Country-by-Country Reporting data publicly available?

Country-by-Country Reporting (CbCR) is one of the pieces of the puzzle that provides a view of a multinational corporation’s transfer prices. Rather than looking at individual entities, CbCR, fairly truthfully depicts how the group operates in individual countries, and shows several financial and tax indicators. So far, CbCR data have only been available to the tax administrators; now, they are to be publicly available, which is expected to increase social pressure to pay income tax in the countries where large multinational groups operate.

CbCR reporting only applies to multinational groups with a consolidated turnover of over EUR 750 million, and comprises a duty to prepare and submit a country-by-country report containing financial and tax information. The report also includes a list of all companies within the group and their area of interest, which helps to provide a comprehensive view of the group's activities. However, this is currently only available to tax administrators.

Ever since CbCR reporting entered into effect on 25 May 2016, it has been debated whether the information contained in the country-by-country reports should be public domain. For a long time, greater transparency in the tax area has been on the agenda at the EU and global level, with the aim to prevent large multinational groups from transferring activities to countries with low taxation. As it turns out, stricter requirements for transparency affect the behaviour of large multinational groups, particularly in tax area.

Extending the CbCR to public Country-by-Country Reporting (pCbCR) would mean that multinational groups with consolidated turnover above a certain amount would have to disclose a wide range of financial information, including the amount of income tax paid in each state. This means that this information could be accessed not only by the financial administration, but also by professionals or the general public to see if there are outflows of profits to countries with low tax rates. On 25 February 2021, significant progress was made towards the introduction of pCbCR: a legislative pCbCR proposal was approved by the Council of the European Union for Competitiveness (COMPET), under whose competence pCbCR falls.

Although eight European Union member states (Luxembourg, Ireland, Sweden, Croatia, Cyprus, the Czech Republic, Hungary and Malta) disagreed with the proposal and expressed their opposition already in the first vote in 2019 (at that time, Austria and Slovenia had also disagreed), the proposal was approved, as the voting in COMPET only requires the approval by 15 of the 27 EU states, if they represent 65% of the European Union's population. This is fundamentally different from common voting on tax issues, and the voting system is also the main reason for the opposing states' (including the Czech Republic’s) objections: decisions on tax issues, which, according to these states, also include pCbCR, should be within the competence of the Economic and Financial Affairs Council (ECOFIN), where the European finance ministers have to pass legislative proposals by unanimous vote. This is the crucial difference between ECOFIN and COMPET.

Despite some states’ opposition, pCBCR was passed by COMPET. The next step is the approval of the proposed directive by the European Parliament. If this happens, the individual member states will have two years to implement the new directive in their national law. While it may seem that the time when pCbCR becomes a reality is still far away, large multinational groups should already be preparing for this alternative.

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