On 30 September 2022, the German Federal Ministry of Justice (Bundesjustizministerium, “BMJ”) published a draft bill on the implementation of the public Country-by-Country Reporting (CbCR) Directive into national law. The public CbCR intends to tighten the reporting obligations of multinational enterprises (MNEs).
The publication of the EU’s public CbCR Directive in December 2021 marked the EU-wide implementation of the public CbCR. The Directive aims to enhance the tax transparency of MNEs. In particular, the reporting obligations towards the national tax authorities already existing through the CbCR are to be extended to the general public through the public CbCR.
Through the draft bill, Germany follows the requirements to transpose the EU’s public CbCR Directive into national law by 22 June 2023. The law shall apply for financial years beginning on or after 22 June 2024. The public CbCR Directive will be transposed into national law trough a modification of the German Commercial Code (Handelsgesetzbuch, “HGB”).
The scope of application follows the one set forth by the CbCR in Sec. 138a of the German Fiscal Code (Abgabenordnung, “AO”). However, consolidated revenues must exceed EUR 750 million in each of the preceding two consecutive financial years. Furthermore, the reporting obligation shall 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. Specifically, 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 requirements provided that they already publish a CbCR.
Content and form
Content and form of the public CbCR are based on those of the CbCR 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 that are not listed on the EU Black or Grey List, the information is only to be provided on an aggregate basis.
The disclosures are to be omitted from the public CbCR 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 a reasoned explanation. However, the information may be withheld 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 List.
Publication and audit requirement
The public CbCR must be published in the German business register in German no later than twelve months after the end of the reporting period. Furthermore, the public CbCR must be published free of charge and in German on the entity’s website for at least five years. The latter may be omitted by means of a notice on the entity’s website.
The content of the public CbCR shall not be audited by an auditor. Instead, the auditor must assess whether the obligation to prepare a public CbCR exists for the previous financial year and has been fulfilled accordingly. In the future, the public CbCR will also have to be audited by the supervisory board or any supervisory or administrative organ.
A public CbCR that is not prepared, not prepared correctly, not prepared in full or not submitted in due time may be subject to a fine of up to EUR 50,000.
Against the background of the extended scope of application, the implementation of the public CbCR represents an additional administrative burden for MNEs. However, the contents of the public CbCR are largely based on those of the CbCR as set forth by Sec. 138a AO. Furthermore, the public CbCR is being discussed critically, particularly with regard to the risk of misinterpretation by the general public. Supplementary explanations can mitigate this risk if necessary. In addition, the public CbCR is highly relevant for medium-sized family businesses, which have not been subject to disclosure requirements to date.