Could Public CbC Reporting be coming to the EU?
The EU is pushing to introduce public CbC reporting for multinational companies. This idea of country-by-country (CbC) reporting was an unpalatable one for member states a couple of years ago. However, it now appears to have gained support with the EU bloc.
Introduced as a part of the OECD’s BEPS project, CbC reporting is intended to enable tax authorities to better grasp multinationals’ intergroup tax affairs. The aim is to more effectively target their compliance strategies and among other things, to halt the shifting of profits to low-tax jurisdictions.
Under the BEPS Action Plan, Action 13 provided rules for the introduction by jurisdictions of new reporting requirements. Specifically, the CbC report requires multinationals with over EUR750m in global annual revenue to provide aggregate information relating to the global allocation of their income and tax paid, alongside certain indicators of the location of economic activity within the group.
This information must be provided annually and for each jurisdiction in which a multinational does business.
As it stands, CbC data is only accessible to governments and qualified researchers under strict confidentiality rules. The EU has discussed for many years about making this information public. As recently as November 2019, 13 countries rejected the proposals from the European Commission.
However, a breakthrough may have occurred. Towards the end of February 2021, internal market and industry ministers met to informally discuss the idea. The Portuguese EU presidency concluded that the was political support for it to seek a negotiating mandate. This was followed, in early March, by the EU announcing its intention to proceed with negotiations on a draft CbC reporting directive.
This directive would require multinationals or standalone undertakings with total consolidated revenue greater than EUR750m in each of the past two consecutive financial years, whether the headquarters is in or outside the EU, to disclose publicly, in a report, the income tax they pay in each EU member state along with other relevant tax-related information.
These reports would be required within 12 months from the date of the balance sheet of the financial year. A company may be able to defer such disclosure, under certain conditions, for a maximum of six years.
A noteworthy observation is that the EU Directive is narrow in its scope. Requiring companies to disclose only a limited set of tax data rather than more comprehensive information on their activities. This could be a compromise on the part of the EU, seeing as the idea of forcing companies to publicly divulge commercially sensitive data remains highly controversial and strongly opposed by the corporate world.
The final approval for this directive is far from set. Some member states are still opposed which means the negotiating process could be something of a slog that ultimately hits blockages as with other contentious pieces of EU tax legislation.
However, recent trends and growing call for more corporate transparency. It’s safe to say we can expect to see the issue remain on the EU’s agenda for the foreseeable future.