Country by country reporting is changing

Country by country reporting is not new. In the UK, the Regulations which mandate a report to be filed by groups which meet the >€750m consolidated global revenue test came into force in March 2016. However, for many groups this has not been a high priority with the report not having been the subject of much scrutiny by the receiving fiscal authority. As there has been no fiscal impact of the reports to date, there as been a general feeling that the Country by Country Report (CbC Report) has not been the focus of much attention either from preparers or from the recipient authorities.

However, all that is about to change as the CbC Report is set to have a starring role in Pillar 2 – GloBE and will be made public, under the spotlights. We outline key recent developments below.

Groups with entities in the EU

The EU Directive on the subject requires countries to pass local legislation before 22 June 2023 with the first public report being for the first financial year beginning on or after 22 June 2024. Domestic legislation for most countries (Romania has early adopted) is still pending but the expectation is that EU member states will enact legislation with the mandated start date.

EU headquartered groups and non-EU headquartered groups with subsidiaries that meet two of the three following tests, or branches that meet the revenue test below, will need to publish either the Group CbC Report or a locally produced report if the Group Report is not sufficient to meet the requirements.

Threshold tests for medium or large are defined as:

1. >50 employees
2. Balance sheet >€4m
3. Net turnover >€8m

Groups with entities in Romania

In September 2022, Romania became the first EU member state to publish legislation transposing the EU Public CbCR Directive.

Tax transparency has become the foundation of public trust in the fairness of tax systems. Aiming at enhancing public transparency and countering harmful tax practices, Public CbCR will run in parallel with the non-public CbCR obligations, which means companies will continue to file group tax information to the Romanian tax authorities.

The particularities of Romania’s early implementation of Public CbCR generated a good amount of attention and interest at the level of multinational groups with operations in Romania.

First, Romanian lawmakers opted for an earlier entry into force of the rules, namely starting with 1 January 2023, whilst other EU Member States have implemented or envisage to implement Public CbCR obligations beginning or after 21 June 2024.

Second, in contrast to the provisions of (EU) Directive 2021/2101, the initial Romanian Public CbCR legislation also established publication obligations for Romanian subsidiaries part of multinational groups controlled by an ultimate parent based in the EU.

Nearly one year after the initial implementation, the Romanian legislation has been aligned with the provisions of Directive (EU) 2021/2101, in the sense that Romanian medium-sized and large subsidiaries which are controlled by multinational groups with an ultimate parent entity based in the EU, are no longer subject to Public CbCR obligations in Romania. In other words, the publication obligation only lies with the EU parent entity.

Therefore, only Romanian medium-sized and large subsidiaries controlled by an ultimate parent entity that is not governed by the legislation of an EU Member State, with group consolidated revenues exceeding in the last two consecutive financial years RON 3,700,000,000 (approximately EUR 750m), are subject to Public CbCR obligations in Romania.

Multinational groups with a non-EU parent, which operate Romanian medium-sized and large subsidiaries, will have to meet the Romanian publication deadline by the end of 31 December 2024, for a calendar reporting FY.

Interaction with Pillar 2 – GloBE

Large multi-national groups will start filing their Pillar 2 – GloBE returns from 30 June 2026 where they have presence in early adopting jurisdictions such as UK, EU, South Korea and other jurisdictions still deciding whether 1 January 2024 or 1 January 2025 are realistic as starting dates.

The temporary safe harbours are based on CbC Report data, with additional deferred tax data split by jurisdiction required. Having a “qualifying” report for 2024 will be critical for groups looking to rely on these safe harbour measures.

As mentioned above, the Country by Country Report is indeed now the star of Pillar 2, and will be very much under the lights in terms of the scrutiny it will be under.