The legal services of the Council of the EU have truly set the cat among the pigeons regarding the proposed "country-by-country reporting", which would require companies to publish certain accounting information such as their turnover, profits, tax paid, etc. On Monday 14 November, Council's lawyers issued an opinion of which EUROPE has seen, stating that the legal basis suggested for this proposal was incorrect and that the proposal had to be reworked on the basis of article 115 of the Treaty on the Functioning of the EU, which requires a unanimous vote at the Council.
The European Commission had proposed to amend the accounting standards directive (see EUROPE 11530); this would have made the legal basis article 50 TFEU, which requires a decision by qualified majority at the Council and co-decision with the Parliament. Several countries, such as Luxembourg, the Czech Republic and Cyprus, challenged the legal basis. Less vocally, Ireland, Malta and Germany also had issues with the proposal.
When the proposal was presented in April of this year, a number of delegations said that they feared the precedent it may set as regards taxation issues, as it would be tantamount to agreeing for taxation-related dossiers to be dealt with by qualified majority, which is a line in the sand for many states.
The opinion of the legal services stresses that it is clear that the number one objective of the measure is to act as a deterrent to tax evasion by exposing the companies concerned to public scrutiny.
For article 50 to be the right legal basis, the protection of public interests would be required to justify the coordination of the necessary protections. However, the proposal makes no mention of the specific threat to public interests posed by multinationals that would require access to tax information in order to protect these interests, the opinion reads. The interests that genuinely require protection are those of the national Treasuries in the fight against tax evasion, the Council's lawyers explain. However, the response to this requirement has already been provided by bringing in confidential country-by-country reporting to the tax administrations.
Neither the objective nor the content of the proposal corresponds to the scope of Article 50 TFEU, the legal services conclude. They therefore turning their attentions to Article 115. Recourse to this article depends in particular whether the proposal contains fiscal provisions. "Given the broad interpretation of the court to the term fiscal provisions, obligations on disclosure of income tax information that aim at ensuring compliance with national tax legislation must also be considered to be a fiscal provision", the legal services write.
The Council is to discuss this legal opinion this Thursday 17 November. The Slovak Presidency of the Council of the EU will therefore use this discussion as a basis to decide how to move forwards. The Commission remains "confident that article 50 TFEU is the appropriate legal basis for this important proposal", explained Vanessa Mock, Commission spokesperson.
Indeed, unanimity at the Council is required to change the legal basis. Furthermore, the inter-institutional agreement states that if a modification of the legal basis is planned that entails a move from the ordinary legislative procedure to a special or a non-legislative procedure, the three institutions will carry out an exchange of views on the subject.
For its part, the European Parliament is not planning on giving up without a fight. A number of sources predict that it will bring the matter before the Court of Justice. (Original version in French by Élodie Lamer)