Public Country-by-Country Reporting Directive: divergence in its implementation by Italy?

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Public Country-by-Country Reporting Directive: divergence in its implementation by Italy?

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Paolo Ludovici and Marlinda Gianfrate of Gatti Pavesi Bianchi Ludovici analyse the options excercised and choices made by Italy when transposing the provisions of the Public Country-by-Country Reporting Directive

Late adoption of the Public Country-by-Country Reporting Directive in Italy

Italy recently adopted domestic provisions for transposing the Amending Directive to the Accounting Directive (2013/34) concerning the disclosure of income tax information by certain undertakings and branches (Directive 2021/2101), also known as the Public Country-by-Country Reporting (CbCR) Directive. This adoption occurred after the deadline of June 22 2023.

The directive requires multinational enterprise (MNE) groups to publish and make accessible a report on income tax information, aiming to enhance transparency and allow public scrutiny of income tax-related data. This transparency enables public debate on the contribution of MNEs in each EU member state (MS) through the taxes they pay.

The Public Country-by-Country Reporting Directive: who, what, and how

Initially, Directive 2013/34 mandated country-by-country reporting (CbCR) disclosure only for large companies active in the extractive industries or the logging of primary forests. A similar directive applied to the banking sector. The framework of Directive 2013/34 is now mandatory for MNEs across all sectors operating in the EU, provided they exceed a certain size threshold. The Public CbCR Directive expanded this scope to include branches established in an MS by companies based outside the EU.

Under the Public CbCR Directive, MNE groups with consolidated revenue exceeding €750 million, and standalone undertakings surpassing the required size threshold with a taxable presence in at least two MSs, must disclose CbCR data for operations within the EU, starting with the first financial year on or after June 22 2024. This includes reporting for operations in “non-cooperative jurisdictions”.

The report must include corporate and financial information for the relevant year, such as company activities, a list of all subsidiaries consolidated in the financial statements, number of employees, revenue, profits or losses, and key income tax data, including taxes accrued and paid. This information will be published in national company registers to ensure its accessibility. Additionally, to facilitate public scrutiny, companies must also publish this information on their websites.

The directive provides MSs with some flexibility in its implementation, offering various options to exercise.

Transposition of the directive in Italy

Italy transposed the directive through Legislative Decree No. 128 of September 4 2024. Unlike some other MSs, Italy’s provisions do not deviate from the directive’s core content (for example, by requiring additional data or imposing shorter reporting deadlines).

Regarding the optional provisions allowed by the directive, Italy made the following decisions:

  • Simplified reporting – Italy has opted to allow companies to use the reporting instructions set by Directive 2016/881 on the mandatory automatic exchange of CbCR information to avoid unnecessary administrative burdens.

  • Safeguard clause – MSs can permit the omission of specific information (except for data concerning non-cooperative jurisdictions) from the report for up to five years if its disclosure would significantly harm the commercial interests of the companies involved. Italy did not adopt this safeguard clause, which may be critical for companies’ approach to tax transparency, as the omission of commercially sensitive information can sometimes be exploited for misleading purposes.

  • Public website reporting – Italy did not opt for the exemption allowing companies to avoid publishing the report on their websites, provided it is accessible on a national public register for free.

  • Language requirement – in Italy, reports must be made available in at least one official EU language and must also be translated into Italian.

  • Penalties – Italy established penalties for non-compliance, ranging from €10,000 to €50,000 for failing to submit the required reports.

Operational challenges for companies within scope

The implementation of the directive presents several operational challenges for MNE groups and standalone undertakings. Companies must consider the varying implementation requirements across MSs to ensure compliance.

Special attention should be paid to the immediate disclosure of commercially sensitive information. Italian-based companies will not benefit from the safeguard clause available in other MSs, making the management of sensitive data, particularly concerning foreign subsidiaries, a key issue.

Finally, for companies that have voluntarily adopted CbCR reporting for ESG purposes, it is recommended to follow Global Reporting Initiative standard 207: Tax 2019. This standard suggests including contextual information, such as the methodologies and assumptions used, to help stakeholders to understand the reported data. In line with this recommendation, companies are advised to provide a comprehensive narrative on their websites, explaining the CbCR data and offering qualitative insights to help stakeholders to interpret the information in context.

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