Tax transparency slowly grinding forward across the globe

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Paul Monaghan
Chief Executive
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The advance of tax transparency was never going to be quick and smooth. But it is slowly but surely grinding forward, with increasing legal requirements emerging across many parts of the globe.cover of pcbcr explainer

At the Fair Tax Foundation, we believe that comprehensively implemented public Country-by-Country Reporting (pCbCR) significantly enhances the ability of stakeholders across the world to form an informed opinion as to whether a business is paying the right amount of tax, in the right place and at the right time. Moreover, as with international financial reporting standards more generally, enhanced transparency will enable capital markets to make more informed economic decisions, which in turn improves capital allocation and economic efficiency.

Our latest pCbCR explainer has today been released and it reveals that…

  • Across the European Union, the deadline for implementation of the pCbCR Directive has been and gone, yet a substantial number of countries have not even begun to transpose the Directive into national legislation.

Public country-by-country reporting will soon be mandatory for large multinationals (MNCs) operating across the European Union – albeit with some substantial loopholes. An estimated 6,000 multinationals active in the EU would need to publicly disclose their tax-related information. The EU pCbCR Directive came into force in 2021, and is now being transposed into the domestic legislation of individual EU Member States at varying paces – with Romania being the first to enact legislation, from 1st January 2023. EU Member States are required to transpose the directive into national legislation by June 22nd 2023. However, a substantial minority missed the deadline and have not even initiated the process of transposition, and in July were sent letters of formal notice by the European Commission. Worryingly, the list of laggards includes prominent tax havens, such as Malta and Cyprus.

Some countries are bolting on added requirements to the EU mandated pCbCR disclosures; such as Hungary, which will require MNCs to newly explain differences between total tax accruals and cash taxes paid. France and Sweden require a breakdown of activity in European Economic Area States (i.e., Iceland, Liechtenstein and Norway), as well as in EU Member States. Others have opted to not introduce the suggested “safeguard clause” that allows in scope businesses to defer disclosure for up to five years on the basis of ‘commercial sensitivity’, such as Slovakia. Fines for non-compliance range from €5,000 in Ireland to €250,000 in Germany.

  • In Australia, proposed legislation has been watered down somewhat, and its application delayed by a year, but it still represents a positive seismic shift forward.

In April 2023, draft pCbCR legislation was published in Australia. This would, in the words, of International Tax Review, usher in a “new era of tax transparency”. Given that it would apply to any large multinational enterprise doing business in Australia through a resident entity or permanent establishment – i.e., should the likes of US-headquartered Amazon exceed the threshold in Australia, then it would need to disclose its pCbCR across the globe, or face penalties. An estimated 2,500 entities will be subject to the new regime. In June, a Bill was introduced to Parliament and a small number of the transparency requirements were removed, but the proposals still represent a world-leading and welcome push for tax transparency. Australian pCbCR measures will apply from summer 2024, as per the EU pCbCR Directive.

  • In the United States, some substantive changes are quietly emerging.

In the United States, the Securities and Exchange Commission has signalled support for the Financial Accounting Standards Board to prioritise pCbCR. Unfortunately, full blown pCbCR has so far been rejected; however, the latest Exposure Draft of the newly issued Income Taxes disclosure standard (Topic 740)(March 2023) proposes significantly enhanced quantitative and qualitative disclosures in relation to foreign tax on a jurisdiction by jurisdiction basis, if they meet a 5% threshold. This is a far cry from what is progressing in Europe and Australia, but it is nevertheless a welcome step forward. This has in large part been driven by pressure from investors, lenders, creditors and other allocators of capital, who have been pushing for change in this area.

Read the fully referenced pCbCR briefing

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