Country-by-country reporting (“CBCR”) is one of the OECD BEPS deliverables (under Action 13). It is expected to be a significant tool used by tax authorities’ auditors in evaluating a multinational group’s transfer pricing policies. CBCR will present significant challenges to multinationals groups’ internal tax departments, as the tax departments must reconcile public financial reports to their legal entities’ books and accounts and to local tax returns and country-by-country template reports. CBCR is also expected to be used by journalists and politicians to challenge the tax positions of multinational groups, where information can be accessed publicly.

BEPS Action 13 itself only envisages that the relevant information, once reported to the home tax jurisdiction, would be shared between tax administrations and would not be publicly available.

Against that background, the European Commission has signalled a significant potential broadening of the disclosure requirements for CBCR. It has proposed that the Accounting Directive (Directive 2013/34/EU) be amended to force multinationals operating in the EU with global consolidated annual net turnover exceeding €750 million to disclose publicly certain key information on where they make their profits and where they pay their tax in the EU on a country-by-country basis. Importantly, the same rules would apply to medium-sized and large subsidiaries and branches of multinational groups that are headquartered outside the EU and which meet the global group turnover threshold, where those subsidiaries or branches are doing business in the EU.

The information would need to be published and made accessible on the website in at least one of the official languages of the EU.

The relevant large groups would need to publish each year a report disclosing the profit and the tax accrued and paid in each EU Member State, as well as other key information, on a CBCR basis. This information would remain available for five years. The following data would need to be disclosed in the report: the nature of the activities, the number of persons employed, the net turnover made (including with related parties), the profit made before tax, the amount of income tax due in the country as a reason of the profit made in the current year, the actual payments made to the country’s treasury during that year, and the amount of accumulated earnings.

The EU will release a list of certain non-EU countries which it considers to refuse to respect good governance standards in taxation and pose specific tax challenges, where there would be an obligation to disclose the information with a high level of detail. Aggregate figures would also have to be provided for operations in other tax jurisdictions in the rest of the world.

Discussions between the EU Commission, Council and Parliament on the proposal are likely to resume later this year and, if approved by the Council and Parliament, would need to be enacted in each EU Member State within a year of the entry into force of the legislation.

The rules would not apply to EU banks that report CBCR on the basis of Article 89 of the Capital Requirements Directive (CRD4).