On 1 June 2021, public country by country reporting (“CbCR”) has been proposed as an amendment to the Accounting Directive 2013/34/EU (the “Accounting Directive”) through the introduction of a proposed directive on the disclosure of income tax information by certain undertakings and branches, commonly referred as the Proposed CbCR Directive. This latest proposal could mean that the publication of Multinational Enterprises’ tax information becomes a reality.
The question of whether CbCR of multinational companies’ tax affairs should be made public has been a recurrent topic in tax debates for years.
The European Commission has made a very first attempt on 12 April 2016 by proposing an amendment to the Accounting Directive. The proposal built on the Base Erosion and Profit Shifting (the “BEPS”) work of the Organisation for Economic Co-operation and Development (the “OECD”) and G20, in particular on BEPS Action Plan 13 on CbCR. In particular, the implementation of the BEPS Action Plan 13 on CbCR in the EU legal framework gave rise to the adoption of Directive 2016/881 (the “DAC4 Directive”) amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation. As a reminder, the DAC4 Directive requires MNEs located in the EU or with operations in the EU, with total consolidated revenue equal or higher than EUR 750 million to file a CbBR with the EU tax authorities competent in their respective EU Member State of residence.
However, the new amendment to the Accounting Directive proposed by the European Commission went beyond the OECD/G20 BEPS standards, requiring large multinational enterprises and stand-alone undertakings operating in the EU to draw up and publicly disclose on their website income tax information, including a breakdown of profits, revenues, taxes paid and employees per country. As a result, the European Commission’s proposal could never go through due to the implementation of a very long administrative and negotiating process between the European Commission, the EU Parliament and the Competitiveness Council (the “COMPET”).
Further to very recent developments, the Representatives of the Portuguese presidency of the EU Council have finally reached a provisional political agreement with the European Parliament’s negotiating team on the public CbCR through the introduction of the proposed CbCR Directive.
SCOPE OF THE PROPOSED CBCR DIRECTIVE
The agreed text of the proposed CbCR Directive recalls the provisions currently foreseen under the DAC4 Directive as it requires MNEs or standalone undertakings with a total consolidated revenue of more than EUR 750 million in each of the last two consecutive financial years, whether headquartered in the EU or outside, to publicly disclose income tax information in each EU Member State, as well as in each third country listed in Annex I of the Council conclusions on the EU list of non-cooperative jurisdictions for tax purposes or listed for two consecutive years in Annex II of these Council conclusions.
PRACTICAL ASPECTS OF THE PROPOSED REPORTING
Such reporting shall take place by means of a common EU template and in machine readable electronic formats.
In order to avoid a disproportionate administrative burden on the companies involved and to limit the disclosed information to what is absolutely necessary to enable effective public scrutiny, the proposed CbCR Directive provides for a complete and final list of information to be disclosed.
The reporting will take place within 12 months from the date of the balance sheet of the financial year in question. The directive sets out the conditions under which a company may obtain the deferral of the disclosure of certain elements for a maximum of five years.
EU Member States will have eighteen months to transpose the proposed CbCR Directive, once adopted, into national law. Four years after the date of its transposition, the European Commission shall report on the result of the application of the proposed CbCR Directive.
The provisionally agreed text will now be submitted to EU Council and of the European Parliament for political endorsement. If such endorsement takes place, the EU Council will adopt its position at first reading on the basis of the agreed text (subject to standard legal-linguistic scrutiny). The European Parliament should then approve that EU Council’s position and the proposed CbCR Directive should be deemed to have been adopted.