Large multinational enterprises are well used to filing information on a jurisdictional basis following the OECD’s introduction of country-by-country reporting (CbCR) in BEPS Action 13 which has been in place for fiscal periods since 2016. At the time, many in-house tax directors considered it only a question of time before MNEs would be required to make CbC reports public – and so it has come to pass.
New rules brought in by Australia and the EU, and which may be followed elsewhere, will make key tax metrics open to public scrutiny, not just to local tax authorities.
Tax transparency is of high priority for international groups given the range of stakeholders who expect to be able to understand more about groups’ tax affairs than is available in statutory accounts. Tax authorities, of course, want information to ensure they collect revenues due, but other parts of governments, such as those overseeing public procurement, seek assurance that suppliers are good corporate citizens. Investors too among pension funds or activist shareholders may press for companies to demonstrate ESG commitments of which tax transparency forms a part. Additional pressure for tax transparency may come from employees, customers, interest groups, campaigners and the press.
Australia passed into legislation its public CbCR requirements in November 2024. It mandates the ultimate parent of groups in scope to report tax information on a jurisdictional basis for reporting periods commencing from 1 July 2024 and to do so within twelve months after the reporting period ends. The reports will then be published by the ATO on official websites.
The EU’s CbCR Directive (2021/2101) is applicable to fiscal years starting on 22 June 2024 at the latest. MNEs must publish these on their website and on public registers. Romania got off to a flying start by applying local legislation to fiscal years beginning on or after 1st January 2023.
There are variations between the Australian and EU public CbCR reporting rules – and there are further variations between how the directive has been transposed across the 27 EU member states. Groups in scope will likely need to undertake scoping exercises to understand the different formats and disclosure requirements.
One key difference between the Australian and EU rules is the greater narrative disclosure required by Australia which ask for a description of an organisation’s approach to tax along the lines of Global Reporting Initiative (GRI) 207.
Also, Australia requires a top-down approach with a breakdown from group finances. There is no option to build up from individual entity statutory accounts as there is in the EU directive.
Groups will need to consider timeframes. It will be a challenge for groups using a bottom-up approach for CbCR and, therefore, waiting for group entity statutory accounts, to have them audited where you need to report within six months of year-end, as is the case in Spain and Hungary.
Some groups will provide the bare minimum in each jurisdiction while others will go beyond the statutory requirements to provide narrative context and help prevent misinterpretations that could result if the basic information on its own is incomplete or misleading.
Most groups will have data that may, on first glance, appear to anomalies requiring explanation. It’s often not possible to tell if there’s a legitimate reason for, for example, an unusually low (or high) tax rate in relation to turnover, profits or people or whether it is a result of aggressive tax planning.
A decision to provide specific additional information will need to be approved internally. Any discretionary disclosures will involve internal conversations with colleagues and senior management and take into account commercial sensitivities as well as pressures, for example from investors or customers, which might influence the approach to tax transparency.
Of course, alongside statutory public CbCR requirements, groups can do their own standalone voluntary disclosures. There are a number of voluntary disclosure initiatives which complement and go beyond the statutory requirements for tax transparency. These may be focused on tax transparency or be a wider ESG regime in which tax transparency is a component part. Signing up to the requirements of, for example, the Fair Tax Mark or B Corp certification, or by self-publishing in the form of a ‘total tax contribution’ report, may be effective for some groups. Much will depend on the particular circumstances of each group, the sector, business model, public profile and corporate culture, along with the profile of key stakeholders.
Sandy Markwick, Winmark
Large multinational enterprises are well used to filing information on a jurisdictional basis following the OECD’s introduction of country-by-country reporting (CbCR) in BEPS Action 13 which has been in place for fiscal periods since 2016. At the time, many in-house tax directors considered it only a question of time before MNEs would be required to make CbC reports public – and so it has come to pass.
New rules brought in by Australia and the EU, and which may be followed elsewhere, will make key tax metrics open to public scrutiny, not just to local tax authorities.
Tax transparency is of high priority for international groups given the range of stakeholders who expect to be able to understand more about groups’ tax affairs than is available in statutory accounts. Tax authorities, of course, want information to ensure they collect revenues due, but other parts of governments, such as those overseeing public procurement, seek assurance that suppliers are good corporate citizens. Investors too among pension funds or activist shareholders may press for companies to demonstrate ESG commitments of which tax transparency forms a part. Additional pressure for tax transparency may come from employees, customers, interest groups, campaigners and the press.
Australia passed into legislation its public CbCR requirements in November 2024. It mandates the ultimate parent of groups in scope to report tax information on a jurisdictional basis for reporting periods commencing from 1 July 2024 and to do so within twelve months after the reporting period ends. The reports will then be published by the ATO on official websites.
The EU’s CbCR Directive (2021/2101) is applicable to fiscal years starting on 22 June 2024 at the latest. MNEs must publish these on their website and on public registers. Romania got off to a flying start by applying local legislation to fiscal years beginning on or after 1st January 2023.
There are variations between the Australian and EU public CbCR reporting rules – and there are further variations between how the directive has been transposed across the 27 EU member states. Groups in scope will likely need to undertake scoping exercises to understand the different formats and disclosure requirements.
One key difference between the Australian and EU rules is the greater narrative disclosure required by Australia which ask for a description of an organisation’s approach to tax along the lines of Global Reporting Initiative (GRI) 207.
Also, Australia requires a top-down approach with a breakdown from group finances. There is no option to build up from individual entity statutory accounts as there is in the EU directive.
Groups will need to consider timeframes. It will be a challenge for groups using a bottom-up approach for CbCR and, therefore, waiting for group entity statutory accounts, to have them audited where you need to report within six months of year-end, as is the case in Spain and Hungary.
Some groups will provide the bare minimum in each jurisdiction while others will go beyond the statutory requirements to provide narrative context and help prevent misinterpretations that could result if the basic information on its own is incomplete or misleading.
Most groups will have data that may, on first glance, appear to anomalies requiring explanation. It’s often not possible to tell if there’s a legitimate reason for, for example, an unusually low (or high) tax rate in relation to turnover, profits or people or whether it is a result of aggressive tax planning.
A decision to provide specific additional information will need to be approved internally. Any discretionary disclosures will involve internal conversations with colleagues and senior management and take into account commercial sensitivities as well as pressures, for example from investors or customers, which might influence the approach to tax transparency.
Of course, alongside statutory public CbCR requirements, groups can do their own standalone voluntary disclosures. There are a number of voluntary disclosure initiatives which complement and go beyond the statutory requirements for tax transparency. These may be focused on tax transparency or be a wider ESG regime in which tax transparency is a component part. Signing up to the requirements of, for example, the Fair Tax Mark or B Corp certification, or by self-publishing in the form of a ‘total tax contribution’ report, may be effective for some groups. Much will depend on the particular circumstances of each group, the sector, business model, public profile and corporate culture, along with the profile of key stakeholders.
Sandy Markwick, Winmark
