As the European Union (EU) considers introducing public country-by-country reporting (CBCR) for European multinationals as well as for non-EU multinationals operating in the EU, Transparency International EU (TI EU) has looked at what evidence there is about the impact of this kind of reporting in terms of company competitiveness.

The primary purpose of public CBCR is to increase companies’ accountability and transparency. Public CBCR will help raise red flags on potential cases of collusion between corrupt governments or tax authorities and big multinationals. Anomalies in the financial data may show close links to governments, which could be an indicator of corruption. This is particularly important in the developing world where there is a higher risk of regulatory capture.

One frequent objection raised by the business world against introducing measures on public reporting is the alleged negative impact they would have on the competitiveness of EU companies.

What the research found is that, while public CBC disclosures by European multinationals are on the increase, there was no evidence of negative impact of public CBC or SBS reporting on standard measures of competitiveness.

43% of the European public CBC reporters assessed maintained or improved their competitiveness, the majority of companies assessed maintained or improved their revenue performance, and over 90% of the Indian companies assessed have a revenue growth comparable or higher than their sector’s median performance.

These findings come at a critical time as the EU discusses CBCR-related legislation. Transparency International EU makes the following recommendations to the EU institutions and Member States:

(1) extend public country-by-country reporting legislation, by either by adopting the proposal made by the European Parliament in July 2015 as part of the review of the Shareholders’ Rights Directive or by strongly improving the European Commission’s recent proposal as part of the Accounting Directive.

(2) require companies to publish lists of all their subsidiaries, including subsidiaries, affiliates, joint ventures and branches.

Breaking down company performance information further at a country level is an important step towards monitoring financial flows for the shared benefit of countries and communities alike.

Report by the European Network on Debt and Development