EU’s New Template for Multinational Tax Reporting

Background and Purpose

Large multinational corporations operating within the European Union are required to disclose detailed information about the corporate taxes they pay in each country they operate. This disclosure is part of the annual ‘country-by-country’ reports, which provide contextual information about the companies’ operations and tax contributions. The primary goal of this initiative is to enhance transparency and ensure that these reports are consistent and easily accessible.

Who is in Scope and What Should the Reporting Include?

Multinational Groups, including Danish Funds and Cooperatives, with consolidated net turnover of EUR 750 million (DKK 5.6 billion) in the last two years are in scope. These Groups must prepare a data set which includes the following:

• Total Revenue
• Profit/loss before tax
• Tax paid (on cash basis)
• Tax accrued (current year)
• Number of employees
• Total accumulated earnings

The Group also needs to disclose a list of names of the legal entities and include a brief description of the nature of their activities. The CbC dataset must be prepared at the country level for all entities in the group with EU nexus, on a geographical level for each EU Member State, Black list, and Grey list countries. Entities outside the EU can be reported at an aggregated level.

Disclosure of the CbC Data

The first reporting of CbC data applies to financial reports starting after June 22, 2024, meaning Groups reporting for calendar year 2025 will be the first in scope. The CbC data must be submitted to the Danish Business Authorities (Erhvervsstyrelsen) to be disclosed in the Danish Business Registry. Additionally, a reference to the report available at the Danish Company Registry must also be implemented on the group’s website.

Groups can voluntarily choose to disclose the CbC data on their website, although this is not a requirement. Danish entities exempted from disclosing the CbC data set, because a foreign group entity has prepared the Group report, must submit the Group report to the Danish Business Authorities as well. The CbC data must be submitted 12 months following the end of the financial year. Disclosure can be omitted if it is prejudicial to the commercial position of the Group, for a maximum of five years.

Key Features of the Initiative

• Standardized Template: The initiative introduces a standardized template for country-by-country reports. This template ensures that all relevant information is captured uniformly across different corporations, making it easier to compare and analyze data.
• Electronic Formats: To streamline the reporting process, the initiative also includes electronic formats for submitting these reports. This move towards digitalization is expected to reduce administrative burdens and improve the efficiency of data collection and analysis.
• Public Consultation: The European Commission held a public consultation period, inviting feedback from various stakeholders, including business associations, academic institutions, and the general public. This consultation period ran from August 1, 2024, to September 6, 2024, and aimed to gather diverse perspectives on the proposed templates and formats.

Feedback and Next Steps

The feedback received during the consultation period has been overwhelmingly positive, with many stakeholders praising the initiative for its potential to enhance transparency and standardization in financial reporting. Key suggestions for improvement included:

• Ensuring that the reporting template and format do not deviate from existing provisions to avoid additional burdens on businesses.
• Including specific country ISO codes for aggregated regions.
• Standardizing table titles and using unique global identifiers for multinationals.

The European Commission plans to adopt the final version of the implementing regulation in the third quarter of 2024. This regulation will then become mandatory for all large multinational corporations operating within the EU, marking a significant step forward in the fight against tax evasion and aggressive tax planning.

Strategic Importance of CbCR considering Pillar II Regulations

With the introduction of Pillar II, CbC data comes into play once again. With the transitional safe harbour assessment, companies’ compliance obligations and potential top-up tax payments may be reduced if one of the three safe harbour tests are met for a jurisdiction. However, the potential significant benefits of the safe harbours are based on a prerequisite that the CbC data set be “qualified.” Essentially, this means that the CbC data set must be prepared based on Qualified Financial Statements, generally those prepared in accordance with recognized accounting standards, such as the International Financial Reporting Standards (IFRS).

With this perspective on the CbC data set, there is an even greater reason – if not already considered – to ensure that the data set is comprehensive or “qualifies.” This ensures internal coherence and consistency in the data, which is essential for the integrity of the reporting and the trust it builds among stakeholders.

Conclusion

The introduction of a standardized template and electronic formats for public country-by-country reports represents a major advancement in the EU’s efforts to promote financial transparency and accountability. As the mandatory public reporting of CbC moves closer and with the Pillar II transitional safe harbour assessments based on the CbC data set, companies’ focus on the CbC data should be even stronger. The work with the CbC data set shifts from being a compliance exercise to a strategic reporting tool and the basis for tax compliance and potential tax payments under Pillar II.