From the year 2017, international corporations will be obliged to report, how much they paid in income taxes and where, according to a proposal of the European Commission.

As part of its endeavour to increase tax transparency and prevention of corporate tax avoidance, the European Commission proposes several principal arrangements. According to the opinion of the currently resigned EU Commissioner Jonathan Hill, the main aim of the changes is to: “tax the profits of large international corporations in the country, where they were actually generated, and not in a country with low tax burden”.  The measures adopted should, according to the European Commission, ensure the same competitive conditions both for international corporations and for smaller companies, which only operate in one country. The proposed changes can be expected to be adopted in the year 2016 already, so as to be applicable in the year 2017.

Recapitulation of the most important arrangements selected, which were adopted within the fight against aggressive tax planning:

• Widening of cooperation between tax authorities and automatic exchange of selected information on financial income of tax residents of the EU.
• Introduction of automatic exchange of information on cross-border tax rulings and on advance pricing arrangements APA)[1].
• Introduction of Country by country report.
• The duty to publish the data stated in the Country by Country report within the consolidated financial statement[2].

The fight against evasion of tax duties and against aggressive tax planning is a priority not only for the EU but also for the G20. The European Commission has proposed introducing a system of public control, which is regulated by the draft directive no. 2013/34/EU – that is what international corporations will have to publish in their consolidated financial statements or on their website.

Another epochal change is the exchange of information between the EU countries on the level of the tax administrators, proposed by the European Commission. Large international corporations will fill in so-the called Country by Country reports.

Country by Country Report

How will it work?

Source: http://www.ec.europa.eu

Who will be obliged to provide selected information to the tax administrator?

According to the directive, international corporations, which enterprise in the EU with a total consolidated turnover higher than EUR 750,000,000, will be obliged to fill in the so-called country by country report. The competent tax authority of the member state, which will receive the Country by country report, will automatically send it to all other countries involved, where the international corporation has its branches that are subject to taxation or where it is a tax resident.

International corporations will fill in the country by country report in the country, where the parent company is a tax resident. 

The country by country report will contain information from all jurisdictions on:

• The height of revenues,
• Profit prior to taxation (paid and accounted),
• The number of employees,
• The height of capital held for the purpose of payment of dividends,
• The height of undivided profit not intended for payment,
• The volume of tangible assets.

If the directive is approved in the year 2016 already, supranational corporations or the parent company should fill in the Country by Country report for the period of 2017already, and subsequently in yearly cycles. The report for a taxable period itemised by the individual countries must be submitted within 12 months after the last day of the reported accounting period of the group of the supranational corporation, at the latest.

Country by Country reports will be filled in into a standard form, which is part of BEPS Action 13.

Source: A supplement of the draft Council directive, which changes the directive 2011/16/EU, as regards the obligatory automatic exchange of information on taxes. http://eur-lex.europa.eu

What to add in conclusion     

The attitude to tax planning is changing worldwide. Politicians across the countries are of the opinion that the current rules enable large supranational corporations to pay taxes in places, where it is more advantageous for them, and not in the places, where taxable revenues were actually achieved. Large supranational corporations can reduce their tax duties using aggressive tax planning, where they intentionally include divisions in tax havens into their structure. Based on these facts, politicians object that by this action, international companies violate equal economic conditions, putting small and medium companies, which do not have the means to “efficiently” reduce their tax burden, at a disadvantage. The current political development, both in the European Union and in the OECD, seeks the preparation of instruments, which would prevent such action completely. The result it that aggressive tax structure will no longer be considered a legitimate competitive advantage, which had been the case heretofore.

We continue to follow the development in this area, which has not reached its end yet, continually and will inform you about it in subsequent articles.

[1] The already approved Council directive 2014/107/EU. Transposition of this directive has been carried out in the Czech Republic by an amendment of act no. 164/2013 Sb., until December 31, 2016

[2]Changes in the directive on accounting no. 2013/34/EU.