PUBLIC COUNTRY-BY-COUNTRY REPORTING: EU-COLEGISLATORS REACHED POLITICAL AGREEMENT

On 1 June 2021, the Council of the European Union, which includes the ministers responsible for policy areas in the Member States, reached a political agreement with Members of the European Parliament on the proposed directive on the disclosure of income tax information by certain undertakings and branches.

Current EU rules do not oblige big multinational companies to publicly report where they generate profits and pay taxes in the EU for each member state and including non-cooperative jurisdictions for tax purposes. With the Country-by-Country Reporting («CbCR"), introduced several years ago (in Hungary in 2017), large companies disclose their main tax-related data only to the tax authorities of the countries concerned, the content of the data provided being a tax secret. In the wake of the pandemic crisis, the EU co-legislators have made substantial progress in this respect: the reports are planned to be made public, which should act as a deterrent to corporate tax avoidance and aggressive tax planning techniques by large companies.

Under the provisionally agreed text of the Directive, multinational or stand-alone companies with a total consolidated turnover exceeding €750 million in the last two consecutive financial years will be obliged to disclose information on the corporate tax they pay for each Member State and for non-cooperative jurisdictions and territories for tax purposes. Such reporting shall take place by means of a common EU template and in machine-readable electronic formats. The Directive also provides for a complete and final list of information to be disclosed.

The reporting will be due within 12 months from the date of the balance sheet the financial year in question. Under certain conditions, a company may obtain the deferral of the disclosure of certain elements for a maximum of five years.

Once approved and adopted by the EU Council, the provisionally agreed text will become a directive and is expected to enter into force in 2023. Member States will have eighteen months to transpose the directive into national law.

Hungary's low corporate tax rate of 9%, low by European standards, was intended to be attractive to large foreign companies, but research shows that their corporate tax avoidance and aggressive tax planning techniques are also causing a loss of revenue for the state budget. The new directive is expected to bring additional tax revenues to Hungary.

***

If you have any further questions about EU anti-avoidance measures, please contact our tax experts.

This newsletter provides general information and does not constitute tax advice.