Switzerland: Implications of EU “public” country-by-country reporting for Swiss groups
The “public” country-by-country (CbC) reporting initiative could trigger significant developments
The “public” CbC reporting initiative could trigger significant developments
A provisional agreement of the Council of the EU and the European Parliament to move forward with a “public” country-by-country (CbC) reporting initiative could trigger significant developments in tax transparency reporting.
The actual compromise text is not yet publicly available. Read TaxNewsFlash
Who would be affected?
The rules under the provisional agreement rules would require multinational entities (MNEs)—whether headquartered in the EU or outside, with a total consolidated revenue of more than €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 that their disclosure covers all the entities in their group.
To what extent would Swiss groups be affected?
The provisionally agreed text applies to EU-headquartered companies with a consolidated net turnover exceeding €750 million for each of the last two consecutive financial years.
For non-EU headquartered companies, the measure is relevant if the companies exceed the €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 three criteria:
- Net turnover of €8 million (up to €12 million depending on the EU Member State)
- Balance sheet of €4 million (up to €6 million depending on the EU Member State)
- 50 employees on average
For branches, turnover is the sole size criterion.
For non-EU headquartered companies, the proposal would be likely limited to CbC data being published for EU countries, although implementation in the EU Member States remains to be seen and even if no data has to be published for non-EU countries, a question remains if public and investor pressure would not effectively force a full CbC reporting at the back of this directive.
Non-EU parented banks operating in the EU that are not within the scope of the CRD IV requirements would now also be required to publish a CbC report 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 affected companies would be required to publish CbC data on their websites and trade registers in order 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, a 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 EU 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 could, under certain conditions, defer disclosure of certain elements for a maximum of five years (a reduction from the initially proposed six years).
Therefore, Swiss groups would probably have to disclose for year 2025 by December 2026—although considering the fast pace of the overall debate and potential peer and investor pressure earlier reporting may effectively be wanted or necessary.
While affected companies may already have the data available from their existing CbC reporting compliance and are already sharing such information with tax authorities world-wide, disclosing such information to the public increases the focus on the content of such reports and the potential reputational risks from the interpretation of such data by various stakeholders. If CbC data were to be published, it would be critical that companies place this information in a commercial context to allow stakeholders to see the bigger picture and to pro-actively manage the potential public debate.
Some believe companies will increasingly publish more extensive information on taxes on a voluntary basis (e.g., in their sustainability reports or in separate tax transparency reports) in an effort to contribute to the discussion, and this could possibly go beyond the focus of CbC reporting (which would concern corporate income tax only). The EU public CbC reporting initiative is not the only factor to be considered, given that certain investors are also increasingly considering other factors, including tax transparency, in making sustainable investments.
Tax professionals believe that is it now time for companies to (again) consider where they stand in the tax transparency debate, particularly:
- Identifying who in the organization is responsible for preparing and driving environmental, social and governance (ESG) topics and sustainability reports
- Assessing if the tax governance framework meets the expectations of the various stakeholders
- Designing a tax transparency roadmap describing which information and data will be disclosed over the next couple of years
- Evaluating if the required data, that is, the data the company wants or has to disclose, can be extracted from the current systems
- Performing a risk assessment based on the current CbC profile considering what steps may need to be taken and what context would need to be given to such data to manage potential reputational risks ahead of time
- Considering if an independent assurance could be obtained for some or all of the data reported
Read a June 2021 report prepared by the KPMG member firm in Switzerland
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