New tax transparency requirements for multinational enterprises

published on 12 December 2024 | reading time approx. 5 minutes

Starting with the 2025 financial statements, there are new income tax disclosure obligations for multinational enterprises. Legislative Decree no.128/2024 has given a practical shape to the objective of ensuring oversight of the strategic choices of large multinational groups in order to counter tax avoidance and increase tax transparency. What will this consist of?

In recent years, tax transparency has become a central issue internationally, especially with regard to large multinational enterprises (MNEs). Income tax reporting is a key tool which ensures that large corporations contribute fairly to the tax systems of the countries in which they operate.

Regulatory Context

At global level, the OECD has introduced the Base Erosion and Profit Shifting (BEPS) Project to counter base erosion and profit shifting in tax-privileged jurisdictions by MNEs. One of the key elements of this project is Country-by-Country Reporting (CBCR), which obliges MNEs to provide detailed reporting on the taxes paid in each country in which they operate.

At national level, with the publication of Legislative Decree no. 128/2024 in Official Gazette no. 214 of 12 September 2024, specific provisions have been inserted in Legislative Decree no. 139/2015, in particular Chapter I-bis, entitled ‘Disclosure of income tax information by certain undertakings and branches in implementation of Chapter 10-bis of Directive 2013/34/EU’ - according to which, under certain conditions, MNEs must prepare and publish an income tax disclosure.

Objectives of Tax Communication

Transparency: to provide a clear view of the economic and tax activities of MNEs;
Fairness: to ensure that taxes are paid where profits are generated;
Prevention of Evasion: to reduce opportunities for tax evasion and aggressive tax planning.

Scope of Application

The scope of application of the Income Tax Communication is covered in Article 5-ter of Legislative Decree no. 139/2015, which states that the following are required to prepare and publish an Income Tax Communication:

the parent company whose consolidated revenue, on the closing date of the consolidated financial statements, exceeds EUR 750 million for each of the last two consecutive financial years;
the autonomous company whose revenue, on the closing date of its financial statement, exceeds EUR 750 million for each of the last two consecutive financial years;
the subsidiary of a parent company of a third country which is included in the scope of consolidation of the parent company as above, whose revenue on a consolidated basis (as determined by the legislation applied to said parent company) at the closing date of its financial statement exceeds EUR 750 million for each of the last two consecutive financial years;
the branch, if certain conditions are met.

Specific exemptions

Specific exemptions from the income tax disclosure requirement are covered in Article 5-quater of Legislative Decree no. 139/2015 and, in general, refer to entities to which similar relevant sector regulations apply (e.g. those of the banking sector) and companies with a permanent establishment in one EU Member State.

Content of the communication

The content of the Income Tax Communication is covered in Article 5-quinquies of Legislative Decree No. 139/2015. The main information is as follows:

name of the company subject to the reporting obligation, the relevant financial year and the currency used in the communication;
in the case of a parent company, the list of undertakings subject to consolidation for the relevant financial year, with a separate indication for those undertakings established in the EU and those established in non-cooperative jurisdictions for tax purposes;
a brief description of the nature of the undertakings' activities;
the number of employees on a full-time equivalent basis;
the total amount of revenue, including related party transactions;
the amount of profit or loss before income tax;
for each tax jurisdiction, the amount of income tax accrued during the relevant period and the amount of income tax paid on a cash basis;
the amount of retained earnings at the end of the reporting period.

This information may also be provided in the manner covered in Article 4 of the Ministerial Decree of 23 February 2017, issued in implementation of Article 1 paragraphs 145 and 146 of Law no. 208/2015 and the relevant implementing measures of the Revenue Agency on the subject of CBCR.

Publication and accessibility procedure

The publication and accessibility of the Income Tax Communication is covered in Article 5-sexies of Legislative Decree no. 139/2015. The communication must be drawn up within 12 months of the end of the financial year and filed by the directors of the company with the Register of Companies of the place where the registered office or permanent establishment is located. By the same deadline, the communication must be published on the company's website, where it must remain available to the public for a period of five years.

Other Specifications

Other specifications concerning the disclosure of income taxes are set out in Articles 5-septies, 5-octies and 5-novies of Legislative Decree no. 139/2015. In particular:

the auditors must monitor compliance with the provisions contained in Legislative Decree no. 139/2015 within the scope of the performance of their functions and report on this in the Annual Report to Shareholders;
the person in charge of conducting the statutory audit of the accounts of the companies required to draw up the communication must check whether or not this obligation applies and that the directors have prepared and published the communication, stating in the audit report that they have carried out such checks;
there are administrative fines and sanctions for failure to file and late filing of the communication with the Register of Companies and for putting false information therein or failing to insert required information.

Starting date

The provisions apply to financial statements relating to financial years beginning on or after 22 June 2024. Therefore, for entities whose financial years begin in January, the first financial statements drawn up according to these new provisions will be those of 2025.