In 2016, the European Commission proposed a Directive requiring MNEs to publish information on where they make their profits and where they pay their tax in the European Union on a country-by-country basis. In December 2021, the Public CbCR Directive was published in the Official Journal of the European Union. By 22 June 2023, EU Member States will have to transpose the Directive into their national legislation, and it will the rules will be applicable 12 months after the transposition deadline.
Who is in scope?
The Directive applies to both EU-headquartered MNEs and non-EU-headquartered MNEs doing business in the European Union through a subsidiary or branch with more than EUR 750 million in total consolidated revenue in each of the previous two consecutive financial years. The report focuses on the second of those two consecutive financial years. In contrast, an MNE group with revenues below the EUR 750 million threshold in the previous two consecutive financial years would be exempt from the reporting requirements.
When it comes to non-EU-headquartered MNEs, the regulations apply to “medium-sized” or “large” subsidiaries regulated by the national laws of a Member State and, a qualifying branch in any of the European Union’s Member States. A “medium-sized” or “large” subsidiary must fulfill at least two of the three requirements for that category on two consecutive balance sheet dates, as shown in the table below.
|Requirements||Small undertaking||Medium-sized Undertaking||Large Undertaking|
|Balance sheet total||≤ EUR 4,000,000
(up to EUR 6,000,000)
|≤ EUR 20,000,000||> EUR 20,000,000|
|Net turnover||< EUR 8,000,000
(up to EUR 12,000,000)
|< EUR 40,000,000||> EUR 40,000,000|
|Average number of employees during the financial year||< 50||< 250||> 250
What is included in the report?
The Public CbCR Directive requires MNEs to disclose the following tax information:
- Brief description of the nature of their activities;
- Number of employees on a full-time basis;
- Net turnover;
- Profit or loss before income tax;
- Income tax accrued;
- Income tax paid;
- Accumulated earnings.
This information should be delivered using a standard template as well as electronic, machine-readable, reporting formats. The Commission will prepare and release the common template and electronic reporting formats.
To prevent an unnecessary administrative burden, the Public CbCR Directive allows MNEs to publish a report based on the Council Directive 2011/16/EU reporting instructions (so-called DAC4).
Concerning disclosure of information, the Public CbCR Directive requires MNEs to share details on their economic activity in every EU Member State, as well as in every jurisdiction that is listed in either Annex I (the “blacklist”) or Annex II (the “gray list”) of the EU list of non-cooperative jurisdictions. To report the information on third jurisdictions, a relevant jurisdiction must be identified in the blacklist on 1 March of the financial year for which the report is to be prepared. Similarly, disaggregate data reporting applies if a relevant jurisdiction is listed in the gray list on 1 March of the financial year for which the report is to be prepared and, on 1 March of the prior financial year, The information should be shared in aggregate form for all other jurisdictions.
When to publish
The reports must be issued within 12 months of the balance sheet’s end date for the financial year in question. For taxpayers with a financial year that corresponds to the calendar year, the first year of reporting would be 2025, and the report should be made public no later than 31 December 2026.
How to publish
For EU-headquartered MNEs,
The report must be published on the ultimate parent undertaking’s (UPU) website and filed to the commercial registry of the Member State in which the UPU is governed by national legislation.
For non-EU headquartered MNEs,
Unless the non-EU UPU (voluntarily) publishes the CbCR on its website and designates one EU-based subsidiary or branch to also publish the report on its website and submit the report to the commercial register of the Member State where it is established, each “medium-sized” or “large” subsidiary or qualifying branch in the European Union must publish the report on its website and submit it to the commercial registry of the Member State where they are established.
The report’s information should be made available in at least one of the official languages of the EU. Any third party within the EU should have unfettered access to the report.
Penalties, changes, and audit
The Public CbCR Directive mandates that Member States apply fines for any violations (failure to submit or omission) provided such penalties are “effective, proportionate, and dissuasive”.
The Public CbCR Directive’s text, however, does not state whether the report may be revised or altered after publication. The audit report should also specify whether a subsidiary or branch is subject to the Public CbCR Directive for the financial year preceding the financial year for which the financial statements under audit were prepared, as well as whether the public CbCR was published in accordance with the Directive, for those subsidiaries and branches subject to the law of a Member State and required to have their financial statements audited.
BEPS Action 13 tax authority CbCR compared with EU public CbCR
According to BEPS Action 13, MNEs must compile and submit a CbCR if their annual revenues reach or, exceed the EUR 750 million threshold. The report must include all the revenue that is (or would be) reflected in the consolidated financial statements.
A revenue threshold of EUR 750 million is also included in the Public CbCR Directive, although it is more specifically defined as top-line revenue and must be surpassed consecutively in two years. If the EUR is not the official currency in a jurisdiction, the appropriate exchange rate used to convert the threshold amount for domestic codification of BEPS Action 13 is the one in effect as of January 2015. According to the Public CbCR Directive, the exchange rate to be applied when domestically codifying the threshold in a different currency is the exchange rate in effect on the date the Directive enters into force, i.e., 21 December 2021.
BEPS Action 13’s reach is broader since it contains a presumed listing provision and it enables MNE groups the option to choose the reporting entity in specific circumstances. The Public CbCR Directive prohibits groups from choosing the reporting entity and mandates that reports be based on what is actually consolidated in the financial statements.