Transparency is essential for the smooth functioning of the internal market. The Commission, in its communications of 27 October 2015 entitled ‘Commission Work Programme 2016 – No time for business as usual’ and of 16 December 2014 entitled ‘Commission Work Programme 2015 – A New Start’, identified as a priority the need to respond to the call of citizens of the Union for fairness and transparency and the need for the Union to act as a global reference model. It is essential that the efforts to achieve greater transparency take into account reciprocity between competitors.
(2)
In its resolution of 26 March 2019 (3), the European Parliament stressed the need for ambitious public country-by-country reporting as a tool for increasing corporate transparency and enhancing public scrutiny. In parallel with the work undertaken by the Council to fight corporate income tax avoidance, it is necessary to enhance public scrutiny of corporate income taxes borne by multinational undertakings carrying out activities in the Union, in order to further foster corporate transparency and responsibility, thereby contributing to the welfare of our societies. Providing for such scrutiny is also necessary to promote a better-informed public debate regarding, in particular, the level of tax compliance of certain multinational undertakings active in the Union and the impact of tax compliance on the real economy. The setting of common rules on corporate income tax transparency would also serve the general economic interest by providing for equivalent safeguards throughout the Union for the protection of investors, creditors and other third parties generally, and thus contribute to regaining the trust of citizens of the Union in the fairness of national tax systems. Such public scrutiny can be achieved by means of a report on income tax information, irrespective of where the ultimate parent undertaking of the multinational group is established.
(3)
Public country-by-country reporting is an efficient and appropriate tool for increasing transparency in relation to the activities of multinational undertakings and for enabling the public to assess the impact of those activities on the real economy. It also improves shareholders’ ability to evaluate properly the risks taken by undertakings, leads to investment strategies being based on accurate information and enhances the ability of decision-makers to assess the efficiency and the impact of national legislation. Public scrutiny should be conducted without harming the investment climate in the Union or the competitiveness of Union undertakings, including small and medium-sized undertakings as provided for in Directive 2013/34/EU of the European Parliament and of the Council (4).
(4)
Public country-by-country reporting is also likely to have a positive impact on employees’ rights to information and consultation as provided for in Directive 2002/14/EC of the European Parliament and of the Council (5) and, by increasing knowledge of undertakings’ activities, on the quality of the dialogue that takes place within undertakings.
(5)
Following the European Council conclusions of 22 May 2013, a review clause was introduced in Directive 2013/34/EU. That review clause required the Commission to consider the possibility of introducing an obligation on large undertakings in additional industry sectors to produce a country-by-country report on an annual basis, taking into account the developments in the Organisation for Economic Cooperation and Development (OECD) and the results of related European initiatives.
(6)
The Union has already introduced public country-by-country reporting for the banking sector with Directive 2013/36/EU of the European Parliament and of the Council (6), as well as for the extractive and logging industry with Directive 2013/34/EU.
(7)
By introducing public country-by-country reporting with this Directive, the Union becomes a global leader in the promotion of financial and corporate transparency.
(8)
More transparency in financial disclosure will be advantageous for all, since civil society will become more involved, employees will be better informed and investors less risk-averse. In addition, undertakings will benefit from better relations with stakeholders, which will lead to greater stability, along with easier access to finance due to a clearer risk profile and an enhanced reputation.
(9)
In its communication of 25 October 2011 entitled ‘A renewed EU strategy 2011-14 for Corporate Social Responsibility’, the Commission defined corporate social responsibility as the responsibility of enterprises for their impact on society. Corporate social responsibility should be company-led. Public authorities can play a supporting role through a smart mix of voluntary policy measures and, where necessary, complementary regulation. Undertakings can go beyond compliance with the law and become socially responsible by integrating further social, environmental, ethical, consumer or human rights concerns into their business strategy and operations.
(10)
The public should be able to scrutinise all the activities of a group of undertakings if the group has certain types of entities established within the Union. For groups which carry out activities within the Union only through subsidiary undertakings or branches, those subsidiary undertakings and branches should publish and make accessible the report of the ultimate parent undertaking. If that information or report is not available or the ultimate parent undertaking does not provide the subsidiary undertakings or branches with all the required information, the subsidiary undertakings and branches should draw up, publish and make accessible a report on income tax information containing all information in their possession, obtained or acquired, and a statement indicating that their ultimate parent undertaking did not make the necessary information available. However, for reasons of proportionality and effectiveness, the obligation to publish and make accessible the report on income tax information should be limited to medium-sized and large subsidiary undertakings established in the Union and to branches of a comparable size opened in the Union. The scope of Directive 2013/34/EU should therefore be extended accordingly to branches opened in a Member State by an undertaking which is established outside the Union and which has a legal form which is comparable with the types of undertakings listed in Annex I to Directive 2013/34/EU. Branches that have been closed as referred to in Article 37, point (k), of Directive (EU) 2017/1132 of the European Parliament and of the Council (7) should no longer be subject to the reporting obligations set out in this Directive.
(11)
Multinational groups, and where relevant, certain standalone undertakings, should provide the public with a report on income tax information where they exceed a certain size, in terms of the amount of revenue, over a period of two consecutive financial years, depending on the consolidated revenue of the group or the revenue of the standalone undertaking. By way of symmetry, such obligation should cease to apply where those revenues cease to exceed the relevant amount over a period of two consecutive financial years. In such cases, the multinational group or the standalone undertaking should remain subject to the obligation to report on the first financial year subsequent to the last financial year when its revenues exceeded the relevant amount. Such multinational group or standalone undertaking should become subject to the reporting obligation again when its revenues again exceed the relevant amount over a period of two consecutive financial years. Given the wide array of financial reporting frameworks with which financial statements may comply, for the purposes of determining the scope of application, for undertakings governed by the law of a Member State, ‘revenue’ should have the same meaning as ‘net turnover’, and should be understood in line with the national financial reporting framework of that Member State. Article 43(2), point (c), of Council Directive 86/635/EEC (8) and Article 66(2) of Council Directive 91/674/EEC (9) provide definitions for the determination of the net turnover of a credit institution or of an insurance undertaking, respectively. For other undertakings, revenue should be assessed in accordance with the financial reporting framework on the basis of which their financial statements are prepared. However, for the purposes of the content of the report on income tax information, a different definition of revenue should apply.
(12)
In order to avoid double reporting for the banking sector, ultimate parent undertakings and standalone undertakings which are subject to Directive 2013/36/EU and which include in their report prepared in accordance with Article 89 of that Directive all of their activities and, where appropriate, all the activities of their affiliated undertakings included in their consolidated financial statements, including activities not subject to the provisions of Part Three, Title I, Chapter 2, of Regulation (EU) No 575/2013 of the European Parliament and of the Council (10), should be exempted from the reporting requirements set out in this Directive.
(13)
The report on income tax information should include, where applicable, a list of all the subsidiary undertakings, in respect of the relevant financial year, established in the Union or in tax jurisdictions included in Annex I and, where applicable, in Annex II to the relevant version of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes. In order to avoid creating an administrative burden, the ultimate parent undertaking should be able to rely on the list of subsidiary undertakings included in the consolidated financial statements of the ultimate parent undertaking. The report on income tax information should also provide information concerning all the activities of all the affiliated undertakings of the group consolidated in the financial statements of the ultimate parent undertaking or, depending on the circumstances, concerning all the activities of the standalone undertaking. The information should be limited to what is necessary to make effective public scrutiny possible, in order to ensure that disclosure does not give rise to disproportionate risks or disadvantages for undertakings in terms of competitiveness or of misinterpretations regarding the undertakings concerned. The report on income tax information should be made accessible no later than 12 months after the balance sheet date. Any shorter periods for the publication of financial statements should not apply with regard to the report on income tax information. The provisions introduced by this Directive do not affect the provisions of Directive 2013/34/EU regarding annual financial statements and consolidated financial statements.
(14)
In order to avoid creating an administrative burden, undertakings should be entitled to present the information on the basis of the reporting instructions laid down in Section III, Parts B and C, of Annex III to Council Directive 2011/16/EU (11) when preparing a report on income tax information in compliance with this Directive. The report on income tax information should specify which reporting framework was used. The report on income tax information might in addition include an overall narrative providing explanations in the event of there being material discrepancies at group level between the amounts of taxes accrued and the amounts of taxes paid, taking into account corresponding amounts concerning previous financial years.
(15)
It is important to ensure that data are comparable. To that end, implementing powers should be conferred on the Commission to lay down a common template and electronic reporting formats, which should be machine-readable, for the presentation of the report on income tax information pursuant to this Directive. In laying down that template and those reporting formats, the Commission should have regard to progress made in the area of digitisation and accessibility of information published by undertakings, especially as regards the development of the European single access point as proposed in its communication of 24 September 2020 entitled ‘A Capital Markets Union for people and businesses – new action plan’. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (12).
(16)
To ensure that a sufficient level of detail exists to enable citizens to better assess the contribution of multinational undertakings to the welfare of society in each Member State, the information should be broken down by Member State. Moreover, information concerning the operations of multinational undertakings should also be shown with a high level of detail as regards certain third-country tax jurisdictions which pose particular challenges. For all other third-country operations, the information should be given on an aggregate basis, unless the undertaking wishes to present more detailed information.
(17)
For certain tax jurisdictions, a high level of detail should be shown. The report on income tax information should always disclose information separately for each jurisdiction which is included in the Annexes to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes (13), and their subsequent updates which are specifically approved twice a year, customarily in February and October, and published in series C of the Official Journal of the European Union. Annex I to those Council conclusions presents the ‘EU list of non-cooperative jurisdictions for tax purposes’, while Annex II presents the ‘State of play of the cooperation with the EU with respect to commitments taken by cooperative jurisdictions to implement tax good governance principles’. For Annex I, the jurisdictions that should be considered are those that were listed on 1 March of the financial year for which the report on income tax information is to be drawn up. For Annex II, the jurisdictions that should be considered are those that were mentioned in that Annex on 1 March of the financial year for which the report on income tax information is to be drawn up and on 1 March of the preceding financial year.
(18)
Immediate disclosure of the data to be included in the report on income tax information could, in certain cases, be seriously prejudicial to the commercial position of an undertaking. Therefore, Member States should have the possibility of allowing undertakings to defer the disclosure of specific items of information for a limited number of years, provided they clearly disclose the existence of the deferral, give a reasoned explanation for it in the report and document the basis for the reasoning. The information undertakings omit should be disclosed in a later report. Information pertaining to tax jurisdictions included in Annexes I and II to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes should never be omitted.
(19)
To strengthen corporate transparency and responsibility vis-à-vis investors, creditors, other third parties and the general public, and to ensure appropriate governance, the members of the administrative, management and supervisory bodies of the ultimate parent undertaking or standalone undertaking which is established within the Union and which has the obligation to draw up, publish and make accessible the report on income tax information should be collectively responsible for ensuring compliance with the reporting obligations under this Directive. Given that members of the administrative, management and supervisory bodies of the subsidiary undertakings which are established within the Union and which are controlled by an ultimate parent undertaking established outside the Union, or the person or persons in charge of carrying out the disclosure formalities for the branch, might have limited knowledge of the content of the report on income tax information prepared by the ultimate parent undertaking or might have a limited ability to obtain such information or such a report from the ultimate parent undertaking, the responsibility of those members or those persons should encompass ensuring, to the best of their knowledge and ability, that the report on income tax information of the ultimate parent undertaking or standalone undertaking has been drawn up and made public in a manner that is consistent with this Directive, or that the subsidiary undertaking or branch has drawn up, published and made accessible all the information in its possession, obtained or acquired, in accordance with this Directive. Where the information or report is incomplete, the responsibility of those members or those persons should extend to publishing a statement indicating that the ultimate parent undertaking or the standalone undertaking did not make the necessary information available.
(20)
To ensure that the public is aware of the scope of, and of compliance with, the reporting obligations introduced into Directive 2013/34/EU by this Directive, Member States should require that statutory auditors and audit firms state whether an undertaking was required to publish a report on income tax information, and if so, whether that report was published.
(21)
The obligations on Member States to provide for penalties and take all the measures necessary to ensure that those penalties are enforced pursuant to Directive 2013/34/EU apply to infringements of the national provisions as regards the disclosure of income tax information by certain undertakings and branches adopted pursuant to this Directive.
(22)
This Directive aims to enhance corporate transparency and the transparency and public scrutiny of corporate income tax information by adapting the existing legal framework concerning the obligations imposed on companies and firms in respect of the publication of reports, for the protection of the interests of members and others, within the meaning of Article 50(2), point (g), of the Treaty on the Functioning of the European Union (TFEU). As the Court of Justice held, in particular, in Case C-97/96 Verband deutscher Daihatsu-Händler (14), Article 50(2), point (g), TFEU refers to the need to protect the interests of ‘others’ generally, without distinguishing or excluding any categories falling within the ambit of that term. Thus, the term ‘others’ is broader than investors and creditors, and extends to other interested third parties, including competitors and the general public. Moreover, the objective of attaining freedom of establishment, which is assigned in very broad terms to the institutions by Article 50(1) TFEU, cannot be circumscribed by the provisions of Article 50(2) TFEU. Given that this Directive only concerns obligations to publish reports on income tax information, and does not concern the harmonisation of taxes, Article 50(1) TFEU constitutes the appropriate legal basis.
(23)
To ensure the full functioning of the internal market and a level playing field for Union and third-country multinational undertakings, the Commission should continue to explore possibilities for increasing fairness and tax transparency. In particular, the Commission should examine, within the framework of the review clause, whether, inter alia, full disaggregation would enhance the effectiveness of this Directive.
(24)
Since the objective of this Directive cannot be sufficiently achieved by the Member States but can rather, by reason of its effect, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective.
(25)
This Directive responds to the concerns expressed by interested parties about the need to tackle distortions in the internal market without compromising Union competitiveness. It should not cause an undue administrative burden for undertakings. Overall, within the framework of this Directive, the extent of the information to be disclosed is proportionate to the objectives of increasing corporate transparency and public scrutiny. This Directive respects therefore the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union.
(26)
In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents, Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified.
(27)
Directive 2013/34/EU should therefore be amended accordingly,
