Introduction
On 11 November 2021, the European Parliament adopted the Directive on public country-by-country reporting (PCbCR). The adoption of this directive concludes the procedure (see earlier newsflash) on the introduction of specific European transparency rules and requires certain European or non-European multinational groups or standalone undertakings to publicly disclose certain financial data.
Content of the Directive
Who should report?
The adopted directive provides that multinational enterprises or stand-alone undertakings with a total consolidated revenue of EUR 750 million over the last two consecutive financial years should make certain (tax) information public.
In principle, reporting should be done by the ultimate parent entity (UPE). However, for groups which carry out activities within the EU solely via subsidiary undertakings or branches, the responsibility to publish the information and make it accessible lies with the subsidiaries and branches. If the information is not available or the UPE does not provide all the required information, the subsidiaries and branches should publish the information that they have, accompanied by a statement specifying that their UPE has not made the necessary information available.
Publication of the information
The required information should be published no later than 12 months after the balance sheet date of the year concerned on:
- the website of the UPE (or stand-alone undertaking);
- the subsidiary or affiliated undertakings’ website
- the branch website or
- the website of the undertaking which opened the branch or under certain conditions on the website of an affiliated undertaking
Information content
The information to be disclosed under the PCbCR directive includes the following:
- the name of the ultimate parent or standalone undertaking, the financial year concerned and the currency used, and, where applicable, a list of all the subsidiary undertakings;
- a brief description of the nature of the activities;
- the number of employees on a full-time equivalent basis;
- revenue which includes:
- the sum of the net turnover, other operating income, income from participating interests, excluding dividends received from affiliated undertakings, income from other investments and loans forming part of the fixed assets, any other interest receivable and similar income; or
- the income as defined by or within the meaning of the financial reporting framework on the basis of which financial statements are prepared excluding value adjustments and dividends received from affiliated undertakings;
- the amount of profit or loss before income tax;
- the amount of income tax accrued during the relevant financial year which is the current tax expense recognised on taxable profits or losses of the financial year by undertakings and branches in the relevant tax jurisdiction;
- the amount of income tax paid on cash basis which is the amount of income tax paid (including withholding tax paid by other undertakings) during the relevant financial year by undertakings and branches in the relevant tax jurisdiction; and
- the amount of accumulated earnings at the end of the relevant financial year.
In order to reduce the administrative burden, the directive provides that Member States should allow the information published under the ‘OECD CbCR’ to be accepted under the PCbCR.
Is it really Country-by-Country Reporting?
The directive provides for a combination of aggregation and disaggregation of the information. The information must be disclosed on a disaggregated basis, that is, on a country-by-country basis for:
- each Member State;
- countries that are mentioned in annex 1 of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes from their meeting of 5 October 2021 (these blacklisted countries are currently: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu);
- countries that are mentioned in annex 2 of the Council conclusions, if the country is on the list for two consecutive years (currently: Botswana, Jordan, Thailand and Turkey).
The information related to other countries may be disclosed on an aggregated basis.
Confidentiality clause
Member States may allow for one or more specific items of information, otherwise required to be disclosed, to be temporarily omitted from the report if their disclosure would be seriously prejudicial to the commercial position of the multinational enterprise. Any omission must be clearly indicated in the report together with a duly reasoned explanation. Member States must ensure that all such omitted information is made public in a later report on income tax information no later than five years after the date of its original omission. No omissions are allowed for blacklisted or relevant greylisted countries.
Auditor’s report
When the financial accounts are audited, they should contain a statement by the statutory auditor, for the financial year preceding the financial year for which the statements under audit were prepared, whether. a PCbCR should have been drawn up. The PCbCR does not need to be audited.
Timeline for the directive’s entry into force
The directive should enter into force on the 20th day after its publication in the Official Journal. It will have a maximum transposition period of 18 months. The first PCbCR reporting will be for the first financial year which begins two and a half years after the date of entry into force of the directive. Depending on the publication in the Official Journal, the first PCbCR reporting is likely to be for the financial year that starts on or after June 2024.
First compliance report on PCbCR
The directive will be reviewed and assessed four years after the transposition deadline, and will take the situation at OECD level into account.
Please contact Stefaan De Baets, Jonas Van de Gucht or your usual contact at PwC for further information.
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