Country-by-Country Reporting by European Financial Firms Very Opaque


The study by ZEW Mannheim and the University of Mannheim shows that imprecise specifications are the trigger for weaknesses in implementation.

Country-by-country reporting (CbCR) is being implemented very heterogeneously by EU Member States and the reporting financial firms. Instead of providing more tax transparency, the reports lack comparability and there are problems with their interpretation. The reason for this are imprecise specifications regarding the calculation and presentation of CbCR data. This is the conclusion of a study by ZEW Mannheim and the University of Mannheim. According to the study’s conclusion, the European Commission should therefore initiate clear and uniform guidelines as well as definitions for compiling a CbCR report before extending the reporting obligation to all multinational companies.

Through the Capital Requirements Directive IV, multinational financial firms that have either their headquarters or at least a subsidiary or branch in the EU are required to publish certain data under the CbCR. The report is intended to provide the tax authorities and the public with information on overall activity, such as subsidiaries, employees, profits and tax payments. By doing so, the EU wants to ensure greater tax transparency and curb aggressive tax planning.

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Content in the CbCR reports is often obscure

The study is the first to examine the heterogeneity and (in-)transparency of the CbCR reports provided by these financial companies for the financial years 2014 to 2016. Researchers analysed the content level of the CbCR reports, such as the way reportable positions are calculated and the provision of additional information. With regard to the content level of the reports, British (41.35 points out of a maximum of 100) as well as German (38.91 points) companies are best performing, whereas Austrian (23.04 points) companies perform the worst. Regarding the readability of data, companies located in Germany (72.45 points) and the Netherlands (67.86) rank at the top. Italian banking groups rank at the bottom (60.52 points).

Whilst there is hardly any difference between the countries concerning the readability of the CbCR reports, the way in which the content has been presented definitely leaves room for improvement. 80 per cent of the companies provide no information on the scope of consolidation. More than two thirds of all reports lack information on the underlying data source or on the treatment of intra-group transactions in the calculation of profit before tax and turnover. Approximately 70 per cent of companies provide no information on the extent to which CbCR and consolidated financial statements are consistent. “The lack of clear and consistent guidelines leads to heterogeneous reporting behaviour between the different banking groups and countries. This makes it difficult to compare reports and increases the risk of misinterpretation,” says Professor Christoph Spengel, Research Associate at ZEW Mannheim.

British and German CbCR reports are most transparent

Companies headquartered in the United Kingdom (44.75 points) and Germany (44.43 points) achieve the highest level of transparency in the overall ranking of CbCR. The lowest rating goes to companies based in the Netherlands (32.42 points) and Austria (29.95 points). “We observe that large banking groups and those heavily involved in tax havens disclose their activities in a comparatively transparent manner. Since these banking groups presumably attract more public interest than smaller banking groups, the greater transparency in their CbCR reports could be driven by a desire to prevent false accusations of tax avoidance,” says Verena Dutt, researcher in ZEW’s “Corporate Taxation and Public Finance” Department.

Before the European Commission goes ahead with proposals to expand the public CbCR obligation to all multinational companies operating in the EU, regulatory loopholes identified in the study should first be closed. “Generally speaking, Member States’ national laws do not close these regulatory gaps and provide leeway for the reporting financial firms,” criticises Spengel. Therefore, the researchers recommend that the underlying data source and the applied consolidation scope of CbCR be specified and that uniform definitions of the reportable positions be set, which should apply for all financial firms. “This would be an important step to enable a consistent interpretation of the reports across different banking groups and countries and to increase the level of information in the CbCR reports. For example, the OECD template provides a standardised model that could be used,” says Verena Dutt.