COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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

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   EUROPEAN COMMISSION  Strasbourg, 12.4.2016  SWD(2016) 118 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE 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) 117 final}  
 
 
Impact assessment on further corporate transparency on income taxes  

Executive Summary Sheet 

A. Need for action 

Why? What is the problem being addressed?  
An environment of complex tax rules and fiscal secrecy has allowed some Multinational Enterprises (MNEs) to 
engage in aggressive tax planning strategies. Unlike small and medium sized undertakings (SMEs) or individual 
taxpayers, MNEs are capable of taking advantage of loopholes in domestic and international tax laws enabling 
them to shift profits from one country to the next in order to reduce their tax bill. It is estimated that countries in 
the  EU  lose  EUR  50-70  billion  each  year  to  tax  avoidance  by  MNEs.  Recent  reports  have  disclosed  the  low 
amount of taxes paid by certain MNEs putting into question the overall efficiency and fairness of the tax systems 
in the EU.  

At international level, the G20 has endorsed the OECD/BEPS initiative which was subsequently implemented in 
the  EU  through  the  Anti-Tax  Avoidance  Package  (ATAP).1  This  initiative  requires  disclosure  of  CBCR 
information to tax authorities only with the aim to ensure further compliance of MNEs with national tax laws.  

The lack of public scrutiny has been identified as the problem to be addressed. Public scrutiny through greater 
transparency by MNEs would be an additional tool enabling to fight base erosion and profit shifting, building on 
reputational effects and democratic debates.  

What is this initiative expected to achieve?  
The over-arching objective of this initiative is to achieve further public transparency on corporate income taxes 
by ways of a country-by-country reporting (CBCR) to be published by MNEs. By promoting greater disclosure of 
tax-related  information,  the  initiative  seeks  1)  to  geographically  align  corporate  income  taxes  with  actual 
economic activity; 2) to foster corporate responsibility to contribute to welfare through taxes, and 3) to promote 
fairer tax competition in the EU through an informed democratic debate on how to remedy market and regulatory 
shortcomings.  

What is the value added of action at the EU level?  
Due  to  the  cross-border  nature  of  many  of  the  tax  practices,  activities  and  arrangements  available  to  MNE 
groups,  national  legislation  may  not  be  sufficient  to  address  the  challenges  associated  with  base  erosion  and 
profit shifting. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
Different policy options have been considered from a labelling system to which MNEs could voluntarily subscribe 
to mandatory reporting systems. Key questions examined by the Commission were as follows: should a public 
CBCR  cover  EU-controlled operations or  all operations worldwide? Should the information reported be broken 
down  only  for  EU  Member  States  or  also  for  third-countries?  What  should  be  the  scope  of  coverage:  large 
companies (at least 20,000 EU groups) or only very large companies (at least 1,900 EU groups / 6,500 groups 
worldwide)? Finally, should the information disclosed be limited to basic information (income tax paid, income tax 
accrued) or also cover contextual information (turnover, profit before tax, and number of employees)? 

The preferred option, which is  the result of this impact assessment, is  that mandatory public CBCR should be 
prepared  by  all  EU  and  non-EU  MNEs  with  activities  in  the  EU  and  a  consolidated  turnover  above  EUR  750 
million. The information should be broken down by EU Member State and aggregated for the rest of the world. 
The type of information to be disclosed would include income tax paid and accrued as well as other contextual 
information: the nature of the activities, turnover, number of employees, profit before tax. This option could well 
coexist with international initiatives such as the OECD BEPS scheme transposed in the EU through the Anti-Tax 
Avoidance  Package  (ATAP).  The  preferred  option  responds  to  stakeholders'  concerns  about  the  distortions  in 

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European Commission, Anti-Tax Avoidance Package, 28 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 

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the single market without compromising EU competitiveness, causing undue administrative burden or generating 
further tax conflicts and the risk of double taxation. 

Who supports which option?  
NGOs  and  other  civil  society  organisations  support  a  public  CBCR  as  far  reaching  as  possible  in  terms  of 
information provided and details per country. In their view, monitoring tax practices would promote corporate and 
social  responsibility,  strengthen  the  democratic  process  and  perhaps  encourage  MNEs  to  reallocate  their  tax 
bases in a fairer way. 

Businesses  are  concerned  about  the  risks  of  unilaterally  disclosing  sensitive  information  to  competitors, 
administrative  burden  and  double  taxation  risks.  Most  of  them  call  for  CBCR  to  remain  available  only  to  tax 
authorities under the G20/OECD BEPS scheme.   

C. Impacts of the preferred option 

What are the benefits of the preferred option?  
Significant societal benefits and some positive economic impacts are expected from the preferred option. It will 
indeed respond to increased demand for transparency in the tax affairs of MNE groups. It could also contribute 
to increasing public trust in the fairness of the tax systems.  

Furthermore, public transparency would enhance companies' corporate responsibility by making public their tax 
contribution  to  local  welfare.  In  this  way  this  may  incentivize  companies  to  pay  tax  where  they  actually  make 
profits. Finally, through a more informed democratic debate, the initiative would contribute to promoting fairer tax 
competition in the EU. 

Further corporate tax transparency is not expected to have a significant impact on growth and jobs in the EU.  

What are the costs of the preferred option?  
In  terms  of  economic  impact,  the  preferred  option  infers  no  significant  costs  nor  any  administrative  burden  as 
very  large  MNE  groups  will  have  to  submit  a  CBCR  to  tax  authorities  pursuant  to  the  recent  revision  of  the 
Administrative Cooperation Directive. MNEs would be able to prepare their public CBCR on the basis of these 
submissions. With this initiative all very MNE groups would have the same disclosure requirement whether they 
are established in the EU or in a third-country. The competitiveness of MNEs would therefore not be affected. 
The risk of generating further tax conflicts and double taxation with a CBCR that any tax authority can freely use 
would  be  limited  as  tax  information  would  only  be  broken  down  within  the  EU  where  more  efficient  dispute 
resolution  mechanisms  are  in  place.  This  initiative  is  not  expected  to  have  negative  social  or  environmental 
impacts. 

How will businesses, SMEs and micro-enterprises be affected?  

The  measure  targets  only  MNEs  that  are  the  best  equipped  to  engage  into  tax  planning  activities,  that  is 
enterprises whose consolidated turnover exceeds EUR 750 million. 
In order to cover MNEs which are established in a third country, certain of their subsidiaries or branches in the 
EU will nevertheless have new obligations. These are the medium-sized and large subsidiaries, or alternatively 
branches  of  a  comparable  size.  They  will  have  the  duty  of  publishing  in  the  EU  the  CBCR  drawn  up  by  their 
ultimate parent. Alternatively, an option is foreseen to enable a non-EU MNEs to designate one EU subsidiary or 
branch which will have the duty to publish the CBCR.  

Will there be significant impacts on national budgets and administrations?  
An  impact  on  the  amount  of  income  tax  paid  by  MNEs  is  uncertain  but  this  initiative  will  deliver  additional 
incentives for MNEs to pay tax where they actually make profit. Furthermore, public scrutiny will enable a better 
informed democratic debate on the causes and consequences of aggressive tax planning which could prevent 
mismatches, loopholes and harmful tax measures. 

Will there be other significant impacts?  
No – none expected.  

D. Follow up 

When will the policy be reviewed?  
The  Commission  will  monitor  implementation  of  the  policy  in  cooperation  with  Member  States.  The  first 
evaluations should be carried out a few years after companies have begun to publish their country-by-country 
reports. Findings could form the basis of a report communicated to Parliament and the Council in due time.  

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