What implications will the public Country-by-Country Reporting have for large multinational groups?

On 1 December 2021, the public Country-by-Country Reporting (pCbCR) directive was published in the Official Journal of the European Union (EU). The publication of the directive follows the formal adoption of the proposal by the Council of the EU on 28 September 2021 and its approval by the European Parliament on 11 November 2021.

The EU Member States must implement the directive by 22 June 2023. Subsequently, the rules must be locally effective for periods starting on 22 June 2024 at the latest. The publication deadline is within 12 months from the date of the balance sheet of the financial year in question. For a group which tax period is a calendar year, the first reporting year will be 2025 and the report will be due by the end of 2026. The report should be made available for a minimum of five consecutive years.

The information will be mandatory for disclosure by groups with ultimate parent established in the EU which consolidated revenue exceeded for each of the last two consecutive financial years a total of EUR 750 000 000. If the ultimate parent is based outside the EU, but operates in the EU through a subsidiary or branch (provided that the size conditions of EU presence are met), the obligation to publish the data shall pass on the subsidiary / branch.

The report shall contain information on the entire group of companies. The information must be provided for each EU Member State in which the group operates and also for each jurisdiction that the EU considers as non-cooperative or is grey listed by EU for at least two consecutive year. Data relating to other countries may be aggregated.

The groups will publish the data in the EU Member State business register and also on the websites. The reporting covers the following key areas:

• Business activity
• Number of employees
• Total net turnover
• Profit or loss before income tax
• Income tax accrued during the relevant financial year
• Income tax paid during the relevant financial year
• The amount of accumulated earnings at the end of the year

Mandatory disclosure of CbCR information will affect EU-based multinationals and also non-EU based multinationals operating in the EU. The increased transparency that pCbCR brings could be an impluse for companies to review global structures and transaction flows, especially in terms of possible negative impacts on their reputation.