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Public Transfer Pricing Reports: A Transparency Bridge Too Far?

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Public Transfer Pricing Reports: A Transparency Bridge Too FarMost countries, certainly within the OECD, have accepted the need for more stringent transfer pricing documentation requirements. Indeed, many have already legislated for country-by-country (CbC) reporting as recommended by the OECD in its final BEPS reports.

However, the debate now is focusing on whether information contained in company CbC reports should be made public, with some countries particularly hostile to the idea.

The EU Tax Transparency Plan

The European Commission is leading calls for company tax information to be publicised as it continues to spearhead the international campaign against tax avoidance. And under proposals unveiled by the EC on 12 April 2016, multinationals with global revenues exceeding EUR750m a year would have to publicise details of their tax affairs on a country-by-country basis.

The Commission said the proposal is a simple, proportionate way to increase multinationals' accountability on tax matters without damaging their competitiveness. It is designed to encourage companies to pay tax where they make their profit, and to enable greater scrutiny of their tax behaviour, it said.

However, for some, the proposals are anything but simple and proportionate, and are downright anti-competitive.

Related: OECD Guidance On CbC Reporting

Germany Opposes

Surprisingly, given its role in shaping many EU tax and regulatory policies, Germany has been the most vocal critic of the Commission’s plan. And at an informal meeting of the European Council of Finance Ministers on 22-23 April, German Finance Minister Wolfgang Schäuble made his views fairly clear, telling fellow ministers that there is a "contradiction between transparency and efficiency," and warning them about the possibility of "lining someone up to be pilloried publicly."

Other finance ministers attending the meeting echoed Schäuble's views, including those from Austria and Malta, both of whom suggested that the Commission's proposals were an overreaction to the Panama Papers leak.

Related: Country by Country Reporting Becoming Mandatory in EU

Businesses Worried

Not unexpectedly, the reaction to the Commission’s plan from those representing the interest of businesses has been largely negative. Christian Kaeser, Global Head of Tax at Siemens and Chairman of the International Chamber of Commerce Commission on Taxation said the EC proposal “risks exposing commercially sensitive information that would place companies operating within the EU at a competitive disadvantage for global investment, without any additional benefit to public finances."

Meanwhile, the Chartered Institute of Taxation (CIOT) has suggested that the publication of CbC data will merely baffle the public more about international taxation, and that, ideally, governments need to better inform people about how the current system operates.

“What would now be good to see from governments is more explanation to their citizens of how the tax system actually works, so the public can makes up its mind with all the facts, such as that corporation tax is paid on profits and not sales and it is legitimate for a subsidiary to pay for the use of intellectual property owned by another group company,” noted Glyn Fullelove, Chair of CIOT's International Taxes Sub-committee.

Whether public transfer pricing reports would have the desired effect, or just make the public even more confused and angry, is debatable! At any rate, given the direction that most governments are travelling with regards to anti-avoidance, it is far more probable that the onus will remain on companies to explain their tax affairs, rather than the public and tax authorities to decipher them.

As to the Commission’s proposal, without Germany’s backing, it is hard to envisage them seeing the light of day.

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