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FEE points out that a company that reports under IFRS should already disclose information for its reportable segments in its financial statements under the requirements of IFRS 8 – Operating Segments. An entity is required to present one major report either using geographical or operational factors. If the primary report the company prepares is the one using geographical factors, then it should include the amount of tax expense/income [paragraph 23 (h)] per reportable segment (and under most national GAAP similar requirements exist).
Despite the fact that reportable segments do not necessarily represent a single country (since the threshold for identifying a reportable segment is based on revenue, profits or assets and not on countries) it is highly probable that there would be a certain overlap of the requirements between IFRS 8 and CBCR reporting. FEE also argues that the disclosures related to the reportable segments of an entity under the IFRS 8 requirements present to the general users of the financial statements all material financial information. In addition to administrative burdens, cost may also be increased by the terms used in the requirements that lack legal specificity and may be a source of uncertainty.
In addition, FEE raises the issue of increased cost for preparers due to potential duplication of reporting. As explained above some information is already available under other financial reporting requirements, however in order to prepare the reports under CBCR, entities would most probably need more disaggregated information. Such information would be costly to prepare since preparers would need to invest in new systems, in new processes and in man-hours. In this respect, it should also be noted that it is fairly common for banks to operate through branches in other European countries, which might not necessitate the preparation of country-specific financial and other information.
FEE regards that the currently proposed requirement to disclose the profit before taxation, the tax on profit and subsidies on a country-by-country basis as having little intrinsic benefit for the potential users of the information. This information is, by itself, insufficient to obtain an accurate appreciation of the entity’s compliance with local tax laws. It is interesting to note that the OECD’s recently released guidance on country-by-country reporting of tax information (Action 13 of the BEPS project) requires disclosure of far more information and, even with this additional information, it is intended only to provide high-level information for the purposes of risk assessment. The current requirements under discussion will result in the public dissemination of a low level of “raw data” that will not permit stakeholders to draw meaningful conclusions and that will be susceptible to misinterpretation. Conversely, aiming at disclosing all necessary elements would, with no doubt, lead to a significant data overload that would not necessarily reduce the scope for confusion and misinterpretation but would certainly make the cost outweigh the benefits.
Finally, FEE would also like to indicate that the requirements of the directive are not clear and that they need a fair amount of interpretation in order to be able to be applied by financial institutions in a way that fosters consistency and enables comparison. FEE raised these points in its letter to the EBA, dated 18 February 2014, asking for clarifications on a number of matters, largely unanswered up to this date.