Currently, ‘non-public’ Country-by-Country reporting (“Non-Public CbCR”) already exists in many countries. In the EU, Non-Public CbCR requires multinational groups (“MNEs”) with a consolidated turnover of at least EUR 750 million (the “CbC Revenue Threshold”) to prepare and submit a report including certain data points to help tax authorities assess the transfer pricing risks. These reports are automatically exchanged among EU Member States.
The EU has adopted a directive regarding Public CbCR in 2021 (the “Directive”), which provides that all EU Member States must implement the Directive in domestic legislation by June 22, 2023.
The Directive requires MNEs to publicly disclose certain information (including income tax paid) in (i) each EU Member State, (ii) each jurisdiction that is on the EU black or grey list on relevant dates and (iii) all other jurisdictions on an aggregated basis. The goal of Public CbCR is to enhance public scrutiny of income taxes borne by MNEs with activities in the EU, whereas Non-Public CbCR seeks to combat tax avoidance.
Public CbCR applies to MNEs that meet the CbC Revenue Threshold in two consecutive years and are EU headquartered or non-EU headquartered with EU subsidiaries or branches, whereby an exception is provided for “small” EU subsidiaries and branches. For subsidiaries, this exception generally applies if they do not exceed at least two of the three following criteria in two consecutive years: a balance sheet total of EUR 4 million, a net turnover of EUR 8 million and 50 employees. US MNEs with (material) active EU operations will thus likely become subject to Public CbCR, but this may be different for US MNEs with EU holding companies only.
Pursuant to the Directive, 2025 is the first reporting year for MNEs that apply a financial year that equals the calendar year. Publications should be done within 12 months after the end of a reporting year, and the report should be published in the relevant EU business registers and on the relevant corporate websites of the MNEs. The Directive allows disclosure deferral for commercially sensitive information. EU Member States may implement the Directive more strictly or sooner (e.g., Romania applies 2023 as first reporting year).
Now is the time for US MNEs with EU presence to verify in which EU jurisdictions they may face Public CbCR. Furthermore, it is important to assess Public CbCR in the context of broader tax transparency policies and ensure that the information disclosed under Public CbCR aligns with other information, such as Non-Public CbCR and Pillar 2 reporting.
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