The proposed rules on CbC reporting are broadly in line with the draft version seen at the end of March, with some amendments.
The European Commission (EC) has published its proposal for public Country by Country (CbC) Reporting, under an amendment to the Accounting Directive. The proposals are broadly in line with the draft that was seen at the end of March, though some amendments have been made in reaction to criticism of the draft proposals and fallout from the ‘Panama Papers’ released last week. The proposals will apply to multinational groups with total consolidated revenue of €750 million if they are EU-parented or have EU subsidiaries or branches. There are exemptions for small businesses including small entities or branches of non EU parented groups.
The public CbC report will require details of the business activities, number of employees, turnover (including related party turnover), profit, accumulated earnings and income tax accrued and income tax paid in each Member State. Data for all other territories will be aggregated into a single line of the report with the exception of tax jurisdictions “which pose particular challenges”, where the data must be separately disclosed for each such territory. The EU intend to publish a list of such territories, being those that do not comply with criteria around:
The EC will carry out an initial assessment of all third countries’ tax systems from a good governance perspective, and will present the first scoreboard results to Member States in autumn 2016.
EU-parented banking groups that are already subject to similar public reporting requirements under the Capital Requirement Directive (CRD IV) will be exempt, providing their CRD IV report also covers the group’s non-banking activities. This may require an extension of scope under CRD IV. Non-EU parented banking groups will be subject to the public CbC reporting requirement. Details will need to be clarified to ensure a level playing field for EU versus non EU parented banks and across sectors.
The public report also requires groups to explain “material discrepancies” at a group level between the taxes accrued and the taxes paid. This goes further than the OECD BEPS recommendation, placing a heavier burden on multinational groups to reconcile and contextualise their data.
Reports must be made available for at least five years on the company’s website, and filed with a business register in the EU. Filing is likely to be complex for non EU parented groups who could be subject to multiple filing obligations across EU member states unless they opt for the parent company to publish the CbC report on its website and nominate one of its EU subsidiaries to file the report on their behalf on a business register inside the EU.
Companies subject to the filing requirements would need to submit the report to their external statutory auditors who would be required to check the report has been presented in accordance with the Directive and made accessible on a website.
The proposals now require consideration by the European Parliament and Council, and must be adopted by a qualified majority. Once adopted, EU Member States will have one year to transpose into national legislation.
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