On 1 June 2021, the European Union (EU) Council and the EU Parliament reached a provisional political agreement on the proposed directive on the disclosure of income tax information by certain undertakings and branches, commonly referred to as the country-by-country reporting (CBCR) directive. The public dimension of CBCR is not a new proposal having first been put forward in 2016 but the necessary EU wide political support for this measure only emerged earlier this year once a compromise text seemed possible.
The draft directive takes the form of an amendment to the 2013 Directive dealing with the preparation and publication of annual financial statements, rather than the more recent Directive (2016) that provides for a measure of CBCR and related information exchange between EU Member States.
The agreed text was agreed on 9 June and requires multinational enterprises or standalone undertakings operating in more than one country and with total consolidated revenue of more than €750 million in each of the last two consecutive financial years, whether headquartered in the EU or outside, to disclose publicly (including via the internet and websites) income tax information in each member state. The tax transparency reports should also extend to the EU list of non-cooperative jurisdictions, being the countries on the so-called EU "black" and "grey" lists.
The reporting will take place within 12 months from the date of the balance sheet of the financial year in question. The directive sets out the conditions under which a company may obtain the deferral of the disclosure of certain elements considered to be commercially sensitive for a maximum of five years.
The provisionally agreed text will be submitted to the relevant bodies of the EU Council and the EU Parliament for political endorsement and then the EU Council will adopt its position at first reading. The EU Parliament will approve the EU Council’s position and the directive will be adopted. It is currently anticipated that the Directive will take effect later this year with Member States having 18 months to transpose it into local law.
The new measures will increase the compliance burden and related costs on multinational groups and the nature of the information to be published is likely to encourage tax authorities to request additional information, in addition to attracting public scrutiny through investigative journalists. It remains to be seen whether the scope for deferral of publication of commercially sensitive information will serve its purpose.
The EU Council’s press release can be found here.
The EU Parliament’s press release can be found here.