The EU Directive on public country-by-country reporting (CbCR, amending Directive 2013/34/EU on the annual financial statement, consolidated financial statements and related reports of certain types of undertakings (the ‘Accounting Directive’), received final approval from the European Parliament on the 11th November 2021. Member States will have 18 months to incorporate the Directive into national legislation once it is published in the Official Journal of the European Union and enters into force. The CbCR attempts to improve huge multinational corporations’ corporate transparency by obliging multinational corporations with revenues of more than 750 million Euro to publish their income tax payments within a separate report and to disclose the amount of tax paid in every member state. Non-European multinationals conducting business within the EU by means of subsidiaries and branches will be subject to the same reporting requirements as EU multinationals for the first time.
The European Commission proposed a public CbCR for multinational businesses with a total consolidated group income of at least 750 million Euro in April 2016. On the 27th of March 2019, the European Parliament endorsed its stance on first reading.
However, discussions on the Directive reached a standstill until 2021 due to political issues caused by states challenging the Directive’s legal foundation, maintaining that it involves harmonization of tax rules requiring unanimous approval, whereas the proposal was presented under Article 50(1) of the Treaty on the Functioning of the European Union which would only require qualified majority voting Despite the lack of agreement on the proposal’s legislative basis, member states eventually changed their position and supported the proposal.
Discussions between the co-legislators began in March 2021 and ended on the 1st June 2021, with key elements including the transition time and the safeguard clause being agreed upon. The Directive will take effect on the 20th day after its publication within the Official Journal of the European Union, pending official ratification by the European Parliament. Publication is expected to take place in December 2021.
Even though the Directive mostly adheres to the Organisation for Economic Co-operation and Development’s (OECD) CbC standards, it does include certain particular and additional rules. In summary, the Directive asserts that multinational corporations which fall under the scope of such directive must publicly report financial tax information for specific jurisdictions on a disaggregated basis, such as name of the ultimate parent undertaking, types of activities, information about employees, turnover, profit, and the income tax due and paid in every country.. The Directive is also aimed at multinational corporations having consolidated group revenue of at least 750 million Euro for the previous two fiscal years. The Directive also provides explicit rules which allow businesses to withhold some commercially sensitive data for a specified length of time. The Directive places a duty on the ultimate parent entity to post the report on its website. Special reporting duties may apply if a company is headquartered outside of the European Union. The first public CbCR report will most likely be for fiscal year 2024, and it must be released by December 31st, 2025, or sooner where a Member State chooses to implement the Directive earlier.