GERMANY

Transfer Pricing News Issue 41 - December 2022

Final draft bill on public country-by-country reporting published

Germany’s Federal Ministry of Justice on 7 December 2022 published a final draft bill on the implementation of the public country-by-country (CbC) reporting directive into domestic law. The public CbC reporting provision intends to tighten the reporting obligations of multinational enterprises (MNEs).

Background

The publication of the EU’s public CbC reporting directive in December 2021 started the EU-wide implementation of the concept. The directive aims to enhance the tax transparency of MNEs. In particular, the reporting obligations towards national tax authorities that already exist through the CbC report are to be extended to the general public with the public CbC report.

Implementation

With the draft bill, Germany follows the requirements to transpose the EU’s public CbC reporting directive into domestic law by 22 June 2023. The law will apply for financial years beginning after 21 June 2024.

Scope

The scope of the draft bill follows the one set forth by the regular CbC reporting in Sec. 138a of the German Fiscal Code (Abgabenordnung, or “AO”). MNEs with revenues of more than EUR 750 million in each of the preceding two consecutive financial years are subject to the new obligation. Furthermore, the reporting obligation will apply not only to MNEs located in Germany that are already covered by Sec. 138a AO, but also to MNEs active in third countries doing business in Germany through a subsidiary or branch.

The scope of the draft law includes unrelated German entities with a foreign branch, a German ultimate parent entity with a foreign branch, and German subsidiaries with a foreign ultimate parent entity or a domestic branch. CRR credit institutions are exempt from the requirement if they already publish a CbC report.

Content and form

The content and form of the public CbC report are based on those of the regular CbC report pursuant to Sec. 138a AO. Mandatory disclosures include, amongst others, the type of business activity, the number of employees, as well as the amount of profit before tax and the amount of income tax due. The information is to be disclosed separately for each EU member state and each state listed on the EU black or grey list. For third countries not listed on either the EU black or grey List, the information is to be provided only on an aggregate basis.

Exceptions

Disclosures may be omitted from the public CbC report if the disclosure would be seriously prejudicial to the commercial position of the entity to which they relate. Any omission needs to be clearly indicated, together with an explanation. However, the information may be withheld only for a maximum period of five years. The exception does not apply to disclosures that relate to countries listed on the EU black or grey lists.

Publication and audit requirement

The public CbC report must be published in the German business registry in German no later than 12 months after the end of the reporting period. Furthermore, the public CbC report must be published free of charge and in German on the entity’s website for at least five years.

The contents of the public CbC report will not be audited by an auditor, but the auditor must assess whether the obligation to prepare a public CbC report exists for the previous financial year and has been fulfilled accordingly. In the future, the public CbC report will also have to be analyzed by the supervisory board or a similar entity.

Sanctions

A public CbC report that is not prepared, prepared incorrectly, not prepared in full or not submitted in due time may be subject to a fine of up to EUR 50,000.

Summary

The implementation of the public CbC reporting requirement adds an additional administrative burden for MNEs. Fortunately, the contents of the public CbC report are largely based on those of the CbC report already set forth in Sec. 138a AO. In addition, the public CbC report may entail a certain risk of misinterpretation by the public. Supplementary explanations can mitigate this risk but increase the administrative burden. Finally, the public CbC report will be highly relevant for medium-sized family businesses, which have not been subject to similar publication requirements to date.
 

Arwed Cruger
arwed.crueger@bdo.de