Public CbCR: the next step in reporting transparency

The Netherlands has joined the growing list of jurisdictions requiring Public Country-by-Country Reporting. This legislative development is intended to increase transparency for multinational groups operating in the European Union (EU), subjecting them to greater accountability and scrutiny.

This new legislation comes with new points of attention and requires a well-considered approach. Our Transfer Pricing experts take a moment to discuss the differences between ‘standard’ CbCR and ‘public’ CbCR, and reveal potential pitfalls of misinterpreted transparency.

‘Standard’ CbCR: transparency towards tax authorities

Originally, the Country-by-Country Reporting (CbCR) requirement was introduced as part of the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13 to address the lack of transparency in tax matters among large multinational groups. This ‘standard’ CbCR requires international groups (multinational entities or “MNE’s”) with consolidated revenues exceeding EUR 750 million to submit a report with key financial information broken down by jurisdictions, for all countries in which the business operates. This report is shared amongst tax administrations, enabling them to assess global profit allocation. Shortly put: by sharing information on what is taxed where, the tax authorities aim to prevent profits from remaining untaxed or being taxed in the wrong jurisdictions.

‘Public’ CbCR: information

An additional layer of transparency was introduced within the EU in 2021. A new Directive obligates MNE’s with operations in the EU to publicly disclose key financial and tax related information from the CbCR. This Public CbCR includes information such as corporate income tax paid per jurisdiction, the number of employees, and the nature of the business activities. Public CbCR is not limited to multinationals with headquarters in the EU: it also includes groups headquartered outside of the EU if they do business by means of certain entities within the EU.

The Directive was implemented in the Netherlands by means of a Decree. Read more about the legal requirements, the full scope of the reporting obligation and the data included in the Dutch Public CbCR here.

Transparency as a tool for compliance

The CbCR requirement has proven a useful tool for tax authorities ever since it first gained significant ground around 2016. In a sense, it introduced compliance by means of transparency towards tax authorities.

But the European introduction of Public CbCR goes beyond mere compliance. It's about leveraging the public opinion to ensure adherence to regulations. Even though a certain amount of consolidation is permitted, the public disclosure offers significant insight into the MNE’s operations.

Beware of transparency pitfalls

As data disclosure and misinterpretation often go hand in hand, it is extremely important for companies to navigate this new obligation in a conscious manner. Stakeholders such as investors, banks and journalists may question the merits of a company operating in a low tax jurisdiction, looking no further than the basic data to form their opinion. This may prove harmful for a multinational’s reputation. Even if that entity turns a substantial profit, and has proper economic substance, and employs the necessary personnel, and manages risks effectively. In other words: even if the profit allocation is perfectly reasonable and well substantiated from a transfer pricing perspective.

Prepare a PCbCR strategy

With the Public CbCR requirements coming into effect for financial years starting on or after June 2024, MNEs must take proactive steps to ensure compliance. This starts with determining whether the group is subject to Public CbCR obligations in the Netherlands, but we note that a broader view is advised, in order to determine whether similar obligations apply in other locations where the group is active.

As an independent member firm of the global Baker Tilly International network, we are ideally positioned to assist you in ensuring compliance in the Netherlands and beyond.

Additionally, it would be prudent to assess your CbCR data from a public transparency perspective and prepare a clear narrative to accompany the data. A well-thought-out strategy is crucial to effectively convey this sensitive information to the public. Of course, it also offers an ideal opportunity to reevaluate your current business and TP position.

Please be sure to determine whether your company falls within the scope of these new rules and what steps should be taken to ensure the availability of the relevant data and timely compliance. Should you have any questions or require further clarification or assistance, please do not hesitate to contact our experts.

The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.