10 September 2024
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KPMG responds to European Commission public consultation on public country-by-country reporting forms
European Commission – Public Country-by-Country Reporting – Reporting forms – Tax Transparency
Background
On December 21, 2021, the EU public Country-by-Country (CbyC) Reporting Directive (the Directive) entered into force and introduced a timeline for the adoption of rules that require multinational groups operating in the EU and that exceed certain size thresholds to publish certain information on their tax affairs. EU Member States had until June 22, 2023, to transpose the Directive into domestic legislation. The rules apply, at the latest, from the commencement date of the first financial year starting on or after June 22, 2024.
On August 1, 2024, the European Commission (EC) launched a public consultation requesting feedback on the common template and electronic formats for the disclosures required under the Directive, to which KPMG responded in a letter dated September 2, 2024.
KPMG’s feedback
KPMG firms in the EU1 were pleased to provide comments on the draft Implementing Regulation laying down the common template and electronic reporting formats for the application of the Directive as regards the information to be presented in reports on income tax information (the Regulation) and the related Annexes.
The key points highlighted in the KPMG submission can be summarized as follows:
- KPMG welcomes the flexibility provided by the draft Regulation to non-EU parented multinational groups in preparing the report on income tax information. However, we are concerned that the current wording of the draft Regulation allows for interpretation, potentially leading to inconsistent reporting practices. To address this, we recommend that the Commission clarifies that the exemption from using the common template applies not only to reports made accessible on the website of the non-EU ultimate parent but to those filed by EU subsidiaries or branches with local commercial registers.
- Tags for several data points extend beyond the requirements set forth in the Directive. The Commission should provide explicit clarification that these elements are optional and only intended for voluntary disclosure.
- The template and electronic form – including labels prescribed by the Annexes, should be revised to accommodate the case of multinational groups that opt to disclose additional data points on a voluntary basis.
- Multinational groups opting to report based on the instructions of Council Directive 2011/16/EU (DAC4) seemed to be required to provide a written description based on the various categories of activities listed by the DAC4 instructions. We recommend aligning this requirement with Table 2 under DAC4, where companies can simply mark an ‘x’ to indicate the activities being performed, to avoid inconsistencies and typographical errors.
In addition to our comments related to the draft Regulation and Annexes, KPMG highlighted several outstanding points which we believe should be clarified, as follows:
- Source of data for the reported information: we believe that it would be beneficial if the reporting instructions confirm that multinational groups that choose to report based on the DAC4 instructions can adopt a similar approach to that allowed under Pillar Two—i.e., using different data sources across jurisdictions whilst maintaining consistency within each jurisdiction. In the same vein, we believe that it would also be conducive to compliance to have a clarification on whether multinational groups that do not make use of the option to report based on the DAC4 instruction will, by default, be expected to report data from their consolidated financial statements or whether other sources of data are permitted.
- Meeting the reporting obligation across the EU: we recommend that the Commission provides guidance on how non-EU multinational groups should deal with varying approaches taken by Member States when implementing the Directive. One solution for applying the reporting exemption under Article 48b(6) in practice would be for a “surrogate filing option” to be accepted, whereby a foreign MNE group would be allowed to designate as a surrogate parent a subsidiary/branch in any EU jurisdiction where it has a reporting requirement, and report based on the requirements in that jurisdiction.
ETC Comment
Following the conclusion of the public consultation period on September 6, 2024, the Commission is expected to incorporate the feedback into the template and electronic forms where appropriate. The EC plans to adopt the final forms by the end of the third quarter of 2024. Subsequently, it is anticipated that each Member State will integrate these forms into their own legislation.
Multinational groups should closely monitor the local forms and guidance issued by each Member State, as well as the differences among Member States regarding the implementation of the Directive itself. In-scope taxpayers – whether part of groups with an EU or non-EU parent, are advised to remain alert when and how individual Member States decide to implement specific provisions of the Directive.
The EU Public CbyC Reporting Directive is a minimum standard – Member States may therefore expand the scope of the rules by, for example, requiring additional data points (please refer to Euro Tax Flash Issue 537 for an implementation state of play of the Directive and to our EU Public CbyC Reporting Directive implementation tracker).
Additional relevant links
1 The comment paper was produced on behalf of KPMG member firms located in the EU forming part of KPMG’s Europe, the Middle East & Africa (EMA) region. Throughout the submission, “we”, “KPMG”, “us” and “our” refer to the network of independent member firms operating in the EU.
