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Geraldine Jackman (voice over)
We have seen over the past years how, as a result of the global economic downturn, companies that are thought to use aggressive tax planning to lower their overall tax burden are required to be more transparent about their tax payments and where those taxes are being paid.
With their reputation at stake, companies are expected to do the “right thing” and pay their “fair share” of the cake.
At an EU level this has called on for regulation, to require certain EU financial institutions and companies operating in the extractive and logging industries, to provide governments with more detailed country-by-country reporting of the payments and tax payments made.
Country by country reporting
Robert van der Jagt: Chairman EU Tax Centre, Partner, KPMG in the Netherlands
The idea of country-by-country reporting is not new.
It was actually not invented in the EU but it comes from the US.
In July 2010, the Congress approved the so-called Dodd-Frank act and this act provides for the obligation for US multinationals engaged in the oil and gas, and mining industry to report to the SEC payments that they have made to governments in certain countries.
And, although the original goal of this act was to combat bribery, conflicts, the side-effect of this act is also that it provides for more transparency as companies also need to disclose taxes that they have paid in foreign countries to governments.
American Petroleum Institute Reaction
André Boekhoudt: Global Head of KPMG’s Energy & Natural Resources Tax practice
The American Petroleum Institute really didn’t like the regulations and they basically took the Security Exchange Committee, which issued the regulations, to Court.
Concerns of the Industry
It’s probably worth mentioning that the court ruled in favor of the American Petroleum Institute and now the Security Exchange Committee has to go back to the drawing board redrafting the regulations.
So, although the US was initially ahead of the EU, due to the fact that the US now has to re-write the guidance to the Dodd-Frank act, it’s basically on hold, and the EU is moving forward and they are basically now ahead of the US.
Steps taken by the European Union
Steps that the EU has taken towards obtaining and achieving more transparency is on the one hand the so-called Accounting and Transparency Directive, aimed at companies engaged in the natural resources and mining industry.
And, on the other hand, the so-called capital requirements Directive number IV aimed at the companies active in the financial services sector.
EU Accounting Directive
You first have to realize that the scope of the regulations is really about preventing bribery in the emerging markets. So that’s where it starts.
And what they are required to report on is really payments they make to these governments basically in excess of Euro 100,000.
The European initiative follows the American initiatives in that it wants to make these payments transparent and the governments in these countries are also required to publish their receipts of those payments.
These large companies have to basically look at all payments they make to the governments. So, not only the company that is in the country but also subsidiaries outside that country.
Chris Morgan: Head of Tax Policy, Partner, KPMG in the UK
The financial services sector is going to be covered by the Capital Requirements Directive or CRD IV as it is sometimes known.
They are going to have to report tax information and information about activities on a consolidated basis.
For institutions that are defined as Global Systematically Important Institutions that are regulated by the EU, they will also have to report their profit or loss before tax, the tax on that profit or loss and any public subsidies that they have received.
Now, that information to start off with will go to the Commission on a confidential basis. The Commission will then assess the potential negative impact of making that information publicly available. And they will look at the impact on such things as competitiveness and the stability of the financial system.
At present we don’t know which year the financial disclosure is going to apply to. So for Global Systematically Important Institutions it may have to report just the payments made in 2014 but it is possible that it might also include financial year 2013.
Now, hopefully, that will all become clear when we see the national legislation implements the Directive.
Even before the coming into force of the reporting requirements in the CRD IV Directive some of the major banks in the UK have recognized the need for greater transparency of a tax reporting. And they are including this information in their sustainability reports.
One of these banks has even published the fact that it’s got some tax principles that is has recently introduced that cover all its tax planning activity.
As we have seen, companies active in the financial services and oil and gas mining industry have already been caught by the transparency net.
I see this just as a beginning, looking at the European Parliament, civil society, but also some other Member States they are really pushing for extending the scope of country-by-country reporting.
This means that companies, I think, should prepare themselves, and make sure that they are ready for the future and looking ahead at the changes that are basically approaching them.
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