MEPs Vote to Strengthen Shareholder Rights Directive
While the headline coverage of the European Parliament’s (EP) amendments to the European Commission’s Shareholder Rights Directive highlighted Say on Pay’ measures, several key tax transparency measures were also carried. The proposed Country By Country Reporting (CBCR) tax disclosure requirements can be seen as a significant step in reform of the global tax system.
After several months of negotiations around tax questions and endorsement in May by the EP Legal Affairs Committee (PIRC Alerts June 9th) MEPs voted by 556 votes to 67, with 80 abstentions to endorse the new text. According to a Statement released by the European Parliament the SRD amendments contain new requirements for large undertakings to publish information country by country, on profits or losses before tax, taxes on profits or losses and public subsidies received.
Public interest entities, including listed companies and insurance firms, as well as companies designated by member states as public-interest entities because of their significant public relevance, were also included.
“The vote shows that MEPs throughout Europe are serious about transparency’s role in the health of our economies. However, this is the first step in the process, and it’s now time for the European Commission (EC) and individual member states to show they place the same value on transparency,” said Koen Roovers, Lead EU Advocate for the Financial Transparency Coalition a group of international NGOs advocating structural financial reform.
“From a market perspective, investors should also be interested in the information. Investors need the very same knowledge; knowing if a corporation is operating in unstable areas, using tax havens, or engaging in the type of aggressive tax planning that can ruin a reputation are vital to making sound business investments,” he said.
The MEPs also passed Tax Avoidance and Tax Evasion as Challenges in Developing Countries with a series of recommendations to the European Commission. They are calling for further action by the OECD around transparency, agreed definitions of tax havens, blacklisting of countries that don’t take effective steps to combat tax evasion and more effective action at a UN level around global taxation with a focus on developing countries.
Ernst and Young in a detailed analysis contained in their July Global Tax Alert summarises the proposed changes to Directive 2013/34/EU (the Accounting Directive) being extended to all large “large undertakings” (undertakings that on their balance sheet dates exceed at least two of the three following criteria: (a) balance sheet total of €20 million; (b) net turnover of €40 million; (c) average number of employees during the financial year of 250 or more).
EU Directive 2004/109/EC (the Transparency Directive) introduces public disclosure of tax rulings, also organized on a country-by-country basis, covering both Member States and third countries. This obligation would be imposed on large undertakings, public-interest entities and security issuers. The report would be audited in compliance with EU auditing rules, EY advises.
The Parliament states the proposed revision of the shareholders’ rights directive aims to increase transparency and encourage long-term shareholding, includes provisions to ensure that listed companies can identify their shareholders and transparency rules for proxy advisors (who give voting recommendations), asset managers and institutional investors, such as pension funds and insurance companies.
It also includes provisions to increase the transparency and influence of shareholders on “related party” transactions (e.g. between a company and its management, directors, controlling shareholders or companies of the same group).
At present, the European Commission notes only 13 member states currently give shareholders “a say on pay”, either through a vote on directors’ remuneration policy and/or in a report. Only 15 member states require disclosure of the remuneration policy and 11 require disclosure of individual directors’ pay.
The future of the amended Shareholders Rights Directive is set to be decided be decided through ‘trialogue’ meetings between the European Parliament, Commission and Council. It is not yet known when the meetings will commence.
Expect more rounds of extensive corporate lobbying to nullify progressive elements of the SRD including the public transparency at the core of effective country by country reporting on corporate tax activities before the final shape of the new Directive and implementation dates become clear.