EU Public CbCR: They thought it wouldn’t happen... until it did

The European Parliament has formally adopted the EU Public Country-by-Country Reporting (CbCR) directive. In scope are large multinational groups with total consolidated revenue of more than €750 million. These will be required to publish specified tax, financial and functional information by EU country: the latest initiative to increase tax transparency. Groups will need to submit the information, in a standard format, to the trade registry of each relevant Member State and to make it available on the group website(s). The directive is expected to be adopted into domestic law in EU Member States by 30 June 2023 and will be applicable, at the latest, for financial years beginning on or after 1 July 2024 (thus 2025 for calendar-year taxpayers). These dates are EU-wide deadlines: Member States may choose to apply the rules earlier.

Adoption of the directive marks the culmination (at the EU level) of a long-maturing process. The European Commission launched its proposals in 2016, drawing on earlier sector-specific regimes covering extractives and financial services. Whilst the delay was due more to technical disagreements over the directive’s legal basis rather than reservations over transparency, scepticism over whether the proposals would ever be adopted was often seen. But a renewed push under the Portuguese Presidency in 2021 saw the legal debates put to rest. Rapid political and technical agreement soon followed.

Groups headquartered both within and outside the EU will be within the scope of the rules, provided they operate anywhere within the EU (whether via subsidiaries or branches). This will include non-EU parented banks over the earnings threshold for which this will be a new requirement: their EU-parented counterparts in most cases can continue to rely on the existing financial services reporting regime. For all covered groups, the data must be broken down for each Member State in which the group is active, as well as for countries on the EU’s lists of non-cooperative and monitored jurisdictions.

If the report is not published by the non-EU parent, the EU entities themselves will have to report, if possible, given the information available to them. And if some or all necessary information is not available to them, they must publicly say so. A safeguard clause empowers Member States to permit groups to defer disclosure of certain information for a maximum of five years.

Businesses should review their reporting systems and information availability to prepare for this requirement and manage these risks. 2025 may (or may not) sound like a long way away, but even where confident that Member States will not implement the rules sooner, groups should consider whether it will take some time to adapt their operations to comply with the new requirements. Whether internal accounting systems can be adapted easily will have a big impact on the extent of any additional compliance burden.

Businesses should also consider how to manage any risks arising from disclosure of information previously treated as confidential. What will be the effect of this information becoming public? Is there a risk of public misinterpretation of the data provided, especially in the absence of full information about the group’s value chain, operations, and resulting arm’s length related party pricing? Will it be important to prevent unwarranted reputational damage through misinterpretation of ‘one-size-fits-all’ disclosure formats and limited context from which the reported numbers arise? Robust transfer pricing documentation is the traditional method of managing this risk: how should it be used in this new environment?

For a while it seemed unlikely that Public Country-by-Country Reporting would arise. Here it is.

For further information please contact:

• Charles Havisham