If implemented in its current form, the proposal will, in effect, require a form of mandatory CBC reporting, similar to the Organisation for Economic Co-operation and Development’s (OECD) proposal on CBC reporting that is included in its base erosion and profit shifting (BEPS) package (the OECD proposal). Many countries have already taken steps to implement the OECD proposal, including the UK, Ireland, France, Germany, the Netherlands, the US, Mexico, Canada, Australia, South Korea, Japan, China and India (see Exclusively online article "Budget 2016: bittersweet").

The proposal would require multinational groups that operate in the EU and have annual global revenues exceeding €750 million to produce a form of CBC report each year. It has been estimated that the proposal would apply to around 2,000 multinational groups established in the EU, and also to around 4,000 non-EU multinational groups doing business in one or more EU member states. Only 10% of multinational groups would be affected, but these groups account for about 90% of global corporate revenues.

For each member state where an affected group operates, the group would be required to list its profits before tax in that member state, and the tax due and the tax paid on those profits, alongside other information for each country, including net turnover, accumulated earnings, the number of employees, and a brief description of the nature of its activities in that member state. The group would also be required to comment on any discrepancy between the tax accrued and the tax paid. The resulting report would have to be published on the group’s website for at least five years.

Although the proposal is similar to the OECD proposal, it is also different in several important respects, raising the spectre of multinational groups being required to create a variety of different CBC reports for different jurisdictions, which would potentially increase compliance costs for affected groups. This would defeat one of the aims of the BEPS process, which is to ensure that international action will be co-ordinated and will not be unduly burdensome on taxpayers.

The OECD’s CBC reports are intended only for tax authorities as a high-level risk assessment tool, and not as conclusive evidence for tax assessments, and would remain confidential. The EU’s proposed CBC reports will be made available to the public. Affected groups will have to consider the possibility of an adverse reaction to the information that is published, and the risk of damage to their reputation.

The EU CBC reports would not include some of the information that must be included in an OECD CBC report, including the amount of capital and assets held in a country and a breakdown of turnover with associated entities and with third parties.

The OECD proposal requires a CBC report to include similar information for all countries where a multinational group operates around the world. The EU’s proposal generally only requires aggregate figures for operations outside the EU, although specific details will be required for operations established in any listed jurisdiction. This list has not yet been compiled but is likely to cover countries that fall short on compliance with international tax and governance standards, and to include a number of tax havens.

Some commentators have criticised this apparent lack of interest in activities and profits located outside the EU. It seems that this limitation may be designed to counter issues with some jurisdictions, such as the US, which could refuse to share CBC information with EU tax authorities if that information is not kept confidential.

The proposal is at EUR-Lex - 52016PC0198 - EN - EUR-Lex.