On 11 November 2021, the European Parliament gave the final approval on the EU Directive on public Country-by-Country reporting (CbCR), formally known as the Directive of the European Parliament and the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches. Once the Directive is published in the Official Journal of the European Union and has entered into force, Member States will have 18 months to implement the Directive into national law.
The Directive aims to enhance the corporate transparency of big multinational companies. It will require certain multinational enterprises with revenue of more than EUR 750 million to disclose publicly in a specific report the income tax they pay.
For the first time, non-European multinationals doing business in the EU through subsidiaries and branches will also have to comply with the same reporting obligations as EU multinational undertakings.
- Multinational groups that are in scope of the Directive are obliged to publicly disclose financial tax information on disaggregated basis for certain jurisdictions.
- The Directive targets multinational groups with a consolidated group revenue of at least EUR 750 million for each of the last two consecutive financial years.
- The Directive includes specific provisions that allow companies to omit certain commercially sensitive information for a set period of time.
- Based on the Directive, the ultimate parent entity will be obliged to publish the report on its website. In case of a non-EU headquartered group, special reporting obligations may apply.
- The first public CbC report will most likely concern FY 2024 and the CbC report will have to be published before 31 December 2025 (for calendar year groups), or earlier if a Member State opts to apply the rules sooner.
In April 2016, the European Commission (''Commission'') presented a proposal on public CbCR for multinational groups that have a total consolidated group revenue of at least EUR 750 million. The European Parliament adopted its position at first reading on 27 March 2019. Negotiations between the co-legislators started in March 2021 and resulted in a provisional agreement on 1 June 2021, with points such as the transition period and the safeguard clause being finalized.
With the formal approval of the European Parliament, the Directive will enter into force on the 20th day following its publication in the Official Journal of the European Union.
Until recently, there had been no further key developments on this proposal. The deadlock was caused by countries disputing the legal basis of the Directive, claiming this entails a tax directive that requires unanimous voting. Instead the proposal has been implemented as an amendment of the Accounting Directive, for which only majority consent is required. However, despite the discussions with respect to the legal basis, countries support the content of the Directive which enabled the proposal to move forward.
Outline of the new rules
Although the Directive generally follows the OECD standard on CbCR, the Directive does also contain some specific/additional provisions. In summary, the following new rules have been set out in the Directive:
- Multinational groups (headquartered inside or outside the EU) are in scope when the consolidated group revenue is at least EUR 750 million for each of the last two consecutive financial years as reflected in the consolidated financial statements. The report must reflect the latter of those two consecutive financial years.
- The report needs to provide information relating to the nature of the business activities, number of employees, net turnover, profit or loss before income tax, income tax accrued, income tax paid, and the amount of accumulated earnings. This relates to the ultimate parent entity, including all affiliated entities consolidated in the financial statement. In case of a discrepancy between the income tax accrued and the income tax actually paid, the ultimate parent entity is required to provide an explanation in the report.
- The report must contain information for each Member State, as well as for each third country listed in Annex I of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes (''Black list'') or listed for two consecutive years in Annex II of these Council conclusions (''Grey List''). Data for all other countries shall be aggregated into a single line in the report.
The report should be completed using a common template and a machine-readable electronic format to ensure that the data can be adequately compared.
- The report should be made publicly accessible no later than 12 months after the balance sheet date of the financial year for which the report is drawn up. For EU-headquartered groups, the ultimate parent entity has the obligation to complete, publish and make accessible the report on its website for a period of five years. With respect to non-EU headquartered groups, the reporting obligation rests with subsidiaries or branches of the group within the EU. However, this obligation can be lifted if the non-EU headquarters decides to publish the report on its website and entrusts one of its EU subsidiaries to file the report on their behalf with an official business register inside the EU.
- Multinational groups of which all companies are located in the same EU Member State are exempt. The same counts for non-EU headquartered groups without medium-sized or large presence in the EU. There are anti-abuse rules in place to prevent multinational groups from fragmenting their balance sheet results to fall below the threshold of medium-sized or large presence.
- The Directive contains a ''safeguard clause'', meaning an opportunity to defer from the disclosure of commercially sensitive information (i.e., information seriously prejudicial to the commercial position of the companies to which it relates) for a maximum period of five years. If companies defer to disclose commercially sensitive information, they are obliged to provide an explanation for the deferral in the report and the information omitted should be disclosed in a later report. This clause is not evocable when the information pertains to non-cooperative jurisdictions for tax purposes.
- Finally, Member States should require that statutory auditors or audit firms state whether a company was required to draw up a report, and if so, whether this report was published in accordance with the rules stated in the Directive.
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