pCbCR: administrative burden or shift towards tax transparency?
Public country-by-country reporting is another of a range of obligations aimed at increasing transparency in the taxation of multinational companies and preventing profit shifting to countries with lower tax rates. Selected multinational companies are required to disclose key financial and tax information on a country-by-country basis.
Compared to its predecessor non-public country-by-country reporting, public country-by-country reporting will apply to a larger number of Czech entities and bring higher sanctions. Czech entities should therefore pay increased attention to this obligation.
Public country-by-country reporting (“pCbCR”), introduced pursuant to EU Directive 2021/2101, imposes an obligation on selected entities to prepare and publish or only publish a report on income tax information. This obligation was implemented into Czech legislation by an amendment to the Accounting Act as early as in 2023 but applies to all periods beginning on or after 22 June 2024.
Who is subject to the new obligation?
The pCbCR obligation will apply to large multinational groups with consolidated revenues of more than EUR 750 million and standalone undertakings with a cross-border element whose net turnover exceeds CZK 19 billion. A standalone undertaking with a cross-border element is a company with a branch or permanent establishment abroad, i.e., a Czech company with a branch outside the Czech Republic or vice versa. In some cases, it is also necessary to monitor the net turnover of the Czech entity to determine whether and to what extent the new obligation applies to the entity. All criteria are always examined for two consecutive accounting periods.
Czech entities may be obliged not only to publish the report on income tax but also to prepare it. To determine the extent and manner of compliance with the new obligations, it is necessary to analyse the position of the entity within a corporate group or a standalone undertaking and monitor whether the defined financial criteria or their combination have been exceeded. For example, for a Czech permanent establishment of a foreign corporation, the net turnover threshold of CZK 200 million must be monitored. For the ultimate parent company of a multinational group, the consolidated revenue threshold to be watched lies at EUR 750 million.
What information must be disclosed?
The law requires that basic information about individual entities of a standalone undertaking or a multinational group, as well as selected financial indicators such as revenues, profit or loss, current and deferred tax, assets, number of employees, etc., be publicly available. At present, no single form for compiling the country-by-country report has been prescribed, pending evaluation of the feedback requested by the European Commission. Eventually, a recommendation will be made on the content and format of the single form to be published.
However, entities have the option of preparing a report on income tax using the non-public country-by-country reporting template. Decree No. 306/2017 Coll. regulates the country-by-country report template and contains instructions for its completion. In such a case, however, the entity must declare that it has made use of this option.
The disclosure of certain information required by the pCbCR may, in certain cases, constitute the disclosure of valuable trade secrets. Therefore, the Czech Republic has adopted a protective clause which allows certain mandatory disclosures to be omitted for a maximum of five years, if such disclosure would cause significant harm and its omission seems justifiable.
Dates and deadlines
The obligation to prepare and publish a report on income tax will apply to accounting periods beginning after 22 June 2024. However, if the accounting period of the multinational group or the standalone undertaking is the same as the calendar year, the first period will be the year 2025 (provided that the set criteria were exceeded in both 2024 and 2025). The report must be published within 12 months of the end of the accounting period for which it has been prepared and must be available to the public for a period of five years.
Where to publish
The report on income tax must be published in the public register and on the entity's website. In specified cases, the obligation may also be fulfilled simply by providing a link to the public register on the entity's website.
Sanctions
If an entity fails to prepare a report on income tax or disclose it in accordance with the legislation, it may be fined up to 3% of its net assets, which for consolidating entities can amount to a substantial amount, as the 3% will be calculated on the consolidated net assets.