What is the CbCR Directive (Directive EU 2021/2101)?
The Country-by-Country Reporting (CbCR) Directive, officially known as Directive (EU) 2021/2101, is a major step forward in corporate tax transparency and international tax compliance. It amends Directive 2013/34/EU and mandates that certain multinational enterprises (MNEs) publicly disclose income tax information.
In Malta, this directive has been incorporated into the Companies Act (Cap. 386) through Act XVIII of 2024, specifically in Articles 213B–213D and the Fourth Schedule.
Who Must Comply with the CbCR Directive?
The directive applies to:
- Multinational enterprises (MNEs) with consolidated annual revenues of €750 million or more in each of the last two financial years.
- Standalone companies in EU Member States exceeding the same revenue threshold.
These entities must publish and make accessible a detailed report on their income tax information, promoting fiscal transparency and tax fairness across the EU.
CbCR Reporting Obligations
Ultimate Parent Company (UPC) Responsibilities
- If the UPC is based in Malta, it must prepare and submit the CbCR report.
- If the UPC is outside the EU, a Maltese subsidiary may be required to file the report unless the UPC's jurisdiction provides an equivalent report.
Anti-Avoidance Measures
To prevent companies from exploiting loopholes and evading reporting obligations, the Companies Act includes stringent anti-abuse provisions. These provisions ensure that subsidiary companies or branches that are created solely to circumvent reporting requirements must still comply with the directive. This measure is crucial in maintaining the integrity and effectiveness of the CbCR framework.
CbCR Report: Required Data
The CbCR report must encompass comprehensive financial and operational data, reflecting the entirety of a company's activities. Key elements to be included are:
- Company name, financial year, currency, and list of consolidated subsidiaries.
- Nature of activities per entity.
- Number of employees.
- Profit/loss before tax.
- Income tax paid and accrued.
- Accumulated earnings.
- Revenues (including net turnover, operating income, and investment income).
This data enables tax authorities and the public to assess whether MNEs are paying their fair share of taxes, ensuring greater accountability.
Deadlines and Filing Timeline
- Applies to accounting periods starting on or after 22 June 2024.
- First reports due in 2026, within 12 months after the fiscal year ends.
- Late or inaccurate submissions may result in monetary penalties and regulatory scrutiny.
Public Disclosure vs. Confidentiality
Under the public CbCR Directive (Directive 2021/2101), companies must publicly disclose specific tax information. However, not all details need to be made publicly available. Certain information may be temporarily omitted where disclosure would be seriously prejudicial to the commercial position of the company, as specified in the Fourth Schedule of the Companies Act.
Local Reporting and Multijurisdictional Operations
MNEs operating in multiple EU countries are generally required to submit only one CbCR report per group, which can be shared across EU Member States. This streamlined approach helps reduce the administrative burden while ensuring comprehensive compliance. However, non-EU countries may have additional reporting requirements, making it essential for companies to seek professional advice to navigate these complexities effectively.
Navigating CbCR Compliance in Malta
The implementation of the CbCR Directive marks a pivotal step towards enhancing tax transparency and fairness within the EU. By requiring detailed reporting on income tax information, the directive aims to curb tax avoidance and promote greater fiscal equity. Compliance with these requirements will necessitate careful planning and coordination within multinational enterprises, particularly those with complex global operations.
For companies operating in Malta, understanding and adhering to the provisions of the Companies Act is crucial. Legal and tax advisors can provide invaluable support to ensure that all reporting obligations are met across jurisdictions, safeguarding against potential penalties and scrutiny.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
