EU Directive for Tax Transparency Threatens Location Attractiveness // ZEW Study on Creating a Level Playing Field in the EU Single Market

ZEW Study on Creating a Level Playing Field in the EU Single Market

The EU directive on public country-by-country reporting requires multinational corporations to make their tax activities more transparent starting this year. The aim is to create a level playing field between purely domestic and multinational companies. However, a study by ZEW Mannheim and the University of Mannheim reveals that the directive primarily imposes obligations on European companies. The study, headed by Christoph Spengel, Research Associate at ZEW and Professor of Taxation at the University of Mannheim, is based on an expert survey and corporate financial data from the Orbis database.

Unlike firms that operate purely domestically, multinational corporations have the option to shift their profits to low-tax jurisdictions. The EU directive's country-by-country reporting of tax payments, number of employees, profits, and other financial indicators aims to expedite the detection of profit shifting. "On average, EU companies affected by the directive will have to disclose 80 to 90 per cent of their global operations on a country-by-country basis. In contrast, companies domiciled outside the EU only need to disclose about half of that in such detail," explains Stefan Weck, a researcher in ZEW's "Corporate Taxation and Public Finance" Unit. "Slightly more than 50 per cent of the affected companies are based in Europe, while the rest are evenly distributed across the Americas and Asia," adds ZEW economist and co-author Hannah Gundert.