Introduction of the Public Country-by-Country Reporting

Income Tax Disclosure Act

On 21 June 2023, the Income Tax Information Disclosure Act (also "Public Country-by-Country Reporting" or “pCbCR”) was published in the Federal Law Gazette, thereby transposing Directive (EU) 2021/2101 into national law. On 2 December 2024, followed the corresponding EU Implementing Regulation. The Directive aims to make the activities and tax payments of multinational enterprises with high turnover in the European Union more transparent, thereby promoting compliance in tax matters.
 

Which transparency measures are already in place? 

In 2013, the OECD started an initiative to combat tax erosion and profit shifting (BEPS). As part of this initiative, country-by-country reporting (CbCR) was introduced for multinational enterprises in 2016 (section 138a German Fiscal Code (AO)): Affected companies are obliged to report certain information and key figures such as sales revenue, profits, equity, and income taxes paid to the relevant tax authorities.

In 2019, the Global Reporting Initiative (“GRI”) 207 standard "TAX 2019" was additionally introduced as a measure for more transparency in the sustainability report. The sustainability report is complemented by including a detailed presentation of certain tax information. In addition to information on tax concept and tax management, companies may also be required to disclose details based on the CbCR since 2021.
 

Who is affected by the pCbCR Directive? 

The new law primarily affects companies that are already required to prepare a CbCR in accordance with section 138a AO. The prerequisite is that the reported (consolidated) sales revenues exceed at least 750 million € in two consecutive fiscal years (section 342b et seq. German Commercial Code (HGB)). This applies to domestic group parent companies and unrelated companies with (registered) branches, fixed places of business or permanent business activities in at least one other country.

Also affected are domestic medium-sized and large subsidiaries of a non-EU parent company. Domestic registered branches of non-EU companies are only required to disclose information if the sales threshold of 12 million € is exceeded in two consecutive financial years. However, credit institutions are not affected if all required information has already been disclosed elsewhere.

If the enterprise falls within the scope of application described above, the reporting obligation applies from the second financial year in which the sales threshold is exceeded. The reporting obligation ceases to apply if the threshold is not reached in two consecutive years.
 

Which content must be disclosed? 

The information to be published largely resembles that of the CbCR. Among other things, key figures such as the average number of employees, income including income with related parties, income tax paid and retained earnings are required. The companies concerned are required to break down the information by country. An option relevant to the German implementation, according to section 342h (4) HGB, allows companies to derive the EU pCbCR from the OECD CbCR (section 138a AO).
 

How do the contents have to be disclosed? 

The disclosure of the income tax information report (“EIB”) in Germany is to be made in the company register in German language. In addition, it has to be published on the company website, whereby a reference to the company register is also sufficient. 

On 2 December 2024, the EU Commission published Implementing Regulation (EU) 2024/2952, aiming to standardize the presentation of income tax information for pCbCR. This regulation includes the final version of the template form and electronic reporting formats, which serve as the basis for preparing the EIB for financial years beginning on or after January 1, 2025. Accordingly, EU groups are required to submit their EU pCbCR in the public register of their EU member state as an XHTML dataset with iXBRL tagging. Groups from third countries also have the option to disclose their report in the public register of an EU member state of their choice, provided they have a sufficient presence there, in the form of an XHTML dataset. Alternatively, they may choose another machine-readable format, although specific details on this option are not yet available.

The report must be available no later than one year after the end of the reporting period and remain accessible for at least five years.

Generally, each company included in the consolidated report is required to disclose the report in accordance with its respective national law. However, an exemption applies to domestic subsidiaries or branches of third-country companies. In this case, it is sufficient for the EIB to be published on the parent company’s website in an official EU language and for at least one EU-based subsidiary to disclose it under the respective national law.
 

What other important changes will result from the law?  

In addition to the pure disclosure obligation, there are other changes in the law that affected companies need to observe. The EIB shall be submitted to the Supervisory Board by the Management Board for the purpose of reviewing disclosure (section 170 German Stock Corporation Act (AktG)). In addition, the auditor shall in the future assess the disclosure obligation as part of the audit of the annual financial statements (section 317 (3b) HGB).

The provisions on fines and administrative fines in commercial law are being specifically adjusted. This also includes the fact that the publication of income tax information that is not proper, not complete, not on time or not published for at least five years can be punished with a fine of up to 250,000 € (section 342o HGB).
 

When does the law come into force? 

The regulations apply to all fiscal years beginning after 21 June 2024. However, it should be noted that the Directive has already been applied in Romania, for example, from 1 January 2023. This means that German companies will also have to disclose corresponding data records on the entire group for 2023 - if they fall within the scope of application and if there are links with Romania.
 

Need for action and support from BDO 

The possible effects for your own company should already be examined now in the affected groups of companies. We are happy to support you in the preparation and submission of CbCR and pCbCR reports. Feel free to contact us. If required, we can support you together with experts from our global network, which is currently active in 166 countries.