Introduction
Country-by-country reporting (CBCR) has evolved into a cornerstone of tax transparency for multinational enterprises (MNEs). As tax authorities and stakeholders demand greater visibility into financial activities, the European Union’s introduction of public CBCR amplifies these efforts.
Romania’s pioneering implementation and the Netherlands’ structured approach reflect the diverse strategies adopted across member states. This blog delves into these two perspectives, exploring the challenges and implications of public CBCR for global businesses.
Understanding Public CBCR
Public CBCR expands on traditional CBCR by requiring multinational enterprises with consolidated revenues above €750 million to disclose tax-related information to the public. While general CBCR focuses on tax authority reporting, public CBCR aims to increase transparency by making this information accessible to a broader audience, including NGOs, investors, and the media.
This mandate involves the disclosure of key financial metrics such as revenues, profits, taxes, and employee figures for every EU country where the company operates. The goal is to foster corporate accountability, though this increased visibility also brings challenges, as companies must balance transparency with safeguarding sensitive data.
Romania’s Early Adoption of Public CBCR
Romania has taken the lead by implementing public CBCR obligations ahead of the EU-mandated deadlines. Starting January 2023, Romanian entities were required to prepare CBCR reports for the financial year 2023, with a publication deadline set for December 2024.
This accelerated timeline has positioned Romania as a test case for the broader EU directive, offering insights into the practical challenges and implications of early adoption. However, this approach has not been without contention, as businesses and authorities grapple with the absence of finalized EU guidelines.
Compliance Deadlines and Publication Challenges
Romania’s public CBCR obligations give companies two options for publication: on their corporate website or through the local trade register. While the trade register offers a centralized approach, its lack of free public access and additional costs make it a less attractive option.
Consequently, most companies opt to publish reports on their websites, balancing legal compliance with public accessibility. Despite this, many multinational enterprises have raised concerns about the risks associated with premature disclosures, such as economic prejudice and competitive disadvantage.
Reporting Framework and Oversight in Romania
Public CBCR in Romania falls under accounting legislation rather than tax laws, emphasizing its focus on transparency for broader stakeholders rather than solely tax authorities. This framework underscores the role of transparency in modern corporate governance.
The responsibility for ensuring compliance lies with auditors, who must verify that reports are accurately prepared and publicly accessible. However, penalties for non-compliance remain undefined for public CBCR, with existing fines capped at €20,000 under general CBCR enforcement.
Public CBCR in the Netherlands
The Netherlands has adopted a more measured approach to public CBCR. Dutch entities are required to comply with the EU directive for financial years starting after June 2024, aligning closely with other member states.
Penalties for non-compliance being potentially high, Dutch tax authorities emphasize collaboration over punitive measures. Typically, discrepancies are addressed through engagement and guidance before enforcement.
Comparing Romania and the Netherlands
Romania’s proactive implementation contrasts with the Netherlands’ pragmatic alignment with EU timelines. These differing strategies reflect the flexibility within the EU framework, allowing member states to tailor public CBCR implementation to their unique legal and economic contexts.
While Romania emphasizes early action and immediate transparency, the Netherlands prioritizes a structured rollout, providing companies with more time to adapt. These approaches illustrate the varying priorities of national regulators in addressing public CBCR obligations.
Implications for Multinationals
The shift to public CBCR introduces both risks and opportunities for multinational enterprises. On one hand, the requirement to disclose detailed financial information increases exposure to public scrutiny and competitive risks, particularly when sensitive data is made freely accessible.
On the other hand, companies that demonstrate ethical tax practices and align with environmental, social, and governance (ESG) goals can enhance their corporate reputation and stakeholder trust. Navigating these dynamics requires careful planning and strategic adaptation.
Conclusion
The implementation of public CBCR represents a significant milestone in corporate transparency and accountability across the EU. Romania’s early adoption showcases the potential challenges of premature implementation, while the Netherlands’ approach underscores the importance of balancing compliance with practicality.
For multinationals, preparing for public CBCR involves not only meeting legal obligations but also leveraging the opportunity to strengthen stakeholder relationships through transparency and ethical practices. As the EU refines its guidelines, businesses must remain vigilant and proactive in adapting to this evolving regulatory landscape.
This blog is inspired by Episode 2 of our podcast, The Transfer Pricing Method. You can tune in to the full episode on Spotify, YouTube, and our website. A big thank you to Mihai Lupu for sharing his invaluable knowledge and insights with us!
FAQs
What is the main difference between public CBCR and general CBCR?
Public CBCR requires information to be disclosed to the general public, whereas general CBCR is shared exclusively with tax authorities.
Why did Romania implement public CBCR earlier than the EU deadline?
Romania aimed to position itself as a leader in tax transparency, although the decision has led to challenges due to the absence of finalized EU guidelines.
What publication methods are available for public CBCR in Romania?
Companies can publish their reports on corporate websites or through the trade register, though the latter is less commonly used due to accessibility issues.
Are there penalties for public CBCR non-compliance in Romania?
Currently, no specific penalties exist for public CBCR in Romania, though fines for general CBCR non-compliance can reach up to €20,000.
How does the Netherlands enforce public CBCR compliance?
The Netherlands focuses on collaboration and guidance, with penalties exceeding €1 million reserved for severe non-compliance.
What are the risks and opportunities associated with public CBCR?
Risks include exposing sensitive financial data to competitors, while opportunities lie in enhancing corporate reputation through transparency and alignment with ESG goals.