New group reporting standard on income tax information enacted Teaser

The Accounting Standards Committee of Germany (ASCG) [Deutsches Rechnungslegungs Standards Committee e.V. (DRSC)], the German national body that sets standards on group financial reporting, has submitted a new standard to the German parliament for it to decide on. The Act on the Implementation of Directive (EU) 2021/2101 regarding the disclosure of income tax information by certain companies and branches was enacted on 22 June 2023. 

Disclosure of income tax information has been included in the new sections of the German Commercial Code [Handelsgesetzbuch – HGB] 342 to 342o with the intention to make ‘multinational’ companies and groups with larger sales revenues make transparent the total amount of income tax and corporate tax obligations, as well as actual income tax and corporate tax payments, they pay in the countries in which they do business and generate profits.

Entities included in its scope:

The disclosure requirement generally applies to securities institutions, payment institutions and e-money institutions, as well as to pension funds:

• domestic top-level parent companies with foreign operations
• domestic subsidiaries of top-level parent companies in third countries (domiciled outside the EU or EEA)
• domestic branches of corporations in third countries where the ultimate parent company also has its registered office in a third country
• domestic unrelated companies with a foreign connection, or
• domestic branches of unrelated corporations in third countries

‘Foreign operations’ in terms of the new law means that either the parent company or any affiliated company as defined by section 271 (2) of the German Commercial Code has a branch, a business establishment, a fixed place of business or a permanent business activity in at least one other country.

New disclosures:

The new income tax report must include the following disclosures:

• Type of operations
• Number of employees 
• Total income 
• Pre-tax income
• Income tax/corporate income tax obligation for the reporting period, as well as the actual income/corporate income tax paid in the reporting period
• Amount of retained profits.

The reporting is to be carried out on a country-by-country basis (public country-by-country reporting). For foreign countries that are not on the EU ‘blacklist’ of non-cooperative tax jurisdictions or have not been on the ‘grey list’ for two years in a row, the information may also be presented on an aggregated basis, and is to be published on the internet. Furthermore, this Income Tax Information Report needs to be submitted to the Business Register [Unternehmensregister] within twelve months of the balance sheet date.

Time to act

Filing an Income Tax Information Report will be compulsory for financial years beginning after 21 June 2024, so typically for the financial year 2025. Though there is some lead time, this should be used to implement group-wide processes and controls to gather the relevant data. The Accounting Standards Committee of Germany has published a briefing paper [on the subject] on their website: www.drsc.de.