  guidelines.  It  also  recommends  a  CBCR  for  all  sectors,  which  may  be  made  public. 
Further, it calls on the European Commission to bring forward a proposal as soon as possible 
on a voluntary European 'Fair Tax Payer' label, as a 'soft measure' to promote tax compliance 
by companies. 

D.3 Member States' national context 

D.3.1 National Parliaments 

The  national  parliaments  of  the  United  Kingdom  and  France  (see  Annex  H),  among  others, 
have examined how multinationals behave in relation to taxes. All support further corporate 
tax transparency at least to tax authorities, possibly in the form of a CBCR submitted to tax 
authorities. No Committee however, has called for a public CBCR. The UK Committees sees 
merit in further public disclosure regard tax affairs and/or tax returns in the UK. The French 
Parliament has made recent calls for the introduction of CBCR190. 

D.3.2  National practices on corporate income taxes 

Enterprises  are  used  to  regularly  (usually:  annually)  filing  tax  returns  with  the  relevant  tax 
authority in the jurisdiction in which it is located (usually: the national tax authority). This is 
done for the calculation and payment of corporate income taxes. A few Member States seek 
increased  transparency  in  corporate taxes  at national  level as current  reporting  requirements 
are generally limited in scope and reach. 

Since 1998 Member States have worked in the Code of Conduct Group to combat harmful tax 
competition.  The  Group  relies  on  established  criteria  for  identifying  potentially  harmful  tax 
measures  –  lack  of  transparency  is  one  of  them.  In  1999  the  Group’s  report  to  ECOFIN 
identified 66 tax measures with harmful features (40 in EU Member States, 3 in Gibraltar and 
23 in dependent or associated territories). Member States and their dependent and associated 
territories  subsequently  amended  or  abolished  these  harmful  practices.  Since  then  Member 
States have been obliged to refrain from introducing new tax measures which may be harmful 
and  to  improve  cooperation  and  transparency  (e.g.  through  the  Directive  for  an  automatic 
exchange of information regarding tax rulings to which the Council agreed in October 2015). 

Finland,  Sweden  and  Norway  require  individual  and/or  tax  returns  to  be  publicly  disclosed. 
Transparency on tax information is generally limited to the information found in a company's 
financial  statements,  where  these  are  publically  available.  In  Finland  and  Norway,  a  few 

188   European  Parliament,  Special  committee  of  the  European  Parliament  on  tax  rulings  and  other  measures 

similar in nature or effect, TAXE. 

189   European Parliament resolution of 25 November 2015 on tax rulings and other measures similar in nature or 

effect 

190   Boursorama: Optimisation fiscale: l'Assemblée vote la publication du "reporting" pays par pays, 2015  

100 

 
 
                                                 
additional  items  (outstanding  tax  payment  or  refund  owed  to  the  company…)  are  made 
available by tax authorities linked to a company's affairs in their jurisdiction. Since 2012, the 
Danish  tax  authority  has  publically  disclosed  on  its  website  additional  tax  information  on 
corporate  income  tax  calculation  and  liability  for  the  year  submitted  by  companies  in  their 
jurisdiction191. In Sweden, the public has a general right of access, upon request, to tax related 
documents  filed  with  the  tax  authorities,  including  tax  rulings.  This  transparency  no  doubt 
contributes to overall corporate transparency. However, it would not represent an appropriate 
route  to  follow  as  far  as  the  objective  of  this  work  is  concerned.  This  is  because,  (i)  the 
information  would  remain  scattered  throughout  countries,  i.e.  not  accessible  centrally  and 
easily; and (ii) the information would be limited to Europe, i.e. taxes paid by an EU MNE's 
subsidiaries in third countries would not be captured.   

In November 2014, the International Consortium of Investigative Journalists (ICIJ) revealed 
information  on  tax  rulings.  These  have  become  known  as  the  ‘LuxLeaks’.  Confidential 
documents released set out more than 500 private tax arrangements between the  Luxemburg 
tax administration and more than 300 MNE between 2002 and 2010, revealing the extent of 
secret deals featuring complex financial structures designed to obtain tax reductions.  

The use of tax rulings is by no ways confined to Luxemburg. Tax rulings themselves are not 
considered  to  be  a  problem  and  many  Member  States  issue  them.  A  tax  ruling  is  a 
confirmation  or  assurance  that  tax  authorities  give  to  tax-payers  on  how  their  tax  will  be 
calculated. Tax rulings are typically issued to provide legal certainty for taxpayers, often by 
confirming  the  tax  treatment  of  a  large  or  complex  commercial  transaction.  Moreover,  they 
are  mostly  given  in  advance  of  the  transaction  taking  place  or  a  tax  return  being  filed.  In 
practice,  however,  there  is  little  exchange  of  information  between  Member  States  on  tax 
rulings or transfer pricing arrangements even when these impact other countries. 

D.4 Market led initiatives 

Though  very  vivid,  market  led  initiatives  tend  to  be  fragmented  and  limited  in  scope  and 
reach, as demonstrated below. 

D.4.1 Investors 

Investors  who  aim  for  sustainable  and  responsible  investments  are  calling  for  enhanced 
corporate tax transparency, insofar as they are pushing for companies to pay their fair share of 
taxes by making this a criterion of their investment decision. However, these represent only a 
small portion of the investment community and their impact remains extremely limited. 

Eurosif  supports  a  mandatory,  annual  CBCR  for  listed  companies  with  data  made  public  to 
stakeholders,  including  investors  and  shareholders192.  Triodos  Bank193  aims  to  fund  only 

191   PriceWaterhouseCoopers,  Tax  transparency  and  country-by-country  reporting  -  An  ever  changing 

landscape, Oct. 2013 

192   Eurosif,  Country-by-country Reporting: Eurosif’s position, 2015. Eurosif is a non-for-profit pan-European 
partnership  of  several  Europe-based  national  Sustainable  Investment  Forums  (SIFs)  whose  mission  is  to 
promote sustainability through European financial markets. 

193   Triodos, How much tax should companies pay?, 2013 

101 

 
 
 
                                                 
organisations  and  enterprises  that  have  respect  for  human  rights  and  the  environment.  It 
believes that companies have a responsibility to pay their fair share of taxes. It  has taken to 
questioning  investee  companies  using  a  questionnaire  on  tax  transparency  to  all  125  of  its 
investees.  The  response  rate  to  the  questionnaire  was  high  but  results  showed  that  tax 
transparency is still not high on the public agenda for the majority of companies. Only four 
companies responded to have a publicly available tax policy, namely Johnson Matthey, Novo 
Nordisk, Reed Elsevier and WPP. As regards CBCR, several companies commented that they 
do  not  disclose  country-by-country  information  for  competitiveness  reasons  and  associated 
costs. 

D.4.2  Enterprises 

Some MNE have volunteered to report on their overall taxation policies and on the taxes they 
pay on a country-by-country basis. These enterprises generally see themselves as committed 
to  meeting  legal  requirements  and  are  aware  of  the  need  to  maintain  a  good  reputation  and 
corporate image. By demonstrating the contributions made to public finances in the countries 
where they operate around the globe, including by ways of a CBCR, they also recognise that 
their  operations  rely  on  functioning  local  infrastructures.  As  such,  these  MNEs  tend  to 
disclose taxes borne in total, including VAT, payroll taxes, taxes on profits etc. Beyond this 
breakdown,  companies  may  provide  additional  indicators  such  as  the  number  of  employees 
per country – but reports are not comparable as to the extent and design of indicators given. 
Some  may  also provide contextual information.  A vast majority of these multinationals feel 
the  need  to  design  and  publish  internal  tax  codes  of  conduct.  Some  of  these  also  provide 
information on their tax strategies and other aspects beyond what is legally required. 

For instance, British insurer Legal & General is committed to tax transparency. For a number 
of  years  in  its  annual  report,  the  group  has  disclosed  in  a  dedicated  section  its  strategy  and 
governance towards taxation, reconciles its tax charge to tax paid and provides a CBCR on all 
taxes borne194. British telecommunications company Vodafone has also for a few years been 
reporting  its  taxes  via  its  Sustainability  Report.  This  report  includes  complete  narratives  as 
well  as  a  CBCR  on  total  economic  contribution195.  SSE  plc,  a  FTSE  100  enterprise  in  the 
energy business, publishes a Group Tax policy and a specific transparency report that includes 
a  CBCR,  reconciliation  of  tax  charges  and  other  explanatory  material196.  Assurance and  tax 
service providers might join this endeavour. 197.  

D.4.3 Labelling system 

Non-governmental  initiatives  such  as  the  Fair  Tax  Mark  in  the  UK  have  also  appeared 
recently. The Fair Tax Mark is the label for good taxpayers. It is a non-profit organisation that 
brings  together  ethical  consumers  and  businesses.  So  far,  around  ten  UK  companies  have 
earned the label including SSE plc. 

194   Legal & General Group Plc | Annual Report And Accounts 2014, page 37 
195   Vodaphone: Tax and total economic contribution / Contribution, country by country 
196   SSE plc Group Tax Policy, Improving Tax Transparency, 2015  
197   Ernst & Young, Tax transparency, seizing the initiative, 2013 

102 

 
 
                                                 
The  Taxparency  initiative  in  the  Czech  Republic  is  also  worth  mentioning198.  Under  this 
system,  a  company  is  granted  a  taxparency  label  which  it  can  put  on  its  website  and  in  its 
shops, with a logo displaying a company‘s global effective corporate tax rate and amount of 
stars according to how much corporate tax the company has paid in the EU. This organisation 
proposes a model EU legislative instrument on corporate transparency aimed at the disclosure 
of corporate structure as well as the calculation of the global effective corporate tax rate and 
provisions regarding a Taxparency mark. 

198   taxparency EU 

103 

 
 
                                                 
ANNEX E: TAX ADJUSTMENTS, TAX DISPUTES AND RESOLUTION MECHANISMS  

BEPS Action 14: Making Dispute Resolution Mechanisms More Effective 

As  the  need  for  more  effective  dispute  resolution  increase  as  a  result  of  the  enhanced  risk 
assessment capability given by CBCR to tax authorities, the OECD proposed a BEPS Action 
to make dispute resolution mechanisms more effective: BEPS Action 14199. 

The  OECD  said:  "The  measures  developed  under  Action  14  of  the  BEPS  Project  and 
contained  in  this  report  aim  to  minimize  the  risks  of  uncertainty  and  unintended  double 
taxation.  They  do  so  by  ensuring  the  consistent  and  proper  implementation  of  tax  treaties, 
including  the  effective  and  timely  resolution  of  disputes  regarding  their  interpretation  or 
application  through  the  mutual  agreement  procedure.  Countries  have  agreed  to  important 
changes in their approach to dispute resolution, such as a minimum standard with respect to 
the  resolution  of  treaty-related  disputes.  They  have  committed  to  its  rapid  implementation 
and agreed to ensure its effective implementation through the establishment of a robust peer-
based monitoring mechanism. A large group of countries has also committed to provide for 
mandatory binding arbitration in their bilateral tax treaties as a mechanism to guarantee that 
treaty-related disputes will be resolved within a specified timeframe." 

The Action recommends that countries implement a series of minimum standards to ensure 
the timely, effective and efficient resolution of treaty-related disputes. A list of best practices 
is provided in this regard.  

The Action contemplates in addition a framework for a peer monitoring mechanism in order 
to ensure that the commitments embodied in the minimum standard are effectively satisfied. 

Risks facing MNEs 

With a public CBCR, EU MNEs may be faced with a higher number of tax audit adjustments 
being  made  by  tax  authorities  of  EU  or  third-countries  on  the  basis  of  the  CBCR.  Tax 
authorities  can  for  instance  apply  "formulary  apportionment",  i.e  calculate  a  theoretical 
taxable profit on the basis of general allocation criteria such as people employed, turnover or 
assets for a given subsidiary in their jurisdiction, by comparison to other components of the 
group  shown  on  the  CBCR.  The  additional  share  of  profit  claimed  by  a  third  country  will 
often  already  have  been  taxed  in  other  countries,  including  in  Member  States.  This  triggers 
risks of double taxation. 

This  issue  of  double  taxation  and  tax  disputes  has  traditionally  been  addressed  by  bilateral 
Double  Tax  Conventions  (DTCs)  which  States  negotiate  amongst  themselves  based  on 
certain  international  model  agreements.  The  OECD  Model  Tax  Convention  on  Income  and 
on Capital (the OECD Model) is the most frequent reference in this field200. In a total of 378 
bilateral  relations  in  the  EU,  there  are  currently  365  DTCs.  DTCs  distribute  taxing  rights 

199   OECD, BEPS 14, 2015 
200  The Council of the OECD adopted in 1963 its Draft Model DTC, revised in 1977 and transformed into an 
ambulatory text providing periodic and timelier updates since 1991. Thus, Member States (MS) have agreed 
DTC between them in almost all their bilateral relations with the exception of the multilateral treaty between 
the Nordic States (Denmark, Faeroe Islands, Iceland, Norway, Finland and Sweden). 

104 

 
 
                                                 
between the residence State and the source State. Where both States maintain a taxing right, 
the Residence State is meant to eliminate double taxation. For this purpose, it either exempts 
the income or taxes it while allowing a deduction for the tax already paid in the source State 
(the  credit  method).  DTCs  provide  for  a  mutual  agreement  procedure  (MAP)  to  solve 
differences in their application whereby the corresponding competent authorities shall discuss 
the issue to solve it but are not bound to reach a solution. The OECD201 supports that all tax 
treaties  include  methods  for  elimination  of  double  taxation  and  a  MAP.  The  EU  has  also 
adopted  some  legislation  (including  e.g.  the  Parent/Subsidiary  Directive202,  Interest  and 
Royalty  Payments  Directive203)  which  addresses  double  taxation  by  exempting  dividend, 
interest  and  royalty  payments  between  associated  companies  from  source  taxation.  In 
addition,  the  Member  States  have  agreed  a  multilateral  convention  on  the  elimination  of 
double taxation in connection with the adjustment of profits of associated enterprises: the EU 
Arbitration Convention204 signed on 23 July 1990. This multilateral agreement (applicable to 
all  EU  Member  States)  is  limited  to  transfer  pricing  and  profit  allocation  to  permanent 
establishments.  It  provides  binding  arbitration  if  a  case  is  not  settled  through  mutual 
agreement within 2 years. Where there is no applicable DTC or EU legislation, domestic law 
may provide for the elimination of double taxation by the exemption or credit method. 

Tax  adjustments  can  be  covered  by  the  dispute  resolution  mechanisms  currently  in  place  in 
the  existing  DTCs.  To  avoid  double  taxation  due  to  tax  adjustments  with  overseas  reach 
claimed in a given country, an EU MNE will typically activate the mechanisms in the DTC in 
order to try to recover from other countries any corporate income tax overpayment resulting 
from those tax adjustments. To achieve this, the MNE needs to trigger with the authorities of 
the  country  where  the  tax  adjustment  was  initiated  the  mechanism,  i.e.  either  a  MAP  or 
mechanisms based on the EU AC.  

However dispute resolution mechanisms are reported to be effective only to a varying degree. 
According  to  the  OECD,  there  are  5,423  unresolved  MAP  cases  among  OECD  Member 
Countries as of the end of 2014, more than double the figure for 2006205. The number of new 
MAP  cases  is  constantly  increasing  (2,266  in  2014  vs  1,036  in  2006).  This  may  be  an 
indicator of higher use  of MAP to  solve tax disputes,  but also of increasing  tax disputes.  A 
few extra cases are reported by the OECD with partner countries, mainly in China (55 cases). 
Finally, it takes around two years on average to bring a dispute to an end, under either a MAP 
or an AC scheme. 

Some  statistics  are  available  on the resolution  of  cases206:  there  have  been  1,910  new MAP 
cases  in  2013,  but  only  197  cases  completed  in  the  same  year.  This  is  a  reduction  of 
approximately 30% from the 279 cases reported completed in 2012. While many of the 197 
closed cases will have been initiated before 2013, the closure rate represents just 10.3% of the 

201   OECD model convention on taxes   
202   Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the 
case of parent companies and subsidiaries of different Member States (recast), O.J. L 345/8, 29.12.2011 
203   Council  Directive  2003/49/EC of 3  June 2003 on  a  common  system  of  taxation applicable  to  interest and 
royalty payments made between associated companies of different Member States (O.J. L 157, 26.6.2.3). 
204   90/436/EEC:  Convention  of  23  July  1990  on  the  elimination  of  double  taxation  in  connection  with  the 

adjustment of profits of associated enterprises (AC) 

205   OECD MAP statistics 2014  
206   Source: analysis of the OECD figures by Ernst and Young 

105 

 
 
                                                 
2013  case  initiation  rate  and  only  4.3%  of  the  total  stock  of  open  MAP  cases.  The  five 
countries  completing  the  most  MAP  cases  in  2013  were  Luxembourg  (27),  Belgium  (25), 
Netherlands (23), Sweden (23), and Switzerland (23). The United States did not report how 
many cases were closed in 2013. 

Around two-thirds of the OECD MAP cases are with EU Member States. Around a third of 
those cases only are reported in turn in the activation of the Arbitration Convention, i.e. for 
cases  strictly  within  the  EU207.  This  may  be  an  indicator  that  the  EU  is  currently  the  best 
equipped economic area as regards the prevention and resolution mechanisms when Member 
States  only  are  involved.  Nevertheless,  the  EU  is  considering  improvements  to  its  current 
scheme,  the  operational  objective  of  which  is  to  offer  efficient  legal  remedies  to  the 
unresolved  cases  of  double  taxation  which  are  caused  by  a  disagreement  between  Member 
States  on  the  application  of  their  DTCs.208209  At  the  OECD  level,  it  is  recognised  that,  the 
adoption  of  MAP  arbitration  has  not  been  as  broad  as  expected  and  that  the  absence  of 
arbitration provisions in most treaties and the fact that access to arbitration may be denied in 
certain cases are obstacles that prevent countries from resolving disputes through the MAP. It 
is also recognised that there is no consensus on moving towards universal mandatory binding 
arbitration  mechanism  in  the  frame  of  MAPs.  Besides,  in  spite  of  several  attempts  to  make 
dispute resolution mechanisms work better, further progress remains to be achieved in certain 
compartments ranging from the implementation of MAP by countries to obstacles to access to 
MAP for MNEs and the lack of resolution when MAP is activated210. Only 12 DTCs between 
EU  Member  States  have  introduced  the  arbitration  clause,  despite  the  2008  revision  of  the 
OECD Model introducing an arbitration system to solve cases where authorities cannot agree 
in  the  context  of  a  MAP211.  With  BEPS  Action  14,  the  OECD  proposes  measures  to 
strengthen the effectiveness and efficiency of the MAP process. The aim is to  minimise the 
risks  of  uncertainty  and  unintended  double  taxation  by  ensuring  the  consistent  and  proper 
implementation  of  tax  treaties,  including  the  effective  and  timely  resolution  of  disputes 
regarding  their  interpretation  or  application  through  the  mutual  agreement  procedure.  Some 
stakeholders  have  reported  that  BEPS  14  may  still  not  offer  enough  binding  measures  to 
ensure  that  mandatory  resolution  of  disputes  between  tax  authorities  effectively  take  place, 
and  if  so  in  a  reasonable  period  of  time.  States  are  nevertheless  invited  to  subscribe  to 
implement  the  necessary  changes  to  tax  treaties  in  these  areas,  including  ways  of  a 
multilateral  instrument  (BEPS  15).  It  is  not  possible  at  this  juncture  to  predict  how  much 
countries will be willing to move in the OECD direction. 

207   European Commission, Joint Transfer Pricing Forum, JTPF statistics on MAP, 2013  
208

   European  Commission,  Joint  Transfer  Pricing  Forum,  Report  on  Improving  the  Functioning  of  the 

Arbitration Convention, 2015 

209  Communication:  A  Fair  and  Efficient  Corporate  Tax  System  in  the  European  Union:  5  Key  Areas  for 

Action, 2015  

210   Source:  OECD  BEPS  Action  14,  Make  dispute  resolution  mechanisms  more  effective,  public  discussion 

draft 18 December 2014 – 16 January 2015, page 4, 20 

211  This  initiative  was  the  result  of  an  OECD  report,  Improving  the  resolution  tax  treaty  disputes,  February 

2007. 

106 

 
 
                                                 
Based on anecdotal evidence offered by a public consultation conducted by the Commission 
in  2010212  and  a  study  commissioned  to  Ernst  &  Young  in  2013,  the  following  features  of 
double taxation within the EU have been identified: 

 

  Very  large  companies  seem  to  be  the  most  affected  by  double  taxation  (respondents 
and  surveyed  companies  had  over  5 000  employees  and  a  turnover  of  over 
EUR 1 billion); 
In  the  EY  study  over  57%  (12  out  of  21)  of  the  reporting  companies  paid  a  total 
corporate tax of over of the income due to double taxation, i.e. their effective tax rate 
was over 30% while the average effective tax rate for corporations in the EU was 20.9 
%  in  2012213.  This  could  suggest  that  double  taxation  increases  the  tax  burden  as 
compared  to  that  which  domestic  income  and  foreign  income  not  subject  to 
international double taxation are subject to; 

  The cases involving taxes above EUR 1 million amounted to over 20% (16 out of 77) 
of the companies in the public consultation and over 46% of the total in the EY study. 
  According to the public consultation, the legal and administrative costs involved in the 
elimination of double taxation for companies amounted to over EUR 10 000 in more 
than  46  %  (6  out  of  13)  of  the  cases.  In  addition  in  2  cases,  the  consultancy  costs 
reached more than EUR 150 000, 9 cases involved amounts between EUR 25 000 and 
EUR 150 000 and 8 cases below EUR 25 000; 

The EY study shows that the client applied a remedy in only 41% of the cases and even less, a 
supranational  remedy  was  only  used  in  14%  of  the  cases.  According  to  the  public 
consultation, 14.5% of the responding companies have not tried a legal remedy: reasons for 
renouncing  the  use  of  legal  remedies  was  in  most  cases  that  there  was  no  expectation  of 
successful results (over 19%). Secondly, the expected time for a decision was too long (over 
9%).  Other  reasons  were  the  lack  of  sufficient  information  or  expertise,  and  the  costs 
involved. 

212   Commission's consultation on Double taxation conventions and the internal market: factual cases of double 

taxation, 2010 

213  Taxation  Trends  in  the  European  Union,  2013  edition,  DG  TAXUD,  European  Commission.  Table  on 
effective average tax rate on the non-financial sector. In 2011, it was 21 % and in 2010 it was 21.1 %. 

107 

 
 
                                                 
ANNEX F: IFRS NOTES: GEOGRAPHICAL INFORMATION AND CORPORATE INCOME TAX 
– ILLUSTRATIVE EXAMPLE (ABSTRACT, SOURCE: DELOITTE) 

F.1  REVENUES AND NON-CURRENT ASSETS 

108 

 
 
 
 
 
 
 
 
F.2  CORPORATE INCOME TAX 

109 

 
 
ANNEX G: FORM 10-K: ILLUSTRATIVE EXAMPLES OF GEOGRAPHIC INFORMATION 

G.1  REVENUES AND LONG-LIVED ASSETS 

The  following  illustrates  the  geographic  information  required  by  paragraph  280-10-50-41  of  US  GAAP 
standard  ASC  280.  In  this  illustrative  example,  because  Diversified  Company's  segments  are  based  on 
differences  in  products  and  services,  no  additional  disclosures  of  revenue  information  about  products  and 
services are required. 

Geographic Information 

United States 

$     19,000 

$     11,000 

Revenues(a) 

Long-Lived Assets 

Canada 

Taiwan 

Japan 

Other foreign countries 

4,200 

3,400 

2,900 

6,000 

- 

6,500 

3,500 

3,000 

     Total 

$     31,000 

$     24,000 

(a) Revenues are attributed to countries based on location of customer. 

Source: US Financial Accounting Standards Board (FASB), Accounting Standards Codification Topic 280, 
Segment Reporting 

110 

 
 
 
 
  
 
G.2  CORPORATE INCOME TAX 

Google Inc, fiscal year 2014 (abstract) 

111 

 
 
 
ANNEX H: PARLIAMENT'S INQUIRIES 

French Parliament 

The  Financial  Committee  of  the  French  Parliament  investigated  corporate  income  tax 
planning  in  2013.  In  its  report214,  the  Committee  notes  that  the  “differences  in  legislation 
between  States  are  the main  driver  of  tax  planning  strategies  implemented  by transnational 
corporations.  […]  Companies  that  best  succeed  in  tax  planning  are  logically  large 
transnational companies who can afford to use fine-tuned fiscal and financial engineering - 
playing  with  differences  in  legislation  among  States,  and  where  the  group  structures  can 
benefit from favourable regimes”.[…] This is exacerbated “in the context of increased value 
created  on  the  basis  of  intellectual  capital”  […]  “Transfer  prices  are  most  likely  the  main 
avenue for tax optimization”.[…] Recent feedback indicates that it is difficult for citizens to 
accept that the largest multinationals are avoiding taxes amidst an ongoing economic crisis”.  

The Committee also refers to (but does not endorse) an estimate of “losses in tax revenues” 
for  France  based  on  a  survey  conducted  by  Greenwich  Consulting  in  2013.  The  survey 
contends  that  had  they  been  subject  to  French  regulation  without  recourse  to  optimization, 
certain  MNEs  would  have  paid  an  additional  EUR  800  million  to  the  French  Treasury  in 
2011, and extra VAT of EUR 400 to EUR 700 million. This is shown below:  

In  their  report,  the  rapporteurs  recommend  (Proposal  n°19)  that  "country-by-country 
transparency"  be  expanded  within  the  EU  to  all  industry  sectors  in  order  to  reinforce  the 
information gathered by tax authorities. In addition, the EU encourages third countries to also 
adopt this rule. 

The  French  Parliament  attempted  in  December  2015  to  introduce  a  requirement  on  large 
companies  to  publish  a  CBCR,  based  on  a  model  close  to  CRD4215,  but  this  was  rejected 

214   Commission  des  finances,  de  l’économie  générale  et  du  contrôle  budgétaire  -  Rapport  d’information  de 
l’Assemblée  nationale  française  en  conclusion des  travaux  d’une  mission  d’information  sur  l’optimisation 
fiscale des entreprises dans un contexte international, 2013 

215   Boursorama: Optimisation fiscale: l'Assemblée rejette le "reporting" pays par pays après un deuxième vote, 

2015  

112 

 
 
 
                                                 
following the negative opinion of the French government on the grounds of competitiveness 
risks for French companies and the need to wait for results on work undertaken at EU level. 

UK Parliament 

Committees at the UK Parliaments investigated the issue of corporate income tax.  

The Lords Select Committee on Economic Affairs launched the inquiry Taxing corporations 
in a global economy: is a new approach needed? on 9 July 2012. A Call for Evidence was 
issued with a deadline for submissions by 14 May 2013. The Report was published on 31 July 
2013,  the  Government  Response  on  14  October  2013  and  the  report  was  debated  on  30 
October 2013. 

The  Commons  Select  Committee  on  Public  Accounts  heard  evidence  from  Google  in 
November  2012  regarding  how  it  manages  its  financial  arrangements  in  the  UK. 
Representatives of Starbucks and Amazon were also invited to the hearing to give evidence. 
The Committee hoped to gain a better understanding of the broader issues connected with tax 
avoidance, but not to single out these companies.  

Some  recommendations  made  by  these  Committees  based on  their  findings  are  summarised 
below: 

UK House of Lords216: “The present international corporation tax system offers great scope 
for  multinational  companies  to  shift  their  profits  between  countries  to  reduce  their  tax 
liabilities  and  creates  an  uneven  playing  field”  (Paragraph  37)  “But  while  companies  are 
required  to  comply  with  tax  laws  in  the  UK  and  elsewhere,  ways  are  open,  especially  for 
multinationals, to shift profits between countries so as to reduce their overall tax liabilities, 
and to make UK corporation tax to a considerable extent voluntary for multinationals. This 
severely  undermines  public  trust  in  the  tax  system,  is  clearly  inequitable  and  threatens  a 
serious loss of much-needed tax revenue.” (Paragraph 55).  

As regards transparency in particular, the Select Committee recommends the following: "We 
recommend that the Government should actively promote implementation of the G8 proposals 
for improving the flow of information between tax authorities". This would seemingly include 
"a  common  template  for  country-by-country  reporting  to  tax  authorities  by  major 
multinational  enterprises".  In  addition,  "As  regards  public  disclosure,  we  recommend  that 
large  companies  operating  in  the  UK  should  make  public  (disclosure  of)  their  UK 
corporation  tax  returns.  We  also  recommend  that  the  Treasury  review  should  look  at 
practical ways to require companies with large operations in the UK to publish a pro-forma 
summary  of  their  UK  corporation  tax  returns.  This  would  help  enable  Parliament  and  the 
public  to  see  if  a  fair  level  of  corporation  tax  was  being  paid  and  when  action  against 
avoidance  was  needed.  It  might  also  act  as  a  deterrent  to  aggressive  tax  avoidance  by 
companies." 

UK  House  of  Commons217:  “To  avoid  UK  corporation  tax,  Google  relies  on  the  deeply 
unconvincing  argument  that  its  sales  to  UK  clients  take  place  in  Ireland,  despite  clear 

216   Select  Committee  on  Economic  Affairs,  Tackling  corporate  tax  avoidance  in  a  global  economy:  is  a  new 

approach needed?, July 2013 

217   House of Commons, Committee of Public Accounts, Tax Avoidance–Google, June 2013 

113 

 
 
                                                 
evidence that the vast majority of sales activity takes place in the UK. The big accountancy 
firms sell tax advice which promotes artificial tax structures, such as that used by Google and 
other multinationals, which serve to avoid UK taxes rather than to reflect the substance of the 
way  business  is  actually  conducted.  HM  Revenue  &  Customs  (HMRC)  is  hampered  by  the 
complexity  of  existing  laws,  which  leave  so  much  scope  for  aggressive  exploitation  of 
loopholes,  but  it  has  not  been  sufficiently  challenging  of  the  manifestly  artificial  tax 
arrangements  of  multinationals.  HM  Treasury  needs  to  take  a  leading  role  in  driving 
international action to update tax laws and combat tax avoidance.” 

In  terms  of  transparency,  the  Committee  recommends  the  following:  "HMRC  and  HM 
Treasury  should  push  for  an  international  commitment  to  improve  tax  transparency, 
including by developing specific proposals to improve the quality and credibility of public 
information about companies' tax affairs, and use that information to collect a fair share of 
tax from profits generated in each country. This data should include full information from 
companies based in tax havens." 

U.S. Senate 

For  a  number  of  years,  the  Permanent  Subcommittee  on  Investigations  of  the  U.S.  Senate 
Homeland Security and Government Affairs Committee has reviewed how U.S. citizens and 
multinational corporations have exploited and, at times, abused or violated U.S. tax statutes, 
regulations  and  accounting  rules  to  shift  profits  and  valuable  assets  offshore  to  avoid  U.S. 
taxes. 

From  2012  till  2014,  the  Subcommittee’s  reviews  have  focused  on  how  multinational 
corporations have employed various complex structures and transactions to exploit loopholes 
to shift large portions of their profits offshore and dodge U.S. taxes. 

Companies  under  scrutiny  included  Apple,  Caterpillar,  Walmart,  Microsoft  and  Hewlett-
Packard218.  The  Subcommittee  inquiries  have  led  to  a  series  of  hearings  and  reports 
highlighting  offshore  tax  strategies,  while  considerable  and  sustained  efforts  have  been 
devoted to investigations. Based on the Subcommittee’s investigation, recommendations were 
made to amend the U.S. tax laws, properly enforce certain provisions, etc.  

Parliament of Australia 

The Australian Senate Inquiry into corporate tax avoidance and aggressive minimisation, after 
holding five public hearings and receiving more than one hundred submissions, submitted an 
interim  report  in  August  2015219.  This  interim  report  makes  17  recommendations  over  four 
areas.  The  committee  recommends  inter  alia  that  the  Australian  government  consider 
publishing excerpts from the Country-by-Country reports prepared by companies and for the 
report to be based closely on the European Union's standards. 

218   The  Apple  and  Carterpillar  hearing  were  held  during  the  113th  Congress,  while  the  hearing  on  Microsoft 

and Hewlett-Packard took place during the 112th Congress. 
219   Executive summary of the Interim report of the Committee, 2015 

114 

 
 
                                                 
ANNEX  I:  COMPATIBILITY  WITH  THE  CHARTER  OF  FUNDAMENTAL  RIGHTS
DETAILED ANALYSIS 

220  - 

As far as data protection is concerned, any transparency measure must comply with the 
Charter and the right to the protection of personal data as set out in Article 16 TFEU. The 
fundamental rights which may be affected under the first approach include the following:  

 
 
 
 

Article 7 - Respect for private and family life 
Article 8 - Protection of personal data 
Article 16 - Freedom to conduct a business 
Article 17 – Right to property 

The right to the respect for private and family life (Art. 7), does not appear to be prima facie 
affected  by  the  present  work,  which  has  been  undertaken  mainly  with  a  view  to  addressing 
transparency  by  large  multinational  enterprises  only.  Given  the  scale  of  their  business, 
companies  and  their  owners  are  generally  exposed  to  public  scrutiny  e.g.  by  ways  of 
advertising, press articles, etc. 

The right to the protection of personal data (Art. 8) may be affected by the present work. Any 
transparency  measure  resulting  from  this  work  would  have  to  comply  with  the  right  to  the 
protection of personal data. Directive 95/46/EC on the protection of individuals with regard to 
the processing of personal data and on the free movement of such data is the main instrument 
which specifies the principles for any processing activity. Personal data is defined in Article 2 
of the Directive as any information relating to an identified or identifiable natural person. This 
right is not an absolute right, in that it may be subject to limitations stated in paragraph 2 of 
Article 8 of the Charter: Such data must be processed fairly for specified purposes and on the 
basis of the consent of the person concerned or some other legitimate basis laid down by law. 
Everyone has the right of access to data which has been collected concerning him or her, and 
the right to have it rectified. Because it is not an absolute right, interference, i.e. in the form of 
public disclosure of personal data, is possible. However, such interference in the form of data 
disclosed  about  natural  persons  would  not  be  foreseen  as  a  result  of  this  work.  Data  on 
corporate taxes, including e.g. a list of subsidiaries, would for instance belong to the sphere of 
the legal person. 

Legal  persons  can  claim  the  protection  under  Art  7  and  8  of  the  Charter  and  under  the 
Directive  95/46/EC  only  in  certain  limited  circumstances,  i.e.  when  their  official  title 
the  scope  of 
identifies  one  or  more  natural  persons.  Any  proposals 
transparency/reporting obligations to large companies as defined in the Accounting Directive 
or to MNEs under OECD BEPS Action 13 limit the risk that the obligations in question would 
trigger disclosure of personal data in this sense. 

limiting 

According  to  the  case  law  of  the  court,  moreover,  the  legally  mandated  systematic  public 
disclosure  of  information  on  legal  persons  even  if  such  persons  may  invoke  the  data 
protection rights, is not precluded. However, as disclosure in such cases might still result in 
the  interference  into  the  right  to  the  protection  of  the  personal  data,  the  objectives  for  such 
interference  should  be  clearly  defined  and  the  disclosure  should  be  limited  to  what  is 

220   Analysis  made  in  accordance  with  the  Operational  Guidance  on  taking  account  of  Fundamental  Rights  in 

Commission Impact Assessments of the European Commission, 2011 

115 

 
 
 
                                                 
necessary to attain such objectives. This would be done at the time of a Commission proposal, 
if any. 

Other  rights  could  also  be  relevant,  in  particular  Article  16  and  17  of  the  EU  Charter  of 
Fundamental  Rights,  i.e.  the  right  to  conduct  a  business  and  the  right  to  property.  This 
becomes  pertinent  where  any  of  the  envisaged  measures  affect  business  secrets  or  other 
confidential  business  documents.  The  proportionality  of  measures  has  therefore  to  be 
assessed. 

Regarding  the  freedom  to  conduct  business  (as  guaranteed  under  Article  16),  three  aspects 
could be affected:  

 
 
 

the financial/administrative burden created by companies' reporting obligations, 
interference with business secrets and; 
freedom  to  conduct  business  in  so  far  as  the  companies'  freedom  to  develop  tax 
strategies is affected. 

While  these  interferences  may  be  justified  as  long  as  the  conditions  of  Article  52  CFR  are 
met,  their  assessment  should  be  included  in  any  future  legislative  measures  that  may  be 
selected. 

Article 16 protects the economic right of natural and legal persons alike. In this context, it is 
mainly  legal  persons  who  would  be  affected  as  the  options  focus  on  very  large  enterprises. 
The  scope  of  this  right  encompasses  a  freedom  to  carry  out  any  economic  and  business 
practice,  including  specific  business  strategies,  which  include  tax  strategies.  Hence  any 
(legislative)  measures  adversely  affecting  those  practices  would  amount  to  interference. 
Notwithstanding,  such  interference  may  be  justified  if  necessary  in  order  to  genuinely  meet 
objectives of general interest recognised by the Union (Article 52 (1) CFR). Furthermore, the 
essence of the right would need to remain untouched and the limitation be proportional to the 
aim. 

While  Options  2  and  3  may  have  an  adverse  impact  on  the  freedom  to  exercise  business 
activities, it has been pointed out that the compliance costs attached are relatively low given 
the  very  large  size  of  the  companies  affected.  In  view  of  the  aim  of  improving  tax 
transparency  as  recognised  by  the  EU  this  burden  is  very  likely  to  be  proportional.  A  more 
detailed  assessment  would  however  have  to  be  carried  out  in  view  of  the  concrete  selected 
legislative measure. 

One  could  argue  that  the  use  tax  strategies  that  exploit  different  tax  rates  across  Member 
reflects  part  of  the  freedom  to  conduct  business  without  hindrance.  One  limitation  of  this 
aspect of the right to conduct a business would be justified in view of the aim of the measure, 
namely to create tax transparency, with a view to ultimately creating a more just application 
of tax law across all members of society.  

Finally,  none  of  the  above  limitations  affect  the  essence  of  the  right  under  Article  16,  as 
undertakings will still be able to enjoy the freedom to exercise their economic right (including 
the freedom to conclude contracts and exercise business practices in general). 

A  Directive  proposed  by  the  Commission  on  Trade  Secrets  may  establish  further  rights  for 
companies.  To  take  account  of  legislative  developments,  the  rapporteur  in  the  European 
Parliament proposes to clarify that information covered by a disclosure obligation cannot be 

116 

 
 
considered a trade secret221. In this way, this proposal interferes in no way with policy options 
examined in this document. 

221    In 2013, the Commission tabled a proposal for a Directive on the Protection of undisclosed know-how and 
business information (trade secrets) against their unlawful acquisition, use and disclosure. The definition of 
‘trade  secret’  contains  three  elements:  (i)  the  information  must  be  confidential;  (ii)  it  should  have 
commercial  value  because  of  its  confidentiality;  and  (iii)  the  trade  secret  holder  should  have  made 
reasonable efforts to keep it confidential. This definition follows the definition of ‘undisclosed information’ 
in  the  Agreement  on  Trade-Related  Aspects  of  Intellectual  Property  Rights  (TRIPS).  The  Legal  Affairs 
Committee of the European Parliament suggested in its report on the proposal to clarify, as was intended by 
the  Commission  with  its  proposal,  that  there  should  be  no  entitlement  to  any  remedy  when  the  alleged 
acquisition, use or disclosure of the trade secret is carried out in the case where disclosure is made for the 
purpose  of  protecting  the  interest  of  the  general  public  or  any  other  legitimate  interest,  recognised  by  the 
Union or national law and through judicial practice. 

117 

 
 
  
                                                 
ANNEX J: COMPARISON OF EXTANT COUNTRY-BY-COUNTRY MODELS 

Table 9: CBCR Models 

EU  Accounting  Directive  2013/34  – 
Chapter 10 

EU  Capital  Requirements  Directive  (CRD4) 
2013/36 – Article 89 

OECD  CBCR  recommendation  –  BEPS 
Action 13 

Who 
report 

needs 

to 

Large  EU  companies  active  in  the 
extractive  industry  or  the  logging  of 
primary forests which are either listed 
on  EU  regulated  markets  or  are  large 
non listed companies.  

Large  is  defined  as  a  company  which 
exceeds  two  of  the  three  following 
turnover  EUR 40 million; 
criteria: 
total 
and 
employees 250. 

assets  EUR 20 million 

EU  institutions  as  defined  in  the  associated 
Capital  Requirements  Regulations.  Broadly 
these  are  banks,  building  societies  and  other 
credit  institutions,  as  well  as  investment  firms 
and  Financial 
defined 
in 
Instruments  Directive 
to  certain 
exclusions). 

the  Markets 

(subject 

Institutions  are  required  to  report  on  their 
establishments. 

Ultimate parent companies of MNE’s groups 
of  all  industries  with  annual  consolidated 
group revenue in the preceding year of more 
than 750 million Euros.  

All  countries  are  invited  to  implement  the 
reporting,  in  particular  G20  and  OECD 
member countries. 

What  needs  to  be 
reported 

Companies  are  required  to  report  all 
payments to each government within a 
financial year. 

Institutions  as  defined  by  the  directive  report 
for  each 
jurisdiction  on  a  yearly  and 
consolidated basis  

A  template  has  been  designed  to  report  the 
following: 

A  payment  (or  a  series  of  related 
payments) is to be reported as soon as 
it exceeds EUR 100 000. Payments in 
kind should also be reported. 

Payments  should  be  reported  per 
government,  per 
type  and  where 
relevant,  per  project.  Breakdown  per 
type is as follows: 

the 

taxes 

income, 

levied  on 

a) production entitlements 
b) 
production or profits; 
c) royalties; 
d) dividends; 
e) signature, discovery and production 
bonuses;  
f)  licence  fees,  rental  fees,  entry  fees 
and  other  considerations  for  licences 
and/or concessions; and 
g) 
payments 
improvements. 

infrastructure 

for 

Who to report to 

To  the  public  at  large,  by  ways  of 
filing  with 
relevant  business 
register 

the 

a) name nature of activities and location 
b) turnover  
c) number of employees  
d) profit and loss before tax 
e) tax on profit or loss 
f) public subsidies received 

The "consolidated basis" is defined in CRR in a 
'prudential'  way.  Some  member  states  have 
nevertheless  used  an  accounting  scope  of 
consolidation. 

In  the  banks'  CBCR,  some  countries,  such  as 
the  United  Kingdom,  require  that  the  reported 
tax  figure  be  corporation  tax  paid.  Whilst  in 
some  other 
that 
accounting  data  for  the  reporting  period  is 
disclosed.  Deferred  tax  provisions  may  be 
included depending on the jurisdiction. 

jurisdictions 

it  appears 

profit 

a) location, name of entity and activity  
b) revenues, total, related and unrelated 
c) number of employees 
d) 
e) income tax paid and accrued 
f) stated capital 
g) accumulated earnings 
h) tangible assets 

before 

losses 

and 

tax 

All sources of data are acceptable as long as 
the  company  provides  a  brief  description  of 
the  sources  of  data.  Reporting  should  be 
done 
years. 
Adjustments need not be made, however, for 
differences  in  accounting  principles  applied 
from tax jurisdiction to tax jurisdiction. 

consistently 

over 

the 

A  few  Q&As  were  also  provided  on  the 
European  Banking  Authority's  web  site  with  a 
view 
facilitate  and  streamline  bank's 
to 
reporting.  
To  the  public  at  large,  by  ways  of  filing  with 
the relevant business register 

To  the  relevant  tax  authority  of  the  country 
where the MNE is incorporated 

When to report 

From  1  January  2017,  for  fiscal  year 
2016, at the latest. 

a) b) c) from 1. July 2014 

In 2017, for fiscal year 2016 

Earlier application possible. 

d) e) f) from 1. January 2015 (for all) 

How  to  exchange 
information 

Public disclosure 

Public disclosure 

Government  to  government  exchange  of 
information  (treaty  EOI,  TIEA,  Competent 
Authority Agreement, MCAA) 

Additional 
aspects/issues 

The  EU  can  determine  equivalence 
with third countries. Review in 2018 

Q&As  available  on 
European Banking Authority 

the  web  site  of 

the 

Review in 2020 

118 

 
 
 
 
 
 
 
 
 
 
ANNEX K: ANALYSIS OF INFORMATION TO BE DISCLOSED IN A CBCR 

Table  1  in  Section  4.1.1  outlines  possible  information  to  be  disclosed  in  a  public  CBCR. 
Sources are the CRD4, OECD BEPS 13, as well as information foreseen in the review clause 
of  the  Accounting  Directive  (Art. 48)  and  information  proposed  in  resolutions  of  the 
European Parliament. The public consultation has been considered as well.  

Nature of information 

A portion of the information is for identification purposes: the names, nature of activities and 
location of entities that are included in the CBCR. The income tax accrued (whether deferred 
taxes are included or not) and/or paid represent fundamental information. Other information is 
contextual, i.e. provides measures or information that will provide tools to the reader to better 
evaluate and analyse the geographical spread of profits and income tax. 

How was information filtered? 

Table  1  analyses  the  overall  relevance  for  inclusion  in  a  CBCR  for  tax  transparency, 
depending  on  whether  this  information  is  already  publicly  accessible  in  financial  or  other 
statements,  which  impinges  on  costs  associated  with  the  preparation  and  disclosure  of 
information;  whether  the  information  could  contribute  to  the  objectives;  and  whether 
disclosing 
terms  of  competitiveness  and 
misinterpretation. 

information  could  entail 

risks 

the 

in 

All information enabling third parties or competitors to have access to sensitive information 
not  available  otherwise  (in  particular  in  the  case  of  third  countries  operations)  has  been 
assessed with a high risk in terms of competitive advantage, such as: 'revenue', 'revenue with 
related parties', 'profit or loss before tax'. In combination, information that would otherwise be 
less  sensitive standing  alone can  become of  higher sensitivity.  For  instance,  turnover,  profit 
before  tax  and  number  of  employees  are  useful  comparisons  to  tax  amounts,  but  can  also 
serve  as  commercial  benchmarks  for  analysing  the  performance  of  a  company  in  a  given 
market (turnover per employee, profit per employee, profit to turnover ratio, etc). 

Information  that  was  not  directly  relevant  for  the  objective  or  would  appear  difficult  to 
interpret  by  the  public  at  large  has  been  assessed  as  irrelevant,  or  entailing  high 
misinterpretation  risks,  or  both.  This  is  the  case  for  indicators  such  as  'revenue  with  related 
parties',  'purchases',  'deferred  taxes',  'stated  capital',  'accumulated  earnings',  'tangible  assets', 
'public subsidies received', 'tax rulings', 'employee working through subcontractors', as well as 
'  Pecuniary  tax-related  penalties  administered  by  a  country'.  In  particular,  some  of  this 
information is sought by the OECD in their model: even though it might be useful to further 
refine the orientation of tax audits, this does not necessarily mean that the information should 
be published, if it is not directly relevant for public scrutiny.  

Possible use of the information retained 

There may be as many ways to analyse the data as there are recipients of this information. For 
instance,  a  investor  taking  into  account  non-financial  information  may  analyse  data  in  a 
different  way  than  a  tax  authority.  Some  of  the  data  may  be  more  relevant  for  e.g.  tax 
authorities,  such  as  stated  capital,  accumulated  earnings  or  intra-group  sales  /purchases. 
Contextual  information  in  a  CBCR  typically  allows  the  apportionment  by  country  of  an 
MNE's profits before tax (as mentioned in Section 5.1.6). Formulas based on the contextual 

119 

 
 
information  provided  can  be  devised  by  any  one,  based  on  its  own  needs.  With  "formulary 
apportionment",  it  is  possible  to  set  benchmarks  on  the  allocation  of  profits  per  country 
against which one can then challenge the amount of profits before tax actually reported. For 
instance, profits could be apportioned per country as a percentage of turnover; or using other 
formulas based on the number of employees, assets, etc.  

For  all  users,  the  description  of  the  nature  of  activities  and  contextual  information  will  be 
useful  for  determining  reasonableness.  Civil  society  is  expected  for  example  in  this  way  to 
want to analyse, at a given date and over time, whether profits reported in certain jurisdictions 
are  reasonable.  Tax  authorities  are  expected  to  use  CBCR  to  orient  their  tax  audits  and  dig 
into  transfer  pricing  or  other  issues,  as  this  is  the  primary  purpose  of  e.g.  the  OECD  BEPS 
13/CBCR. Competitors of a given MNE may use contextual information to support strategic 
decisions such as investments in a given market, pricing policy, commercial negotiations, etc. 
Indicators on turnover per region or market, and profits per employee, turnover per employee, 
margins etc. would represent precious information in this way. 

Turnover 

Transfer pricing techniques often rely on transactions made between affiliated entities within 
a  group.  In  this  way,  the  turnover  with  related  parties  can  represent  an  indication  of  profit 
shifting,  which  is  why  it  has  high  relevance  to  the  objective.  However,  the  existence  of 
turnover with related parties does not mean that there is profit shifting.  It can be expected that 
huge amounts of turnover with related parties exist within most groups, both within and cross 
borders.  For  instance,  products  can  be  sold  by  factories  incorporated  in  one  country  to 
distribution  companies  located  in  the  same  country  or  elsewhere.  In  addition,  it  has  been 
determined in Table 1 that disclosing separately the turnover with non-related parties convey 
high  competitiveness  and  misinterpretation  risks  as  this  would  uncover  to  e.g.  competitors 
information inherently connected to a group's structures and affairs, whilst the public at large 
might not understand the concept and even be misled by the complexity of different types of 
turnover.  Beside,  to  analyse  correctly  those  figures,  one  needs  typically  to  determine  which 
entities  of  a  group  did  business  among  themselves,  something  that  only  an  authority  with 
forensic  capabilities,  such  as  a  tax  administration,  would  be  able  to  perform.  For  these 
reasons,  whereas  the  OECD  BEPS  13  model  requires  the  confidential  submission  to  tax 
authorities of the turnover with related parties, turnover with third parties, and the total, only 
the total turnover of a group should be retained for disclosure in a public CBCR. Furthermore, 
Intra-group turnover is not a mandatory disclosure in the financial statements, contrary to all 
other information to be disclosed in a BEPS CBCR. Disclosing the split turnover may be seen 
by  many  (OECD,  third  countries,  and  companies)  as  a  breach  of  the  G20  consensus  on 
confidentiality. 

Besides,  intra-group  sales  are  to  be  eliminated  in  the  consolidated  financial  statements. 
Absent clear indications, MNE groups might allocate their total turnover per country on the 
basis of sales after elimination of intra-group sales in their CBCR. This would not be correct 
in  the sense that turnover made  with  any party, including with related parties, is part  of the 
taxable income  of  a  company  in  the  country  where that  company  is  established. In  order  to 
provide sensible contextual information to the reader of a CBCR, yet mitigate competitiveness 
and misinterpretation risks, it is envisaged to require the disclosure of the total turnover of a 
group on a country-by-country basis including with related parties before the elimination of 
intra-group  turnover.  In  this  way,  the  information  would  not  be  given  separately,  yet  be 
factored in the turnover reported. Nevertheless, this information cannot match the turnover in 
a group's consolidated financial statements.   

120 

 
 
Deferred taxes 

A  deferred  tax  expense or  credit is  sometimes  included  by companies  in  the  profit  and  loss 
account, in addition to the current tax expense or credit (based on tax returns).  

Not all GAAP require that deferred taxes be shown. Deferred tax entries are mandatory under 
both  the US GAAP and the IFRS, i.e. in  GAAP  that  are expected to  be commonly  used  by 
very large companies. The Accounting Directive, on the contrary, does not mandate deferred 
tax entries but allows a Member State to retain deferred taxes in the national GAAP. 

Deferred  taxes  aim  to  eliminate  the  unnecessary  effects  arising  because  of  differences  that 
exist  between  GAAP  and  tax  rules  on  the  computation  of  the  taxable  result.  Due  to  these 
differences,  the  amount  of  the  taxable  result  shown  in  a  given  company's  tax  return  often 
differs,  sometimes  significantly,  from  the  amount  of  the  profit  before  tax  shown  in  its 
individual Profit & Loss account. As a result, the current tax expense shown in the P&L can 
be seemingly at odds with the reported profit by reference to the statutory tax rate. Some of 
these  differences  may  be  permanent.  For  instance,  a  fine  may  not  be  tax  deductible.  Such 
differences  do  not  trigger  deferred  tax  entries.  Other  differences  may  be  temporary.  For 
instance, tax rule may offer of require shorter amortisation periods than the actual useful life 
of an asset to be retained under GAAP, distorting tax amounts from an accounting perspective 
with  less taxes paid than expected in the first years of use of the asset, and more taxes in the 
last  years.  In  addition,  a  company  may  build  rights  to,  or  use  tax  credits  over  the  years. 
Whereas in the long run profit before tax and taxable income are likely to get close, they can 
be very different in any given period, and so would be the related tax accrued and tax paid for 
that period. Deferred tax entries have the effect of reapportioning into the current fiscal year 
amounts of past (or future) tax paid (to be paid) to tax authorities, so that the total tax expense 
in the Profit & Loss account reflects the actual tax expense in relation to the profit before tax 
reported therein. 

It may be envisaged to retain deferred taxes in a public CBCR for all sectors, subject to these 
being already computed and disclosed by an MNE under GAAP, and depending on the source 
of information used to complete a CBCR. But despite the intended purpose of clarifying the 
tax expense of a given year, deferred taxes is a concept that some see as technically complex 
and  difficult  to  understand.  Risks  of  misinterpretation  are  higher  than  with  the  current  tax 
expense and tax paid concepts. In a Q&A, the EBA discards the disclosure of deferred taxes 
on  a  country-by-country  basis222.  So  does  the  OECD  in  the  BEPS 13/CBCR.  In  addition,  if 
taxes actually paid are disclosed in a CBCR, this would compensate to a large extent for the 
missing information on deferred taxes, as in the long run, tax paid should equal tax expenses, 
including current and deferred. 

For these reasons, it seems appropriate not to mandate the disclosure of deferred taxes within 
the  tax  accrued  captions  in  a  public  CBCR.  It  would  be  up  to  each  MNE  to  include  that 
information in addition to the legal requirement, as they see fit. In that case, the current and 
deferred tax should be clearly distinct in order to ensure the comparability and clarity of the 
CBCR for the public. 

222   European Banking Authority, Single Rulebook Q&A 2014_1043, Definitions of reportable items, 2014 

121 

 
 
                                                 
Tax rulings 

In addition to information on country-by-country reporting, the publication of tax rulings may 
enrich  the  contextual  information.  However  this  would  not  necessarily  be  more  informative 
for  the  public  for  the  following  reasons:  (i)  it  would  provide  only  limited  and  partial 
information on a company's tax strategy; (ii) it would depend on whether a company has a tax 
ruling  on  a  particular  issue.  Companies  with  aggressive  tax  strategies  may  rely  on  existing 
rulings  asked  by  others  without  asking  a  ruling  themselves  and  would  be  left  out  of  any 
disclosure . Disclosure would therefore introduce an unhealthy distortion between companies; 
(iii)  as  tax  rulings  reflect  an  exchange  between  a  company  and  a  tax  authority  on  specific 
issues inherent to the company, the publication would pose challenges for fundamental right 
to  privacy,  data  protection,  dissemination  of  sensitive  commercial  information;  and  (iv) 
businesses would lose the current anonymity of their requests for tax rulings and hence might 
be  deterred  from  using  these  tools  that  are  useful  to  give  stability  to  investments.  The 
disclosure  of  this  information  would  shed  light  exclusively  on  tax  rulings  involving  the  tax 
administration  of  a  Member  State  under  any  of  the  options  considered,  thus  leaving  rulings 
outside  the  EU  in  the  dark:  this  is  because  tax  rulings  will  generally  be  considered  as 
confidential by third countries' tax administrations. In this setting, the recent EU consensus is 
for an automatic exchange of information on tax rulings between tax authorities, as agreed in 
October  2015223.  It  is  worth  noting  that  some  tax  authorities  in  the  EU  already  publish 
relevant tax rulings224 in an anonymised way. With a low "relevance to risks" ratio, the added 
value of tax rulings disclosure in this context might not be realised. 

List of the subsidiaries within a group 

In  Table  1,  the  'list  of  subsidiaries'  item  was  not  retained  in  a  CBCR  despite  medium 
relevance  to  the  objectives,  and  medium  competitiveness  risks  attaching  to  a  public  CBCR. 
Medium relevance is due to the fact that, where a group would provide the breakdown of its 
operations  on  a  country-by-country  basis,  the  list  of  companies  included  will  not  add  much 
valuable  information  for  the  public  needs  which  are  scaled  at  the  country  level.  Tax 
authorities would by contrast need that information to get to know after which companies in 
its jurisdiction it may decide to go after with an audit. Besides, in any case, medium-sized and 
large companies, in the EU must already provide this list in the notes to their individual and 
consolidated financial statements as per to 17(1)(g) and 28(2) of the Accounting Directive. To 
require the information in a CBCR would merely duplicate the reporting requirement for the 
ease  of  structuring  the  list  on  a  country-by-country  basis,  which  seems  not  proportionate  in 
this  case  to  achieve  the  desired  goal.  Recognising  the  risks  attaching  to  the  disclosure,  the 
Accounting  Directive  specifies  that  information  can  be  avoided  to  the  extent  it  is  seriously 
prejudicial to a company. Overall, it does not seem necessary to modify the existing approach. 

Narratives 

With  high  relevance  and  low  risks,  narratives  (i.e.  explanatory  material)  could  be  seen  as 
valuable  by  any  stakeholder.  Narratives  are  therefore  retained  as  a  possible  element  of  a 
CBCR in  Table 1. Given the variety of situations and  needs, there is no reason  to impose  a 

223   Amendment to the Council Directive 2011/16/EU on administrative cooperation between Member States in 

the field of taxation 

224   E.g.  Luxemburg,  where  according  to  the  Grand-Ducal  Regulation  of  23  December  2014,  an  anonymized 
summary of the advance decisions will be published in the annual activity report of the tax administration. 

122 

 
 
                                                 
format structure to such narratives. It should therefore remain a choice for MNEs whether to 
provide  further  explanations,  and  in  which  areas.  As  a  result,  it  does  not  seem  necessary  to 
impose the disclosure of narrative in either option examined in this document. 

Value of assets / tangible assets / maintenance costs 

In Table 1, the disclosure of assets has medium relevance to the objectives, but could entail 
high  competitiveness  and  misinterpretation  risks.  The  OECD  retained  the  disclosure  of 
tangible fixed assets in the BEPS 13 type of CBCR, i.e. a subset of the assets on an MNE's 
balance  sheet.  Relevance  to  the  objectives  is  medium  as  the  breakdown  of  fixed  assets  can 
indeed assist in determining where e.g. production facilities of an MNE are actually located. 
However,  this  appears  to  be  redundant  to  a  large  extent  with  information  on  the  number  of 
employees in the light of the objectives pursued. Besides, not all businesses need capitalistic 
investments.  The  breakdown  of  assets  per  country  is  largely  irrelevant  for  e.g.  services 
industries. Intangible assets, including goodwill, are a subset of fixed assets. The OECD did 
not retain such information in the BEPS13/CBCR. Indeed a country-by-country breakdown of 
goodwill,  which  most  often  represents  a  major  portion  of  intangible  assets  in  an  MNE's 
balance sheet and arise as a reason of formal acquisitions, would provide no clear indication 
as  to  the  operations  of  an  MNE.  The  disclosure  of  assets  poses  nevertheless  high  risks  to 
competitiveness.  Combined  with  other  information  (such  as  the  number  of  employees),  the 
amount  of  assets  can  provide  competitors  with  key  information  on  strategic  decisions 
pertaining to investment and the profitability of MNEs. For these reasons, the value of assets 
is not retained for a public CBCR. 

Purchases 

In Table 1, the disclosure of purchases has low relevance to the objectives, and could entail 
high competitiveness risks. Relevance is low since purchases are not necessary to assess the 
intensity  of  an  MNE's  activities  in  a  given  country  if  the  turnover  of  that  MNE  is  already 
disclosed in the CBCR. To disclose purchases could heavily jeopardise the competitiveness of 
MNEs by providing competitors with information on gross margins per market (possibly per 
product  in  certain  circumstance)  that  could  deliver  key  information  on  strategic  decisions. 
Combined  with  other  information  retained  (number  of  employees,  profit  before  tax,  etc), 
purchases  would  in  addition  provide  unintended  additional  elements  on  an  MNE's  cost 
structure,  added  value,  profitability,  obsolescence  of  assets,  etc.,  whereas  these  are  not 
necessarily uses intended with a public CBCR. For these reasons, no disclosure of purchases 
should be sought in a public CBCR. 

Public subsidies 

In  Table  1,  the  disclosure  of  public  subsidies  is  not  retained  due  to  low  relevance  to  the 
objectives  combined  with  high  misinterpretation  risks.  This  disclosure  is  required  in  the 
banks' CBCR, pursuant to the CRD 4. The objective of a bank's CBCR is regaining the trust 
of  citizens  of  the  Union  in  the  financial  sector.  This  CBCR  was  crafted  at  a  time  when  the 
banking  sector  was  under  heavy  scrutiny  in  the  wake  of  the  financial  crisis,  with  huge 
amounts  of  public  subsidies  involved  to  rescue  that  sector.  What  may  be  seen  as  having 
relevance  given  the  "public  scrutiny  angle"  for  banks  may  have  less  relevance  for  other 
sectors, especially where the objectives pursued tend to focus more on tax matters, and where 
subsidies are expected to be scarcer and of a reduced magnitude than with banks. Noticeably, 
this  disclosure  is  not  required  by  the  OECD  standards  on  CBCR.  Besides,  such  disclosure 
could  imply  misinterpretation  risks  by  making  a  parallel  between  the  amount  of  public 

123 

 
 
subsidies  received  and  the  amount  of  corporate  income  tax  paid.  The  latter  however 
represents  only  a  fraction  of  the  overall  contributions  made  through  taxes  (and  possibly 
certain  social  welfare  contributions)  by  MNEs  to  countries  where  they  operate.  Finally,  the 
amount  of  public  subsidies  granted  to  companies  may  be  regarded  as  highly  sensitive 
information in certain third countries. For these reasons, the disclosure of public subsidies is 
not retained. 

124 

 
 
ANNEX L: ANALYSIS OF THE CORPORATE INCOME TAX GAP 

This  section  gives  a  brief  overview  of  the  estimates  of  the  corporate  income  tax  gap.  The 
drawbacks,  limitations  of  the  methods  and  resulting  unreliability  of  the  estimations  are 
discussed.  

The revenue contribution of CIT at the aggregate level has not changed significantly in recent 
years, while year-on-year changes reflect changes in overall economic activity (Chart L.1.). In 
2012, an average of 6.5% of tax revenue was collected from corporations in the EU-27 (2.6% 
of GDP)225. 

Chart L.1.: CIT revenues to GDP, GDP growth, EU-27, EU-18, 1995-2012 

Source: Taxation Trends in the European Union (2014) 

The few attempts to estimate a corporate income tax gap have used both direct and indirect 
methods.  Direct  methods226  are  based  on  micro  level  data,  whereas  indirect  methods227  are 
using aggregate level data and approaches. The availability and reliability of the corporate tax 
gap  estimates  depends  heavily  on  the  quality  of  the  underlying  data,  assumptions  made  by 
authors and the methodology applied. Despite deficient data, there are a few estimates in the 
public  domain.  However,  these  estimates  should  be  taken  with  caution  and  should  be 
considered  only  as  an  indication  of  the  existence  of  the  corporate  tax  shifting  activities228. 

225   European Commission, staff working document, Corporate Income Taxation in the European Union, p.19. 
226   Direct methods are sometimes referred also as micro method or bottom-up method. 
227   Indirect methods are sometimes referred also as macro or top-down method. 
228   The  existence  of  profit  shifting  activities  via  transfer  pricing,  location  of  intellectual  property  or  via  inta-
firm  debt  is  studied  in  a  number  of  studies.  Overview  of  the  studies  can  be  found  in  Commission  Staff 
Working Document: Corporate Income Taxation in the European Union, June 2015.  

125 

 
 
  
 
                                                 
None of the estimates should be considered a precise measure of the amount of revenue lost 
from profit shifting.  

Direct methods such as random audits have been used for example by the United Kingdom229, 
Denmark230, the Netherlands231 and Sweden.232 However, these rely heavily on the quality of 
the  random  audits  and  the  scope  of  the  audits  enables  to  detect  tax  evasion  but  not  tax 
avoidance activities by the companies. In order to extrapolate the results of random audits, the 
sample must be sufficiently large. However, the sample of random audits is often limited due 
to their high costs and a lack of funds. 

In  the  UK  the  corporate  tax  gap  is  estimated  separately  for  SMEs  and  large  businesses233. 
Random audit is used only for SME groups. The estimates for large businesses are based on 
operational  data  and  illustrative  methodology;  therefore  figures  should  be  interpreted 
carefully. The overall corporation tax gap between 2012-2013 in the UK was estimated to be 
nine  percent  (£ 3.9 billion)  of  estimated  liabilities.  The  corporate  tax  gap  was  greater  for 
SME’s  than  large  businesses  (11  percent  of  the  corporate  tax  liabilities  compared  to  seven 
percent).  One  third  (£ 1.3 billion)  of  the  overall  corporation  tax  gap  (£ 3.9 billion)  was 
estimated  to  finance  tax  avoidance  activities.  However,  alternative  estimates  on  expectation 
gap made by Murphy (2008)234 indicate that the tax avoidance gap for 700 large companies in 
UK  between  2006-07amounted  to  £ 11.8 billion.  The  methodology  for  both  estimates  are 
imperfect, so should be interpreted with caution. 

Lee et.al. (2015) 235 calculated the corporate tax gap based on the data of 1612 companies in 
the MSCI World Index. The tax gap for each company was calculated as a difference between 
actual  tax  rate  paid  (based  on  the  reported  tax  payments  between  2009  and  2013)  and  the 
average corporate tax rate of the countries in which the company generated revenues. From a 
sample  of  1612  index  companies,  the  companies  generating  a  loss  during  this  period,  real 
estate  investment  trusts  (REITs),  and  mining  companies  were  filtered  out  to  arrive  at  a 
relevant  sample  of  1093  companies.  The  results  show  that  22%  of  companies  (243  out  of 
1093 companies) had a high tax gap (rate gap greater than 10 percentage points between the 
actual  rate  paid  and  expected  tax  rate).  The  absolute  tax  gap  for  these  243  companies  was 
estimated at USD 82 billion per year and 26% out of 243 companies have a majority-owned 
subsidiary or is domiciled in a known tax haven compared to 16% in the general sample.  

The comparison of tax payments of domestic companies and multinationals has been used 
to  estimate  the  size  of  tax  avoidance  activities.  However,  as  domestic  and  multinational 
companies are different, it is uncertain whether differences in tax payments are solely due to 

229   HMRC - Her Majesty’s Revenues and Customs administration, Measuring tax gap 2014 edition, 2014 

230   Pedersen,  S,  Random  Audits  in  Denmark,  Danish  Tax  and  Customs  Administration  (SKAT),  Nordic 

workshop on tax evasion, Stockholm, March 6, 2013 

231   As in several Member States the results of tax gap estimations are not publicly available but use of random 

audits is indicated in Skatteverket (2014). 

232   Skatteverket (2014), The development of the tax gap in Sweden 2007-12. Report 1(91) Date 08/01/2014,  

233   HMRC - Her Majesty’s Revenues and Customs administration, Measuring tax gap 2014 edition, 2014 

234   Murphy, R., The Missing Billions, the UK Tax Gap.  
235   Lee, L.-E., Moscardi, M., Trivedi, G., and Shakdwipee, M. (2015), Re-examining the tax Gap, the Tax Gap 

in the MSCI world, MSCI ESG Research ESG Issue Brief, December 2013.  

126 

 
 
                                                 
  
profit-shifting activities. From a methodological point of view, it would be more accurate to 
compare  a  multinational  with  profit-shifting  activity  and  a  multinational  without  (as  a 
control).  

Egger et al. (2010)236 selected companies by using propensity score matching to compare the 
tax payments of multinational and domestic companies. Based on data for 1999 – 2004 in the 
AMADEUS database, they demonstrate that foreign owned affiliates located in Europe with 
above average tax rates (39% or more) pay on average 32% less each year (EUR 1.3 million) 
compared  to  domestically  owned  companies.  To  the  contrary,  these  companies  pay  above 
average taxes in low CIT rate countries.   

Similarly,  Finke  (not  officially  published,  2013)237  calculates  the  tax  gap  for  multinational 
companies  in  Germany,  which  are  able  to  reduce  tax  payments  thanks  to  intra-group 
transaction,  by  comparing  their  tax  payments  with  purely  domestically  invested  companies. 
The calculation uses propensity score matching based on a detailed breakdown of data at the 
company-level  from  DAFNE  databased  for  years  2007  –  2009.  Finke  (2013)  found  that  in 
2007, German multinational companies paid about 27% less in taxes compared to the control 
group of domestic companies. The extrapolation of all German multinationals resulted in an 
estimated tax gap of a total of EUR 10.2 billion in 2007.  

Indirect  methods  allow  broader  geographical  coverage  but  the  resulting  estimates  are  often 
based on several  assumptions. Therefore their interpretation should be made  with  vigilance. 
The economic literature has developed several indirect approaches for estimating the effect of 
tax evasion and avoidance.  

Value of assets held in tax havens 

Value  of  assets  held  in  tax  havens  is  estimated  by  Zucman  (2013)238  based  on  the  data  of 
international  reporting  on  assets  and  liabilities.  Zucman  (2013)  estimates  first  how  much 
money is held in tax havens and second, the tax gap based on this. Zucman (2013) estimates 
the  amount  of  money  held  in  tax  havens  by  using  international  reporting  on  assets  and 
liabilities.  He calculates the difference  between assets and liabilities to  arrive at  the amount 
held in tax havens, expected to be EUR 5 800 billion. Based on a historical real return of 5%, 
he  estimates  that  lost  tax  revenues  amount  to  EUR 130 billion  worldwide  and  about 
EUR 50 billion for Europe.  

Besides low tax rates, there may be several other (economic) reasons as to why multinationals 
have  a  presence  in  low-tax  jurisdictions..  It  therefore  cannot  be  concluded  that  all  of  these 
assets are the result of tax avoidance activities. 

Comparison of pre-tax profits of low-tax and high-tax affiliates  

Companies engaged in the profit-shifting activities try to reduce the pre-tax profits in high-tax 
jurisdictions and increase them in low-tax jurisdictions. The empirical studies have estimated 

236   Egger, P., W. Eggert and H. Winner (2010), "Saving Taxes through Foreign Plant Ownership", Journal of 

International Economics 81: 99–108. 

237   Finke,  K.  (2013),  Tax  Avoidance  of  German  Multinationals  and  Implications  for  Tax  Revenue  Evidence 

from a Propensity Score Matching Approach, mimeo. 

238   Zucman, G. (2013) La Richesse cachée des nations Enquête sur les paradis fiscaux. November 2013 

127 

 
 
                                                 
the size of the tax shifting by comparing the pre-tax profits in the two types of jurisdictions. 
The  studies  have  confirmed  that  pre-tax  profits  are  reported  to  be  higher  in  low-tax 
jurisdictions  (see  Sullivan  (2004)239  and  Clausing  (2011)240  in  Riedel  (2014)).  However, 
Riedel  (2014)  points  out  that  pre-tax  profitability  may  also  be  influenced  by  factors 
independent  of  low-tax  rates,  paper  shifting  activities  such  as  differences  in  worker 
productivity, the availability of public good provisions or market competition. A high level of 
taxes  does  not  necessarily  mean  a  high  level  of  public  goods  and  services  are  needed  for  a 
project to be profitable.. In addition, low-tax countries may have less competition in particular 
markets,  translating  into  higher  profitability  compared  to  high  tax  countries  with  higher 
competition.  

Change in the pre-tax profits in response to corporate income tax reforms  

Studies  analysing the impact of corporate income tax reforms on the pre-tax profitability of 
affiliates  confirm  that  increases  in  tax  would  lead  to  higher  profit  shift.  A  meta-analysis 
conducted by Heckemeyer and Overesch (2013)241 concluded based on 25 empirical studies 
that an increase in the host country corporate income tax rate by ten percentage points would 
lower  affiliates’  pre-tax  profits  in  that  country  by  eight  percentage.  However,  the 
interpretation  of  these  results  must  be  made  with  caution  as  the  tax  avoidance  via  profit 
shifting is not the only factor determining the correlation (negative or positive) between pre-
tax profitability and the level of corporate income tax.  

Negative  correlation  can  be  driven  by  the  fact  that  multinationals  may  decide  to  launch  all 
profitable  projects  in  a  country  with  low  corporate  income  tax  (Riedel,  2014).242  A  higher 
taxation in a country may also demotivate managers to generate high profits as the proportion 
of  after-tax  profit  is  reduced.  This  might  be  one  reason  for  a  negative  correlation  between 
corporate  income  tax  rate  and  pre-tax  profits.  On  the  other  hand,  there  can  be  factors  for  a 
positive correlation between corporate tax rate and pre-tax profits. In terms of profitability, for 
example, it would only make sense to launch highly profitable businesses project in a country 
that charges a high rate of corporate income tax Riedel (2014).  

‘CIT-efficiency’ and ‘revenue without profit shifting’ 

To explore spillovers in international corporate taxation, the IMF (2014)243  has developed a 
country  level  indicator  of  ‘CIT-efficiency’244  and  an  indicator  of  ‘revenue  without  profit 
shifting’.  

239   Sullivan, M. (2004), Data Show Dramatic Shift Of Profits to Tax Havens, Tax Notes, 1190-1200 
240   Clausing, K.A. (2011), The Revenue Effects of Multinational Firm Income Shifting, Tax Notes, March 28, 

2011. 

241   Heckemeyer, J. and M. Overesch (2013), Multinationals. Profit Response to Tax Differentials: Effect Size 

and Shifting Channels, ZEW Discussion Paper No. 13-045. 

242   Riedel,  N.  (2014),  Quantifying  International  Tax  Avoidance:  A  Review  of  the  Academic  Literature 

University of Bochum, Paper Prepared for the European Tax Policy Forum 

243   IMF (2014), Spillovers in International Corporate Taxation, IMF Policy Paper, May 9, 2014, See appendix 

IV.  

244   ‘CIT-efficiency’  is  calculated  as  a  ratio  of  actual  CIT  revenue  divided  by  the  potential  CIT  revenue. 
Whereas, the potential CIT revenue is calculate by multiplying standard CIT rate with reference tax base. As 
the actual revenue is normally smaller than the potential CIT revenue, the value of CIT-efficiency is smaller 

128 

 
 
                                                 
 
A  study  commissioned  by  European  Parliament  Research  Service245  has  used  the  indicated 
methodology to estimate the loss of corporate income tax revenue. They measure the size of 
the tax gap as the difference between ‘revenue without profit shifting’ and ‘actual revenue’. 
According  to  the  study,  revenue  losses  at  the  EU  level  due  to  corporate  tax  avoidance  are 
estimated to be EUR 50-70 billion.  

The effective tax rates based on accounting data have received increasing attention in recent 
years as they demonstrate the low level of taxation among multinational companies compared 
to higher statutory corporate tax rates246 in force or the higher actual effective tax rates247 of 
domestic companies. These developments strengthen the case for more tax transparency and 
country-by-country  reporting,  which  requires  companies  to  report  their  activities  separately 
for each and every country in which they operate.  

A widely used practice is one where multinational companies negotiate special tax treatment 
in the context of re(locating) the business activities to ensure the effective tax rates are lower 
than the statutory rate. Taxable income can be minimised compared to economic profit when 
some  income  can  be  exempt  from  tax,  write  off  the  cost  of  assets  faster  than  their  actual 
decline  in  value  (depreciation  rules),  or  claim  tax  credits  for  certain  business  purchases.  In 
addition,  the  effective  corporate  tax  rates  depends  on  other  factors  such  a  company’s 
investment  policy,  tax  loss  carried  forward,  capital  allowances  and  R&D  incentives  etc.  It 
cannot be confirmed that all these practices are a result of tax shifting activity and therefore, 
effective tax rates cannot always be used as a measure of outcomes of tax shifting activity.  

The  amount  of  payable  tax  is  influenced  by  the  way  in  which  investment  is  financed:  by 
retained  earnings,  new  equity  or  debt.  To  better  understand  some  of  these  differences, 
measures  for  the  effective  average  tax  rate  (EATR)248  and  the  effective  marginal  tax  rate 
(EMTR)249  have  been  constructed.  Data  for  these  two  indicators  for  all  EU  Member  States 
and a number of other countries are published yearly by ZEW250. The literature finds that it is 
mainly  the  statutory  rate  which  influences  profit  shifting.  Discrete  investment  decisions 
depend  on the  effective average tax rate and capital  flows depend  on the effective marginal 

than  one.  The  smaller  the  CIT-efficiency,  the  less  effective  is  the  CIT  raising  revenue  relative  to  the 
benchmark.   

245   Dr  Robert  Dover,  Dr  Benjamin  Ferrett,  Daniel  Gravino,  Professor  Erik  Jones  and  Silvia  Merler,(2015) 

'Bringing     
transparency,  coordination  and  convergence  to  corporate  tax  policies  in  the  European  Union;  Part  I: 
Assessment  
of the magnitude of aggressive corporate tax planning, EPRS | European Parliamentary Research Service  
246   The  statutory  corporate  tax  rate  is  the  rate  that  is  imposed  by  applicable  tax  law  on  taxable  income  of 

corporations. 

247   The effective corporate tax rate (ETR) measures the taxes a corporation pays as a percentage of its economic 

profit. 

248   The EATR is the share of taxes to be paid in the return on an investment with a return exceeding the cost of 

capital. 

249   The EMTR signifies the share of taxes on the marginal investment, which generates no net return over the 

cost of capital. 

250   ZEW  (2014),  Effective  tax  levels  using  the  Devereux-Griffith  methodology:  Final  Report  2014, 

TAXUD/2013/CC/ 120. 

129 

 
 
 
 
                                                                                                                                                         
tax  rate.  In  1998251,  the  average  EATR  was  5.1  percentage  points  lower  than  the  average 
statutory rate (29.1 % and 34.2 %, respectively) and the EMTR 13.5 % (at a rate of 20.7 %). 
In  Table  10,  it  is  shown  that  as  the  statutory  rate  declines,  the  effective  tax  rate  is  also 
reduced, but to a lesser extent than the statutory rate. The difference between the statutory rate 
and the effective average  rate has  been  reduced by 3.1 percentage  points and the difference 
between  the  effective  marginal  tax  rate  and  the  statutory  rate  by  6.2  percentage  points. 
However,  the  difference  between  statutory  and  effective  rates  did  not  fall  in  all  Member 
States.  In  Belgium,  Estonia,  Hungary  and  Portugal,  it  increased  and  in  Malta  it  did  not 
change. It is in the line of expectations that effective rates will fall when statutory rates do and 
that the absolute reduction will be less for the effective rates. It is, however, not immediately 
clear  if  the  different  trajectories  are  an  indication  of  base  broadening.  The  statutory  rate  is 
clearly  part  of  the  effective  rates.  As  the  indicators  used  are  averaged  across  types  of 
investment (buildings, machinery, intangibles) and ways of financing (retained earnings, new 
equity, debt), the evolution of the effective rates in absence of any change of the base is not 
clear-cut. 

Table 10: Change of average CIT rate, effective average tax rate, effective marginal tax rate, 1998-2014 in 
percentage points, EU-28 

1998-
2000  

2000-
2005  

2005-
2010  

2010-
2014  

Total 
1998-
2014  

CIT 
rate252  

-2 

-6.1 

-2.1 

-0.3 

-10.4 

EATR  

-1.7 

-4.3 

-2 

EMTR  

-1.9 

-1.4 

-2.5 

0.1 

0.8 

-8 

-4.9 

Source: ZEW and Commission services 

251   1998 is the first year of the ZEW publications. 
252   To keep the table consistent, in this table CIT rate data from ZEW are being used. These differ slightly from 

those published in Taxation Trends in EU-Member States.  

130 

 
 
 
 
  
 
  
 
                                                 
ANNEX M: BREAKDOWN OF MNES BY COUNTRY/REGION  

1) Analysis of MNEs standalone 

There  are  around  10,000  MNEs  worldwide  which  turnover  exceeds  EUR  750 million 
(source:  S&P  Capital  IQ).  The  Figure  below  provides  a  breakdown  per  largest 
economies (ordered in accordance with their GDP). 

Figure 3 – Number of very large MNEs per country 

Multinationals in the world's largest economies  
(by GDP) 

3500

3000

2500

2000

1500

1000

500

0

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Total number of MNEs

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Source: S&P Capital IQ - ordered in accordance with the largest economies' GDP 

Table 11: Number of MNEs standalone per region 

Country/Region  

EU & EEA  

Total number of 
MNEs 
2,897 

USA 

Japan 

China 

2,025 

936 

799 

131 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2) Analysis of MNE Groups 

The largest MNEs worldwide may belong to a single MNE group. Based on the database of 
the  largest  MNEs  above,  it  has  been  determined  that  there  are  around  6,500  MNE  groups 
which  comprise  at  least  one  MNE  whose  turnover  meets  or  exceeds  EUR 750 million.  The 
figure  below  provides  a  breakdown  of  MNE  groups  in  the  EU  and  the  world's  largest 
economies. 

Figure 4 – Number of very large MNE groups per country 

Multinational groups in the world's largest economies  

2000

1800

1600

1400

1200

1000

800

600

400

200

0

Table 12: Number of MNE groups per region 

Country/Region  

EU & EEA  

Total number of 
MNE groups 
1881 

USA 

Japan 

China 

1549 

746 

709 

ANNEX N: U.S. SEC DEFINITION OF A SIGNIFICANT SUBSIDIARY

253 

253  Source:  Cornell  law  school,  17  CFR  210.1-02  -  definitions  of  terms  used  in  regulation  S-X  (17  CFR 

part 210) 

132 

 
 
 
 
 
 
 
 
 
                                                 
The term significant subsidiary means a subsidiary, including subsidiaries which meet any of 
the following conditions:  

(1)  The  registrant's  and  its  other  subsidiaries'  investments  in  and  advances  to  the  subsidiary 
exceed 10 percent of the total assets of the registrant and its subsidiaries consolidated as of the 
end of the most recently completed fiscal year (for a proposed combination between entities 
under  common  control,  this  condition  is  also  met  when  the  number  of  common  shares 
exchanged or to be exchanged by the registrant exceeds 10 percent of its total common shares 
outstanding at the date the combination is initiated); or  

(2)  The  registrant's  and  its  other  subsidiaries'  proportionate  share  of  the  total  assets  (after 
intercompany  eliminations)  of  the  subsidiary  exceeds  10  percent  of  the  total  assets  of  the 
registrants and its subsidiaries consolidated as of the end of the most recently completed fiscal 
year; or  

(3) The registrant's and its other subsidiaries' equity in the income from continuing operations 
before  income  taxes,  extraordinary  items  and  cumulative  effect  of  a  change  in  accounting 
principle of the subsidiary exclusive of amounts attributable to any non-controlling interests 
exceeds 10 percent of such income of the registrant and its subsidiaries consolidated for the 
most recently completed fiscal year.  

A registrant that files its financial statements in accordance with or provides a reconciliation 
to  U.S.  Generally  Accepted  Accounting  Principles  shall  make  the  prescribed  tests  using 
amounts determined under U.S. Generally Accepted Accounting Principles. A foreign private 
issuer that files its financial statements in accordance with IFRS as issued by the IASB shall 
make the prescribed tests using amounts determined under IFRS as issued by the IASB. 

133 

 
 
 
 
ANNEX O: WORLDWIDE PUBLICATION REGIME OF INDIVIDUAL ACCOUNTS 

Within  the  European  Union,  individual  accounts  of  all  listed  and  private  limited  liability 
companies have to be made publicly accessible; it is however not generally the case outside 
the EU, except for issuers of listed securities or specified industry sectors:  

In Argentina, financial statements must be prepared and filed but are not publicly available. 

In  Australia,  the  law  requires  all  companies  to  lodge  an  annual  return  to  the  Australian 
Securities  and  Investments  Commission.  Once  submitted,  the  return  becomes  a  document 
available to members of the public upon payment of a prescribed fee.  

In  Brazil,  listed  corporations  with  investments  in  subsidiaries  must  prepare  and  publish 
audited  consolidated  financial  statements  in  addition  to  their  own  financial  statements 
(Brazilian  Corporate  Law,  section  289).   This  is  not  mandatory  for  non-listed  (Brazilian 
Corporate Law, section 249), 

In Canada, public disclosure is required only for public corporations. Private corporations are 
not required to make public their financial statements.  

In China, companies not listed are generally not required to publish their financial statements 
periodically unless they are engaged in certain activities (e.g. commercial banks which total 
assets are over RMB 1 billion, securities companies, insurance companies). Companies with 
listed shares or debts are required to published their financial statements 

In  India,  publicly  listed  companies  must  report  key  financial  information  regarding  their 
subsidiaries,  as  well  as  on  the  countries  in  which  their  subsidiaries  are  incorporated.  This 
information  is  useful  and  beneficial,  although  it  is  not  a  perfect  substitute  for  country-by-
country reporting (Third and fourth proviso of Section 136(1) of the Companies Act, 2013). 

In  Japan,  financial  statements  have  to  be  kept  at  the  office  of  the  corporation  or  mailed  for 
inspection  by  shareholders  and  creditors.  In  additional,  condensed  balance  sheet  have  to  be 
published in newspapers after the shareholders' meeting.  

In South Africa, there is no requirement that the individual accounts of subsidiaries must be 
publically  available.  Only  the  parent  companies  separate  financial  statements  are  published 
with  the  consolidated  financial  statements.  The  individual  subsidiaries  must  prepare 
individual financial statements for tax purposes, but this is not publically available. 

In  Switzerland,  there  are  no  obligations  to  publish  or  file  individual  accounts  with  the 
commercial register. The only exceptions are listed companies, banks and insurance firms. 

In the United States, only listed companies have to disclose individual accounts. Companies 
which are not publicly traded are only obliged to file income tax returns. Private companies 
are  not  required  to  publically  disclose  financial  statements  but  may  be  required  to  deliver 
audited financial reports to third parties pursuant to contractual agreements.  

134 

 
 
 
ANNEX  P:  INTERACTION  WITH  CBCR  REQUIREMENTS  FOR  BANKS  AND  EXTRACTIVE 
INDUSTRIES 

This Annex examines the interaction with existing sectorial CBCR regimes in the EU, should 
the EU decide to create a "general" CBCR regime applicable to all sectors. As explained in 
Annex D, two sectors are currently obliged to publish a CBCR by virtue of EU law passed in 
2013  (Accounting  Directive  and  revised  Capital  Requirement  Directive  respectively):  the 
extractive and logging of primary forests sector, and the banking sector. The interplay of the 
EU  sectorial  and  "general"  CBCR  regimes  with  the  regime  to  be  implemented  by  the  Anti-
Tax-Avoidance  Package  (hereafter  "ATAP")  of  28  January  2016  is  also  examined  to  some 
extent.  

Extractive and logging of primary forest sectors 

The objective of the "extractive" CBCR is mainly to grant local populations of resource-rich 
countries more power to hold their governments to account as regards the exploitation of their 
natural resources. The objective retained in this document for a public CBCR differs greatly 
as  it relates to  public scrutiny on corporate income  taxes.  This  results  in large difference as 
regards  the  content  of  a  CBCR  report.  As  a  result,  should  the  EU  adopt  a  new  "general" 
CBCR regime, extractive and logging industries should be subject to both CBCR. 

As  seen  below,  except  for  any  additional  burden  implied  by  the  co-existence  of  different 
CBCR regimes, this would trigger no major issue for those industries. All the CBCR regimes 
can perfectly co-exist for these industries. 

As  regards  the  scope  of  application,  the  "extractive"  CBCR  is  to  be  published  by  large  EU 
companies  and  all  issuers  in  the  EU  when  they  are  active  in  the  extractive  and  logging  of 
primary  forests.  The  concept  of  a  "large"  company  is  based  on  thresholds  defined  in  the 
Accounting  Directive,  similar  to  the  approach  retained  in  sub-options  (a)  examined  in  this 
document.  If,  as  examined  in  this  impact  assessment,  only  very  large  MNE  groups  join  the 
"general"  regime,  a  fraction  of  EU  companies  currently  publishing  an  "extractive"  CBCR 
would also have to prepare a "general" CBCR. It is expected that at the same time they would 
have  in  addition  to  file  a  specific  additional  CBCR  with  tax  authorities  as  a  result  of  the 
ATAP. If beyond very large MNE groups, parents of large MNE groups would be subject to a 
new "general" regime, then  most  EU companies currently  publishing an "extractive" CBCR 
would  also  have  to  prepare  a  "general"  CBCR  –  however  only  a  fraction  filing  an  "ATAP" 
CBCR  with  tax  authorities.  It  is  not  envisaged  in  this  impact  assessment  to  extend  the 
"general"  CBCR  regime  to  issuers  in  the  scope  of  the  Transparency  Directive.  In  this  way, 
smaller  issuers  and  groups  with  a  turnover  below  EUR 750 million  would  escape  the 
"general" regime and would continue publishing the "extractive" CBCR only. A few non-EU 
MNEs that currently publish an "extractive" CBCR in compliance with the EU or forthcoming 
third  country  legislation  (Canada,  USA,  …)  might  be  subject  to  dual  or  triple  reporting 
obligation, depending on the option and their size, due to their international operations being 
captured  by  various  jurisdictions'  reporting  requirements.  Provisions  in  the  Accounting 
Directive  to  the  effect  of  granting  equivalence  to  third  country  regimes  on  a  case-by-case 
basis should alleviate this burden. 

135 

 
 
In  2011,  the  Commission  Services  estimated  there  to  be  419  large  unlisted  extractive 
companies  (which  are  not  members  of  EU  listed  groups),  and  171  EU  listed  extractive 
companies in the EU, as well as 26 forestry listed and unlisted large MNEs254.  

Having  regard  to  the  respective  content  of  an  "extractive"  CBCR  and  a  "general"  CBCR  as 
envisaged  in  Section  4.1.1,  there  would  be  little  interaction.  Operations  covered  by  an 
"extractive"  CBCR  are  solely  those  relating  to  extractive  or  logging  activities.  The  only 
overlap (i.e. information required under the "extractive" and "general" CBCR) would relate to 
income tax paid. The Accounting Directive requires the disclosure of corporate income taxes 
paid annually to each government in a wider caption on "taxes levied on the income" in the 
sectorial  CBCR255.  There  is  a  "de  minimis"  threshold  (EUR 100,000)  permitted  by  the 
Accounting Directive for the extractive CBCR, which is not envisaged for amounts reported 
on  taxes  paid  with  a  CBCR  extended  to  all  sectors.    In  addition,  the  general  CBCR  would 
include  information  on  countries  where  a  group  has  no  extractive  operations,  whereas  no 
disclosure of payments is required for such countries with the sectorial CBCR. Due to these 
differences, the amount  of corporate income taxes paid will have to be reported in different 
ways in both CBCR. Other than this, there would be no conflicts as regards the information to 
be reported. A combination of the two has for instance been done in Norway, where Chapter 
10  of  the  Accounting  Directive  was  implemented  with  an  additional  requirement  that  tax 
payments  must  be  published  in  context  with  figures  about  employees,  production, 
investments, revenues, some costs and tax accruals256. 

Banking sector 

EU Credit institutions and investment firms (hereafter "banks") must publish as from 2015 a 
sectorial "bank" CBCR pursuant to Article 89 of the CRD4.  

Just  as  the  envisaged  "general"  regime,  the  "bank"  CBCR  regime  seeks  information  on  the 
turnover,  number  of  employees,  profit  before  tax  and  tax  amounts  and  there  is  thus  an 
apparent similarity between the two regimes in terms of data to be reported. There are likely 
to be differences in the details (for example because of technical specification in either regime 
regarding scope of consolidation, tax paid/accrued, geographical aggregation of certain data, 
etc).  

Different scenarios can be considered for the interaction of the new "general" CBCR regime 
and  the  existing  "bank"  CBCR.  The  main  question  is  whether  the  existing  "bank"  CBCR 
should continue to apply or not following the adoption of the new "general" CBCR regime. 
Banks have marked their preference during the consultation process for an alignment of the 
CBCR  regimes  in  order  to  avoid  administrative  burden  and  confusion.  The  EU  may, 
recognising different objectives for a "bank" and a "general" CBCR, decide that banks should 
join the "general" regime. 

But  if  the  existing  "bank"  CBCR  would  cease  to  apply,  significantly  less  banks  would  fall 
under  the  CBCR  reporting  requirement.  Indeed,  the  "bank"  CBCR  applies  to  all  banks 

254   Commission  Staff  Working  Paper,  Impact  Assessment  for  financial  disclosures  on  a  country  by  country  basis, 

2011 

255   Article 43 and 41 of the Accounting Directive 
256   Ministry of Finance (Norway) “Forskrift om land-for-land rapportering” 

136 

 
 
                                                 
regardless of their size; the new "general" regime would apply only to companies of a certain 
size and not to  smaller banks.  It is estimated for the EU, that out of  around 6,400 banks257, 
1,230  are  banking  groups258  of  which  about  150+  are  very  large  groups  (revenues  above 
EUR 750 million259). Also, the new "general" regime would not apply to banks with certain 
legal  forms  (such  as  cooperatives),  while  the  existing  "bank"  regime  applies  to  them 
regardless of their legal form.  

Such limitation of the scope of application does not seem justified given the specific objective 
of  the  "bank"  CBCR.  The  objective  stated  for  the  "bank"  CBCR  is  "regaining  the  trust  of 
citizens  of  the  Union  in  the  financial  sector260".  This  does  not  seem  prima  facie  to  be 
inconsistent  with  the  specific  objective  identified  in  Section  3  of  the  main  body  of  this 
document,  namely  to  increase  transparency  in  order  to  allow  for  public  scrutiny.  However 
these  are  not  entirely  the  same.  Indeed,  the  "bank"  CBCR  must  be  seen  against  the 
background  of  the  financial  crisis,  in  which  unprecedented  levels  of  public  support  were 
necessary in order to restore financial stability and the trust of citizens in the financial sector 
was heavily affected. This led to strong demands for banks to show greater accountability and 
increased  transparency  in  their  relations  with  the  public.  When  assessing  the  economic 
consequences, the Commission found in October 2014 that "bank" CBCR is indeed expected 
by stakeholders to have some positive impact on transparency and accountability of, and on 
the  public  confidence  in  the  European  financial  sector,  this  without  significant  impact  on 
competitiveness, investment, credit availability or the stability of the financial system. There 
is therefore no justified reason to cancel the existing "bank" CBCR and this should continue 
to apply.  

The EU may, recognising different objectives for a "bank" and a "general" CBCR, decide that 
banks  should  join  the  "general"  regime.  However  a  parallel  existence  of  the  "bank"  CBCR 
and  the  new  regime  could  possibly  lead  to  a  double  CBCR  reporting  obligation  for  those 
banks that fall within the scope of application of both regimes261. To avoid this, and given the 
similarities of a "bank" CBCR with one of the "general regime" type, it seems appropriate to 
exclude from the scope of application of the new regime EU banks that report CBCR on the 
basis of Article 89 of CRD4262.  

In the case of option 3A and 3B of the new regime, non-EU MNE groups would be required 
to report CBCR data at the consolidated level of their ultimate parent. No similar obligation 
exists under the "bank" regime (reporting to be done by institutions in the EU, only for their 

257   Source: European Banking Authority 
258   Source: Centre for European Policy Studies (CEPS) 
259   Source: Orbis 
260   CRD4, Recital 52 
261   Very  large  limited  liability  banks  would  also  have  in  any  case  to  report  an  ATAP  type  of  CBCR  to  tax 
authorities. All CBCR models seek information on the turnover, number of employees, profit before tax and 
tax  amounts.  Despite  the  apparent  similarity,  there  is  likely  to  be  differences  in  details.  For  instance  the 
group's consolidation scope of a "bank" CBCR should be based on prudential requirements, whereas this is 
not  necessarily  the  same  scope  as  per  GAAP.  Technical  specification  in  either  regime  regarding  tax 
paid/accrued, geographical aggregation of certain data, etc. may result in slightly different figures from one 
regime to another. Those slight differences may not be worth the burden of pursuing different regimes.  
262   This  would  also  have  the  advantage  of  avoiding  thorny  interpretational  questions  with  respect  to  the 

'boomerang' clause set out in Article 89(5) of the CRD4 

137 

 
 
                                                 
activities  controlled  from  the  EU,  not  for  the  entire  group).  Therefore  it  does  not  seem 
appropriate  to  exclude  non-EU  MNE  banking  groups  from  the  new  "general"  regime.

138 

 
 
ANNEX  Q:  ADDITIONAL  BACKGROUND  ANALYSIS  SUPPLEMENTING  THE  ECONOMIC 
ANALYSIS  SECTION  OF  THE  IMPACT  ASSESSMENT  OF  INCREASED  CORPORATE  INCOME 
TRANSPARENCY 

1.  Introduction 

This annex contains supplementary information backing up the economic analysis presented 
in  Sections  5.1.  of  the  impact  assessment.  In  particular,  the  focus  is  on  the  possible 
behavioural responses of firms to increased corporate income tax transparency requirements 
and  the  impact  of  these  possible  responses  on  market  efficiency,  competitiveness,  and  the 
international level playing field in terms of firm-level productivity growth. These effects are 
discussed for two alternatives of a legally binding public CBCR:  

 

 

for very large MNEs with annual turnover of at least EUR 750 million; depending on the 
Option chosen at least 2,000 MNE groups in the EU, as well as at least 6,500 MNE groups 
internationally, would be concerned under this alternative ;  
for  large  MNEs263;  at  least  20,000  groups264  would  be  concerned  in  the  EU  under  this 
alternative. 

Given data availability and available literature, the possible effects of a labelling approach, as 
well as the differences in geographic scope between various options , could not be assessed.  

1.1. Starting point: the conflicting objectives of firms in a competitive market environment 

Firms  face  conflicting  objectives:  on  the  one  hand  they  have  to  achieve  a  sufficiently  high 
level  of  distributed  profits,  or  net  income,  to  ensure  their  continued  funding.  Shareholders, 
banks, as well as market participants in equity and bond markets monitor the firm's capacity 
to  generate  revenues  that  exceed  costs  enough  as  to  remunerate  shareholders,  pay  a  risk-
adjusted return to bondholders, etc. On the other hand firms need to stay competitive: at any 
point  in  time  their  user  cost  of  capital  (ucc)  must  not  rise  above  the  level  prevailing  in  its 
industry/market. To stay competitive, the firm has to constantly invest into new products and 
processes, i.e. to innovate, and continue to achieve an access of earnings over cost of inputs 
(gross  profits),  as  in  a  competitive  market  firms  can  only  achieve  such  excess  over  cost  by 
finding new (innovative) combinations of (existing) inputs that so far its competitors have not 
yet  discovered.265  This  innovative  combination  of  inputs  will  be  represented  by  the  firm’s 
production function, f, in the firm’s profit optimization problem (see Box 1).  

263 This refers to the concept of 'large companies' as defined in the Accounting Directive (Article 3). Large groups 
exceed  at  least  two  of  the  three  following  threshold  criteria  applied  to  the  balance  sheet  of  the  parent 
undertaking: (a) a balance sheet total of at least EUR 20 million, (b) an annual net turnover of at least EUR 
40 million, (c) an average of at least 250 employees during the financial year. 

264  This  figure  should  be  read  as  lower  bound  of  a  range  where  the  upper  bound  is  subject  to  considerable 
uncertainty  as  a  result  of  data  availability  and  comparability;  it  cannot  be  excluded  that  the  upper  bound 
could be as high as 100,000 firms in the EU.  

265 This excess over cost was first systematically discussed by Schumpeter (1908). 

139 

 
 
                                                 
Firms  employ  various  strategies  to  make  this  situation  last  as  long  as  possible,  including 
industry and trade secrets, patents and licences, etc. Transparency is a bad in this context as 
long  as  the  mechanism  for  capturing  the  surplus  created  by  the  innovation  (its  rent)  is  not 
specified and enforced. Once this is done, transparency can become a good.  

Firms also have to find out which share of its profits (net income) needs to be re-invested into 
search for future innovations, one of the most difficult decisions to make given the uncertainty 
about  the  chances  of  success  of  any  particular  attempt.266  It  is  useful  to  give  an  order  of 
magnitude: in the most research intense industries (e.g. pharmaceuticals, automotive, etc.), a 
single product development can imply committing several billions of euros over a number of 
years without any certainty if the investment will eventually pay back. Under which funding 
arrangements  and  market  conditions  the  management  of  a  firm  can  best  develop  and 
implement  a  long-term  vision  on  investments  is  one  of  the  most  hotly  debated  questions  in 
corporate finance. The current policy stance of the European Commission is broadly agnostic, 
targeting a situation where firms can choose from a menu of funding technologies that is as 
broad as possible as long as financial stability concerns remain within acceptable limits.  

Shareholder structure seems to be among the major determinants of the extent to which a firm 
has to give preference to the profit distribution motive in the short run, or can invest into its 
future competitiveness via process and product innovation.267 In developed economies, not to 
the least against the backdrop of an ageing society accumulating increasing (financial) wealth, 
large  institutional  investors  are  becoming  ever  more  important.  Some  institutional  investors 
(e.g.  pension  funds,  live  insurers,  investment  funds,  sovereign  wealth  funds)  promise  their 
customers a certain yield that is fixed in nominal terms and in a particular currency. As this 
yield needs to be achieved on a continuous basis, these investors/shareholders268 can exhibit 
very inflexible behaviour when it comes to (announced) levels of distributed profits269. In the 
finance literature the conflict between short- and long-run revenue objectives is the subject of 
numerous  analyses  of  why  private  firms  go  public,  or  on  the  contrary,  decide  to  remain 
private, or even, more rarely, go private270 after having been traded on a public exchange.  

266   Schumpeter (1908) arrived at the (pessimistic) view that in the long run firms in a competitive environment 
would not be able to sustain a sufficiently high level of R&D expenditure which is why the state would have 
to organize basic research instead. Japan, in some sectors where upfront development costs are particularly 
high, followed up on this reasoning, and for some time was very successful in R&D intense industries. Also, 
a Commission working paper showed how the U.S. used large public investments to kick-off R&D intense 
sectors (Denis et al 2005). Policies in those two highly industrialized nations and the constant struggle of 
firms  to  protect  their  product  and  process  innovations  from  being  copied  by  competitors  have  more  than 
confirmed the writings of Schumpeter. 

267   A  recent  U.S.-based  anecdote  for  this  challenge  was  the  going  private  of  Dell.  Having  built  one  of  the 
leading computing hardware producers, the firm's founder observed in 2013 that his vision for the firm had 
become  impossible  to  reconcile  with  the  expectations  of  the  firm's  shareholder  base  about  short-term 
distribution of profit. While he saw the need to put additional capital at risk to ensure the economic future 
and growth of the firm, shareholders showed a preference for short-run profits. 

268   An  example  often  cited  is  the  Calpers  fund  in  the  U.S.  who  invests  lifetime  savings  of  state,  school,  and 

public agency members who save for their pensions and healthcare. 

269   How to make large institutional capital more "patient" and thereby more aligned with the long-term growth 
and  competitiveness  objectives  of  the  firm  (and  thus  of  the  economy  at  large)  is  a  central  topic  of  the 
Commission's current flagship project of building a Capital Market Union. 

270   See interview with Michael Dell who, in 2013, took the PC producer named after him private in what is so 
far the largest going private operation in U.S. corporate history; Dell had been listed for more than 25 years.  

140 

 
 
                                                 
The dual objective of the firm is the point of departure to look into two economic dimensions 
of increased corporate  income tax transparency due to  a compulsory  public CBCR imposed 
on  either  very  large,  or  large  MNEs:  market  efficiency,  and  competitiveness.  Tentative 
implications for the evolution of the international level playing field, and the likely impact on 
productivity growth (the jobs & growth dimension) at the EU level are drawn. Two important 
caveats need to be kept in mind: First, the analysis presented in this section applies to MNEs 
that  are  not  part  of  the  extracting  or  logging  industry  which  shall  be  subject  to  additional 
disclosure requirement with respect to their payments made to governments (e.g. in countries 
where minerals of tropical timber are located) given the frequent issues with corruption in this 
context. The analysis also does not apply to credit institutions subject to increased disclosure 
requirements under the Capital Requirements Directive (CRD4). Second, the analysis is based 
on the presumption that large and very large MNEs evolve in a competitive environment; how 
to  deal  with  super-normal  economic  profits  that  have  their  origin  in  some  form  of  market 
power is beyond the scope of this analysis.  

2.  Market efficiency 

Given  the  very  scarce  direct  evidence  about  the  economic  impact  of  the  increased  public 
transparency  of  firms'  corporate  income  across  countries,  we  have  looked  for  possible 
analogies  in  the  economics  and  finance  literature.  In  the  literature  on  IPOs,  as  well  as  in  a 
smaller  literature  on  going  private,  we  found  a  similar  trade-off  between  additional 
transparency vis-à-vis market participants and the implied loss of control of the firm over its 
investment decisions.  

2.1. Listing and delisting as an analogy for the trade-offs facing firms in the case of public 

disclosure requirements  

The decision to go public is one of the most complex decisions a firm has to make during its 
lifetime.  Especially  for  a  large  private  firm  that  falls  within  the  scope  of  the  increased 
transparency  requirement,  a  public  CBCR  has  some  elements  in  common  with  the  listing 
decision. Indeed, one could expect that for a (albeit small) number of very large private firms 
that were already close to being indifferent between being a private or a public firm, public 
CBCR  could  tilt  the  balance  in  favour  of  an  IPO.  The  transparency  requirement  shifts  the 
trade-off between positive and negative impacts in the individual firm’s assessment, as with 
the  disclosure  rules  the  firm  will  anyway  bear  the  disclosure  costs  and  the  loss  of 
confidentiality.  This  could  result  in  an  improvement  in  market  efficiency  as  the  additional 
listings would increase choice and risk sharing opportunities for investors.  

However, for smaller firms that fall into the lower end of the scope the trade-off may be such 
that  it  become  more  attractive to  scale  down  sufficiently to  remain  outside  the  scope  of  the 
public  CBCR  requirement.  Hasegawa  et  al  (2013)  in  one  of  the  rare  large-scale  real  world 
experiments with public disclosure requirement find that a non-negligible number of Japanese 
firms downscaled sufficiently to avoid falling under the public disclosure regime.  

How  beneficial  or  how  harmful  from  an  overall  (macroeconomic)  growth  and  employment 
perspective such  threshold effects could eventually  turn  out to  be will depend  on where  the 
threshold is actually put. The OECD BEPS threshold of 750m annual turnover can reasonably 
be  expected  to  fall  into  the  first  category;  as  far  as  the  possible  impact  of  the  much  lower 
threshold  in  the  case  of  public  CBCR  for  large  MNEs  is  concerned,  we  do  not  feel 
comfortable formulating such an expectation. What can be said with certainty on the basis of 

141 

 
 
firm-level data we are aware of is, that any negative threshold effects would materialize to a 
very  different  degree  across  EU  Member  States  for  the  simple  reason  that  firm  size  varies 
greatly across EU Member States. Table 14 shows a number of P&L items for non-financial 
firms in different EU Member States. Although the mean value does not give information on 
the  distribution  of  firm  size  within  a  country,  it  is  helpful  in  the  assessment  of  differences 
between Member States. 

Table 14 – Mean values of certain P&L items in given Member States 

Source: Kühnhausen and Stieber (2014) using BvD (ORBIS) data 

In  a very large  sample  of 1.2  million non-financial companies (NFCs)  that  may or  may  not 
qualify as MNEs, the average German and UK firms has roughly seven times the revenue of 
the  average  French  and  Polish  firm,  and  roughly  eleven  times  the  revenue  of  the  average 
Italian and Spanish firm. Clearly, the lower CBCR threshold (for large MNEs) compared to 
the  BEPS  threshold  would  first  cut  into  the  German  and  UK  population  of  firms,  while  it 
would take even lower thresholds to also capture increasingly firms in France271 and Poland, 
and even much lower thresholds for Italy and Spain, not to speak about firms in smaller EU 
Member States (average firm size being correlated with domestic market size).  

Returning to the discussion of possible direct cost items of increased public transparency, the 
increased public transparency implies a direct cost for the firms in the form of yearly layout 
on  auditing,  certificating  and  dissemination  of  accounting  information.  Since  many  of  these 
expenses do not increase proportionally with the size of the firm, they weigh relatively more 
on smaller companies. For what concerns the loss of confidentiality, the cost is due to the fact 
that  the  increase  in  transparency  requirements  forces  companies  to  disclose  information 
whose secrecy may be crucial for their competitive advantage.  

On the side of possible benefits272, the increase in public transparency requirements may help 
firms gain access to more diversified sources of finance, in particular non-bank finance, to the 
extent  that  informational  asymmetries  vis-à-vis  potential  investors  are  alleviated.  This 
argument  is  based  on  the  traditional  role  of  banks  to  screen,  score,  and  monitor  otherwise 
hidden  company  and  project  finance  risks.  An  increase  in  public  transparency  reduces  the 
information  asymmetry  between  the  issuers  and  possible  investors.  In  this  way,  more 
individuals  could  be  willing  to  invest  in  the  firm  without  going  through  intermediaries. 
However, one can raise doubts how valid the bank screening function still is. Banks use more 
and more automated scoring models. In this respect, higher public transparency would add to 

271   In  the  context  of  the  2015  European  Semester,  the  Council,  on  a  Recommendation  from  the  European 
Commission,  has  recommended  to  FRANCE  to  "By  the  end  of  2015,  reduce  regulatory  impediments  to 
companies'  growth,  in  particular  by  reviewing  the  size-related  criteria  in  regulations  to  avoid  threshold 
effects." ECOFIN 387, Brussels, 15 June 2015.  

272   See Pagano, Panetta and Zingales (1998) for a discussion.  

142 

Mean values per country (in 1000s of euro)GermanyUnited KingdomFranceItalySpainPolandRevenue14335414539320585127201256521999EBITDA11235147322015155014692271EBIT6305934012337009461378Interest13726198169132144Tax Payments16082445296258208237Net Income30686889739273606997 
 
 
                                                 
open  data  that  advanced  data  analytics  methods  rely  on,  and  much  of  the  additional 
transparency  benefits  may  eventually  accrue  to  traditional  banks  as  well,  at  least  to  those 
equipped  with  the  necessary  analytical  toolkit.  As  a  result,  the  company  could  benefit  from 
more competition among its potential lenders, lower its cost of credit and improve its access 
of external finance. Where such benefits could accrue most  will again depend on firm-level 
and market characteristics. 

Even  larger  firms  may  benefit  from  higher  public  transparency  and  a  broadening  of  their 
investor base. However, the analogy with the IPO must not be driven too far, since the public 
CBCR would be mandatory for all firms falling with the scope at the same time. Hence, the 
public  CBCR  would  not  change  the  firm's  visibility  relative  to  other  firms  (again,  with  the 
notable  exception  of  very  large  private  firms).  Another  possible  benefit  of  increased 
transparency  could  materialize  via  an  intensification  in  market  monitoring  (in  addition  to 
monitoring by banks, shareholders and bondholders, or credit rating agencies).  

Indeed, increased transparency about the geographical complexity of the MNE should expose 
managerial  decisions  to  increased  market  scrutiny.  MNEs  that  have  grown  organically  via 
mergers and acquisitions may not put a sufficiently high price on complexity, and as long as 
the firm is profitable, there may be little incentive to optimize the structure of the firm. In this 
way,  CBCR  could  help  to  better  align  the  incentives  of  both  managers  and  shareholders.273 
Moreover, the shareholders of the company can exploit the increased transparency to design 
more efficient compensation schemes for their managers. Another possibility is that the initial 
shareholders  can  better  liquidate  their  investment  in  the  company  thanks  to  the  increased 
liquidity of firms stocks.  

Finally,  as  mentioned  before,  by  increasing  disclosure  requirements  there  could  be  an 
additional incentive, at least for the biggest private firms, to go public, as part of the IPO costs 
has already been paid. In this context, Boehmer and Ljungqvist (2004) look at evidence from 
privately-held firms. The analysis focuses on the IPO timing: going public raises a trade-off 
between the benefit of higher valuations that outside investors are willing to pay and the cost 
to the entrepreneur of having to give up his private benefits of control once the company has 
gone public. 

Other studies have raised the point that intensification in monitoring following an increase in 
transparency  could  also  turn  out  to  be  negative  for  the  company.  When  analysing  a  listed 
firm's decision to go private, Boot, Goplan and Thakor (2006) point to shareholders' effort to 
control  managers'  decisions  as  much  as  possible  in  order  to  maximise  the  likelihood  that 
managers make a project-choice decision in line with their interests (the Dell case mentioned 
earlier). However, this stringent monitoring may induce lower managerial effort in uncovering 
growth  opportunities.  The  same  argument  could  apply  in  the  case  of  increased  public 
corporate  transparency  via  CBCR.  Indeed,  investors  with  short-term  yield  objectives  could 
exploit this increased transparency to gain additional monitoring power over managers. This 
monitoring could then result in lower managerial effort and as a consequence in lower growth 
possibilities for the firm.  

273   Some market observers have made the link between the complexity of the Volkswagen Group with several 
hundred international operations and its recent management and oversight failure in the U.S. emission test 
scandal.  

143 

 
 
                                                 
According to another study by Ellul, Jappelli, Pagano and Panunzi (2015) transparency could 
have  still  other  effects  having  an  impact  on  market  efficiency.  First  of  all,  as  discussed 
previously, through investor confidence, an increase in transparency could raise firms' access 
to  funding  and  reduce  firms'  cost  of  capital.274  On  the  other  hand,  depending  on  the  degree 
and geography of BEPS13 implementation, it could increase the visibility of firms’ decisions 
to tax authorities, thereby reducing firms' ability to lower the fiscal pressure they are facing. 
Their  main  concern,  in  this  case,  is  that  corporate  taxes  could  be  expected  to  decrease 
investment through two channels. First of all, through an increase in the cost of investment; 
Secondly, by discouraging firms' transparency and as a consequence limiting firms' access to 
capital markets. From their analysis it follows that firms choose the level of transparency and 
of investment jointly.  

This latter point is fundamental in our analysis. Since the firm jointly decides on a number of 
profit drivers, one cannot assume that an increase in transparency will mechanistically lead to 
an increase in the total amount of taxes paid by firms. Even if transparency may reduce firms' 
possibility  to  elude  taxes,  it  cannot  prevent  firms  to  change  the  composition  of  their 
investments in a way which minimises their tax expenditures.  

2.2. Other impediments to market efficiency: cost of complexity 

Especially in the case of very large MNEs, the Volkswagen case has raised to awareness that 
not  only  large  international  financial  institutions  can  become  too  complex  to  manage275. 
Against  this  background,  especially  long-term  oriented  shareholders  are  more  likely  to  be 
critical  about  highly  aggressive  tax  avoidance  practices.  To  the  extent  that  these  practices 
require  highly  complex  corporate  structure;  the  latter  could  lead  to  excessive  costs  of 
complexity  as  well  as  additional  reputational  risks.  Obviously,  reputational  risk  will  differ 
strongly from one firm to another for any given level of complexity of corporate structures; 
only  a  small  sub-set  of  large,  or  very  large,  MNEs  are  household  names  where  a 
materialization  of  reputational  risk  can  be  expected  to  have  a  direct  impact  on  market 
outcomes276. 

Balakrishnan,  Blouin,  Guay  (2011)  find  a  positive  relationship  between  tax  avoidance  and 
opacity:  tax  aggressiveness  causes  increased  financial  complexity  and  decreases  corporate 
transparency.  Landry  et  al  (2013)  find  for  a  sample  of  Canadian  firms  that  family-owned 
firms  are  less  tax  aggressive  than  non-family-owned  firms.  They  also  find  that  corporate 
social responsibility and (absence of) tax aggressiveness are not well aligned.  

274   Evers  et  al  (2014)  take  a  more  sceptical  view  noting  that  market  participants  already  face  an  information 

overload and do not actually consider the full information sets available.   

275   According  to  data  obtained  from  the  S&P  Capital  IQ  database,  the  Volkswagen  Group  has  around  500 

subsidiaries and/or strategic investments in other companies. 

276   This  aspect  has  not  received  much  attention  so  far;  e.g.  the  very  small  number  of  household  names  that 
figured in the discussion of corporate income tax transparency in the European Parliament were also those 
where the reputational risk argument comes to mind first; on the other hand, many of the 6,500 very large 
MNE,  and  even  more  so  most  of  the  20,000+  large  MNEs  are  not  known  to  the  public  as  they  produce 
intermediary products or services rather than final consumption goods and services. In those (majority) of 
cases the reputational risk argument will be more one-sided in the sense that the firm has little to gain from a 
more positive public image.    

144 

 
 
                                                 
Evers  et  al  (2014)  find,  on  the  one  hand,  that  direct  cost  of  CBCR  may  depend  on  the 
complexity  of  the  group  structure  and  the  scope  of  disclosure  requirements.  On  the  other 
hand,  concerning  the  hypothesis  that  enforced  disclosure  reduces  tax  aggressiveness;  they 
argue  that  disclosure  requirements,  depending  on  the  precise  implementation,  could  even 
trigger  new  forms  of  tax  avoidance  behaviour.  They  conclude  that  it  is  mainly  up  to  (tax) 
legislators to remove gaps and loopholes and reduce leeway in domestic and international tax 
laws  (e.g.  limit  the  leeway  of  companies  with  respect  to  constructing  tax  minimizing  group 
structures).  

Damodaran (2006) examines possible costs of complexity of the source of which lies in the 
different regulatory frameworks governing financial disclosure itself; he notes that increased 
disclosure  requirements  on  accounting  statements  can  obscure  important  information  and 
render  the  financial  statements  longer  and  more  complex.  But  also  corporate  structure  (e.g. 
number  and  levels  of  subsidiaries)  can  make  (group)  financial  statements  less  transparent. 
Another  source  of  complexity  stems  from  new  and  differentiated  ways  of  raising  funds: 
information unavailable to investors also remains hidden from potential hostile acquirers. 

Boutin  et  al.  (2013)  analyse  the  role  of  (group)  internal  capital  markets  via  the  impact  of 
group cash holdings as opposed to individual firm liquidity. While the focus is on the impact 
of  internal  capital  market  on  product  market  competition/entry,  their  finding  that  access  to 
group  liquidity  affects  product  market  behaviour  of  affiliated  firms  by  alleviating  financial 
constraints is interesting in the present context. As their findings do not support the view that 
group  membership  is  per  se  anticompetitive,  the  alleviation  of  financial  constraints 
demonstrates an important benefit of MNEs that needs to be weighed against possible costs of 
complexity. 

There are two factors that play a role on which side of the trade-off the proposed measures are 
likely to impact more: the first factor is within the scope of the proposal itself: the scope of 
public CBCR in terms of the size of the MNE (parent); on the basis of the analogy with the 
literature presented here, as well as the analysis of firm level data, the OECD BEPS threshold 
seems more likely to generate market efficiency improvements. Lower thresholds increase the 
risk  of  CBCR  avoidance,  and  very  low  thresholds  may  become  too  costly  in  terms  of  the 
firm's need to protect at least some of its process innovation in order to generate the necessary 
profits for its future growth.  

We  can  now  sum  up  the  discussion  on  the  market  efficiency  channel  where  an  increase  in 
corporate transparency does not necessarily imply an increase in the rate of corporate income 
tax  facing  the  MNE  (pure  transparency  channel).  Even  if  such  a  change  does  not  lead  to 
overall  higher  fiscal  pressure  on  the  MNE,  due  to  changes  in  the  power  relation  between 
shareholders  and  management  this  pure  transparency  channel  can  be  expected  to  be  non-
neutral across firms and across EU Member States. Depending on shareholder structure it can 
be  expected  to  lead  to  more  short-sighted  investment  behaviour  of  the  firm  in  the  case  of 
firms with strong control exercised by shareholders over firm managerse.g. via a pronounced 
presence  of  institutional  investors  with  inflexible  yield  objectives.  For  MNEs  with  weak 
shareholder control of firm investment behaviour the expectation is that a pure transparency 
channel  will  be  ineffective.  Costs  of  complexity  need  to  be  assessed  against  negative 
threshold effects where firms could choose a particular level of investment and employment 
in order to stay below increased public disclosure limits. 

The introduction of a threshold is negative, i.e. the threshold is set at an arbitrary level, not at 
the  efficient  size  of  the  firm.  There  could  be  an  analogy  with  employment  protection 

145 

 
 
legislation  (EPL)  which  has  come  under  increasing  scrutiny  in  EU  Member  States 
implementing structural reforms in labour and product markets. It is now widely recognized 
that arbitrary administrative thresholds that lead to strong jumps in ucc (user cost of capital) 
may become important barriers to the growth of firms and the economy as a whole, especially 
when these jumps in ucc occur at relatively low levels (e.g. 20 employees, 50 employees). It 
is  an  open  empirical  question  where  the  kinks  in  ucc  due  to  increased  corporate  income 
transparency  could  prove  most  harmful.  However,  it  is  fair  to  say  that  a  threshold  effect  is 
more likely to produce negative effects for firm (productivity) growth and employment in the 
case of the large MNE cut off point as compared to the very large MNE cut off point in this 
impact assessment.  

3.  Competitiveness 

When  looking  at  possible  impacts  of  increased  corporate  transparency  on  firm  level 
competitiveness,  it  is  helpful  to  state  the  problem  in  precise  terms.  Contrary  to  market 
efficiency, competitiveness is a much more stringently defined concept. To keep it short: firm 
compete, ceteris paribus, i.e. firms in the same industry/sector, on user cost of capital (ucc). 
Taxation impacts  ucc through a multitude of channels creating a complex dual optimization 
problem. From a competitiveness angle, CBCR would first and foremost reveal to the public 
(to the extent that the wider public can process the information provided) the complexity of 
tax policy across  EU Member States  and internationally.  But  in  a second  step, it could  also 
reveal  strategic  choices  of  the  firm  that  otherwise  remain  unobserved  on  the  consolidated 
balance sheet of the MNE group.  

The  firm  chooses  optimal  levels  of  investment  and  employment  that  maximize  the  present 
value  of  the  total  distributed  profits.  This  means  the  firm  will  react  to  any  changes  in 
parameters that it does not directly control: the firm's profits rise with lower corporate income 
tax,  with  lower  wages,  it  also  rise  with  higher  amortization  allowance  and  with  higher 
financial leverage.  

146 

 
 
 
Box 1: The optimisation problem of the competitive firm277 

A representative firm in country i contemplating investment I in continuous time           . Let the firm’s 
technology is given by neo-classical a production function          . With levels of capital    and labour   , 
at most                units of output can be produced (and exactly    is actually produced). Further, if    is 
the firm’s gross investment and   is a constant rate of depreciation (determined by available technology 
shared by all firms), then the law of motion for the net capital stock    may be written as 

 ̇                           ̇       

Let b be a constant share of gross investment that is financed through (external) borrowing (e.g. via bank 
loans). Then the firm’s accumulated debt at time t is 

       ∫          

where    is the price per unit of physical capital. The firm’s distributed profit at time t can now be written 
as 

               ̅                              ]                       

where  ̅ is constant price of the firm’s output, w is the constant unit wage, s is the (statutory) corporate 
income  tax  rate,  the  firm’s  total  interest  payments  are    ,  where  r  is  a  constant  interest  rate.  The 
remainder              is financed by retained profit.  It is assumed that all relevant fiscal provisions sum 
up to a flat corporate income tax at a rate s and a depreciation allowance at a constant rate of  . then 

       ∫             

is  the  depreciation  allowance  accumulated  up  to  the  time  t.  Choosing  optimal  levels  of  investment  and 
 }, the firm maximizes the net present value of the sum of total distributed profits. 
employment, {  
Solving the firm's optimal control problem, the user cost of capital can be written 

 } and {  

 ̇ 

 [     

    ]                              (1) 

 ̅

where z is the speed of amortization of the firm’s investment.  

Distortive  international  tax  competition:  In  the  absence  of  distortions  from  non-market  factors  such  as 
taxation  or  labour  and  product  market  regulation,  one  would  expect  that  the  user  cost  of  capital  is  the 
same  in  two  different  countries  i  and  j(law  of  one  price).  Therefore,  observed  distortions  would  be 
expected to come from different policies, particularly tax policies. More precisely,  

where the statutory CIT rate, s, is set by (national) tax policy, and b and z are co-determined by country-
specific  policies  (including  taxation  of  corporate  income).  Firms  (under  competitive  market  conditions) 
would then be expected to change tax jurisdictions (in reaction to differences in  s), and choose financial 
leverage,  b,  and  their  investment  strategy,  z,  in  a  way  that  maximizes  distributed  profits.  The  MNE,  by 
choosing the location of its corporate headquarters, thus chooses s jointly with other variables that impact 
distributed profits. 
The  cost  factors  that  the  firm  cannot  influence  in  this  setting  are  the  market  price  for  its 
output, the price of (one unit) of physical capital, and the technologically determined rate of 
depreciation of its capital  stock. Policy will typically not change  the former either, but  may 

277   This Section draws on Kaniovski (2002).  

147 

 
 
 
  
    
 
 
 
 
 
 
 
          
 
   
              
  
  
        
   
  
    
          
               
                                                 
have  an  impact  on  the  latter  two  (via  CMU  type  policies,  as  well  as  education  and  R&D 
policies).  

Otherwise,  tax  policies  impact  many  other  cost  items  that  determine  firms'  net  income:  tax 
policy sets the corporate tax rate, a multitude of different tax policies have numerous impacts 
on  gross  wages,  tax  policy  determines  the  degree  of  deductibility  of  interest  payments  with 
significant  consequences  for  the  amount  of  leverage  firms  choose,  and  tax  policy  has 
important consequences for the speed of amortization of investment.  

For  simplicity,  let  us  assume  that  before  the  introduction  of  public  CBCR,  the  MNE  group 
had  found  the  lowest  possible  combination  of  statutory  tax  rates  via  its  (aggressive)  tax 
planning.  There  are  at  least  two  different  channels  how  increased  corporate  income 
transparency can impact the firm's competitiveness: 1) a "pure" transparency channel that may 
increase  market  efficiencies  and  under  certain  assumptions  (also  depending  on  shareholder 
structure) lead to lower cost of capital. 2) a "mixed" transparency channel where in addition to 
1) the firm will pay significantly higher income tax after the introduction of the transparency 
requirement.  Outcome  1)  was  discussed  in  the  section  on  market  efficiency;  Outcome  2) 
raises  a  number  of  additional  competitiveness  issues  and  will  be  discussed  in  the  present 
section.  

A  discussion  of  the  different  elements  that  the  firm  can  control  and  that  add  up  to 
distributed profits278, denoted below as   (in period t), is helpful to understand the first 
round options facing the firm that needs to react in a change to its costs: 

Under the possibility that increased corporate tax transparency also leads to an increase 
in the corporate income tax rate, s, for the firm, it is useful to discuss all possible second 
round effects at the level of firm as the firm protects its target level for   under the new 
"s".  

278     A reminder of the equation for net income (from Wikipedia): 
    Net sales (revenue) 
        – Cost of goods sold 
    = Gross profit 
        – SG&A expenses (combined costs of operating the company) 
        – R&D 
    = EBITDA 
        – Depreciation and amortization 
    = EBIT 
        – Interest expense (cost of borrowing money) 
    = EBT 
        – Tax expense 
    = Net income (EAT)  

148 

 
 
 
 
                                                 
The representative firm will profit from: 

 
 
 
 

 a lower (statutory) CIT rate, s 
 a lower wage rate, w 
 a higher amortization allowance, A 
 higher financial leverage, b 

These options can be further discussed with respect to their geographical implications, or their 
short-term or more medium-term nature. To benefit from changes to s, w, or A, the firm will 
regularly  consider  a  re-location  of  at  least  parts  of  its  activities.  In  contrast,  an  increase  in 
financial leverage can be implemented without significant locational decisions; as a result it 
will likely be an important element of the short-term response of many firms. Recent OECD 
committee  work  (not  publicly  available  yet)  points  in  this  direction  as  well,  and  associates 
especially low productivity firms with this response. However, in the medium-run, given the 
many different ways each firm can react to a negative shock to its profitability, reactions to 
any  negative  impacts  stemming  from  increased  corporate  transparency  can  be  expected  to 
vary from one firm to another.  

3.1. International  level  playing  field  and  impact  on  productivity  growth  (the  jobs  & 

growth dimension) at the EU level and across EU Member States.  

To  assess  the  impact  of  increased  corporate  transparency  on  growth  and  employment  one 
needs  to  discuss  the  general  equilibrium  effects  of  such  a  measure.  In  the  case  of  the  pure 
transparency channel this is rather difficult to model and quantify. For the case where higher 
transparency comes in conjunction with a significant increase in corporate tax revenues, it is 
possible to make a number of observations. First, the second round effects will determine how 
the  measure  plays  out  in  general  equilibrium,  i.e.  much  will  depend  on  firms'  responses  to 
protect   and ucc; also, and that complicates the analysis further, but still allows a number of 
educated  conjectures,  the  current  tax  policy  landscape  is  highly  uneven  with  a  few  EU 
Member States threatened to lose substantial revenue and another small group of EU Member 
States facing the challenge to deal with MNE responses as well as with the challenge to spend 
higher revenue in a productive manner.  

Moreover, if corporate income tax revenues are higher in the new long-run equilibrium, the 
overall impact on productivity growth (jobs & growth) will depend on how the extra revenue 
is spent.  

In  the  discussion  of  the  possible  impact  on  productivity  growth  it  becomes  immediately 
evident  why  it  is  important  to  fully  specify  the  optimization  problem  of  the  firm.  One 
common mistake that is thereby avoided is to give the impression that it is possible to increase 
tax revenues without any impact on (the firm’s) growth potential. The optimization problem 
underlying our analysis exactly rules out that higher corporate income tax revenue is paid via 
lower investments, i.e. via the continued (ad infinitum) depletion of the firm’s capital stock279. 
Unfortunately,  this  intellectual  discipline  is  not  always  applied  in  a  rigorous  manner  in  the 
context  of  so-called  tax  gap  calculations  that  tend  to  leave  this  part  of  the  problem 
unspecified.  

279   In more formal terms this is ensured via the transversality conditions that a solution to the firm’s dynamic 

optimal control problem needs to satisfy.  

149 

 
 
                                                 
In  addition,  higher  amortisation  allowances,  accelerated  depreciation  of  the  existing  capital 
stock, etc. cannot lead to a sustained increase in tax revenues without changing the investment 
schedule of the firm. These measures can only alter the distribution of tax revenue over time. 
How the altered revenue schedule impacts growth and employment depends on a number of 
factors  that  we  can  only  very  briefly  mention  here,  e.g.  use  of  the  temporarily  higher 
revenues, size of the output/employment gap, technological developments, etc.  

This  is  all  the  more  regrettable  as  it  is  possible  in  principle  to  state  at  least  some  of  the 
conditions  that  policy  makers  should  care  about  in  order  to  avoid  negative  impacts  on 
productivity growth and employment. After all, economic activity organized by firms can be 
regarded as a voting process indicating where public infrastructure is resulting in high returns 
to  factors  of  production.  If  additional  tax  revenues  were  used  to  ensure  and  perhaps  even 
increase the provision of public goods where the latter produce the highest (marginal) increase 
in productivity of capital, the impact on growth could be even positive (e.g. in the presence of 
increasing economies of scale).  

If the firm reacts to the increase in s by adjusting its financial leverage, b, this reaction will 
likely be non-neutral in terms of investment and financial leverage across EU Member States. 
NFCs have different starting points of leverage, profitability, of firms belonging to the same 
sector across EU Member States.  

A  rigorous  discussion  in  the  economic  literature  of  the  issue  how  shareholder  structure 
impacts  firms'  investment  behaviour  goes  back  at  least  to  Grossman  and  Hart  (1980)  and 
Shleifer  and  Vishny  (1986).  The  main  argument  is  that  informational  asymmetries  and 
monitoring  costs  will  not  allow  diluted  and  atomistic  shareholders  to  help  enforce 
management decisions that could increase the long-run value of the going concern. Based on 
this  line  of  reasoning,  the  following  question  is  what  is  the  time-preference  ("degree  of 
patience") of one or several large shareholders if they exist.  

Haldane (2015) reviews a lot of evidence and literature to confirm that we should know more 
about  the  impact  of  the  shareholder-management  relationship  on  firm  performance,  when  it 
can  be  associated  with  more  pro-cyclical  behaviour,  and  under  which  condition  it  can  be 
associated with superior long-term productivity. Referring also to the Kay review (Kay 2012) 
he notes how shareholder interests have become more dominant in management decisions on 
the  level  of  distributed  profits  even  during  economic  downturns.  This  indicates  that  such 
dominance  could  lead  to  sub-optimally  low  levels  of  retained  earnings  and,  à  la  long, 
investments. It is not clear how better informed investors, in the presence  of a  more or  less 
strong version of public CBCR, could be expected to revert this trend.   

Bertomeu et al (2011) establish a hierarchy of optimal securities and disclosure policies that 
varies with the volatility of the firm’s cash flows. Debt securities are often optimal, with the 
form  of  debt—risk-free,  investment  grade,  or  “junk”—varying  with  the  firm’s  cash  flow 
volatility. In their model,  more voluntary disclosure does  not  cause firms’  cost of  capital to 
decline.  However,  mandatory  disclosures  alter  firms’  voluntary  disclosures,  their  capital 
structure choices, and their cost of capital, i.e. they are more distortive and lead to strategic 
reactions by firms.  

Slemrod et al (2012) analyse the effect of  the introduction of a threshold both on taxpayers' 
and firms’ behaviour. The authors argue that both individual and corporate taxpayers, whose 
tax  liability  would  otherwise  be  close  to  the  threshold,  will  underreport  so  as  to  avoid 
disclosure.  Moreover,  since  the  costs  of  manipulating  one’s  income  are  increasing  in  the 

150 

 
 
amount  of  manipulation  needed  to  escape  disclosure,  the  frequency  of  reports  with  taxable 
income  or  tax  liability  just  above  the  threshold  should  be  less  than  what  it  would  be  in  the 
absence of a disclosure rule, and the discrepancy should decline as taxable income increases 
above  the  threshold.  In  order  to  prove  it  empirically,  they  assumed  a  counterfactual  Pareto 
distribution  for  the  tax  returns  (without  the  disclosure)  and  found  that  the  “missing  tax 
returns”  seem  to  be  primarily  located  near  the  threshold,  and  then  dissipate  as  one  moves 
further from the threshold. 

4.  Conclusions 

The  aggregate  impact  on  EU  competitiveness  compared  to  the  rest  of  the  world  cannot  be 
fully  assessed  by  looking  at  firm-level  effects  alone.  In  particular,  first  round  effects  of  the 
implementation  of  BEPS13  could  very  well  favour  the  EU.  As  a  result,  BEPS13 
implementation in OECD member states could imply an increase in overall corporate income 
revenue in the EU. It is unlikely that possible negative firm-level effects analysed here could 
outweigh any such first round effect.  

However, other  firm-level reactions  analysed  here suggest that in  the medium to  longer run 
elements  such  as  degree  of  shareholder  control280,  shareholder  structure,  as  well  as  CBCR 
threshold effects would become more relevant. In the case of the lower threshold for CBCR 
(the large firms alternatives) a new EU-wide artificial barrier to firm (revenue) growth could 
result  in  losses  in  market  efficiency  that  could  affect  growth,  investment,  and  jobs  in  the 
medium to longer run. 

In  this  respect,  several  studies  hint  to  the  importance  to  embed  increase  public  corporate 
transparency requirements in a coherent approach to corporate taxation, auditing/accounting, 
and capital markets reform in order to reap the potential benefits from increased transparency: 
overcoming  borrowing  constraints,  higher  investor  recognition,  better  monitoring  of 
performance (of managers) and improved firm liquidity.  

Finally, a fairer distribution of fiscal pressure across the firm size spectrum could further 
SMEs' capacity to support growth and job creation, i.e. shift economic activity from larger to 
smaller firms; this could, in turn, and possibly depending on the sector, also further market 
entry, competition, and innovation. It would be certainly more rewarding and motivating for 
start-ups to no longer face the stark contrast in effective tax rates compared to well-
established incumbents, and certainly corporate income taxation should not, as it seems to do 
currently, give incumbents further means to protect their market against new entrants.  

280 Somewhat misleadingly, this is referred to as "corporate governance" in the theoretical and empirical finance 

literature referenced here 

151 

 
 
 
                                                 
ANNEX R: DESCRIPTION OF A POSSIBLE LABELLING SYSTEM.  

This  annex  examines  a  labelling  system  as  a  way  to  promote  corporate  transparency  on  a 
voluntary basis. In other words, a company could provide tax-related information publicly and 
seek  to  signal  compliance  with  minimum  standards  on  the  basis  of  a  labelling  system 
designed  at  EU  level.  By  nature,  such  a  system  would  accept  companies  of  any  size,  and 
could expand to business beyond EU borders.  

A  labelling  system  necessitates  "labellers"  entitled  to  grant  "marks",  has  to  be  attractive  to 
business, yet ensure that "labellers" keep committed to good work and do not sell their label 
to business. An EU labelling system ("fair taxpayer label") could have the following features: 

  Design of the labelling system 

In  order  to  ensure  minimum  quality  and  harmonised  criteria,  and  for  the  label  to  be 
recognised  as  authoritative,  it  would  seem  appropriate  that  sufficiently  authoritative 
bodies at EU level determine criteria to be complied with by companies, as well as an 
overarching  framework  for  the  designation  of  "labellers".  This  may  necessitate  EU 
legislation. 

  Authority to grant labels to companies 

An EU labelling system may build on national competent authorities, such as e.g. tax 
or  other  authorities.  However,  to  involve  authorities  would  appear  as  too  rigid  and 
burdensome for a voluntary labelling system implying rubber stamping of companies. 
Instead, a lighter touch system where private stakeholders would comply with criteria 
set  at  EU  level  may  be  more  accurate.  Compliance  with  standards  set  by  an  EU 
framework  could  e.g.  be  verified  regularly  and  publicly  attested  by  an  independent 
third party (auditor…). In this way, market participants could freely decide to join the 
EU system as "labellers", allowing them to grant marks / label to companies for a fee. 
There are currently only a few players on the EU market (Fair Tax Mark in the UK, 
Taxparency in the Czech Republic, …), but the population of "labellers" could thrive 
based on the attractiveness of an EU labelling system to companies. 

  Companies' disclosure  

Given  the  voluntary  nature  of  the  system,  it  would  make  sense  that  companies 
necessarily  make  a  statement  on  their  tax  policies.  Labelling  systems  in  the  EU 
generally require in  addition  the  publication  of  a  CBCR.  Beyond  the mark,  it  would 
also  seem  necessary  that  either  "labellers"  ensure  the  after-sale  service  by  verifying 
regularly the compliance of companies with the criteria set to receive the mark, or that 
marks be granted only for a short period (say, one year). 

152 

 
 
 
 
 
 
 
 
 
ANNEX S: COMPLIANCE COSTS  

The information envisaged in a public CBCR in the options is either reported, aggregated for 
the group, in the financial statements of large MNEs or easily accessible. The Turnover, Profit 
before tax and Corporate Income Tax accrued are a separate caption of the Profit & Loss as 
per  GAAP  applicable  in  the  EU,  and  with  other  GAAP  used  for  general  purpose  financial 
statements  as  well.  The  number  of  employees  must  be  given  in  the  notes  under  GAAP 
applicable  in  the  EU.  Whereas  this  may  not  be  the  case  with  other  GAAP,  MNEs  will 
generally have the information on their headcount by country or in such a granular way that 
figures per country can be reconstructed without heavy workload, given the importance of this 
information for their management. Finally, Corporate Income Tax paid may either be reported 
in  a  MNEs'  cash  flow  statement  depending  on  GAAP  or  options  used,  or  computed  for 
internal  purposes  in  a  usual  way,  for  instance  for  use  by  a  tax  department.  However,  there 
may be a number of MNEs for whom such information may represent a new exercise. These 
would  have  to  set  up  additional  collection  and  computation  processes  for  the  purpose  of 
preparing a public CBCR with such information. 

The  UK  government  estimated  the  costs  of  an  OECD  BEPS  CBCR  to  be  in  the  region  of 
£0.2 million  per  annum  per  MNE281,  i.e.  annual  recurring  costs  around  EUR 0.3 million  for 
UK-headed  MNEs  with  a  consolidated  turnover  above  EUR 750 million.  One-off  costs  are 
expected to be negligible. In the Netherlands, the government estimates that there would be 
about 150 very large MNEs to prepare and submit a CBCR based on the OECD model. The 
associated  administrative  costs  for  companies  would  amount  in  average  to  EUR 0.5 million 
each282,  which  is  comparable  with  findings  in  the  UK.  The  structure  of  MNE  groups  in  the 
UK  and  the  Netherlands  are  believed  to  be  not  so  specific  that  such  figures  could  not  be 
extrapolated to  non-UK  and  non-Dutch MNEs of the same  size. In  a response  to  the public 
consultation, a business posited that reporting itself will cause "about EUR 1 million per year 
for an MNE with 40 000 employees". 

In a study on the CRD4 type of CBCR prepared by PWC for the European Commission283, 
two banks provided a quantification of the annual recurring costs estimated to be in the region 
of  EUR 20 000  (excluding  external  audit)  to  EUR 50 000  (including  external  audit)  at  the 
headquarters  level,  and  EUR 40,000  external  costs.  The  one-off  costs  for  the  first  year  are 
estimated  by  both  banks  to  be  around  EUR 10,000,  excluding  external  costs,  one  bank 
indicating additional external one-off costs in the region of EUR 200,000. As only two banks 
provided  quantitative  data,  this  cannot  be  taken  as  being  representative  of  the  sector  as  a 
whole. 

281   HMRC, Country-By-Country Reporting, 2015 
282   Wijziging van enkele belastingwetten en enige andere wetten (Overige fiscale maatregelen 2016), p.25 
283   PriceWaterhouseCoopers  –  General  assessment  of  potential  economic  consequences  of  CBCR  under 

CRD IV, 2014, p. 98 

153 

 
 
                                                 
The  Commission  services  surveyed  in  addition  three  MNEs  which  currently  volunteer  to 
publish a CBCR, and were kindly willing to share information with the Commission. These 
MNEs exceed the OECD turnover threshold. They operate in various industry sectors. One is 
subject to an EU CBCR obligation on a small part of its operations, but publishes a CBCR of 
its own on the main part of its operations. Table 11 summarises the findings of this survey.  

Table 13: Manhours per country and reporting entity - survey of MNEs with voluntary CBCR 

MNE  B  reported  a  total  annual  cost  of  EUR 280,000  for  a  total  of  around  750  man  hours. 
MNE  C  reported  an  annual  fee  of  EUR 70,000  for  the  auditor.  No  other  direct  measures  of 
costs  were  provided  by  either  of  these  MNEs.  All  MNEs  surveyed  reported  that  their 
voluntary CBCR was built progressively based on either simple tools (MS-Excel) or existing 
internal tools (consolidation software). As a result, one-off costs had not been significant for 
any of them. 

As  regards  recurring  costs,  there  are  clear  indications  in  the  table  above  that  resources 
involved  tend  to  increase  along  with  the  size  of  a  group  (number  of  reporting  entities),  the 
number  of  countries,  and  the  group's  structure.  Manhours  to  prepare  the  2014  CBCR  range 
from  8  to  125  hours  per  country,  and  0.1  to  5  hours  per  reporting  entity,  respectively. 
Publication activities generally consist of posting the CBCR on a web site, or filing it with a 
business register. Companies surveyed all reported that this entailed no significant costs. 

154 

MNE AMNE BMNE CGroup Tax Code /Tax strategyPPPCBCR typeVoluntaryVoluntaryVoluntaryTurnoverPNr of EmployeesPProfit before taxPPDirect taxes (altogether)PCorporate Income Tax accrued (separately)PPCorporate Income Tax paid (separately)Indirect / borne taxes (altogether)PPOther KPIsPPNarrativePPPAudit-NGOAuditor (Limited Review)Size indicatorsNumber of reporting entities in the group197200500Number of countries reporting internally2663Average number of reporting entities per country99338Manhours per unitRecurring manhours per country812540Recurring manhours per reporting entity0.145Source: European Commission 
 
 
MNEs  with  a  group  turnover  above  EUR 750 million  are  reported  to  control  directly  or 
indirectly between 1 up to more than 5,000 subsidiaries, with an average of 98 subsidiaries284.  

EU MNEs that are large but not very large have 34 subsidiaries in average285. As the average 
reporting  cost  per  group  entity/subsidiary  is  estimated  in  the  region  of  EUR 300,000/98= 
around  EUR 3,000 in very large MNEs, recurring costs of a public consolidated CBCR could 
amount to EUR 3,000 x 34= EUR 102,000 in average in large MNE groups that are not very 
large.  These  costs  may  vary  significantly  above  or  below  this  average  depending  on  each 
MNE  groups'  structure  or  situation.  For  instance,  the  number  of  subsidiaries  (which  may 
range  from  none  or  few  to  several  hundreds)  as  well  as  their  location,  the  industry,  the 
reporting  system,  etc.  can  heavily  influence  the  costs.  Large  MNE  groups  are  expected  to 
have  generally  less  abundant  administrative  resources  than  very  large  MNE  groups.  In 
comparison to the latter, the administrative burden of the former is expected to be relatively 
heavier, despite lower cost in absolute terms. 

284   Based on research by Commission services using the BvD ORBIS firm database; the distribution is highly 
skewed, i.e. the arithmetic mean is around 100, but the median is estimated to be considerably lower; this is 
in line with some recent academic works that found that a few hundred global MNEs to responsible for a 
very large share of global base erosion and tax shifting activity.  

285   ibid 

155 

 
 
                                                 
ANNEX T: WHO IS AFFECTED BY THE INITIATIVE AND HOW  

The  objective  of  this  annex  is  to  set  out  the  practical  implications  of  the  initiative  for 
enterprises and public administrations.  

Option 3A has been assessed as the preferred Option. It would not affect public administration 
but all ultimate parent companies with a consolidated turnover above EUR 750 million and at 
least a subsidiary in the EU. According to our assessment, 65% of these companies would be 
located in 5 EU Member States. 

The policy may have EEA relevance.    

Implications  differ  if  the  ultimate  parent  company  is  established  in  the  EU  or  in  a  third 
country.  

Enterprises with an ultimate parent company in the EU: 

Ultimate  parent  companies  established  in  the  EU,  with  a  consolidated  turnover  above  EUR 
750  million  would  have  to  comply  with  the  reporting  requirement.  Enterprises  having  an 
ultimate  parent  company  in  the  EU  would  not  be  affected  by  the  proposed  reporting 
requirement.  Ultimate  parent  companies  would  have  to  publish  a  specific  report  as  part  of 
their  reporting  requirement  no  later  than  12  months  after  the  balance  sheet  date.  The 
information should be reported in an EU language in a single currency (usually the functional 
or reporting currency of the group). This report would include for the given year the following 
information on a country-by-country basis: Income tax accrued (current tax), income tax paid, 
turnover, profit before tax, number of full time employees. This information should be broken 
down by country for each EU Member State (combining several tax jurisdictions as the case 
may  be)  and  aggregated  for  operations  taking  place  outside  the  EU.  Banks  in  the  scope  of 
Article 89 of the CRD4 would not have to comply with this new reporting requirement and 
would  continue  to  publish  a  CBCR  based  on  the  CRD4  model.  This  report  would  be  filed 
within the business  register  of the country of incorporation of the ultimate parent company. 
Moreover, the report would be made publicly available on the website of the ultimate parent 
company.  

Operationally, it would require ultimate parent companies to prepare a report by consolidating 
information  received  from  the  group's  entities  on  a  country-by-country  basis.  Such  a  report 
would have to be published and filed within a business register.  

Enterprises with an ultimate parent company outside the EU: 

Any medium and large limited liability undertaking in the EU would be required to determine 
the  name  and  registered  office  of  its  ultimate  parent  entity.  The  same  requirement  would 
apply  to  EU  branches  of  comparable  size  opened  by  companies  not  established  in  the  EU. 
Where the ultimate parent would be established outside the EU, they would in addition have 
to determine whether this ultimate parent has a consolidated turnover above EUR 750 million. 
If  these  conditions  are met,  the  EU  subsidiary/branch  would  be  required  to  publish  a  report 
concerning the operations of their ultimate parent company. 

Operationally,  the  EU  subsidiary/branch  will  have  to  request  from  its  ultimate  parent 
company  the  consolidated  CBCR  prepared  in  accordance  with  the  EU  requirement. 

156 

 
 
 
Companies in the scope would have to file the report within a business register and publish it 
as well on a website. In order to avoid the duplication of such reporting, a mechanism would 
ensure or allow that only one undertaking publishes the report. 

The  report  would  contain  the  same  information  in  the  same  format  and  timing  as  the  one 
required for ultimate parent companies established within the EU.  

157 

 
 
 
 
 
Template of a possible report on income tax information 

Brief  description  of  the 
nature of activities 

Number  of 
employees 

Net  turnover 
third 
(with 
parties    and 
with  related 
parties) 

Amount  of 
profit or loss 
before tax 

Amount  of 
income 
tax 
accrued 

Amount  of 
income 
tax 
paid 

Currency: 
[specify] 
Belgium 

Bulgaria 

Czech Republic 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain 

France 

Croatia 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

The Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

United Kingdom 

Norway 

Iceland 

Liechtenstein 
Th                ird 
countries (total) 

158 

 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
ANNEX U: PROFIT SHIFTING

286 

Multinational companies can exploit differences in tax rates by shifting profits from a high tax 
to a low tax country. The gain from shifting profit is the tax rate differential. If the tax rate in 
country A is 30% and the tax rate in country B is 5%, the gain for each Euro taxable profit 
shifted is 25 cents. There are different ways of shifting profits. The most common are transfer 
price manipulation, intra-firm debt shifting and intellectual property location. 

Transfer  price  manipulation  occurs  by  manipulating  the  price  of  cross-border  deliveries, 
services and other transactions between related companies. The transfer price is a cost to the 
company  receiving  the  delivery  or  service  and  reduces  the  profit  of  that  company.  On  the 
other  hand,  it  is  an  income  to  the  providing  company  and  it  increases  the  profits  of  that 
company. Therefore a high  transfer price leads to low profits in  the receiving company and 
high profits in the providing company. If profits are taxed at a lower rate in the country of the 
receiving company, a low transfer  price can  reduce  the total amount  of  payable tax without 
changing  total  pre-tax  profits.  Although  transactions  between  related  companies  should  be 
priced  as  if  they  were  concerning  a  third  party  (arm's  length  principle),  there  is  some 
flexibility  in  the  methods  and  imprecision  in  the  data  used  for  determining  transfer  prices. 
Also there is some room for related companies to structure their transactions. This flexibility 
can be used by multinational companies to reduce the amount of payable tax. The mechanism 
is illustrated in the following table: 

Base 

Alternative A 

Parent 
(country B) 

Subsidiary 
(country A) 

Total 

Parent 
(country B) 

Subsidiary 
(country A) 

Turnover 

Costs 

Profit (before tax) 

Tax rate 

Payable tax 

100 

70 

30 

5% 

1.5 

70  

50 

20  

30% 

6  

170  

120 

50 

7.5 

100 

60 

40 

5% 

2 

60 

50 

10 

30% 

3 

Total 

160 

110 

50 

5 

In the base scenario, a parent company in country B sells finished products for  100 units. It 
buys  intermediary  products  from  a  subsidiary  in  country  A  for  70  units.  This  is  the  arm's 
length price, consisting of a cost of 50 and a profit mark-up of 20. The  parent has no other 
costs. Now, the total pre-tax profit of the multinational is the sum of the profits of the parent, 
30 and those of the subsidiary, 20. In total, the pre-tax profits are 50. 30 is taxed at 5% and 20 
is taxed at 30%, leading to a total payable tax of 7.5. If there are no easy comparable goods to 
determine the arm's length price of the intermediary product, the company could change the 
conditions  of  delivery  or  argue  for  a  lower  mark-up  reduce  the  price  of  the  intermediate 

286 Commission Staff Working Document on Corporate Income Taxation in the European Union accompany the 
Communication  from  the  Commission  to  the  European  Parliament  and  the  Council  on  a  Fairer  Corporate 
Tax System in the EU: 5 Key Area of Action (SWD/2016/06 final) 

159 

 
 
 
 
 
 
 
                                                 
product to 60 (Alternative A). While total pre-tax profits remain unchanged, the profits of the 
parent are increased to 40 and the profits of the subsidiary are reduced to 10. A profit of 10 
has  been  shifted  from  the  subsidiary  to  the  parent  and,  as  a  consequence,  from  high-tax 
country A to low-tax country B. As a result, the total payable tax is reduced by 2.5 to 5. 

Another mechanism for cross-border profit shifting is debt shifting. Multinational companies 
have  large  freedom  in  establishing  intragroup  financial  relations.  By  using  internal  loans 
instead  of  internal  equity,  they  can  convert  income  streams  from  dividends  to  interest.  As 
dividends  are usually  taxed in  the source  country and interests in  the residence country  this 
leads to a shift of profits. This is illustrated in the table overleaf. 

Assume  the  same  base  scenario  as  in  the  table  above.  The  parent  company  fully  owns  the 
subsidiary  company.  The  subsidiary  is  fully  financed  by  equity  provided  by  the  parent 
company. Net profits from the subsidiary are repatriated to the parent. According to the DTC 
between  country  A  and  country  B  dividends  from  country  A  are  exempt  from  additional 
taxation in country B (participation exemption). 

Base 

Alternative B 

Parent 
(country B) 

Subsidiary 
(country A) 

Total 

Parent 
(country B) 

Subsidiary 
(country A) 

Total 

(before 
Earnings 
interest and taxes)  

Interest 

Taxable Profit  

Tax rate 

Payable tax 

Net profit 

Repatriated 
dividend 

Net  profit  after 
repatriation  

30 

0 

30  

5% 

1.5 

28.5 

14 

42.5 

20 

0 

20  

30% 

6 

14 

-14 

50 

0 

50 

7.5 

42.5 

0 

30 

15 

45 

5% 

2.25 

42.75 

3.5 

46.25 

20 

-15 

5 

30% 

1.5 

3.5 

-3.5 

50 

0 

50 

3.75 

46.25 

0 

In this case the payable taxes are identical to the ones in the previous example: 1.5 in country 
A  and  6  in  country  B.  Now  consider  an  alternative  situation  (Alternative  B)  in  which  the 
subsidiary still is fully financed by the parent company, but part of this financing has taken 
the form of a loan. Assume that the value of the loan is 150 and the yearly interest to be paid 
15.  Note that this internal loan does not have to have consequences for the external financing 
of the multinational company. Now, the transfer of income from the subsidiary to the parent 
takes two forms: interest and dividends. The interest paid from the subsidiary is deductible in 
country A and taxed in country B. The dividend is taxed in country A and exempt in country 
B. So, by increasing the debt of the subsidiary, the multinational has shifted 15 units of profits 
from country A to country B. This leads to a reduction of payable tax from 7.5 to 3.75. 

160 

 
 
 
 
 
 
 
 
 
 
 
The mechanism of profit shifting through the use of royalties is very similar. If the subsidiary 
company is using intangible assets of which the property rights are in the hand of the parent, a 
stream  of  royalties  from  the  subsidiary  to  the  parent  will  emerge.  This  stream  will  reduce 
profits in the source country (country A) and increase them in the residence country. An arm's 
length price of these royalties is almost impossible to assess. 

161