Background

On 14 April 2016, the European Commission published its first proposal requiring certain MNEs to publish an annual report on profits and tax paid in each country where they are active – a Country-by-Country Report. Aim of this Country-by-Country Report is to enable citizens to assess the tax strategies of MNEs and to see how much they contribute to welfare in each country.

After many years of discussions, on 11 November 2021, the European Parliament gave its final green light to introduce public Country-by-Country Reporting obligations in the EU in the form of an amendment of the Directive 2013/34/EU (the Directive). With the Decree, the amendment of the Directive has now been implemented into Dutch law.

The scope and content of the new rules are described in more detail below.

Scope
The Decree prescribes that, in principle, the management of the following entities is required to publish a Country-by-Country Report:

  1. An undertaking governed by Dutch civil law (BV, NV, VOF and CV) that is considered an ultimate parent undertaking of an MNE (NL Headquartered MNE) that reports consolidated revenue on its balance sheet date exceeding EUR 750 million for each of the last two consecutive financial years  
  2. A medium-sized and large subsidiary as referred to in Article 2:24a of the Dutch Civil Code that is controlled by an ultimate parent entity of an MNE that is not governed by the laws of a Member State (Non-EU Headquartered MNE) that reports consolidated revenue on its balance sheet date exceeding EUR 750 million for each of the last two consecutive financial years; and
  3. A Dutch branch, that is controlled by a Non-EU Headquartered MNE that reports consolidated revenue on its balance sheet date exceeding EUR 750 million for each of the last two consecutive financial years, unless there is already a medium-sized or large subsidiary that has a reporting obligation (as mentioned under #2 above).

The Decree clarifies some definitions but also leaves room for interpretation –

  • NL Headquartered “MNE” with a presence in the Netherlands only – The management of a Dutch ultimate parent undertaking is not required to publish a Country-by-Country Report if the ultimate parent undertaking and its affiliated undertakings, including their branches, only have a presence in the Netherlands.

  • Definition of medium-sized and large subsidiary of Non-EU Headquartered MNE – The management of a Dutch medium-sized or large subsidiary is required to publish a Country-by-Country Report if it is part of a Non-EU Headquartered MNE and that Non-EU Headquartered MNE meets the EUR 750 million threshold.
    To qualify as a medium-sized or large subsidiary, two of the following three criteria must be met:

    (1) a balance sheet exceeding EUR 7,5 million;
    (2) a net turnover exceeding EUR 15 million; and
    (3) an average number of employees exceeding 50.

    The definition of “net turnover” can be crucial in determining whether a Dutch subsidiary is considered medium-sized or large. Particularly, Dutch holding and finance companies that are part of an in-scope Non-EU Headquartered MNE question whether equity gains from shareholdings, dividends and interest income need to be taken into account when determining net turnover. The Decree refers to Article 2:377(6) of the Dutch Civil Code which defines net turnover as the proceeds from the supply of goods and services from the business of the entity. In general, dividend and interest income are not considered to be part of net turnover of Dutch (intermediate) holding companies. Dutch literature holds the view that dividend and interest income are part of net turnover to the extent this income is part of investment income and investing is characteristic for the business of the taxpayer, such as pension funds, insurance companies and investment institutions.

  • Definition of MNE – The Decree does not provide a definition of MNE. Other than OECD Country-by-Country Reporting, the Decree does not explicitly indicate that affiliated undertakings that are excluded from the consolidated group based on size or materiality grounds should be considered a subsidiary for public Country-by-Country Reporting. Such affiliated undertakings do not seem to qualify as a Dutch medium-sized or large subsidiaries of a Non-EU Headquartered MNE and therefore do not have an obligation to file a public Country-by-Country Report.

  • Conversion rate – The Decree prescribes that in-scope MNEs are required to publicly disclose a Country-by-Country Report if the MNE’s consolidated turnover exceeds EUR 750 million in two consecutive years. The Decree does not prescribe how in-scope MNEs that have a functional currency other than EUR need to convert their consolidated group turnover into EUR. Other than OECD Country-by-Country Reporting, no explicit reference is made to a specific month (e.g. OECD Country-by-Country Reporting refers to January 2015) to convert the consolidated group turnover into EUR. We expect that in-scope MNEs should use the average conversion rate of the financial year under review when converting their consolidated turnover into EUR.

What should be published?

The public Country-by-Country Report needs to contain the following information –

  1. The name of the ultimate parent undertaking, the financial year concerned, the currency used for the presentation of the report and, where applicable, a list of all subsidiary undertakings consolidated in the financial statements of the ultimate parent undertaking, in respect of the relevant financial year, established in the EU or in a non-cooperative tax jurisdiction as indicated by the Minister of Legal Protection;
  2. A brief description of the nature of the activities;
  3. The average number of employees on a full-time equivalent basis;
  4. Revenues, which are to be calculated as (i) the sum of the net turnover, other operating income, income from participating interests, excluding dividends received from affiliated undertakings (although not defined in the Decree, we expect that is meant dividends received from subsidiaries that are part of the MNE), income from other investments and loans forming part of the fixed assets, other interest receivable and similar income as referred to in Article 2:377 of the Dutch Civil Code; or (ii) income as defined by the financial reporting framework on the basis of which the financial statements are prepared, excluding value adjustments and dividends received from affiliated undertakings;
  5. The amount of profit or loss before income tax;
  6. The amount of income tax accrued during the relevant financial year, which is to be calculated as the current tax expense recognised on taxable profits or losses of the financial year by undertakings and branches in the relevant tax jurisdiction;
  7. The amount of income tax paid on a cash basis, which is to be calculated as the amount of income tax paid during the relevant financial year by undertakings and branches in the relevant tax jurisdiction; and
  8. The amount of accumulated earnings at the end of the relevant financial year.

    The Decree prescribes that the information listed under (2)-(8) should be presented separately for each Member State, including Liechtenstein, Norway and Iceland, and also separately for each tax jurisdiction that qualifies as a non-cooperative tax jurisdiction as indicated by the Minister of Legal Protection. The report may present the information on an aggregated basis for the other jurisdictions.

    The Decree allows that one or more specific items of information required to be disclosed may temporarily be omitted from the report where their disclosure would seriously be prejudicial to the commercial position of the undertakings to which the report relates. Any omission should be clearly indicated in the report together with a duly reasoned explanation of the reasons therefor. Any omission should be included in a later Country-by-Country Report ultimately within five years.

When should it be published?

The management of an NL Headquartered MNE and the management of a Dutch medium-sized and large subsidiary should file the Country-by-Country Report ultimately within twelve months after the end of the respective financial year with the Dutch Chamber of Commerce.

How should it be published?

The Country-by-Country Report should be made accessible to the public in at least one of the official languages of the EU, free of charge, no later than twelve months after the end of the financial year, on the website of (i) the ultimate parent entity in case of an NL Headquartered MNE, (ii) the subsidiary in case of a Non-EU Headquartered MNE or (iii) the branch, the undertaking which opened the branch or an affiliated undertaking, in case it is controlled by a Non-EU Headquartered MNE. Furthermore, the Country-by-Country Report should be presented using the model and machine-readable electronic reporting format as determined by the European Commission. At the moment of writing, this model has not yet been made available.

Lastly, Dutch medium-sized and large subsidiaries and branches are not required to publicly disclose a Country-by-Country Report, if the ultimate parent entity of a Non-EU Headquartered MNE publishes the Country-by-Country Report on its own website and the above relevant criteria are met. MNEs no longer have to publicly disclose a Country-by-Country Report to when the consolidated turnover ceases to exceed EUR 750 million over a period of two consecutive financial years.

Key takeaways

  • Due to differences in the definition of MNE (OECD – inclusion of companies that are excluded from the consolidated financial statement due to size or materiality grounds) and use of conversion rates (OECD – January 2015), it should be verified to what extent a Dutch ultimate parent undertaking, a Dutch medium-sized or large subsidiary or a Dutch branch is required to publicly disclose a Country-by-Country Report on its own website and which conversion rate should be used.
  • Member States, including Liechtenstein, Norway and Iceland, have their own definition of medium-sized or large subsidiary and therefore it should be verified whether any local obligation exists to publicly disclose a Country-by-Country Report.
  • To avoid potential discussions with tax authorities, we recommend preparing a Country-by-Country Report that is fully in line with the OECD Country-by-Country Report. To the extent the content of the publicly disclosed Country-by-Country Report will deviate from the OECD Country-by-Country Report, we recommend including a narrative of such deviations.
  • We recommend preparing a red-flag report to identify potential discussions points that might follow from the Country-by-Country Report. Furthermore, it may be helpful to prepare a standardised Q&A that may be used when questions arise from the public (better be well prepared).