Public country-by-country reporting puts U.S. multinationals under scrutiny

What U.S. MNEs report under CbC rules

Under the OECD's base erosion and profit shifting (BEPS) Action 13 initiative, MNEs are required to provide tax authorities with a high-level country-by-country overview of how they allocate revenue, profits, taxes and economic activity across jurisdictions. The primary purpose of CbC reporting is to facilitate transfer pricing and other BEPS risk assessments by tax authorities.

In the United States, the CbC reporting framework requires the ultimate parent entity of a U.S. MNE with annual revenue of at least $850 million for the immediately preceding reporting period to file Form 8975 with the IRS (section 6038; Reg. section 1.6038-4).

Form 8975 requires jurisdiction-level reporting of related-party and unrelated-party revenue, profit or loss before income tax, income tax paid and accrued, stated capital, accumulated earnings, number of employees, tangible assets and business activities of constituent entities.

As originally implemented, Form 8975 information was deemed confidential and exchanged only among tax authorities; it was never intended to serve as a public reporting mechanism or a means for public dissemination.

However, policymakers globally increasingly view tax transparency as a public accountability tool and are adopting public CbC reporting regimes that allow stakeholders outside tax administrations—including investors, media organizations, NGOs, employees, regulators and competitors—to evaluate where MNEs generate profits and pay taxes.

As a result, U.S. MNEs should be aware that the Form 8975 information treated as confidential under the U.S. CbC reporting regime may be subject to expanded public disclosure in non-U.S. jurisdictions where they operate, under information-sharing protocols with those jurisdictions’ tax authorities.

Public CbC reporting regimes require MNEs to publicly disclose specified CbC information within a prescribed period following the fiscal year-end. Depending on the applicable jurisdictional rules, these disclosures may need to be made through a public registry, government portal, or the MNE’s website and remain publicly accessible for a specified period.

MNEs headquartered outside the reporting jurisdiction may also be obligated to publish this reporting information through local subsidiaries, branches, or other in-scope entities for fiscal years beginning in 2024 and beyond. Public CbC reporting directives adopted by the EU and Australia may have especially significant impact on U.S. MNEs’ disclosures.

EU public CbC reporting expands tax transparency

The EU public CbC reporting directive applies to MNE groups with consolidated revenue exceeding 750 million euros in each of the two preceding financial years and a qualifying presence within the EU. The rules generally apply to fiscal years beginning on or after June 22, 2024, meaning that many calendar-year groups will first report for the 2025 financial year, with initial public disclosures due in 2026.

For groups not headquartered in the EU, including many U.S.-parented MNEs, the directive may apply where the group operates through qualifying medium-sized or large EU subsidiaries or qualifying EU branches that meet the applicable local thresholds.

• Unlike Form 8975, which is filed confidentially with tax authorities, information reported under the EU public CbC reporting directive must be made publicly available through designated filing platforms and, in certain cases, company websites. For non-EU-headquartered groups, if the ultimate parent entity does not publish the required information, qualifying EU subsidiaries or branches may be required to publicly disclose the report in accordance with local implementation rules.
• Under the EU framework, tax and financial information generally is not disclosed on a jurisdiction-by-jurisdiction basis for every country in which a group operates. Instead, information for each EU member state must be reported separately, as must information relating to jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes (commonly referred to as the EU blacklist).

Information for all other jurisdictions is typically reported on an aggregated basis. For example, a U.S.-parented multinational with operations in Germany, the Netherlands, Panama, Canada, and the U.S. would generally disclose Germany and the Netherlands separately as EU member states, list Panama separately as an EU blacklist jurisdiction and aggregate the United States and Canada within the remaining jurisdictions category. This reporting approach differs significantly from the OECD CbC framework and may affect how external stakeholders will interpret publicly disclosed information.

Australia’s public CbC reporting rules go further

Australia's public CbC reporting framework, which applies to income years commencing on or after July 1, 2024, is broader than the EU public CbC reporting directive in several respects. The regime applies to large MNEs with annual global income of at least AU$1 billion and a sufficient Australian presence.

In addition to jurisdiction-specific tax and financial disclosures, the Australian regime may require supplemental information, including narrative disclosures regarding a group's tax strategy and governance framework, as well as information derived from or reconciled to audited consolidated financial statements. Therefore, the scope of public disclosure may be more extensive than under the EU framework, increasing the compliance, governance, and reputational considerations for MNEs with operations in Australia.

Accordingly, U.S.-headquartered multinational groups may be required to publicly disclose information derived from the same underlying data used for U.S. CbC reporting, even though the United States does not currently impose a public CbC reporting regime.

Consequently, tax and financial information that has historically been reported confidentially to tax authorities may become accessible to a broader range of stakeholders through Australia's public CbC reporting requirements.

How public CbC reporting affects U.S. MNEs

Public tax disclosures may increase scrutiny from stakeholders

The most significant change may be the audience reviewing the information. Public CbC reporting introduces new stakeholders who may evaluate tax data without the context typically available during tax examinations.

Jurisdictions with high profitability, low employee counts, significant intangible ownership, significant related-party income or differences between taxes paid and accounting profit may attract attention even where transfer pricing positions are technically supportable and compliant with applicable laws.

Public disclosures may draw additional tax authority scrutiny

Tax authorities increasingly use advanced analytics, artificial intelligence tools and cross-border information exchanges to assess risk. Publicly disclosed information may be compared against transfer pricing documentation, local tax returns, statutory accounts and Pillar Two filings.

Unexpected trends, significant year-over-year fluctuations or inconsistencies among reports may increase the likelihood of tax authority inquiries.

CbC reporting may affect Pillar Two readiness

Consistency among CbC reports, transfer pricing documentation, Pillar Two calculations and financial statements is increasingly important. Misaligned data may create compliance risks, audit challenges, and difficulties explaining reported outcomes across jurisdictions.

Pillar Two readiness

CbC reporting data may play an important role in Pillar Two compliance and transitional CbC reporting safe harbor calculations. To benefit from the transitional CbC reporting safe harbor, MNEs must generally rely on a qualified CbC report prepared using qualified financial statement data. Weak data governance or reliance on inconsistent data sources could jeopardize safe harbor eligibility and increase compliance costs.

Preparing for public CbC reporting requirements

Companies should establish clear ownership over CbC data collection, validation, and reporting processes, while periodically assessing jurisdictions where local filing or public reporting obligations may arise.

Public country-by-country reporting readiness checklist

U.S.-parented groups with revenues approaching or exceeding the 750-million-euro EU threshold or the AU$1 billion threshold may consider proactively evaluating and preparing readiness for public CbC reporting obligations.

A comprehensive readiness assessment extends beyond determining whether reporting requirements apply, focusing further on the organization’s ability to produce accurate, consistent and defensible disclosures across multiple tax and financial reporting frameworks. Key areas to assess include:

• Applicability of reporting obligations: Determine whether the group is subject to public CbC reporting requirements in the EU, Australia or other jurisdictions adopting similar transparency measures.
• Data quality and consistency: Evaluate whether CbC data can be reconciled consistently to consolidated financial statements, transfer pricing documentation, Pillar Two calculations, and other regulatory disclosures. Differences in source data, methodologies, or reporting assumptions may create compliance and audit risks.
• Alignment with transfer pricing positions: Ensure that profit allocations reflected in CbC reports are consistent with the group's transfer pricing policies, value creation narrative, and documented business activities. Misalignment may attract additional scrutiny from tax authorities and other stakeholders.
• Support for key reporting metrics: Verify that employee counts, tangible assets, tax payments, tax accruals and other reportable metrics are supported by robust documentation and reliable data sources.
• Pillar Two readiness: Assess whether CbC data can support transitional CbC report safe harbor calculations and other Pillar Two requirements. Inconsistent or incomplete data may increase compliance burdens and jeopardize safe harbor eligibility.
• Public disclosure and reputational considerations: Consider how external stakeholders may interpret publicly disclosed information. Significant profits in low-substance jurisdictions, unusual effective tax rates or substantial year-over-year fluctuations may attract attention even when the underlying tax positions are fully supportable.
• Governance and communication protocols: Establish clear ownership for data collection, validation, and reporting processes, while developing internal review procedures and communication strategies before information becomes publicly available.

Preparing for a new era of public tax transparency

CbC reporting is no longer solely a confidential tax compliance exercise. Although Form 8975 remains nonpublic in the U.S., U.S.-parented MNEs may now face public disclosure obligations through operations in the EU, Australia and other jurisdictions adopting similar transparency regimes.

As these rules expand, having CbC data that is accurate, consistent and supportable across tax, financial and public reporting frameworks will be crucial. Proactive coordination among tax, finance, transfer pricing, legal and communications teams will be critical to managing regulatory obligations, mitigating reputational risk and responding effectively to increased stakeholder scrutiny.