To be successful, efforts to achieve fair taxation must ultimately be organised globally. With this in mind, some 70 nations agreed to the confidential exchange of tax data as part of the BEPS project initiated by the OECD. Companies with annual revenues of more than 750 million euros are obliged to break down their profit and tax figures by country. This information is shared only between the tax authorities of the participating countries, and is not made public. Data privacy is a key issue.
Family businesses are the ones that suffer when big corporations with digital business models reduce their tax burdens to a minimum by making systematic use of tax loopholes. That is why, in the interests of more equitable corporate taxation, family businesses advocate the global application of tax-data sharing. As it is important to put tax authorities in a position to uncover illegal tax practices, the OECD initiative is deserving of support.
The European Commission’s proposal is to unilaterally go beyond the globally agreed sharing of confidential financial data between tax authorities. Its intention is to compel European companies, and those with subsidiaries in the European Union, to make their sensitive country-by-country reporting data public on the internet. The EU Member States have yet to decide on the Commission’s proposals.
The Centre for European Economic Research (ZEW Mannheim) has examined the potential consequences of the Commission’s initiative (here and here) and discovered that the confidential sharing of data among tax authorities in different jurisdictions is having an impact. The effective tax rates have risen by one to two percentage points. However, the EU’s sole enforcement of the obligation to publish data on the internet would jeopardise this success. If European countries had to publish confidential country-by-country reports online, this would diminish the motivation of third countries to share their data confidentially with the tax authorities of the EU Member States – as agreed in the BEPS project. The OECD, too, has expressed criticism of the EU’s plans.
How would the online publication of sensitive corporate data affect family businesses?
Such a reversal of data privacy rights would be disadvantageous, in particular, for large German family enterprises, which are often the hidden champions of niche markets. Competitors with no similar disclosure obligations, as well as customers of these enterprises, could use the data on the profitability of family businesses to uncover business secrets or to calculate prices for tenders.
No. The European Court of Justice sets the European Union strict limits when it comes to data protection law, limits that would be exceeded by the proposal for public country-by-country reporting. The Commission did not, for instance, sufficiently examine whether other less restrictive means could effectively contribute to efforts aimed at achieving fairer taxation. That is the conclusion of a study conducted by the Würzburg legal scholars Professor Ralf P. Schenke and Professor Christoph Teichmann.