Public Country-by-Country Reporting in Europe and Beyond

29 November 2024

Nicolas Traut (Oxford University Centre for Business Taxation)

The EU plays an important role in the evolution of the international tax regime in general, and the bloc is active especially in the field of collecting and exchanging information.¹ The EU regularly strengthens broader tax initiatives through the incorporation into EU law, but with the introduction of public country-by-country reporting the EU takes on a leading role in shaping the international tax system. The public country-by-country reporting is hailed by the EU as a win for tax transparency and fairness; and since the measure has an impact that goes well beyond the EU, the implications of the directive are relevant at a more global level. Based on more comprehensive considerations and references, which can be found in a recent paper, this blog outlines the (future) obligations under the EU public country-by-country reporting for companies in the EU and beyond, and offers some policy observations.

Legislative context and content of the report

The Public Country-by-Country Reporting Directive,² which amends the Accounting Directive,³ introduces a new reporting instrument at the EU level that requires certain multinational enterprises (MNEs) to publish a report on income tax information on a country-by-country basis. Generally, these reporting obligations must be fulfilled for financial years starting on or after 22 June 2024 and reports have to be filed within 12 months of the respective balance sheet date.⁴ The prescribed content of the report includes a description of the nature of the activities of the MNE, an identification of the ultimate parent’s subsidiaries in the EU or in jurisdictions that are included in the so-called blacklist or grey list of the EU on non-cooperative jurisdictions for tax purposes, as well as figures for employees, revenues, profit, earnings, income tax accrued, and income tax paid.⁵ 

The new reporting requirements supplement existing rules. Country-by-country reporting for tax purposes existed before as a result of the Base Erosion and Profit Shifting project (BEPS Action 13) and an amendment of the Directive on Administrative Co-operation in the Field of Taxation (DAC4) in the EU.⁶ This tax reporting is similar in content to the new public reporting rules, but it is “private” and not “public”. Certain obligations for a public reporting were already in place at the EU level for specific sectors, and, to an extent, a voluntary public reporting also existed before.⁷ The reporting obligations introduced by the Public Country-by-Country Reporting Directive for large MNEs in all sectors, however, take public country-by-country reporting to a new level.

Policy implications and worldwide effects

Underlying the introduction of public country-by-country reporting in the EU are transparency and fairness considerations, and the new public report on income tax information is intended to put more public pressure on unwanted tax arrangements of MNEs than the (private) tax reporting based on BEPS Action 13 and DAC4.⁸ However, the public nature of the report on income tax information also creates challenges; and there are questions about whether the transparency and fairness goals can be achieved by the Public Country-by-Country Reporting Directive. One problem in this respect, which follows from the increasing complexity of corporate taxation, particularly regarding the large MNEs which are in scope of the report, lies in potential misinterpretations of the report on income tax information, especially in the wider public.⁹ Furthermore, the EU public country-by-country reporting rules only provide for a detailed overview of in-scope MNEs regarding their activities in the EU and certain other countries (which are on the so-called blacklist or grey list), while information on most third countries has to be provided only on an aggregated basis, so that the report lacks a significance in that regard.¹⁰

The obligations following from the Public Country-by-Country Reporting Directive build on an EU connection of the businesses in question, and therefore, in the first instance, EU Member States are obliged to require large MNEs headquartered in the EU to file a report on income tax information. This obligation applies to internationally operating EU-based standalone undertakings and ultimate parent undertakings above a certain threshold of (consolidated) revenue (EUR 750 million in each of the last two consecutive financial years).¹¹ The Public Country-by-Country Reporting Directive, however, is also relevant for large MNEs that are not headquartered in the EU, because it extends obligations to their subsidiaries and branches in the EU if certain size criteria are met in two consecutive financial years by the non-EU standalone or ultimate parent undertakings (over EUR 750 million of (consolidated) revenues) and the EU subsidiaries (exceeding at least two of the three criteria of a balance sheet total of EUR 5 million, a net turnover of EUR 10 million, and an average of 50 employees) and branches (exceeding a net turnover of EUR 10 million).¹² Certain obligations of branches and subsidiaries can be averted by a reporting of the non-EU headquarter itself.¹³ 

Public country-by-country reporting is a topic in other (non-EU) countries, too,¹⁴ and in the UK, following the Finance Act 2016, the possibility exists for the Treasury to make rules for a public country-by-country reporting.¹⁵  With the Public Country-by-Country Reporting Directive, the EU is at the forefront of public country-by-country reporting; and the effects of this initiative go well beyond the EU.

This blog is based on the following paper:

Nicolas Traut, The EU Public Country-by-Country Reporting Directive: legislative and policy comments, British Tax Review 2024, 359–370.

References

¹ In this context, see Directive 2011/16/EU on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC [2011] OJ L 64/1; see also the subsequent amendments.

² Directive (EU) 2021/2101 amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches [2021] OJ L 429/1.

³ Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC and repealing Directives 78/660/EEC and 83/349/EEC [2013] OJ L 182/19.

⁴ See Accounting Directive (consolidated), Articles 48d, 48g; note, however, that some EU Member States specify different timeframes.

⁵ Accounting Directive (consolidated), Article 48c.

⁶ See OECD, Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project; Directive (EU) 2016/881 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation [2016] OJ L 146/8.

⁷ For sector specific reporting obligations, see, for example, Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC [2013] OJ L 176/338.

⁸ See Public Country-by-Country Reporting Directive, recitals 1–3.

⁹ In this context, see, e.g., Thomas Hoppe, The EU Public Country-by-Country Reporting – A Case Study on Tax Risk Assessment, International Transfer Pricing Journal 31 (2024), 107, 118; Rudolf Mellinghoff, Datensammlungen, Informationsaustausch und Publizität im Steuerrecht, Steuer und Wirtschaft 100 (2023), 5, 11.

¹⁰ See Accounting Directive (consolidated), Article 48c.

¹¹ See Accounting Directive (consolidated), Article 48b.

¹² See Accounting Directive (consolidated), Articles 48b(4), 48b(5); note that EU Member States have a limited discretion in deviating from certain thresholds.

¹³ See Accounting Directive (consolidated), Article 48b(6).

¹⁴ See currently in particular Australia, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.

¹⁵ See Finance Act 2016 Schedule 19 paragraph 17(6).