Public Country by Country Reporting Update (July 2023)
On 22 June 2023 the domestic Irish legislation (the “Regulations”) transposing the public country-by-country (PCbCR) obligations took effect. This legislation transposes the EU Directive 2021/2102/EU on the public disclosure of income tax information of certain undertakings and branches (the “Directive”) into Irish law. The new reporting obligations will apply to financial years beginning on or after 22 June 2024.
As discussed in our previous briefing, Member States were required to transpose the Directive before 22 June 2023. These obligations will be an extension of the existing country-by-country reporting obligations for certain multinationals in operation since 2016 when Ireland transposed the Directive on Administrative Cooperation 4 (“DAC 4”). DAC 4 contained the EU legislation for country-by-country reporting (CbCR). Under the CbCR reporting rules the tax information is exchanged between relevant tax authorities but remains otherwise confidential. The initiative to have the reporting made available to the public was initially proposed in 2016 but due to considerable opposition and legal controversy, adoption of the Directive did not occur until 2021.
The new PCbCR rules will require companies to make the information easily accessible to the public on its website. For privately held companies the increase in disclosure may be very significant, particularly where they are not currently required to make financial disclosures publicly. The first reports must be filed within 12 months of the balance sheet date for the financial year and as such, 2025 will be the first year for filing the reports, which will subsequently need to be published in 2026.
The Regulations will apply to multinational undertakings with consolidated turnover exceeding €750 million in each of the previous two consecutive financial years. The Regulations apply to both EU multinational undertakings operating in more than one country and to the medium and large subsidiaries of non-EU multinationals. The Regulations oblige the ultimate parent entity or standalone undertaking that is incorporated in Ireland or governed by Irish law to comply with the reporting obligations. The Regulations also apply to the Irish branches of non-EU multinationals that have a net turnover exceeding €12 million in the two previous consecutive financial years. The Irish based, EU subsidiary or branch will hold the reporting obligation and must obtain the necessary information from the ultimate parent or standalone company and in the event, it is not obtained a full report of all income tax information must be published with a statement that the necessary information was not supplied by the ultimate parent or standalone company.
In-scope entities will be obliged to publicly disclose corporate tax information. The information must be disclosed for each Member State and those jurisdictions on the EU list of non-cooperative jurisdictions (the “EU Black List”). For all other countries aggregated data must be submitted. Where the undertaking is currently reporting under the EU CbCR Directive (Council Directive 2011/16/EU) it can elect to submit the information prepared pursuant to those obligations.
The following information is required:
- the name of the undertaking publishing the report
- the name of the undertaking;
- the financial year to which the report relates;
- a list of all subsidiary undertakings consolidated in the ultimate parent undertaking’s financial statements for the relevant financial year, established in the EU or jurisdictions listed in the EU Black List and grey list;
- a brief description of the nature of the activities of the undertaking;
- the number of full-time equivalent employees of the undertaking;
- the revenues, including those from intercompany transactions (two options are provided for calculating this);
- the amount of profit or loss before income tax;
- the amount of income tax accrued during the financial year to which the report relates;
- the amount of income tax paid on a cash basis (including withholding taxes paid by other undertakings with respect to payments to undertakings and branches within a group) during the financial year to which the report relates by undertakings and branches in each tax jurisdiction in which income tax is accrued;
- information on the undistributed profits from past financial years and the financial year to which the report relates;
- If the taxpayer has elected to make the report in line with the previous obligations under CbCR they must disclose this.
The directors of an ultimate parent or standalone undertaking have collective responsibility for ensuring that the report on income tax information is drawn up, published, and made accessible to the public. The relevant persons in a subsidiary or the authorised persons of a branch have collective responsibility for ensuring, to the best of their knowledge and ability, that the report on income tax information is drawn up, published, and made accessible to the public. Persons in breach of these obligations will be guilty of an offence and potentially liable to a €5000 fine or imprisonment of up to 6 months.
Where the financial statements of an undertaking are required to be audited, the audit report must state whether the undertaking was required to draw up a report of tax information for the year preceding the financial year for which the audit report was prepared and if so, if the report was published.
The report must be published on the company website, or alternatively it can be made available on the Companies Registration Office with a reference to its location on the company’s own website. The report must be in machine-readable format and available free of charge.
Exemption for commercially sensitive information
Undertakings are exempt from the reporting requirement where the disclosure of certain information would be seriously prejudicial to the commercial position of the undertakings. The information omitted must be made public in a later report on income tax information five years from the date of its original omission. The information pertaining to non-cooperative tax jurisdictions may never be omitted.
In-scope entities will need to ensure that the first report is filed within 12 months of the balance sheet date. The new reporting obligations will apply to financial years beginning on or after 22 June 2024. Therefore, the reporting obligation will not arise until 2025 with publication in 2026.
As a general matter, the question arises as to whether this measure is appropriate for non-publicly traded companies. The rationale for requiring public disclosure of financial information has been that persons contracting with limited liability entities ought to have assurance on the financial strength of the other contracting party. That logic does not hold in this case as the information required to be disclosed goes far beyond what is required for that objective. This information is already disclosed to tax authorities pursuant to the CbCR reporting rules that ensure cross-border tax compliance through sharing of relevant information by tax authorities. Regardless of political considerations the actual legal basis for the proportionality of making this wide-ranging information public is questionable. The rationale put forward in the recitals to the Directive is general transparency, however, that seems to be less compelling where the company or group chooses not to list its securities on a public market. The inclusion in the legislation of a form of exemption for commercially sensitive information is a welcome measure.