Below is a summary of who would be impacted by the initiative, what would have to be disclosed and what would be the intended timeline for implementation. It should be noted that this summary is based on the published proposal from January 2021 with changes noted in the press release of the EU decision only. The actual compromise text is not yet publicly available.
Who would be affected?
The provisionally agreed rules require multinational entities (MNEs) – whether headquartered in the EU or outside, with a total consolidated revenue of more than EUR 750 million (in each of the last two consecutive financial years) and that are active in more than one country – to publish income tax information in relation to each EU Member State as well as in relation to each third country listed on:
- the EU list of non-cooperative jurisdictions for tax purposes (Annex I of the EU Council conclusions on non-cooperative jurisdictions), or
- the so-called “Grey List” (Annex II or cooperative jurisdictions that are being monitored by the EU) for two consecutive years.
Banks established in the EU already within the scope of Capital Requirements Directive IV (CRD IV) can continue to follow CRD IV instead of these proposals provided their disclosure covers all the entities in their group.
To what extent are Swiss groups impacted?
The provisionally agreed text applies to EU-headquartered companies with a consolidated net turnover exceeding EUR 750 million for each of the last two consecutive financial years.
For non-EU-headquartered companies, the legislation is relevant if they exceed the EUR 750 million threshold and their EU presence includes either medium-sized or large subsidiaries or branches that meet the criteria in terms of net turnover.
A medium-sized or large subsidiary is in place if a company exceeds two of the following criteria:
- Net turnover of EUR 8 million (up to EUR 12 million depending on the Member State),
- Balance sheet of EUR 4 million (up to EUR 6 million depending on the Member State), and
- 50 employees on average.
For branches, turnover is the sole size criterion.
For non-EU headquartered companies the legislation is likely limited to CbC data being published for EU countries although the implementation in the Member States remains to be seen and even if no data has to be published for non-EU countries the question remains if public and investor pressure will not effectively force a full CbCR at the back of this directive.
Non-EU parented banks operating in the EU, which are not within the scope of the CRD IV requirements, will now also have to publish a CbCR if their revenues exceed the above-mentioned threshold.
Which components would need to be disclosed?
According to an announcement from the European Parliament (that is generally in line with the EU Council’s position), the types of data to be disclosed include:
- The nature of the company’s activities
- The number of full-time employees
- The amount of profit or loss before income tax
- The amount of accumulated and paid income tax and accumulated earnings
Where would the information need to be disclosed?
The impacted companies are obliged to publish CbC data on their website and trade register to make such data available to all stakeholders. A common, machine-readable EU template would have to be used for the reporting.
What would be the likely timing and what are the next steps?
The provisionally agreed text will be submitted to the relevant bodies of the EU Council and of the European Parliament for political endorsement. If the endorsement is obtained, the EU Council would adopt its position at first reading and the European Parliament would then approve the Council’s position.
Next, the Directive would be published in the Official Journal of the EU and would enter into force on the 20th day following the date of its publication. According to the Council’s press release, EU Member States would have 18 months to transpose the Directive into national law (rather than the two-year period as initially provided for in the Council’s position).
The transposition deadline and date of application therefore would depend on the date when the Directive becomes official, adopted and published. Assuming a transposition deadline of 1 January 2023, the rules could become applicable from 1 January 2024. EU Member States could nevertheless choose to apply the rules earlier than the set deadline.
Reporting would take place within 12 months from the date of the balance sheet of the financial year in question.
Under a “safeguard clause”, EU companies may, under certain conditions, defer disclosure of certain elements for a maximum of five years (a reduction from the initially proposed six years).