An Overview of the EU Public Country-by-Country Reporting Rules
A comprehensive breakdown, with guidance for preparation

The European Union (EU) has long been at the forefront of furthering corporate transparency and accountability. A significant step in this direction was the introduction of nonpublic country-by-country reporting (CbCR) rules in the EU for fiscal years beginning on or after January 1, 2016.¹ The nonpublic CbCR rules require multinational groups with an annual consolidated turnover of at least €750 million to prepare and submit a report including certain data points to help tax authorities assess transfer pricing risks. These reports are automatically exchanged among the tax authorities of EU member states.

After years of discussions, the EU adopted a proposal in 2021 for a directive (henceforth referred to as “the directive”) to introduce public CbCR rules in addition to the already existing nonpublic CbCR rules.² These public CbCR rules require large multinational enterprises (MNEs) operating within the EU to publicly disclose specific tax-related information on a country-by-country basis.³

This article provides an overview of the background, scope, and impact of the public CbCR rules concerning US MNE groups, followed by a summary and key takeaways.

Background of the Public CbCR Rules

The roots of the EU nonpublic CbCR rules can be traced to the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) Action Plans, specifically Action 13. Action 13 was a response to growing concerns about tax avoidance strategies employed by MNEs. These strategies often involved shifting profits to low- or no-tax jurisdictions, thereby eroding the tax base of higher-tax jurisdictions. Action 13 introduced a three-tiered standardized approach to transfer pricing documentation, which includes a master file, a local file, and a CbC report. Action 13’s primary objective was to provide tax authorities with a clearer picture of the global allocation of income and taxes paid by MNEs, thereby enabling authorities to better assess transfer pricing risks.

The EU public CbCR rules go beyond Action 13, given that the European Commission (EC) considered existing efforts to promote transparency regarding the tax position of multinationals to be insufficient.⁴ The preamble to the directive states that it serves the following purpose:

It is necessary to enhance public scrutiny of corporate income taxes borne by multinational undertakings carrying out activities in the Union, in order to further foster corporate transparency and responsibility, thereby contributing to the welfare of our societies.

According to the EC, such oversight is necessary for a better-informed public debate on the extent to which certain MNEs operating in the EU comply with tax legislation. The EC further states that “the general economic interest” benefits from common rules on corporate tax transparency. Having these rules would safeguard investors, creditors, and other third parties, contributing to EU citizens’ confidence in the fairness of national tax systems. Unlike the older nonpublic CbCR rules, the public CbCR rules are not intended to help tax authorities to combat tax avoidance. With the public CbCR rules, the EC aims to enable the public to develop well-informed opinions on the tax positions of MNEs that operate in the EU.

Who’s in Scope?

Two categories of companies can fall within the scope of the public CbCR rules:⁵

1. EU MNEs with consolidated financial statements whose ultimate parent entity resides in the EU (henceforth “EU companies”); and
2. non-EU MNEs with consolidated financial statements whose ultimate parent entity is located outside the EU (henceforth “non-EU companies”).

Both EU and non-EU companies are subject to the directive’s reporting requirements if the total consolidated revenue for each of the last two consecutive financial years exceeds €750 million. Reporting obligations cease if for each of the last two consecutive fiscal years, the consolidated revenues were less than €750 million.

This article zooms in on the scope and impact of the public CbCR rules for non-EU companies, such as US MNE groups with a presence in the EU.

Non-EU Companies

For US groups whose currency is US dollars instead of euros, a question arises about which currency conversion rate should be used to determine whether the €750 million revenue threshold has been met. The OECD’s CbCR rules explicitly state that the January 2015 conversion rate should be used to test whether consolidated group revenue in a currency other than the euro exceeds €750 million.⁶ However, the directive does not prescribe how in-scope MNEs that have a functional currency other than the euro need to convert their consolidated group turnover into euros. Other than in the OECD CbCR rules, no explicit reference is made to a specific month to convert the consolidated group turnover into euros. We would expect that in-scope MNEs should use the average conversion rate of the financial year under review when converting their consolidated turnover into euros.

For non-EU companies, additional requirements (beyond those for EU companies) apply under the directive. In addition to the revenue threshold of €750 million in the two previous fiscal years, only so-called medium- and large-sized EU-based subsidiaries of non-EU companies are subject to the directive’s reporting rules,⁷ provided that these subsidiaries are included in the consolidated financial statements of the ultimate parent entity.

For the definition of medium- and large-sized EU-based subsidiaries, the directive adheres to local accounting standards of the EU member states. For this reason, these definitions may differ among EU member states. For example, under the Dutch implementation, a subsidiary is considered medium- or large-sized if it does not qualify as a micro or small subsidiary, which occurs if the subsidiary exceeds at least two of the following three criteria:

1. a balance sheet total of €4 million or more;
2. a net turnover of €8 million or more; and
3. an average of fifty or more employees during the financial year.

One key question is whether dividends, capital gains, and interest income should be considered when determining the €8 million net turnover threshold. This question is particularly relevant for US MNEs with (only) EU holding and/or financing companies. Since these holding and financing companies would generally not meet the third criterion, it is crucial to determine whether they meet the second one. If so, they would generally qualify as “medium- or large-sized” subsidiaries and hence would be subject to the public CbCR rules. If not, they would not be subject to them.⁸

To interpret the definition of “net turnover,” the directive follows the treatment under the applicable local accounting standard in each EU member state. Again, this definition may differ among EU member states. Dividend income and interest income are generally not included in the definition of net turnover. As an example, under the Dutch implementation, dividend income and interest income are not included in the definition of net turnover, unless this income is considered as part of investment income and investing is key to the taxpayer’s business, such as pension funds, insurance companies, and investment institutions.

Therefore, for US MNEs, EU holding or financing companies are not expected to fall within the directive’s scope. However, EU subsidiaries with substantial operational activities that exceed two of the three abovementioned thresholds will fall within the scope of the directive.

No Listing Fiction Included

The nonpublic CbCR rules have an additional provision for ultimate parent entities that are exempt from the obligation to prepare consolidated financial statements. In that case, it must be assessed whether the ultimate parent entity would be obligated to prepare consolidated financial statements if the equity interests in the company were listed on a public stock exchange, the so-called “listing fiction.” If that is the case, the ultimate parent entity still falls within the scope of the nonpublic CbCR obligations.

This listing fiction in the nonpublic CbCR rules was introduced in particular for investment vehicles such as privately held US and Canadian MNEs or investment funds, which do not have a consolidation requirement under local law and therefore, without the listing fiction, would not be subject to the nonpublic CbCR obligations.

The public CbCR rules do not include such listing fiction. As a result, the aforementioned investment vehicles (and possibly other groups) could fall outside the scope of the directive if they are not required to prepare consolidated financial statements under local law.

What Must Be Reported and When?

Timing

The adoption of an EU directive involves a legislative process whereby the European Parliament and the Council of the EU must agree on the text of the directive. Once it is adopted, EU member states must transpose—incorporate—the directive into their domestic laws by a specified deadline. For the public CbCR directive, this deadline was June 22, 2023. In principle, all twenty-seven EU member states should implement any directive in a uniform manner. However, directives generally provide flexibility on some items when member states implement EU rules into domestic laws. As a result, some EU member states may implement the public CbCR directive earlier than for financial years starting on or after June 22, 2024, or more strictly.⁹

According to the directive, the obligation to publish a public CbC report will apply to financial years starting on or after June 22, 2024. Public CbC reports should in principle be filed within twelve months after the end of the relevant reporting year. This means that the first public CbC reports will be published around July 1, 2026, or earlier for the member states in which the rules already entered into effect before June 22, 2024. For MNE groups that apply the calendar year for accounting purposes, 2025 will in principle be the first reporting year, for which the deadline to publish a public CbC report would accordingly be December 31, 2026.

Publication of the Public CbC Report

The directive requires EU member states to ensure that MNEs make public CbC reports available to the public in at least one official language of the EU, free of charge and no later than twelve months after the reporting year ends. For non-EU companies, publication of the report should be done on the website of the EU subsidiary or an affiliated entity.¹⁰

Member states may exempt companies from the publication requirements if the report is simultaneously made accessible free of charge on the website of the relevant chamber of commerce of the relevant EU member state.¹¹ The report should be available for at least five years.

Content of the Public CbC Report

According to the directive, the public CbC report consists of information largely similar to that contained in the nonpublic CbC report. There are two tables to be filled out:

• Table 1 – country-based numerical information; and
• Table 2 – information about the companies and their activities.

The information to be published should be compiled by jurisdiction and by entity.

The following information should be reported per jurisdiction:

• number of employees on a full-time equivalent basis;
• income;
• profit or loss before income tax;
• profit tax attributable to the current year;
• income tax paid on a cash basis; and
• accumulated profit at the end of the relevant fiscal year.

The information to be disclosed must be reported on an aggregated basis:

• per EU member state;
• per each jurisdiction that has been included on the EU blacklist of noncooperative jurisdictions;¹² and
• combined for all other jurisdictions.

As a simplified example, for a US MNE group with entities in the United States, Canada, Panama, the Netherlands, and Germany, the information in the public CbC report should be published as follows. The information about the Panamanian entity should be reported separately (as a jurisdiction included on the EU blacklist), the information about the German and Netherlands entities should be reported separately (being EU member states), and the information about the US and Canadian entities should be reported on an aggregated basis (all other jurisdictions combined).

The following information should be reported per entity:

• the name of the ultimate parent entity, the relevant financial year, the currency used in preparing the public CbC report and, if applicable, the list of all related subsidiaries included in the consolidated financial statements of the ultimate parent entity in the relevant financial year, and its location in the EU or in a jurisdiction that has been included on the EU list of noncooperative jurisdictions; and
• a brief description of the nature of the entity’s activities.

Exclusion for Information Harmful to the Commercial Position of a US MNE

The directive provides the possibility for EU member states to permit that one or more specific pieces of information need not be included in the public CbC report if that disclosure would be particularly harmful to the commercial position of the subsidiaries of the MNE group. Such omissions have to be clearly indicated in the public CbC report, with an explanation justifying the omission. Member states have to ensure that any information that has been left out must still be disclosed no later than five years after the date of the original publication of the public CbC report. In addition, the public CbCR rules require that information relating to subsidiaries that reside in a jurisdiction on the EU’s list of noncooperative jurisdictions may never be omitted. The directive deliberately does not answer the question of when sharing information would be particularly detrimental to the company’s commercial position. EU member states should provide further guidance on this.

Summary and Takeaway for US MNEs

The public CbCR rules may have a significant impact for US MNEs, since the rules require in-scope MNEs to publicly disclose detailed financial information, enhancing transparency and allowing for greater scrutiny of their tax practices and strategies.

US MNE groups that exceed the €750 million revenue threshold should verify whether they have EU subsidiaries that qualify as medium- or large-sized subsidiaries. Thresholds may vary by EU member state. For example, as noted earlier, under the Dutch implementation a “large” subsidiary exceeds at least two of these three criteria—a balance sheet total of €4 million, net turnover of €8 million, and an average of fifty or more employees—
but these criteria are by no means universal among EU member states.

When determining whether these criteria are met, companies should verify what items of income each relevant EU member state includes in its definition of “net turnover.” This variation depends on local law. However, dividend income and interest income are generally not expected to be included in the definition of net turnover. Therefore, EU holding or financing companies are less likely to fall within the scope of the public CbCR rules. On the other hand, US MNE groups with substantial operational presence within the EU (exceeding the abovementioned thresholds) will certainly have to follow the public CbCR rules and should anticipate that they must publish on their websites a large set of financial data about their EU subsidiaries at the end of 2026, all open to the public.

Boudewijn Pleijsier is a tax associate at Loyens & Loeff, and Michiel Schul is a tax partner in the international tax services group and co-heads the New York office of Loyens & Loeff.

Endnotes

1. Council Directive (EU) 2016/881 of May 25, 2016, amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.
2. Directive (EU) 2021/2101 of the European Parliament and of the Council of November 24, 2021, amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches (text with EEA relevance).
3. All information about non-EU member states (that are not on the EU blacklist) should be reported in aggregate. This topic will be further discussed in the section titled “Content of the Public CbC Report.”
4. The EU already introduced public CbCR rules for the banking sector (with Directive 2013/36/EU, effective January 1, 2014) as well as for the extractive and logging industries (Directive 2013/34/EU, effective from July 20, 2013).
5. If they meet the revenue threshold, stand-alone EU companies or non-EU companies can also fall within the scope of the directive.
6. Organisation for Economic Co-operation and Development (2022), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, Chapter V: Documentation, paragraph 5.52.
7. Permanent establishments of non-EU companies may also fall within the scope of the directive if they exceed the threshold criteria for medium- or large-sized subsidiaries.
8. The exception is if the non-EU company has operational presence in other EU jurisdictions.
9. Romania was the first EU member state to transpose the directive into domestic law. The public CbCR rules entered into effect in Romania on September 1, 2022. The rules in Romania apply to financial years starting on or after January 1, 2023. Furthermore, Sweden implemented the rules on February 13, 2023. The legislation became effective in Sweden on June 22, 2023, and applies to fiscal years beginning after May 31, 2024.
10. For EU permanent establishments of non-EU companies, the report should be published on the website of the permanent establishment, or that of the head-office company that set up the permanent establishment, or that of an affiliated company if no other subsidiary in the EU is already subject to the publication requirement.
11. The Netherlands did not include this exemption in its implementation of the directive.
12. Council of the European Union, EU List of Non-cooperative Jurisdictions for Tax Purposes, accessed November 3, 2024, www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions.