The European Commission has adopted the final implementing regulation for Country-by-Country Reporting. Starting with financial years beginning on or after 1 January 2025, multinational enterprises with revenues exceeding €750 million will be required to disclose their income tax information using XHTML and Inline XBRL formats.
This framework has become a cornerstone in the fight against tax evasion, promoting transparency and ensuring tax revenues are aligned with where value is created. For companies operating across jurisdictions, staying compliant with CbCR regulations is critical to avoiding penalties and fostering good standing with tax authorities.
What is Country By Country Reporting?
Definition and Objectives of CbCR
Country By Country Reporting (CbCR) is a regulatory requirement for MNEs, introduced as part of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative. The primary objective is to provide tax authorities with a clear breakdown of an MNE’s global allocation of income, profits, taxes paid, and other economic indicators across the jurisdictions they operate in.
By fostering transparency, CbCR enables governments to better assess whether companies are paying taxes where economic activities are conducted.
Who Needs to Comply?
CbCR compliance requirements generally apply to:
- MNEs with consolidated group revenue exceeding EUR 750 million in the previous fiscal year.
- Parent entities in jurisdictions adopting CbCR requirements.
Smaller entities may not need to comply directly but could be subject to additional reporting requirements depending on local legislation.
Key Compliance Requirements
What Information Must Be Reported?
MNEs must prepare and file CbCR reports with a detailed breakdown that includes:
- Revenue (both related and unrelated party transactions).
- Profit (or loss) before tax.
- Income tax paid and accrued.
- Number of employees.
- Stated capital and retained earnings.
- Tangible assets (excluding cash or cash equivalents).
Filing Deadlines and Frequency
CbCR reports are generally required annually, with deadlines varying by jurisdiction. Businesses should consult local authorities to confirm specific timelines.
Where to File
CbCR reports are typically filed with the tax authority of the parent entity’s jurisdiction. In some cases, secondary filing may be required in other jurisdictions.
Country-Specific CbCR Requirements
Country By Country Reporting Deutschland
Germany has adopted the OECD’s CbCR guidelines under its Fiscal Code (§138a AO). While aligned with international standards, Germany enforces strict notification requirements and processes:
Notification Rules:
Every German-based entity in an MNE group must notify the tax authorities of its CbCR filing obligations, specifying whether it is the ultimate parent entity, surrogate filing entity, or neither.
Notifications are due by the end of the MNE group’s fiscal year, ensuring clarity on reporting responsibility before filing deadlines.
Filing Specifics:
Secondary filing is required if the parent entity is not obliged to report in its jurisdiction or if the German tax authorities do not receive the report through automatic exchange.
Reports must be filed electronically via the ELMA mass data interface or the BZSt online portal (not the Elster platform, which is primarily for domestic tax matters).
Penalties:
Germany imposes penalties for non-compliance or late submissions, although these penalties are generally moderate compared to other tax violations.
How It Differs:
Germany enforces more comprehensive and formalised notification requirements compared to many other EU countries, such as the Netherlands, which rely on less stringent procedures.
Country By Country Reporting Belgium
Belgium’s CbCr regulations align with EU Directive 2016/881/EU but include some notable features:
Notification Rules:
Belgian entities must notify the tax authorities of their CbCR filing obligations via the MyMinfin platform. Notifications are due earlier than in most other jurisdictions — at the end of the reporting fiscal year.
Penalties:
Belgium enforces severe penalties ranging from €1,250 to €25,000, emphasising strict compliance.
How It Differs: Belgium’s early notification deadlines and harsh penalties are stricter than countries like the Netherlands and Germany, making timeliness critical.
Country By Country Reporting Netherlands
The Netherlands’s CbCR is under the Corporate Income Tax Act 1969, maintaining a pragmatic and cooperative approach:
Substance Requirements
Dutch authorities prioritise ensuring economic substance for multinational enterprises (MNEs) operating in the Netherlands. Entities must demonstrate a genuine operational presence, including staff, decision-making functions, and legitimate economic activity.
Penalties
While penalties for non-compliance exist, the Dutch tax authority often takes a collaborative approach, working with businesses to resolve issues and correct errors before imposing fines.
How It Differs
Compared to Belgium and Germany, the Netherlands adopts a more flexible approach, focusing on fostering compliance through guidance and an emphasis on economic substance, rather than rigid enforcement or procedural strictness.
Country By Country Reporting Malta
Malta’s CbCR framework, governed by SL 123.127, aligns with OECD guidelines and EU Directive 2016/881/EU but has some unique aspects:
Local Filing
Maltese subsidiaries must file CbC reports locally if the parent jurisdiction doesn’t require it or lacks an exchange agreement with Malta.
Penalties
Non-compliance can lead to fines of up to €50,000 and daily penalties of €100 for ongoing violations.
Focus on Information Exchange
Malta prioritises automatic data exchange with other jurisdictions through agreements like the OECD’s MCAA, promoting global tax transparency.
How It Differs
Malta’s local filing requirement sets it apart from countries like Belgium, adding responsibilities for subsidiaries when the parent jurisdiction lacks an exchange agreement.
Steps to Reporting for Country By Country Reporting (CbCR)
1. Data Collection
Start by gathering all relevant financial and non-financial data from every entity within the multinational enterprise (MNE) group.
Key Data Points to Collect:
- Revenue (segregated by related and unrelated party transactions).
- Profit or loss before income tax.
- Income tax paid and accrued.
- Number of employees per jurisdiction.
- Stated capital and retained earnings.
- Tangible assets, excluding cash or equivalents.
Centralised Collection:
- Use centralised systems or software to streamline data collection from multiple subsidiaries and regions.
- Ensure input from finance, legal, and tax departments.
2. Data Validation
Before proceeding with report preparation, validate the data to ensure it meets jurisdictional standards for accuracy and completeness.
Validation Checklist:
- Cross-check financial figures against audited financial statements.
- Verify consistency in currency conversions and calculations.
- Ensure correct mapping of data to prescribed CbCR categories.
- Double-check compliance with local and OECD reporting standards.
Best Practices for Validation:
- Automate error detection using compliance software.
- Conduct internal audits to identify and resolve discrepancies.
3. Report Preparation
Once the data is validated, it’s time to format it into the prescribed CbCR template. A common template on how to report income tax information was published in the regulation.
Use the Correct Template:
- Most jurisdictions require the OECD’s standardised XML schema for electronic submissions.
- Include all mandatory fields, ensuring consistency across jurisdictions.
Structure of the Report:
Table 1: Allocation of income, taxes, and business activities by tax jurisdiction.
Table 2: A list of all constituent entities in the group by jurisdiction and their main business activities.
Table 3: Additional information or explanations to aid understanding of the data.
4. Submission
File the completed report with the relevant tax authority or through secondary channels if the parent jurisdiction does not mandate CbCR filing.
Submission Methods:
- Many countries require reports to be submitted electronically through designated government portals (e.g., Elster in Germany, MyMinfin in Belgium).
- Ensure submission deadlines are met — typically 12 months after the end of the fiscal year.
Key Considerations:
- Confirm that the correct authority receives the report (e.g., parent jurisdiction or local subsidiary jurisdiction in the case of secondary filings).
- Maintain documentation of submission confirmations and relevant correspondence for future audits.
The report on income tax information must be submitted in Inline XBRL format and tagged with XBRL concepts using the taxonomy published by the European Commission. Additionally, a common template on how to report income tax information was published in the regulation.
CFOUR Comply can help companies in meeting this requirement efficiently.
Pro Tip
Automate your reporting process with CFOUR Comply reporting software to minimise human error and streamline the collection, validation, and filing stages. This reduces the risk of non-compliance and ensures that your CbCR data is accurate and reliable.
By following these steps, MNEs can successfully of Country By Country Reporting with confidence and remain compliant with international tax regulations.
Best Practices for Compliance
- Automate Data Management: Use software tools to streamline data aggregation.
- Stay Updated: Regularly monitor legislative changes in all jurisdictions where you operate.
Adapting to Legislative Changes
CbCR regulations evolve, often requiring businesses to adapt quickly to new requirements. For example, the EU Directive 2016/881/EU introduced enhanced filing rules that many countries have since implemented. Businesses should:
- Subscribe to regulatory updates.
- Engage tax advisors to navigate complex changes.
- Use automation tools for real-time compliance tracking.
Conclusion
Compliance with Country By Country Reporting is a vital aspect of global tax governance. By understanding country-specific requirements and leveraging automation tools, MNEs can ensure alignment with regulations, reduce compliance risks, and avoid penalties.
Need help with CbCR reporting? CFOUR Comply streamlines the entire process with its built-in CbCR taxonomy, enabling quick and accurate report tagging.
