- Public country-by-country reporting (CbCR) is imminent for multinational entities (MNEs) with operations in Europe.
- What is public CbCR?
- What does this mean for MNEs in the United States?
Background
The European Union (EU) recently released and adopted EU Directive 2021/2101 requiring certain MNEs to publicly provide their country-by-country (CbC) report, a financial and operational data set, to the general public. This is referred to as public CbCR. Council Directive 2016/881/EU was first introduced in 2016 and did not receive much traction.
In 2021, the EU Directive 2021/2101 was reintroduced during the COVID-19 pandemic and gained significantly more support. The EU officially adopted Directive 2021/2101 in late 2021 and will begin enforcing this directive for financial years starting on or after June 22, 2024 as member states are required to implement Directive 2021/2101 into national law. Public CbCR has been met with opposition from MNEs because of reputational risk concerns from the public viewing detailed financial and operational facts; this data was previously undisclosed for private businesses.1
The EU’s goal of public CbCR is to increase transparency and give the public an overview of certain financial and operational details of MNEs. U.S.-headquartered companies with subsidiaries operating in the EU with an annual consolidated group revenue of greater than €750 million (approximately U.S. $800 million) will likely be subject to public CbCR for fiscal year 2025.
Who Is Obligated to Publish the Public CbCR?
The chart below illustrates the criteria for disclosing public CbCR and which companies are required by where they are located.
| Is Your Company Required to Publish Its CbCR? | |
|---|---|
| Singular Entities Located & Operating in the EU | Individual Entity Revenues Greater Than €750 Million for Two Consecutive Years |
| Parent Entity Headquartered in the EU | Total Group Revenues Greater Than €750 Million for Two Consecutive Years |
| Subsidiaries2 Operating in the EU With Parent Headquartered Outside of the EU | Total Group Revenues Greater Than €750 Million for Two Consecutive Years |
Below is a list of information that will be required to be disclosed if an entity above meets the disclosure requirements.
- Name of group parent entity;
- Currency used;
- Business year;
- Brief description of business activities;
- Number of full-time employees;
- Revenue;
- Profit/Loss before income tax;
- Income tax accrued;
- Income tax paid; and
- Retained profits.
Impact on the U.S. Entities
While this is an EU directive, U.S. MNEs may be affected. MNEs headquartered in the U.S. with a subsidiary in the EU that meet the criteria illustrated in the table above will have two options for adhering to the public CbCR requirements.
Option 1: The MNE can designate an EU subsidiary to disclose the public CbCR requirements on the EU subsidiary’s website and submit it to the national commercial registry.
Option 2: The MNE can disclose the public CbCR on its group website. If the MNE chooses option 2, an EU subsidiary will not be required to publish the public CbCR data on its website. However, the EU subsidiary will need to file the CbCR with the national commercial registry.
This requirement begins with MNEs’ year-ends on or after June 22, 2024. For most MNEs, the December 31, 2025 year-end will be the first year where this requirement needs to be met. MNEs headquartered in the U.S. that meet the reporting requirements should begin establishing a plan to deal with EU Directive 2021/2101. Since data that was previously private will now be available for the public to see, businesses may feel at risk. MNEs need to address any perceived risk, which may be resolved by providing explanations of certain facts. It is imperative that U.S.-headquartered MNEs begin assigning resources related to public CbCR.
How Forvis Mazars Can Help
It is important that U.S.-headquartered MNEs become aware of the risks and requirements of public CbCR disclosure. MNEs that fail to disclose publicly CbCR data can be fined and penalized. For example, in Germany, MNEs that fail to adhere to public CbCR requirements can be punished with a fine of up to €250,000. Please contact a transfer pricing advisor at Forvis Mazars to see how we can assist in the preparation of public CbCR, including technology tools.