Thoughts on the final EC public country-by-country reporting proposal

A week ago, I blogged on the (at the time) upcoming proposal from the European Commission on public country-by-country reporting, saying it was “in no man’s land”. With the benefit of being a week on, and the actual proposal having been presented on Tuesday, I thought it would be good to reflect on my earlier blog and the proposal itself. It is still early days, of course, and the proposal is months if not years of negotiations away from coming into effect, but still I might provide some initial comments:

Firstly, assessing my previous blog, I may have been wrong on some points. In particular, I had thought there was continued US opposition to the public nature of documentation in the proposal. However, Jonathan Hill, the EU Commissioner for financial stability and financial services, explicitly said at the press hearing that the Commission had consulted with US regulators before publishing the final proposal, indicating that they were, at the least, not opposed.

Furthermore, the accompanying impact assessment on public CBCR made it clear that the proposal is viewed as an alignment with US Dodd-Frank rules, which require certain companies to file country-by-country-like information to the SEC. Clearly, this is an important reason why the EC chose the particular reporting model it did, i.e. public EU-zone + tax haven reporting for EU-based companies (headquartered or with subsidiaries), with group turnover above €750m, of course.

Thus, from the EC perspective (and, probably, the US Treasury perspective), the proposal could be marketed as creating a level playing field between EU and US companies:

I am not sure how accurate that is, given the wide discrepancies between the US rules and the EC CBCR proposal, in particular as Dodd-Frank rules only apply to extractive companies.

Next, I could have overestimated the lack of consistency of the EC proposal with the OECD/B20 BEPS consensus, reached just last year on the exact same topic. The EC would not put forth this proposal if there wasn’t significant support behind it. And it seems that those in the supporting ranks do not care about the OECD agreements from a year past. Or maybe it is exactly the agreement on the template that is underpinning the EC proposal? My intuition was, and still is, that the BEPS consensus would weigh heavily. But even OECD’s “Tax Director” Pascal Saint-Amans sounded rather resigned to the EC proposal in an interview with  TPWeek.

Still, I predicted the straightforward dismissal of the proposal from NGOs, and similarly with business criticism (although it has been rather more quiet than I expected, in particular compared to the BEPS process).

Of course, I had not predicted the inclusion of “tax havens” in the report, but this was only made possible by the PanamaPapers, although the Commissioners were not shy to frame the revision in terms of “their continued work on transparency”.

Now, on to the proposal itself: It was, all in all, as expected. There will be things here and there once people dig through the details, e.g. on definitions of subsidiaries and specific data points. But the main question people are left with is: How on earth is the EU going to agree on a tax haven blacklist? The EC tried in 2015, was heavily criticised, and then had to give it up. And they have tried before, like others before them, often with similar and predicted results. They have given themselves six months to find agreement, having previously failed for years. Tough job.

Blacklisting is fundamentally a political power game hiding behind “objective criteria”. It can be effective (in particular if you are targeting small states), but there are a host of issues associated with it. You can be sure that anyone trying to put UK overseas territories, Switzerland, EU-members Luxembourg or Ireland, or the US on the agenda for the list will find strong opposition. Even if the EU countries do find agreement, there are indications it will be along the lines of the OECD Global Forum work where, currently, only three (four, if you include the US, which the OECD doesn’t) jurisdictions do not comply with agreed standards. So it might be a very slim list, and then what’s the point of going through all the trouble?

In terms of justifying the chosen approach, the Commissioners made some very interesting remarks. Two key reasons came forward: 1. Level playing field (cf. above), and 2. Avoiding double taxation. Now, the second point was highlighted especially with regards to the scope of the reporting, i.e. 3rd country data. It was clear from Jonathan Hill’s remarks that, besides the competitiveness of EU companies, the key concern was that 3rd country tax authorities would get their hands on the data and use it for “improper purposes”. Now, this is rather astonishing. The EU and its Member States have agreed in the OECD BEPS process to provide 3rd country tax authorities with the exact same data, as long as they sign tax treaties or information exchange agreements with, e.g., EU countries. So if the EC is now saying that they are concerned the data will get to 3rd countries, is that not to undermine the entire BEPS framework for filing and sharing? Or was it the thought all along that developing countries should not easily be able to obtain the data? I could also be overinterpreting, but that was my reading of Hill’s comments.

A few other interesting tidbits from my read through the impact assessment:

  • The version made available on the EC website was marked “provisional”, and with good reason. It was based on the original, leaked proposal, where the preferred outcome did not include reporting on tax haven activity. This, to me, is a rather clear indication that the EC is adjusting its impact assessment to fit the preferred political outcome, which, again to my mind, seems somewhat problematic.
  • The OECD actually, formally lobbied the EC to follow the BEPS approach. This is highly unusual. Why would they need to? They coordinate with great frequency. Perhaps the OECD felt the need to formally express concerns over EU’s actions not being in line with BEPS.
  • One reason put forth by the EC why they did not pursue a common, voluntary EU ‘Fair Tax label’ was that the Fair Tax Mark has, so far, attracted very few large companies. EC thinks a voluntary code would not be successful. And they’re probably right, given the limited discussions of the role of tax in the corporate responsibility agenda.
  • The impact assessment also included the figure below, which provides a very good overview of the EC conceptualisation of the public CBCR proposal. It’s interesting to see how they framed the issue in terms of public scrutiny as a driver of corporate responsibility (i.e. not engaging in aggressive tax planning, etc.). They could have chosen a number of other angles, so the choice bears significance.


Finally, I will add that the impact assessment is a great read for anyone interested in tax politics, tax research, tax economics, transparency, etc. It is an extremely thorough piece of work, with detailed discussions, references and analysis throughout. It provides a useful encyclopedia for understanding many of the topics related to tax and transparency.

And it’s only 162 pages. Happy reading!


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