Shedding Light on Taxation: New Transparency Rules in the EU
Public Country-by-Country Reporting (PCbCR) represents a significant step forward in corporate tax transparency. The aim of this Directive is to provide the public with a better insight into the tax practices of large multinational companies and to promote fairer tax policy across the European Union. This initiative was prepared in response to the growing demand for greater corporate accountability, and it seeks to curb aggressive tax planning.
Companies will have to adapt to the new reporting requirements and prepare for increased public scrutiny of tax strategies. However, it can also present an opportunity to demonstrate your commitment to transparent and responsible business practices.
Key Points of the PCbCR Directive
- Obligation to disclose tax and non-financial information, including the amount of taxes paid, profitability and number of employees;
- separate reporting for each EU country and non-cooperative tax jurisdictions;
- applicable to multinational groups with a consolidated income exceeding EUR 750 million in two consecutive years;
- the information must be published in a machine-readable format and available to the public for at least five years.
Impact on Companies
The new regulation represents a shift from internal reporting to mandatory disclosure of tax information.
Companies must prepare for:
- increased transparency and scrutiny from a range of stakeholders, including investors, customers and regulators;
- potential reputational risks associated with tax strategies, in particular, if companies pay taxes in countries with low tax rates;
- implementation of new processes to meet the legislative requirements and an increase in administrative costs;
- a potential impact on the competitiveness and public image of the company.
PCbCR has been implemented in the Czech Republic by an amendment to the Accounting Act and is part of the consolidation package.
Companies to which the obligation applies must publish an “income tax report”, which includes:
- identification of the ultimate parent entity and the controlled entities;
- a description of the group’s activities and its geographical scope;
- the number of employees and economic indicators, including turnover and profit/loss;
- total income, profit before tax and the amount of income tax payable and paid;
- an overview of financial transactions between subsidiaries in different jurisdictions.
Key Dates and Deadlines
The Directive applies to fiscal years starting on or after 22 June 2024. For companies with a fiscal year corresponding to the calendar year, the first year reported will be 2025. The report must be published within 12 months of the end of the fiscal year. For most EU member states, this means that the information for 2025 must be published by the end of 2026. Failure to do so can result in heavy fines, increasing the emphasis on the strict implementation of the rules.
Reporting applies to all EU countries, countries in the European Economic Area (EEA) and jurisdictions on the EU’s list of non-cooperative jurisdictions. The European Commission has stipulated that the reports are to be prepared as XHTML files with iXBRL tagging.
Public reporting of tax information is a key change in corporate tax transparency. The aim is to ensure fairer tax policy and prevent aggressive tax planning practices. Companies should monitor legislative developments, prepare for the implementation and minimise potential reputational and compliance risks.
Do you need assistance with implementing PCbCR or have any questions regarding international taxation or transfer pricing? Feel free to contact us – we’re here to help. Our experts can help you with complex tax transparency issues, including the setting of correct prices between related parties and other aspects of transfer pricing.
