Tax Transparency: Multinationals required to report income taxes

published on 14 November 2024 | reading time approx. 4 minutes

The directive known as “Public Country-by-Country Reporting” has come into force, introducing the obligation to publicly disclose income taxes accrued and paid in each country.

Starting from financial statements for fiscal years beginning on 22 June 2024, multinationals, their branches, and large multinational groups will be required to make public information on income taxes and other business-related information for each country in which they operate. In this regard, Legislative Decree No. 128/2024, which implements EU Directive 2021/2101 on the communication of taxes paid country by country and other information aimed at ensuring greater transparency and effectively combating tax avoidance, was published in the Official Gazette on September 12, 2024.

Legislative Decree No. 128/2024 (amending the previous Legislative Decree 139/2015 by adding the new Chapter 1-bis) introduced the obligation for entities exceeding certain thresholds to make public various business and financial information, including income taxes accrued and paid country by country.

In particular, these reporting obligations apply to the following entities:

parent companies whose consolidated revenues, at the closing date of the consolidated financial statements, exceed 750 million euro for each of the last two consecutive financial years;
standalone companies whose revenues, at the closing date of the financial statements, exceed 750 million euro for each of the last two consecutive financial years;
companies controlled by a parent company from a third country and included in the consolidation perimeter of this parent company, whose consolidated revenues, as determined by the applicable legislation, exceed 750 million euro for each of the last two consecutive financial years;
branches whose consolidated revenues resulting from the consolidated financial statements, at the closing date, exceed a total of 750 million euro for each of the last two consecutive financial years. The branch must have been opened, alternatively, by:

a company which is part of a group that does not include companies controlled by a parent company from a third country whose consolidated revenues, at the closing date of the financial statements, exceed a total of 750 million euro for each of the last two consecutive financial years;
a standalone company whose consolidated revenues, at the closing date of the financial statements, exceed a total of 750 million euro for each of the last two consecutive financial years.

However, companies subject to supervision by the Bank of Italy, as they are already required to comply with similar obligations under sector regulations, and companies and branches belonging to non-EU groups or standalone companies are exempt from this obligation, provided that the parent company or standalone company prepares a similar communication, accessible free of charge and in electronic format within twelve months from the closing date of the financial statements.

Regarding the content of the reporting, the legislator has established that it must include a description of the activities carried out, the number of employees, the currency used for the preparation of the consolidated financial statements of the parent company, the total amount of revenues, the amount of profit or loss before income tax, undistributed profits, and, for each tax jurisdiction, the income tax accrued and paid in each fiscal year.

In the presence of a group, a list of the companies that are part of it must be provided, distinguishing between those established in the European Union and those based in non-cooperative tax jurisdictions. Additionally, for each tax jurisdiction, the following must be provided: the income tax accrued during the fiscal year, the amount of income tax paid on a cash basis, and the amount of retained earnings. If there are multiple entities of the group in the same jurisdiction, the information must be provided in aggregate.

The communication of income taxes must be filed within 12 months from the closing date of the financial statements with the business register office and published on the company’s website by the administrators. It must be available in Italian or the language commonly used in international finance and remain accessible to the public for five consecutive years from the first publication.

These publication requirements are in addition to those already existing for the international exchange of tax information, as provided by Article 8-bis2 of Directive 2011/16/EU and implemented in Italy law by Law 208 of 2015 and the Ministerial Decree of 23 December 2017. The legislative decree allows compliance with the new obligation using the data from the Country-by-Country reporting required by tax regulations, thus avoiding duplications. Through this measure, the European Union aims to encourage greater transparency regarding the taxes paid by multinationals, with the aim of combating tax avoidance.

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