Country-by-country tax reporting: What’s going on?

19 Aug 2013

The media and public interest in tax and tax transparency continues to grow. Tax will also be a central theme of the G8 and G20 meetings in 2013. On 23 May 2013, EU commissioner Michel Barnier announced an intention to extend country-by-country reporting of tax pay ments to all large EU companies and groups. At the time of writing however there are no further details on this proposal and it is not clear where this would fit into EU legislation.

Various pieces of country-by-country tax reporting legislation are developing fast – outlined below is a summary of where things stand in May 2013.

These rules and regulations broadly require companies to disclose data on the amount of tax they pay in each country where they operate. There are differences in the industries and countries affected and in the data to be published.

EU Capital Requirements Directive IV (CRD IV)

Provisions on country-by-country tax reporting were introduced into CRD IV in early 2013. The provisions will require all banks, other credit institutions, and certain investment firms in the EU to publish detailed financial data on a country-by-country basis.

If the directive is adopted by the end of June 2013 as planned, all affected institutions will need to publish by 30 June 2014 details of their activities, turnover and number of employees in each country where they have an establishment. Certain significant institutions will also have to give details to the EC of profits or losses, tax on profit or loss and government subsidies received on a country-by- country basis.

By 31 December 2014, the EC will decide if amendments to the directive are required, largely on competition grounds. If there are no amendments, all affected institutions will have to publish information on activities, turnover, employees, profits, taxes and subsidies from 1 January 2015.

EU Directives on Accounting and Transparency

These directives are to be amended to require country-by-country reporting of tax and other payments to governments for the extractive and logging industries. The most recent draft of the amendments (12 April 2013) clarifies some of the open questions around de minimis levels, the requirement to report on a project- by-project basis and the precise numbers to be reported.

The proposed amendments are due to be voted on by the EU Parliament in June 2013 and are expected to apply from 1 January 2016 at the latest.

Dodd-Frank Wall Street Reform and Consumer Protection Act

The country-by-country tax reporting provisions in the Act were adopted by the US SEC in August 2012. They require SEC-listed extractive companies to disclose, on a country- by-country basis, payments made to governments.

In October 2012 the A merican Petroleum Institute launched a legal challenge against the inclusion of country-by-country provisions in the Act. On 26 April 2013 the US Court of Appeals for the District of Columbia unexpectedly decided that the case should not be heard in that Court, but in the District Court. This change has created uncertainty around the timing of any final court decision. Unless the court rules otherwise, companies affected by the Act are due to start reporting from 1 October 2013.

Extractive Industries Transparency Initiative (EITI)

The EITI was one of the first country- by-country initiatives. It is adopted by countries on a voluntary basis and applies only to the extractive industries. Once adopted by a country, it applies to all extractive companies in that country subject to any exemption or de minimis provisions adopted.

The overall EITI framework is under- going a process of review, consultation and amendment. The final consultation draft of the revised standard was issued in April 2013 and adopted at the EITI conference in Sydney in May 2013. The changes are substantial and aim to make the reports more user friendly and relevant, align some areas with the SEC and EU transparency rules and seek to provide more information in a number of areas.