Executive summary

The Spanish Government published legislation to implement the EU Public CbCR Directive in the Official Gazette on 22 December 2022. EU Member States must transpose the EU Public CbCR Directive into national legislation by 22 June 2023 and the first financial year of reporting will be the year starting on or after 22 June 2024 at the latest.

According to the EU Public CbCR Directive (see EY Global Tax Alert, EU Public CbCR Directive enters into force on 21 December 2021, dated 2 December 2021 for further information), both EU-based multinational enterprises (MNEs) and non-EU based MNEs doing business in the EU through a branch or subsidiary with total consolidated revenue of more than €750 million in each of the last two consecutive financial years must disclose publicly the income taxes paid and other tax-related information such as a breakdown of the profits, revenues and employees per country. However, Spain opted to allow in-scope groups to defer in certain conditions the disclosure of commercially sensitive information for up to five years.

Detailed discussion

Background

On 1 December 2021, the EU Public CbCR directive (the Directive) was published (pdf) in the Official Journal of the EU, following its entry into force on 21 December 2021, the timeline for the Directive is as follows:

• EU Member States will have to transpose the Directive into national law by 22 June 2023.
• The first financial year of reporting on income tax information will be the year starting on or after 22 June 2024 at the latest.
• Publication is required within 12 months from the date of the balance sheet of the financial year in question.

Spain has opted for the rules to enter into force for the year starting on or after 22 June 2024. The first publication will take place within six months from the date of the balance sheet of the first financial year.

General rules under Spanish domestic law

In general, the Spanish Law has adhered to the general rules in the Directive.

However, Spain elected to allow in-scope groups to defer under certain conditions the disclosure of commercially sensitive information for up to five years. Sensitive information should be understood as information that, if made publicly available, would be seriously prejudicial to the commercial position of the MNE to which the report relates. Any omission shall be clearly indicated in the report, together with a duly reasoned explanation.

In addition, the Spanish rules are more stringent with respect to the publication deadline than the maximum provided for in the Directive, limiting it from 12 to 6 months from the end of the fiscal year.

Adequate compliance with this tax information obligation will be the responsibility of the administrative bodies of the companies concerned.

Persons required to report

• Spanish parent entities with total (global) consolidated annual revenue exceeding €750 million, in each of the last two financial years, unless the group operates in only one Member State.
• Spanish entities that are not part of a group and whose annual net turnover exceeds €750 million, unless the entity operates only in one Member State.
• Subsidiaries controlled by non-EU parent entities whose annual consolidated net consolidated turnover exceeded €750 million. In such case, the subsidiary must request from the parent entity all the necessary information to comply with the obligation according to the content discussed below. If this information is not provided, it must prepare and publish a report with the available information, indicating that its parent entity has not provided the necessary information.
• Branches of entities resident outside the EU either belonging to a group with annual consolidated net consolidated turnover exceeding €750 million, or not belonging to a group and whose annual net consolidated turnover exceeds €750 million.

The subsidiaries and branches will not be required to report when they are considered small entities. They will also be exempt from reporting where a report is drawn up by the ultimate parent entity of the group or the company not integrated in any group, and meets the following requirements:

• The report is made available free of charge: (i) on the website of the company that prepares it; (ii) in at least one of the official languages of the EU; and (iii) it is accessible within a maximum period of six months after the balance sheet date of the financial year.
• The name and registered office of a subsidiary or single branch subject to EU law which has published the report is indicated.

Information to be provided

The information to be disclosed includes:

• Name of the entity or the ultimate parent entity, in the case of group companies, the financial year concerned, the currency used, and, if applicable, a list of affiliated entities established in the EU or in various non-cooperative tax territories
• Nature of the activities
• Number of employees
• Total net turnover made
• Profit made before tax
• Amount of income tax due in the country by reason of the profits made in the current year in that country
• Amount of tax actually paid during that year
• Accumulated earnings

The information shall be disclosed separately for each Member State and must be reported using a template and a common electronic reporting format.

Publication of the report

The report must be published within six months from the fiscal year closing date, earlier than the maximum deadline included in the Directive.

The report should be accessible on the Commercial Registry and on the company’s website free of charge, for a minimum of five years.

Deferral

The Spanish legislation makes use of the option granted by the Directive to the Member States to allow the deferral of information where their disclosure would be seriously prejudicial to the commercial position of the group, providing for a deferral period of five years, but subject to its specific indication in the report, with a duly reasoned explanation.

Information concerning tax jurisdictions listed on the EU list of non-cooperative jurisdictions may never be omitted.

Penalties

No specific non-compliance penalties have been introduced to date in the Spanish legislation.

Implications

The implementation of the so-called public CbCR will be an important milestone in terms of tax transparency for which MNEs must be prepared for, requiring them to establish a strategy for the publication or transparency of their tax information and communication with different stakeholders.

The responsibility for its compliance, residing in the members of the management bodies of the companies concerned and the disclosure of its detailed content, creates a new obligation of compliance of extraordinary relevance.

This will require the companies concerned to review the information and data capture process, as well as other internal processes to ensure the quality and consistency of the information, which will require some time to adapt these processes.

In addition, businesses should closely monitor the progress on the transposition of the Directive by other Member States.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

• Nuria Redondo| nuria.redondomartinez@es.ey.com
• Juan Cobo de Guzman | juanangel.cobodeguzmanpison@es.ey.com

Ernst & Young LLP, Spanish Tax Desk, New York

• Jose A. (Jano) Bustos | joseantonio.bustos@ey.com
• Andrés Carracedo | andres.carracedo.insua1@ey.com