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Public country-by-country reporting of corporate tax information is coming in the EU

In a recent Business Post article, Tom Maguire discusses tax reporting within the EU

Earlier this month it was announced that political agreement has been reached on the proposed public country by country reporting (“CbCR”) initiative at EU level. Tax matters in the EU would generally require unanimity of agreement between Member States but this was done as an accounting matter. That merely required a qualified majority rather than an “all for one and one for all” type approach.

The final “compromise text” requires multinationals (being EU-parented groups or otherwise) with large EU subsidiaries or branches and annual global consolidated revenue exceeding €750 million to disclose certain information publicly. This would be done on a country-by-country basis relating to operations in each of the EU member states, as well as information for certain third countries on the EU list of non-cooperative jurisdictions. The information to be disclosed on a “country-by-country” basis would include; 

  • Nature of the activities;
  • Number of employees;
  • Total net turnover (derived from both third party and intragroup transactions);
  • Profit or loss before tax;
  • Amount of income tax payable in the country as a result of the profits derived in the current year in that country;
  • Amount of income tax actually paid during the year; and
  • Accumulated earnings.

This type of public reporting would also require explanations of differences between the amounts of income tax that have been paid and those accrued by the entities concerned. That information would then be made publically available in a separate report for at least five years on the company’s website. Companies also would have to file the report with a business register in the EU. It’s understood that the compromise text agreed at the European Council has evolved over the course of the negotiations with the EU Parliament. For example, the timing of safeguard clause, that allows companies to leave out reporting on commercially sensitive information, has been reduced from six to five years in justified cases if business secrets are at risk.

The compromise text provides for a review of the directive to take place 4 years after the transposition date. This would review the effectiveness and adequacy of the directive for such instances in relation to the €750 million annual consolidated threshold, the geographical scope, the safeguard clause, and the information that companies would have to disclose. The shorter deadline was a concession to the European Parliament. As part of the overall compromise package, the Presidency compromised to a transposition period of 18 months, down from 2 years.

One key question for many MNE groups will be what may qualify as “commercially sensitive information” and therefore may be excluded from the scope of public CbCR. A recent communication from the General Secretariat of the Council notes the following with respect to commercially sensitive information:

"Member States may allow for one or more specific items of information otherwise required to be disclosed … to be temporally omitted from the report when their disclosure would be seriously prejudicial to the commercial position of the undertakings to which it relates. Any omission shall be clearly indicated in the report together with a duly reasoned explanation regarding its causes. Member States shall ensure that all information thus omitted is made public in a later report on income tax information within no more than five years from the date of its original omission.…"

Exact guidance as to the meaning of “commercially sensitive information” remains outstanding and may be expanded on in due course. However in the interim, the term would likely refer to information where its disclosure would significantly impact on the commercial position of the undertakings, an assessment largely focussed on the fact pattern at hand.

The final agreed text now must be endorsed by the Council Committees on Economic and Monetary Affairs and Legal Affairs and the Parliament as a whole, as well as the Council. The vote in plenary is expected after the summer recess.
It’s understood that member states would have to transpose the directive into their national legislation within 18 months after the formal adoption of the directive. The first reporting obligation would apply to the first financial year opened after the date of transposition. In principle, the first financial year to be reported should be the one starting on or after the transposition deadline, i.e., two years after the directive’s entry into force, which should be the 20th day following publication in the EU Official Journal. So it’s coming and individual member states would have the option to implement the rules earlier.

We’ve had domestic provisions governing existing CbCR in place in Irish law for some time, but the revised agreement is the first time for many groups that reporting will be made publicly available. Groups should consider the impact of the imminent public reporting sooner rather than later; while implementation may look far off based on the transposition deadline, Member States have the option of implementing public reporting early and groups should be prepared for this.

This article was first published in the Business Post on the 27 June, 2021.

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