PUBLICATION OF THE COUNTRY-BY-COUNTRY REPORTING: QUO VADIS?

Overview

At the end of September, the European Council took a further step towards comprehensive tax transparency for large international corporations in Europe. In the course of the first reading on 28 September 2021, the European Council adopted the proposal for a directive on a uniform and mandatory "public country-by-country report" which was negotiated at the beginning of June 2021. The only remaining step before the formal entry into force of the directive is the official adoption by the European Parliament, which is to be expected soon.

Impact

The obligation applies to multinational groups with a consolidated turnover more than EUR 750 Mio in the previous two consecutive financial years. Whereby the obligation to publish is not limited to multinational groups with an ultimate parent company in the EU. Foreign groups are also included in the obligation if subsidiaries or branches of a company with a certain minimum size are domiciled in a member state. There are only a few exceptions, such as banks as they are already obliged to report on a country-by-country basis under the Capital Requirements Directive (2013/36/EU).

Article 48c of the Directive lists the necessary contents of the income tax information report to be published, which essentially correspond to those of the country-by-country reports pursuant to OECD BEPS Action 13 and § 4 VPDG. The items mentioned thus concern the following information to be disclosed:

• brief description of the company's activities
• number of employees
• net sales, including sales to affiliated companies and related parties
• profit or loss before tax
• current tax expense for the financial year and income tax paid in the reporting year in a tax jurisdiction
• amount of retained earnings.

For EU countries, the data must be published separately for the individual countries. For foreign countries, there is a difference because the data on foreign countries may be published in aggregated form, provided that the foreign country is not included in the list of uncooperative or non-transparent third countries.

The data must be published on the company's website no later than 12 months after the balance sheet date of the relevant financial year. It must be available for a period of at least 5 years. In addition, the data shall be published in a business register.

The Directive requires Member States to ensure that the members of the administrative, management and supervisory bodies of the ultimate parent company have collective responsibility for ensuring that the income tax information report is drawn up and available for the public. Member States should provide effective, proportionate and dissuasive penalties to punish breaches of the publication obligation. The concrete form of these sanctions is left to the Member States. However, in Austria it can be assumed that in addition to the company itself, its executive bodies can also be sanctioned.

Furthermore, a mandatory confirmation by the auditor is planned. In the future, auditors will be required to verify whether there was an obligation to publish financial statements for the financial year preceding the financial year in question and, if so, whether this obligation was complied with. If the publication was not made despite the obligation, the auditor must state the missing publication in the auditor's report. However, a substantive statement or confirmation by the auditor is no longer provided for in the current draft directive.

Entry into force

Member States have 18 months from the entry into force of the Directive to transpose it into national law. The first publication must subsequently take place for the financial year that begins two and a half years after the entry into force of the directive or later. Provided that the EU Parliament adopts the proposal unchanged and publication in the EU Official Journal still takes place by the end of 2021, the Directive will enter into force at the end of 2021. Therefore, the publication requirement would affect all financial years beginning after mid-2024. If the calendar year is the financial year, the publication obligation applies for the financial years starting 2025.