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 Australia

Australian draft legislation would require the disclosure, by all groups above the €750m revenue threshold, with entities or branches in Australia (regardless of where the ultimate parent is) to make publicly available their group CbC report in Australia. Additional data over and above the OECD CbC report requirements was proposed:

• a description of the group’s approach to tax,
• the group’s effective tax rate in each jurisdiction, 
• expenses from related party transactions in each jurisdiction, and 
• a list of intangible assets (and their book value) held by the group in each jurisdiction.

The Bill in Australia did not pass prior to the July Parliamentary Recess. It is thought that the implementation date will be pushed back to 1 July 2024 and that the above additional data will be watered down or removed so as to limit the requirements to those suggested by OECD so that multinational groups are not having to retain new data points worldwide solely for their Australian CbC Report.

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.