In a recent Legal Update1, we discussed the emerging intersection between Tax and ESG and highlighted the various external stakeholders pressuring for greater visibility into the global tax positions of multinational companies (MNEs). One increasingly vocal stakeholder group is activist shareholders. Recently, a group of institutional investors of a Fortune 50 company initiated a shareholder proposal calling for the company to publicly disclose where and how much tax it pays around the world. This is only the latest in what is becoming a regular request by activist shareholders.

Specifically, the shareholder proposal called for the company to adopt the Global Reporting Initiative (GRI) Standard 207 dealing with tax disclosure. As discussed in our prior update, GRI is a non-profit organization focused on setting global standards for sustainability. Companies may voluntarily adopt GRI's standards for sustainability reporting. In late 2019, GRI 207 was introduced, which sets forth standards by which companies may disclose their management's approach to tax together with a country-by-country tax reporting. Companies that have (1) elected to use GRI's standards and (2) identified tax as a material topic are subject to GRI 207. Specifically, Disclosure 207-1 sets forth guidelines by which a company would report its approach to tax, including, for example, whether it has a tax strategy and its approach to regulatory compliance. Disclosure 207-2 provides guidelines for a company to disclose its tax risk management and overall compliance strategy. Disclosure 207-3 provides guidelines to disclose a description of the approach to stakeholder engagement and management of stakeholder concerns related to tax. Finally, Disclosure 207-4 provides a version of country-by-county reporting that a company should make public.

Country-by-country reporting is nothing new to MNEs. Since 2016, MNEs with gross revenue in excess of ?750 million (or $850 million) have been required to report certain financial information to tax administrations on a country-by-country basis, along with their income tax return. The U.S. Department of Treasury introduced the reporting requirement for U.S. MNEs in response to Action 13 of the OECD Base Erosion and Profit Shifting Action Plan. CbC reports are shared automatically between foreign tax authorities in accord with various agreements between countries to do so.

Under current law, CbC reports are considered tax return information and are not subject to public disclosure. However, a new Directive issued by the European Union on November 11, 2021, will require public country-by-country reporting for MNEs operating in the EU. And this matters practically to U.S. MNEs, since it applies directly to any MNE that so much as "operates" in the EU. EU Member States have 18 months to implement the directive into domestic law. For calendar year taxpayers, the reporting obligation may not take effect until 2025, although certain EU Member States may require an early implementation of the rules.

While mandated public country-by-country reporting is still a few years away, the pressure is increasing for multinational enterprises to do so voluntarily. As we discussed in our recent Legal Update and in subsequent blog posts,2 companies that are prepared to respond to this increased pressure for tax transparency will be better equipped to control their tax narrative.


1. Tax Meets ESG: Emerging Corporate Governance Risks and Opportunities | Perspectives & Events | Mayer Brown

2. Tax Meets ESG: Preparing for Bad Press | Perspectives & Events | Mayer Brown

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