EU adopts public country-by-country reporting to deter corporate tax avoidance

By Doug Connolly, MNE Tax

The EU’s new requirement for multinationals to publicly disclose the amount of tax they pay in each EU country will become law following the approval by the European Parliament on November 11.

Multinationals will have to begin complying with the rules starting sometime in 2024. EU member states will have 18 months to transpose the directive into national law after it enters into effect, which will occur 20 days after it is published.

“Today’s adoption is a long-awaited step in increasing corporate transparency, setting a precedent for the world,” said Spanish parliamentary member Ibán García del Blanco. “The EU must put an end to the cloak of secrecy around where and how large multinationals do business and how much taxes they pay in each country.”

The European Council had advanced the proposed directive in September following a provisional agreement on the directive reached with the Parliament in June. The efforts to adopt a public country-by-country measure had been in the works since 2015.

The new requirement will apply to multinationals and their subsidiaries that have annual revenues of more than EUR 750 million (approximately USD 860 million) and are active in more than one EU country. In-scope companies will have to provide information on the amount of tax they pay in each EU country, as well as in countries included in the EU’s black and gray lists.

In addition to the taxes paid, companies will need to disclose information on the nature of their activities, their number of employees per country, and their profits/losses before taxes. The information is to be made publicly available online in standardized formats.

Companies will be permitted to aggregate information for countries that are neither in the EU nor on the EU’s black and gray lists.

Safeguard measures will apply the reporting requirement to multinational group subsidiaries and branches below the reporting threshold if it is determined that the entities are being used to circumvent the reporting requirement.