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EP: multinationals to publish profits and taxes paid in individual countries

On 11 November 2021, the European Parliament approved a proposal for the directive introducing public country-by-country reporting. The CbC report, informing, among other things, about profits generated and taxes paid, broken down by individual countries, has been prepared by multinational groups since 2017, but so far has only been submitted to the tax administration; now they will have to be uploaded to company websites or published in public registers.

EU member states must implement the directive by 22 June 2023. Local legislation must then be in force at the latest for periods starting on or after 22 June 2024. In practice this means that for calendar year taxpayers, the first reporting year will be 2025, and the report will be due by the end of 2026. As individual member states may adopt the rules earlier, we recommend monitoring the developments around the directive. Differences between states may also arise due to the implementation of a safeguard clause, which grants an exemption from publication for up to five years. Sanctions for failure to meet the new obligation are also within the competence of individual states.

Public CbC reporting shall be mandatory for multinational groups with a controlling company established in the EU whose consolidated turnover exceeds €750 million and which operates in more than one member state. If the controlling company is based outside the EU but operates in the EU through a subsidiary or branch (subject to conditions regarding the size of the EU presence), the obligation to publish the data shall pass on to that subsidiary or branch. The number of companies affected by the new obligation may thus be higher than it first seems.

The report shall contain information on all companies in the group. For companies based in an EU member state or in countries deemed ‘non-cooperative’ jurisdictions (EU black and grey lists), information shall be provided in aggregate for each state. For companies in all other jurisdictions, information shall be reported in aggregate, as a single amount. The following information shall be disclosed, among others:
  • description of business activities
  • number of employees
  • profit or loss before tax
  • corporate income tax current and deferred, including explanation of any differences
The European Commission believes that the accessibility of information about multinationals’ revenues and tax paid in individual states will bring greater transparency as well as enhanced public scrutiny. The question is whether this level public scrutiny is not to the detriment of the competitiveness of European enterprises who will bear a greater administrative burden as well as the risk that the published information may be misinterpreted, misunderstood, or expose commercially sensitive information.

We expect that mandatory public disclosure will also motivate some multinational groups to control their transaction flows to avoid negative publicity or reputational damage.