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Country-by-country reporting by large companies in the European Commission proposal
on non-financial information
The new Accounting Directive1 aims at reducing unnecessary administrative costs on small
companies by simplifying the preparation of financial statements and reducing the amount of
information required by small companies in the notes to financial statements. Together with the
obligations to disclose non-financial information that are currently being agreed upon, the new
Directive introduces obligations for large extractive and logging companies to report on the
payments they make to governments (country-by-country reporting). The new requirements created
a framework where businesses and governments must disclose revenues from natural resources,
contribute to the transparency and fight against tax fraud and corruption.
The European Union, considering the increasing demand for transparency, is now trying to go even
further. On 23 May the European Council issued a set of Conclusions on taxation calling for swift
action on a number of issues. This included a statement that "the proposal amending the Directives
on disclosure of non-financial and diversity information by large companies and groups will be
examined notably with a view to ensuring country-by-country reporting by large companies and
groups."2 European Commissioner for internal market and services, Michel Barnier, echoed the
Council recommendation shortly after stating that the reporting obligations along the lines of the
ones already adopted for the banking sector in the Capital Requirements Directive (CRD) should
apply to all large companies and groups. The CRD provisions will require European banks and other
institutions to publicly disclose information related to taxation and payments as an annex to their
financial statements, on a country-by-country basis.3 The European Parliament and Commission are
now looking to incorporate this country-by-country obligation for large companies in the proposal on
non-financial information disclosure.
Large companies’ payments of corporate taxes positively contribute to the country’s social welfare
and, more generally, to the larger economic system. However, transparency of such payments is
becoming a crucial international debate which involved civil society, investors, private sectors and
policy makers. Due to the increasing demand for this accurate information, policy makers worldwide
are considering ways to introduce policies and regulations in this area. Introducing this element in
the European Commission’s proposal would be a significant step forward in ensuring meaningful and
transparent contributions of businesses to the society.
In practical terms, should this requirement be introduced, there would be no need for new reporting
frameworks. The G4 guidelines, include all the issues covered by the proposal on non-financial
information disclosure including the taxation, therefore, companies would be able to use just one
tool to report on all topics required. By country breakdown of tax payments has been part of GRI’s
Guidelines since the G3 edition and still is included in G4. Specifically, indicator G4 EC1 to report on
Direct Economic Value Generated and Distributed also refers to payments to government4, however,
1
Repealing the 4th and 7th Accounting Directives on Annual and Consolidated Accounts (78/660/EEC and 83/349/EEC).
European Council Conclusions 22/05/13. www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/137197.pdf.
3 The information includes: 1) Entity names, nature of activities and geographical location, 2) Turnover, 3) Number of
employees. In addition, from the same date, CRD IV regulated Institutions must disclose the following country by country
information to the European Commission: 4) Pre-tax profit or loss, 5) Taxes paid, 6) Subsidies received.
http://europa.eu/rapid/press-release_MEMO-13-272_en.htm?locale=en.
4 G4 Implementation Manual, page 69: “Payments to government: All organization taxes (such as corporate, income,
property) and related penalties paid at the international, national, and local levels. This figure does not include deferred
taxes because they may not be paid. For organizations operating in more than one country, report taxes paid by country.
Report the definition of segmentation used.”
2
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this part of the indicator is only sporadically reported. This new EU requirement would be an
important incentive to increase the number of companies reporting on this issue.
This document is part of a series of pagers on topics related to Sustainability Reporting and should be read in
conjunction with the Global Reporting Initiative (GRI) non-paper on the Renewed EU Strategy 2011–2014 for
Corporate Social Responsibility (CSR) and the European Commission’s proposal for a Directive on non-financial
information disclosure available at:
www.globalreporting.org/resourcelibrary/GRI-non-paper-Report-or-Explain.pdf
GRI contact person
Pietro Bertazzi - Senior Manager Policy and Government Affairs
+31 (0)20 531 00 64
[email protected]
The Global Reporting Initiative (GRI) promotes the use of sustainability reporting as a way for organizations to
become more sustainable and contribute to a sustainable global economy.
GRI’s mission is to make sustainability reporting standard practice. To enable all companies and organizations
to report their economic, environmental, social and governance performance, GRI produces free Sustainability
Reporting Guidelines.
GRI is an international not-for-profit organization, with a network-based structure. Its activity involves
thousands of professionals and organizations from many sectors, constituencies and regions.
www.globalreporting.org