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Why public disclosure will require renewed focus on CbC reporting

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Public disclosure of country-by-country tax data raises new concerns for affected multinationals.

In brief

  • Multinationals are preparing for a new era of tax transparency with public CbCR becoming mandatory in the EU and proposed in Australia. 
  • Public CbCR raises the risk of serious data misinterpretation by the public but can be seen as a way to highlight corporate citizenship. 

With public country-by-country reporting (CbCR) becoming a reality in many jurisdictions, it’s more important than ever for businesses to be ready to provide context for the information in their reports in light of a wide audience.

Affected businesses will be required to publicly disclose revenue, income taxes paid and other information on a country level. A standardized report with this information may not offer casual readers a clear picture of businesses’ activities.

With public disclosure making this data available to stakeholders, competitors and the broader community, it is important to consider how the public CbCR aligns with a business’s overall corporate strategy, Environmental, Social and Governance (ESG) policy and stakeholder expectations.

A report originally intended just for governments

Since 2016, the world’s largest multinationals have been required to provide country-by-country tax information to tax administrations in an increasing number of jurisdictions around the world. CbCR was developed by the Organization for Economic Co-operation and Development (OECD) as part of Action 13 of the original Base Erosion and Profit Shifting (BEPS) project. It is intended to provide tax authorities with more information about the geographic footprints of global businesses. Importantly, the data, much of which may be commercially sensitive, is subject to tax authorities’ obligations to protect confidentiality of taxpayer information.

However, the EU is set to significantly increase tax transparency by obliging multinationals to publish their CbCR data under the EU Public CbCR Directive. The Directive applies to both EU-based multinational enterprises (MNEs) and non-EU based MNEs doing business in the EU that have global consolidated revenues above €750m. MNEs must disclose publicly the income taxes paid and other tax-related information such as a breakdown of profits, revenues and employees per country for all 27 EU Member States and all jurisdictions listed as non-cooperative jurisdictions for tax purposes. The Directive applies to financial years starting on or after 22 June 2024 and reports are generally due 12 months after the balance sheet date for the relevant financial year.

As each EU member state must transpose the Directive into local law, there are some deviations in the rules as ultimately adopted. Romania and Croatia chose to apply the rules earlier, applying to financial years starting on or after 1 January 2023 and 1 January 2024, respectively. Member States may also require an earlier publication of the report, as Hungary and Spain have done.

EU headquartered MNEs are required to follow the rules of their home due to the legislative differences in member states’ rules. However, for non-EU headquartered groups, compliance with the EU CbCR Directive is an extra challenge due to the legislative differences between jurisdictions. Non-EU HQ groups must comply with the rules of each jurisdiction in which they have a subsidiary, rather than just their home jurisdiction. 

Australia has proposed legislation that would impose a similar public disclosure requirement, which would apply to reporting periods commencing on or after 1 July 2024. If enacted, the proposed requirement would apply to MNE groups with global consolidated revenue of at least A$1b, that have an Australian resident or permanent establishment member and at least AU$10m of Australian sourced turnover included in global group turnover. Additional jurisdictions could also propose mandatory public CbCR.

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The importance of CbCR context

New public disclosure requirements raise new considerations for affected businesses. According to an EY survey of 1,000 transfer pricing professionals, 96% say it will require “somewhat” or “substantial” additional work to prepare for public disclosure of the reports. 


Many multinationals had already begun voluntarily publishing tax data – including information about their tax strategy. This can contribute to positive stakeholder perceptions around brand, corporate citizenship and transparency, which may ultimately translate into shareholder value.


However, one of the biggest risks associated with making CbC reports public is possible reputational damage due to misinterpretation or misrepresentation of the data they release. While tax authorities – the original recipients of CbCR – have the technical knowledge to analyze the data, non-tax professionals are less likely to fully understand the nuance and context inherent in such information.  


Marlies De Ruiter, EY Global International Tax Services Policy Leader, once led the Tax Treaty, Transfer Pricing and Financial Transactions Division at the OECD and was responsible for developing the organization’s Action 13 CbCR regime more than a decade ago.


“At that stage it was a conscious decision to share tax information between governments only,” she says. “That’s because the tax reporting numbers alone don’t always tell the full story. For example, the numbers may show a low effective tax rate, but they don’t explain why. That may be because of loss compensation, accelerated depreciation or tax incentives used as governments intended to further public policy goals. The figures alone don’t explain this.”


Barbara Angus, EY Global Tax Policy Leader, advises multinationals to consider how to provide the context necessary for a wider audience to understand CbCR data that is made public. She says, “For many businesses, it will be absolutely critical to provide an explanatory narrative that tells their story. On its own, complex CbCR information can easily be misinterpreted.”


Ronald van den Brekel, EY Global Transfer Pricing Market and Innovation Leader, agrees CbCR misinterpretation is a real risk. “Multinationals face the risk that the public will simply compare their employee headcount, profit margins and tax contributions, misinterpret this data and suspect companies of underpaying tax. Tax calculations are much more complex than this, however,” van den Brekel says.


For example, high-margin sectors often have an IP-rich value chain, and they are likely to pay more of their tax where their intellectual property is located, equity investment is being made and significant commercial risk is being taken.


“Companies are often in the spotlight because they generate higher margins, and they may be subject to more questions about where this residual profit ends up,” he says.


Optimizing the public CbCR process

The most effective way to shape this supporting narrative will vary from one organization to another and must be considered together with other public statements and reports, including those made from other parts of the business.


“It is important to have a process in place to collect and organize all relevant information, in addition to the audited financial statements. What is released could create tax controversy and businesses should be ready to explain how the information fits together,” says Luis Coronado, EY Global Tax Controversy Leader. Such processes are also key to avoiding any inadvertent data omissions or late filing, both of which could result in penalties and additional tax controversy.


Additionally, companies need to consider how the publicly disclosed information fits together with the information reported to tax authorities on tax returns and other filings. That’s because tax authorities will be looking at the newly public information in concert with what they receive directly.


“To reduce the potential for controversy, it is important to anticipate the questions that could arise and take action to address them in advance,” says Coronado.


The ownership and management of public CbCR within a business requires clear delineation and coordination between different functions. Effective coordination efforts should involve tax, as well as IT, legal, financial reporting, and public relations teams. Angus stresses that this process should be collaborative.


“The tax function should be heavily involved, but public CbCR needs to be an organization-wide collaborative effort, not least to ensure the tax information connects with the wider story the company is telling and contributes to a consistent narrative,” Angus says. 


Best practices to consider

Putting these technical reports in context for public consumption will have its challenges. To help optimize their processes in this new era of public CbCR, affected multinationals should consider: 

  • Creating a CbCR process tailored for each jurisdiction where a public report will be filed, as differences exist in the requirements across jurisdictions. The mandatory public reporting processes should be primarily templated, covering business-as-usual disclosures. Any additional information can be compiled on a case-by-case, year-by-year basis to give context to tax exceptions and anomalies as they arise.
  • Socializing a plan with key internal stakeholders: tax, legal and PR leaders as well as the sustainability team and other members of the C-suite can all offer insight. Establish a response team to answer post-publication questions.
  • Determining how any tax-related public disclosures align with the organization’s broader transparency objectives.
  • Monitoring how the public CbCR landscape continues to evolve globally. Be prepared to update internal processes to accommodate future changes within the EU and elsewhere.

Optimizing internal CbCR processes to ensure compliance with new public reporting requirements is critical. However, for many multinationals, the true mark of success will be the strength of the narrative supporting disclosures and the ease of interpretation by the broad range of different stakeholders.


Multinationals that optimize their internal CbCR processes to include company-wide collaboration will be able to create a narrative that supports and explains complex CbCR data to the wide range of stakeholders.

Companies may consider going beyond the new reporting requirements and contribute to wider corporate goals around transparency and external stakeholder engagement. 

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