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European Union: The revival of public CbCR amid new interest in ESG transparency

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The importance of fairness and efficiency of the tax system has been in discussion post the COVID-19 outbreak

Bob van der Made of PwC explains why there has been a recent upsurge in conversations about public country-by-country reporting (CbCR) in Europe and the US, and how COVID-19 may be changing the game.

The Finnish EU presidency organised a public debate and a vote in the EU’s Competitiveness Council of November 28 2019, on a public country-by-country reporting (CbCR) compromise text. 

14 out of the EU’s 27 member states voted against the motion: Austria, Croatia, Cyprus, Czech Republic, Greece, Hungary, Ireland, the three Baltic states, Luxembourg, Malta, Slovenia and Sweden. Germany abstained. This meant the EU’s qualified majority voting (QMV) threshold was not reached despite a close vote. 




Failed attempt to move the file to ECOFIN



The issue of the legal basis was then taken to the EU’s Economic and Financial Affairs Council (ECOFIN) on December 5 2019 by Sweden with the support of 9 member states: Cyprus, Czech Republic, Estonia, Hungary, Ireland, Latvia, Luxembourg, Malta and Slovenia, as an information point under “any other business”. 



They reiterated their opposition to the legal basis chosen by the European Commission (i.e. EU company law, instead of tax law) and asked to rebrand the dossier as a tax law file, which would require a unanimous vote in the Council. Many finance ministers spoke during the public session on this item in ECOFIN. The Council's legal service was also invited in front of the cameras to provide its advice. The Council’s legal service advised: 

  • To make this a tax file, a unanimous vote would be required in the Council to change the existing legal basis of the Commission’s proposal; 

  • The Council is one single institution with 10 configurations, without, however, any hierarchy between them. ECOFIN cannot therefore simply decide to ‘take over’ a legislative dossier; 

  • The legal status of the public CbCR file is that it stays in the Competitiveness Council unless the Commission changes its views. The choice of the legal basis is and remains the Commission's prerogative; and 

  • The preamble of the Commission’s proposal could be modified to make it clearer that this is a company law file. 


On December 20 2019, the outgoing Finnish EU presidency published an updated compromise text including the amendments to the preamble as offered by the Council’s legal service. The text sought to clarify the aim and content of the proposal and alleviate concerns regarding the legal base of the proposal and pave the way for further negotiations in the Council. It was left to the incoming Croatian EU presidency to choose whether to prioritise public CbCR or not during its six-monthly presidency.




Qualified majority in favour in the Council?



Meanwhile, after the little-known adoption of a legislative motion by the Austrian Parliament on December 11 2019, Austria is now in favour of public CbCR. The motion is binding on the new government, which is composed of the extreme right and the extreme left. 



This prompted Member of the European Parliament (MEP) Paul Tang (Progressive Alliance of Socialists and Democrats, Netherlands) to ask questions in January 2020 during a first economic dialogue and exchange of views meeting with the Croatian presidency in the European Parliament. MEP Tang argued that since Austria has changed its position, a qualified majority in favour in the Council seems to have emerged. It was therefore vital to put this file back on the agenda in the Council. Tang also alluded to a new development. 



On December 5 2019, the Global Reporting Initiative (GRI), the independent international sustainability impacts standard-setting body, introduced the first (voluntary) public global standard for comprehensive tax disclosures. 



If an organisation has identified tax as a material topic, it is required to report on the topic from 2021. Global investors, civil society groups and other stakeholders have signalled their support for this new tax standard. Croatia’s finance minister Zdravko Marić was evasive in his answers to Tang on any next steps on public CbCR. 



Elsewhere, in Sweden, the government received some criticism for its negative stance on public CbCR in the Council, prompting reports of a potential repositioning. Germany remains the crucial member state though and the current impasse continues. 



Recent developments in the US



In January 2020, the 140 business leaders in the International Business Council (IBC) of the World Economic Forum (WEF), presented a discussion draft, prepared in collaboration with the chairmen of the Big Four accounting firms – Deloitte, EY, KPMG and PwC – titled Toward Common Metrics and Consistent Reporting of Sustainable Value Creation. The proposal was immediately endorsed by the world’s biggest investors in Davos and will be finalised in the next few months. It recommends a set of core environmental, sustainability and governance (ESG) metrics and recommended UN Sustainable Development Goals (SDG) disclosures. The metrics would be reflected in the annual reports of companies on a consistent basis across industry sectors and countries. The new GRI 207 tax standard that is endorsed to be used for this includes public CbCR. 



Also, a new bill for public CbCR was introduced by Democratic representative, Cynthia Lynne Axne, in February 2020: ‘The Disclosure of Tax Havens and Offshoring Act’. The Senate version of the bill was already introduced in May 2019 by Democratic senators. In addition, 33 US Democratic lawmakers joined a letter to the OECD in support of public CbCR in the context of BEPS 13 reporting to better inform policy changes regarding international corporate taxation and reduce financial risks for investors. They also stated that the CbCR standards should be aligned with the GRI model. Separately, the US Financial Accounting Standards Board (FASB) announced it was strongly considering to make companies reveal more details about their income taxes in their financial statement disclosures.



So there is an increasing amount of traction in Europe and the US today regarding public CbCR and it is clear that tax as an ESG – SDG investment topic is receiving exponentially more attention from various constituencies. 



In addition, further traction on public CbCR may ensue due to the sudden COVID-19 outbreak across Europe. Once the crisis is over, national policymakers around the world will be confronted again, but much harder than post the last financial crisis and would have to foot the bill for the unprecedented current national fiscal spending. As a result, fairness (transparency) and efficiency of the tax system (compliance) are likely to become even more important than they are today already. 





Bob van der Made 

T: +31 6 130 96 296

E: bob.vandermade@pwc.com



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