The game changing regulation proposed by EU lawmakers on corporate tax transparency

On Thursday, May 27 th a ground breaking deal was sealed between the EU government and the Parliament negotiators on a new regulation which shall oblige large multinational legal entities to disclose their revenue and taxes per Member State, as well as per country considered to be a tax haven by the European Union.

More specifically, the new regulation shall include the following provisions:

  • The regulation shall apply to EU-headquartered legal entities and/or their subsidiaries, multinational corporations, with a turnover larger than €750.000.000;
  • The legal entities concerned shall publicly disclose the taxes paid in each EU Member State;
  • The legal entities concerned shall publicly disclose the nature of their activities per Member State;
  • The legal entities concerned shall publicly report their net turnover per Member State;
  • The legal entities concerned shall publicly disclose their profits per Member State;
  • The legal entities concerned shall publicly report their number of employees per Member State;
  • All aforementioned information shall also be disclosed regarding any country listed by the European Union as a non-co-operative tax jurisdiction, while figures for any other third country may be presented in aggregate;
  • EU tax authorities and the public shall have access to the taxes paid and the countries where each tax amount is paid
  • Detailed rules, with some flexibility, for the prevention of abuse.

The new regulation is considered to be a significant step forward in terms of transparency and according to experts, it shall prevent tax fraud and tax avoidance. The money which shall lawfully be paid in tax may therefore be used for investment and rebalancing budgets.

While states like the Republic of Ireland objected to the legal basis of the regulation, the legal text has been voted by a qualified majority of EU Member States, overruling the requirement for unanimity which has been blocking the project since 2016, making the deal finally possible.

The new regulation is seen as a tool for the prevention of profit-shifting within the European Union, putting a stop to the use of subsidiaries which would charge one another for services with the aim of transferring profits to more favorable tax jurisdictions.

It is important to stage that the deal has been backed up on an international level, as the United States have also indicated to be in favor of an international deal on digital taxation, in order to tackle aggressive tax planning by multinational corporations.

In addition, an EU-funded research center, the European Tax Observatory, was founded and shall be based at the Paris School of Economics. The center shall be charged with the research on taxation and the prevention of tax avoidance and aggressive tax planning.

The new regulation, originally proposed by the European Commission in 2016 finally sealed the deal, due to the common desire of the Member States to recover from the Covid-19 pandemic. The legal text shall go through formal adoption in two European Parliament Committees and the Parliament’s Plenary, as well as the Council of EU Governments.

The information exposed in the present article does not under any circumstances constitute legal advice. For further information on the subject, please contact Arsen Theofanidis LLC and one of our legal advisors shall be glad to assist you.

N. Kalifatidou
Advocate – Legal Consultant
Arsen Theofanidis LLC