After months of negotiations on a new compromise proposal on public country-by-country reporting (CbCR), the text of the directive on tax transparency for multinationals, which amends accounting Directive 2013/34/EU[1] was finally approved by the Council of the European Union and the European Parliament on 28 September 2021 and 11 November 2021, respectively.
Published in the Official Journal on 1 December 2021, the directive, which requires reporting entities to make publicly available a country-by-country breakdown of the group's profits and certain economic, accounting, and tax aggregates, entered into force on 21 December 2021.[2]
The directive had to be transposed into domestic law by EU member states by 22 June 2023 at the latest. On 23 May 2024, the European Commission announced it would send reasoned opinions to six EU member states that had failed to transpose completely the public CbCR directive into domestic legislation. The six member states have two months to take the necessary measures.
This new reporting obligation will apply for the first time from the beginning of the first financial year starting on or after 22 June 2024.
More than five years after the European Commission's first proposal,[3] negotiations resumed within the EU under the initiative of the Portuguese presidency of the Council of the EU. The Portuguese presidency presented a compromise proposal on 13 January 2021,[4] which was followed by intense negotiations between the Council of the EU and the European Parliament. The two bodies reached a provisional agreement on 1 June 2021, before the adoption of the final text.
While the compromise proposal of January 2021 seemed to better address some companies’ concerns regarding the possible commercial repercussions of this new reporting obligation, the directive finally adopted backed off on some of its terms and tends towards more transparency (notably regarding the safeguard clause, or cases of data aggregation).
The public CbCR obligation constitutes a new and autonomous obligation due to its public nature, with its own scope and reporting rules, particularly compared to the obligation to file a country-by-country report with the tax authorities (the tax CbCR).[5]
However, European groups or standalone undertakings are exempted from the public CbCR requirement when these ultimate parent undertakings and their related entities, including their branches, or these standalone undertakings are located in the same EU member state and in no other tax jurisdiction. Companies in the banking sector are also exempt.
Thus, a group whose ultimate parent is located in France and whose subsidiaries and branches are located exclusively in France would not be subject to the public CbCR requirement, because it is present in only one member state. However, a group whose ultimate parent is located in France and that has two subsidiaries, one in France and the other one either in another EU member state or in a third jurisdiction (e.g., Morocco), would be subject to the public CbCR requirement because it is present in the territory of two member states or in the territory of a member state and a third jurisdiction, subject to meeting the EUR 750 million threshold.
For non-EU groups, the reporting obligation falls on the group’s EU subsidiaries and branches, when the threshold of EUR 750 million turnover is met at a global level. However, EU subsidiaries and branches are affected only if certain thresholds are also exceeded at their level.
The triggering threshold of EUR 750 million is the same as for the tax CbCR, but must be assessed for each of the last two consecutive financial years. There is therefore no exact equivalence between the entities covered by public CbCR and those covered by tax CbCR, given that the scope of these two obligations are different. More specifically, the rules regarding the two reporting obligations differ in several respects; for example, the inclusion of standalone undertakings in public CbCR but not in tax CbCR, the assessment of the triggering threshold for two consecutive financial years for public CbCR, and the double threshold for public CbCR when the reporting undertaking is a EU subsidiary undertaking or a branch).
The directive includes an anti-abuse clause, so that subsidiaries or branches whose turnover is below the EUR 750 million threshold may still be required to report if they are deemed to exist solely to enable the ultimate parent or standalone undertaking to circumvent the new reporting obligations.
The directive requires that the published report identify the ultimate parent undertaking or standalone undertaking and the subsidiary undertakings included in the consolidated financial statements of the ultimate parent,[6] and to specify the financial year concerned and the currency used.
The report also requires information on the nature of the group's activities and headcount. Finally, economic aggregates, including the amount of turnover[7] (including turnover with related parties), profit or loss before income tax, income tax paid and accrued, and accumulated earnings at the end of the financial year must also be disclosed.
Reporting entities may also include in their report explanations of any discrepancies that may exist between the income tax accrued and the income tax paid.
The European Parliament considered imposing an obligation to publish the same information as required for purposes of the tax CbCR (i.e., the breakdown of turnover between related parties and unrelated parties, the amount of state capital as well as the amount of tangible assets other than cash and cash equivalents), as well as the publication of additional information, including public subsidies received and public donations, and the application of any preferential tax regimes. In the end, these proposals were not retained in the final version of the directive.
The presentation of the information to be published differs depending on whether the information concerns:
The European Commission is responsible for establishing a common template and machine-readable reporting formats.
The report is to be published within 12 months of the financial year-end, so that the dates for filing the tax CbCR and for publishing the public CbCR are in principle aligned.
However, as part of the transposition into domestic law, member states may also allow reporting entities that are able to justify that the publication of certain information would be seriously prejudicial to their business interests to postpone publication for up to five years (unless the information concerned relates to a noncooperative jurisdiction). Whereas the Council of the EU had proposed the application of an automatic safeguard clause for a period of six years, the final text establishes a safeguard clause that is not only optional for member states but also shorter in duration.
Once published, the report must remain accessible to the public for a minimum period of five consecutive years.
Noncompliance with the publication obligation will be sanctioned by measures enacted by each member state. The directive also provides for a responsibility regime for the reporting undertaking’s governing bodies, whereby such bodies have a collective responsibility to ensure that the report is drawn up, published, and made accessible.
Celine Pasquier
BDO in France
Published in the Official Journal on 1 December 2021, the directive, which requires reporting entities to make publicly available a country-by-country breakdown of the group's profits and certain economic, accounting, and tax aggregates, entered into force on 21 December 2021.[2]
The directive had to be transposed into domestic law by EU member states by 22 June 2023 at the latest. On 23 May 2024, the European Commission announced it would send reasoned opinions to six EU member states that had failed to transpose completely the public CbCR directive into domestic legislation. The six member states have two months to take the necessary measures.
This new reporting obligation will apply for the first time from the beginning of the first financial year starting on or after 22 June 2024.
More than five years after the European Commission's first proposal,[3] negotiations resumed within the EU under the initiative of the Portuguese presidency of the Council of the EU. The Portuguese presidency presented a compromise proposal on 13 January 2021,[4] which was followed by intense negotiations between the Council of the EU and the European Parliament. The two bodies reached a provisional agreement on 1 June 2021, before the adoption of the final text.
While the compromise proposal of January 2021 seemed to better address some companies’ concerns regarding the possible commercial repercussions of this new reporting obligation, the directive finally adopted backed off on some of its terms and tends towards more transparency (notably regarding the safeguard clause, or cases of data aggregation).
The public CbCR obligation constitutes a new and autonomous obligation due to its public nature, with its own scope and reporting rules, particularly compared to the obligation to file a country-by-country report with the tax authorities (the tax CbCR).[5]
Which companies are affected by the public CbCR directive?
The directive affects two broad categories of entities: groups whose “ultimate parent undertaking” is established outside the EU, as long as they have subsidiaries or branches within the EU, and groups whose ultimate parent undertaking is established within the EU, when those groups have a consolidated group revenue of at least EUR 750 million. The directive also applies to standalone undertakings, that is, companies that do not meet the criteria for belonging to a group within the meaning of Directive 2013/34/EU, if the above-mentioned threshold is exceeded.However, European groups or standalone undertakings are exempted from the public CbCR requirement when these ultimate parent undertakings and their related entities, including their branches, or these standalone undertakings are located in the same EU member state and in no other tax jurisdiction. Companies in the banking sector are also exempt.
Thus, a group whose ultimate parent is located in France and whose subsidiaries and branches are located exclusively in France would not be subject to the public CbCR requirement, because it is present in only one member state. However, a group whose ultimate parent is located in France and that has two subsidiaries, one in France and the other one either in another EU member state or in a third jurisdiction (e.g., Morocco), would be subject to the public CbCR requirement because it is present in the territory of two member states or in the territory of a member state and a third jurisdiction, subject to meeting the EUR 750 million threshold.
For non-EU groups, the reporting obligation falls on the group’s EU subsidiaries and branches, when the threshold of EUR 750 million turnover is met at a global level. However, EU subsidiaries and branches are affected only if certain thresholds are also exceeded at their level.
The triggering threshold of EUR 750 million is the same as for the tax CbCR, but must be assessed for each of the last two consecutive financial years. There is therefore no exact equivalence between the entities covered by public CbCR and those covered by tax CbCR, given that the scope of these two obligations are different. More specifically, the rules regarding the two reporting obligations differ in several respects; for example, the inclusion of standalone undertakings in public CbCR but not in tax CbCR, the assessment of the triggering threshold for two consecutive financial years for public CbCR, and the double threshold for public CbCR when the reporting undertaking is a EU subsidiary undertaking or a branch).
The directive includes an anti-abuse clause, so that subsidiaries or branches whose turnover is below the EUR 750 million threshold may still be required to report if they are deemed to exist solely to enable the ultimate parent or standalone undertaking to circumvent the new reporting obligations.
What information must be published?
Although most of the information to be reported for purposes of tax CbCR has been included in public CbCR, the required information for the two reporting obligations is not identical.The directive requires that the published report identify the ultimate parent undertaking or standalone undertaking and the subsidiary undertakings included in the consolidated financial statements of the ultimate parent,[6] and to specify the financial year concerned and the currency used.
The report also requires information on the nature of the group's activities and headcount. Finally, economic aggregates, including the amount of turnover[7] (including turnover with related parties), profit or loss before income tax, income tax paid and accrued, and accumulated earnings at the end of the financial year must also be disclosed.
Reporting entities may also include in their report explanations of any discrepancies that may exist between the income tax accrued and the income tax paid.
The European Parliament considered imposing an obligation to publish the same information as required for purposes of the tax CbCR (i.e., the breakdown of turnover between related parties and unrelated parties, the amount of state capital as well as the amount of tangible assets other than cash and cash equivalents), as well as the publication of additional information, including public subsidies received and public donations, and the application of any preferential tax regimes. In the end, these proposals were not retained in the final version of the directive.
The presentation of the information to be published differs depending on whether the information concerns:
- Member states or jurisdictions on the EU blacklist as of 1 March of the financial year for which the report is made or jurisdictions on the European grey list for two consecutive years as of 1 March of the financial year for which the report is made: In these cases, the information must be published with a breakdown by state (that is, on a country-by-country basis) ; or
- Third countries, in which case the information is published on an aggregate basis.
What are the conditions for publication of the report?
The report is in principle published on the reporting entity’s website. However, member states may exempt entities from publishing the report on their website if it is simultaneously published on a register[8] accessible free of charge for any party in the EU and provided that the reporting entity's website provides a link to the register's website.The European Commission is responsible for establishing a common template and machine-readable reporting formats.
The report is to be published within 12 months of the financial year-end, so that the dates for filing the tax CbCR and for publishing the public CbCR are in principle aligned.
However, as part of the transposition into domestic law, member states may also allow reporting entities that are able to justify that the publication of certain information would be seriously prejudicial to their business interests to postpone publication for up to five years (unless the information concerned relates to a noncooperative jurisdiction). Whereas the Council of the EU had proposed the application of an automatic safeguard clause for a period of six years, the final text establishes a safeguard clause that is not only optional for member states but also shorter in duration.
Once published, the report must remain accessible to the public for a minimum period of five consecutive years.
Noncompliance with the publication obligation will be sanctioned by measures enacted by each member state. The directive also provides for a responsibility regime for the reporting undertaking’s governing bodies, whereby such bodies have a collective responsibility to ensure that the report is drawn up, published, and made accessible.
Celine Pasquier
BDO in France
1] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.
[2] Directive (EU) 2021/2101 of the European Parliament and of the Council of 24 November 2021 amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches, OJEU L 429 of 1 December 2021.
[3] Proposal for a Directive amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches, COM (2016) 198 final - 2016/0107 (COD) of 12 April 2016.
[4] The compromise proposal of 13 January 2021 was analysed in Option Finance No. 1603 of 19 April 2021.
[5] Obligation under Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, transposed into French law in Art. 223 quinquies C of the French Tax Code.
[6] Provided that these subsidiaries are established (i) in the EU, (ii) in a jurisdiction mentioned in the EU list of non-cooperative jurisdictions (the “black list”) or (iii) in a jurisdiction mentioned in the EU grey list for two consecutive years.
[7] The turnover to be reported for purposes of public CbCR is different from the one used to assess the triggering threshold of EUR 750 million turnover.
[8] The directive refers to the register provided for in Article 16 of Directive 2017/1132, i.e., a central register, a trade register, or a company register of that member state.