In the past years we have experienced significant changes in tax transparency requirements both in the international and local tax environment. The introduction of public country-by-country reporting is one of the latest tax transparency requirements.
The new obligation for public country-by-country reporting (Public CbCR) was introduced by EU Directive 2021/2101 which was transposed in Greece by Law 5066/2023. It requires multinational enterprises (MNEs) with a turnover exceeding €750 million per annum in the last two consecutive financial years and with an EU (Greece) presence, through headquarters, subsidiaries or branches, to publish annual country-by-country reports under the new EU rules. The first reporting year commences on or after 22 June 2024; however, some member states have opted to implement earlier. The data required is similar to the OECD CbCR (nature of activities, turnover, profit/loss, tax paid, tax accrued, accumulated earnings, employees), but the aggregation requirements are different.
Why is this Public CbCR an important development? Reporting on tax is not solely about being transparent or disclosing the actual amount of tax a company pays but is also about actively demonstrating how companies conduct themselves in relation to tax. Tax transparency should be backed up by strategy, commitment and action on the MNE’s tax and sustainability strategy. Tax transparency is also one of the key pillars in ESG to help to build trust.
Tax transparency should be backed up by strategy, commitment and action on the MNE’s tax and sustainability strategy
The tax transparency journey for compliance is a delicate matter, and it is different for every organization depending on industry and activity. With Public CbCR, organizations will need to be comfortable with their CbC data being made public. MNEs will therefore need to ensure that their corporate governance processes are adequate to support their public storyline, which will be available to various stakeholders such as investors, consumers, suppliers, regulators, and various non-governmental organizations. This will not be an easy task, and MNEs should be well prepared for public scrutiny, ready to explain complex data and establish trust.
MNEs are now prioritizing the need to use technology to manage large volumes of tax data and automate the reporting processes of multiple tax data sets for general tax compliance, CbC (including Public CbCR), and BEPS Pillar II. To trust the tax data for Public CbCR, organizations should identify risks and weaknesses in their current systems, implement strong data governance processes, and develop guidelines for how to book various tax payments to aid in gathering tax data afterwards. More effort should be put in place to help ensure public country-by-country information is reconciled with group-wide consolidated results and possibly even statutory accounts. CbC data will also be used for multiple purposes, including applying BEPS Pillar II safe harbors, transfer pricing and tax reporting generally.
As a key takeaway, MNEs must get ready for their first Public CbCR. They must have in place strong governance processes and control frameworks that validate their tax data and support the public narrative.
