Article 23 Exemptions from consolidation
1. Small groups shall be exempted from the obligation to draw up consolidated financial statements and a consolidated management report, except where any affiliated undertaking is a public-interest entity. 2. Member States may exempt medium-sized groups from the obligation to draw up consolidated financial statements and a consolidated management report, except where any affiliated undertaking is a public-interest entity. 3. Notwithstanding paragraphs 1 and 2 of this Article, a Member State shall, in the following cases, exempt from the obligation to draw up consolidated financial statements and a consolidated management report any parent undertaking (the exempted undertaking) governed by its national law which is also a subsidiary undertaking, including a public-interest entity unless that public-interest entity falls under point (1)(a) of Article 2, the own parent undertaking of which is governed by the law of a Member State and: (a) the parent undertaking of the exempted undertaking holds all of the shares in the exempted undertaking. The shares in the exempted undertaking held by members of its administrative, management or supervisory bodies pursuant to a legal obligation or an obligation in its memorandum or articles of association shall be ignored for this purpose; or (b) the parent undertaking of the exempted undertaking holds 90 % or more of the shares in the exempted undertaking and the remaining shareholders in or members of the exempted undertaking have approved the exemption. 4. The exemptions referred to in paragraph 3 shall fulfil all of the following conditions: (a) the exempted undertaking and, without prejudice to paragraph 9, all of its subsidiary undertakings are consolidated in the financial statements of a larger body of undertakings, the parent undertaking of which is governed by the law of a Member State; (b) the consolidated financial statements referred to in point (a) and the consolidated management report of the larger body of undertakings are drawn up by the parent undertaking of that body, in accordance with the law of the Member State by which that parent undertaking is governed, in accordance with this Directive or international accounting standards adopted in accordance with Regulation (EC) No 1606/2002; (c) in relation to the exempted undertaking the following documents are published in the manner prescribed by the law of the Member State by which that exempted undertaking is governed, in accordance with Article 30: (i) the consolidated financial statements referred to in point (a) and the consolidated management report referred to in point (b), (ii) the audit report, and (iii) where appropriate, the appendix referred to in paragraph 6. That Member State may require that the documents referred to in points (i), (ii) and (iii) be published in its official language and that the translation be certified; (d) the notes to the annual financial statements of the exempted undertaking disclose the following: (i) the name and registered office of the parent undertaking that draws up the consolidated financial statements referred to in point (a), and (ii) the exemption from the obligation to draw up consolidated financial statements and a consolidated management report. 5. In cases not covered by paragraph 3, a Member State may, without prejudice to paragraphs 1, 2 and 3 of this Article, exempt from the obligation to draw up consolidated financial statements and a consolidated management report any parent undertaking (the exempted undertaking) governed by its national law which is also a subsidiary undertaking, including a public-interest entity unless that public-interest entity falls under point (1)(a) of Article 2, the parent undertaking of which is governed by the law of a Member State, provided that all the conditions set out in paragraph 4 are fulfilled and provided further: (a) that the shareholders in or members of the exempted undertaking who own a minimum proportion of the subscribed capital of that undertaking have not requested the preparation of consolidated financial statements at least six months before the end of the financial year; (b) that the minimum proportion referred to in point (a) does not exceed the following limits: (i) 10 % of the subscribed capital in the case of public limited liability companies and limited partnerships with share capital; and (ii) 20 % of the subscribed capital in the case of undertakings of other types; (c) that the Member State does not make the exemption subject to: (i) the condition that the parent undertaking, which prepared the consolidated financial statements referred to in point (a) of paragraph 4, is governed by the national law of the Member State granting the exemption, or (ii) conditions relating to the preparation and auditing of those financial statements. 6. A Member State may make the exemptions provided for in paragraphs 3 and 5 subject to the disclosure of additional information, in accordance with this Directive, in the consolidated financial statements referred to in point (a) of paragraph 4, or in an appendix thereto, if that information is required of undertakings governed by the national law of that Member State which are obliged to prepare consolidated financial statements and are in the same circumstances. 7. Paragraphs 3 to 6 shall apply without prejudice to Member State legislation on the drawing-up of consolidated financial statements or consolidated management reports in so far as those documents are required: (a) for the information of employees or their representatives; or (b) by an administrative or judicial authority for its own purposes. 8. Without prejudice to paragraphs 1, 2, 3 and 5 of this Article, a Member State which provides for exemptions under paragraphs 3 and 5 of this Article may also exempt from the obligation to draw up consolidated financial statements and a consolidated management report any parent undertaking (the exempted undertaking) governed by its national law which is also a subsidiary undertaking, including a public-interest entity unless that public-interest entity falls under point (1)(a) of Article 2, the parent undertaking of which is not governed by the law of a Member State, if all of the following conditions are fulfilled: (a) the exempted undertaking and, without prejudice to paragraph 9, all of its subsidiary undertakings are consolidated in the financial statements of a larger body of undertakings; (b) the consolidated financial statements referred to in point (a) and, where appropriate, the consolidated management report are drawn up: (i) in accordance with this Directive, (ii) in accordance with international accounting standards adopted pursuant to Regulation (EC) No 1606/2002, (iii) in a manner equivalent to consolidated financial statements and consolidated management reports drawn up in accordance with this Directive, or (iv) in a manner equivalent to international accounting standards as determined in accordance with Commission Regulation (EC) No 1569/2007 of 21 December 2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament and of the Council ( 17 ) ; (c) the consolidated financial statements referred to in point (a) have been audited by one or more statutory auditor(s) or audit firm(s) authorised to audit financial statements under the national law governing the undertaking which drew up those statements. Points (c) and (d) of paragraph 4 and paragraphs 5, 6 and 7 shall apply. 9. An undertaking, including a public-interest entity, need not be included in consolidated financial statements where at least one of the following conditions is fulfilled: (a) in extremely rare cases where the information necessary for the preparation of consolidated financial statements in accordance with this Directive cannot be obtained without disproportionate expense or undue delay; (b) the shares of that undertaking are held exclusively with a view to their subsequent resale; or (c) severe long-term restrictions substantially hinder: (i) the parent undertaking in the exercise of its rights over the assets or management of that undertaking; or (ii) the exercise of unified management of that undertaking where it is in one of the relationships defined in Article 22(7). 10. Without prejudice to point (b) of Article 6(1), Article 21 and paragraphs 1 and 2 of this Article, any parent undertaking, including a public-interest entity, shall be exempted from the obligation imposed in Article 22 if: (a) it only has subsidiary undertakings which are immaterial, both individually and collectively; or (b) all its subsidiary undertakings can be excluded from consolidation by virtue of paragraph 9 of this Article.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 23 Exemptions from consolidation):
1. Small groups shall be exempted from the obligation to draw up consolidated financial statements and a consolidated management report, except where any affiliated undertaking is a public-interest entity. 2. Member States may exempt medium-sized groups from the obligation to draw up consolidated financial statements and a consolidated management report, except where any affiliated undertaking is a public-interest entity. 3. Notwithstanding paragraphs 1 and 2 of this Article, a Member State shall, in the following cases, exempt from the obligation to draw up consolidated financial statements and a consolidated management report any parent undertaking (the exempted undertaking) governed by its national law which is also a subsidiary undertaking, including a public-interest entity unless that public-interest entity falls under point (1)(a) of Article 2, the own parent undertaking of which is governed by the law of a Member State and: (a) the parent undertaking of the exempted undertaking holds all of the shares in the exempted undertaking. The shares in the exempted undertaking held by members of its administrative, management or supervisory bodies pursuant to a legal obligation or an obligation in its memorandum or articles of association shall be ignored for this purpose; or (b) the parent undertaking of the exempted undertaking holds 90 % or more of the shares in the exempted undertaking and the remaining shareholders in or members of the exempted undertaking have approved the exemption. 4. The exemptions referred to in paragraph 3 shall fulfil all of the following conditions: (a) the exempted undertaking and, without prejudice to paragraph 9, all of its subsidiary undertakings are consolidated in the financial statements of a larger body of undertakings, the parent undertaking of which is governed by the law of a Member State; (b) the consolidated financial statements referred to in point (a) and the consolidated management report of the larger body of undertakings are drawn up by the parent undertaking of that body, in accordance with the law of the Member State by which that parent undertaking is governed, in accordance with this Directive or international accounting standards adopted in accordance with Regulation (EC) No 1606/2002; (c) in relation to the exempted undertaking the following documents are published in the manner prescribed by the law of the Member State by which that exempted undertaking is governed, in accordance with Article 30: (i) the consolidated financial statements referred to in point (a) and the consolidated management report referred to in point (b), (ii) the audit report, and (iii) where appropriate, the appendix referred to in paragraph 6. That Member State may require that the documents referred to in points (i), (ii) and (iii) be published in its official language and that the translation be certified; (c) in relation to the exempted undertaking the following documents are published in the manner prescribed by the law of the Member State by which that exempted undertaking is governed, in accordance with Article 30: (i) the consolidated financial statements referred to in point (a) and the consolidated management report referred to in point (b), (ii) the audit report, and (iii) where appropriate, the appendix referred to in paragraph 6. That Member State may require that the documents referred to in points (i), (ii) and (iii) be published in its official language and that the translation be certified; (d) the notes to the annual financial statements of the exempted undertaking disclose the following: (i) the name and registered office of the parent undertaking that draws up the consolidated financial statements referred to in point (a), and (ii) the exemption from the obligation to draw up consolidated financial statements and a consolidated management report. (d) the notes to the annual financial statements of the exempted undertaking disclose the following: (i) the name and registered office of the parent undertaking that draws up the consolidated financial statements referred to in point (a), and (ii) the exemption from the obligation to draw up consolidated financial statements and a consolidated management report. 5. In cases not covered by paragraph 3, a Member State may, without prejudice to paragraphs 1, 2 and 3 of this Article, exempt from the obligation to draw up consolidated financial statements and a consolidated management report any parent undertaking (the exempted undertaking) governed by its national law which is also a subsidiary undertaking, including a public-interest entity unless that public-interest entity falls under point (1)(a) of Article 2, the parent undertaking of which is governed by the law of a Member State, provided that all the conditions set out in paragraph 4 are fulfilled and provided further: (a) that the shareholders in or members of the exempted undertaking who own a minimum proportion of the subscribed capital of that undertaking have not requested the preparation of consolidated financial statements at least six months before the end of the financial year; (b) that the minimum proportion referred to in point (a) does not exceed the following limits: (i) 10 % of the subscribed capital in the case of public limited liability companies and limited partnerships with share capital; and (ii) 20 % of the subscribed capital in the case of undertakings of other types; (b) that the minimum proportion referred to in point (a) does not exceed the following limits: (i) 10 % of the subscribed capital in the case of public limited liability companies and limited partnerships with share capital; and (ii) 20 % of the subscribed capital in the case of undertakings of other types; (c) that the Member State does not make the exemption subject to: (i) the condition that the parent undertaking, which prepared the consolidated financial statements referred to in point (a) of paragraph 4, is governed by the national law of the Member State granting the exemption, or (ii) conditions relating to the preparation and auditing of those financial statements. (c) that the Member State does not make the exemption subject to: (i) the condition that the parent undertaking, which prepared the consolidated financial statements referred to in point (a) of paragraph 4, is governed by the national law of the Member State granting the exemption, or (ii) conditions relating to the preparation and auditing of those financial statements. 6. A Member State may make the exemptions provided for in paragraphs 3 and 5 subject to the disclosure of additional information, in accordance with this Directive, in the consolidated financial statements referred to in point (a) of paragraph 4, or in an appendix thereto, if that information is required of undertakings governed by the national law of that Member State which are obliged to prepare consolidated financial statements and are in the same circumstances. 7. Paragraphs 3 to 6 shall apply without prejudice to Member State legislation on the drawing-up of consolidated financial statements or consolidated management reports in so far as those documents are required: (a) for the information of employees or their representatives; or (b) by an administrative or judicial authority for its own purposes. 8. Without prejudice to paragraphs 1, 2, 3 and 5 of this Article, a Member State which provides for exemptions under paragraphs 3 and 5 of this Article may also exempt from the obligation to draw up consolidated financial statements and a consolidated management report any parent undertaking (the exempted undertaking) governed by its national law which is also a subsidiary undertaking, including a public-interest entity unless that public-interest entity falls under point (1)(a) of Article 2, the parent undertaking of which is not governed by the law of a Member State, if all of the following conditions are fulfilled: (a) the exempted undertaking and, without prejudice to paragraph 9, all of its subsidiary undertakings are consolidated in the financial statements of a larger body of undertakings; (b) the consolidated financial statements referred to in point (a) and, where appropriate, the consolidated management report are drawn up: (i) in accordance with this Directive, (ii) in accordance with international accounting standards adopted pursuant to Regulation (EC) No 1606/2002, (iii) in a manner equivalent to consolidated financial statements and consolidated management reports drawn up in accordance with this Directive, or (iv) in a manner equivalent to international accounting standards as determined in accordance with Commission Regulation (EC) No 1569/2007 of 21 December 2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament and of the Council ( 17 ); (b) the consolidated financial statements referred to in point (a) and, where appropriate, the consolidated management report are drawn up: (i) in accordance with this Directive, (ii) in accordance with international accounting standards adopted pursuant to Regulation (EC) No 1606/2002, (iii) in a manner equivalent to consolidated financial statements and consolidated management reports drawn up in accordance with this Directive, or (iv) in a manner equivalent to international accounting standards as determined in accordance with Commission Regulation (EC) No 1569/2007 of 21 December 2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament and of the Council ( 17 ); (c) the consolidated financial statements referred to in point (a) have been audited by one or more statutory auditor(s) or audit firm(s) authorised to audit financial statements under the national law governing the undertaking which drew up those statements. Points (c) and (d) of paragraph 4 and paragraphs 5, 6 and 7 shall apply. 9. An undertaking, including a public-interest entity, need not be included in consolidated financial statements where at least one of the following conditions is fulfilled: (a) in extremely rare cases where the information necessary for the preparation of consolidated financial statements in accordance with this Directive cannot be obtained without disproportionate expense or undue delay; (b) the shares of that undertaking are held exclusively with a view to their subsequent resale; or (c) severe long-term restrictions substantially hinder: (i) the parent undertaking in the exercise of its rights over the assets or management of that undertaking; or (ii) the exercise of unified management of that undertaking where it is in one of the relationships defined in Article 22(7). (c) severe long-term restrictions substantially hinder: (i) the parent undertaking in the exercise of its rights over the assets or management of that undertaking; or (ii) the exercise of unified management of that undertaking where it is in one of the relationships defined in Article 22(7). 10. Without prejudice to point (b) of Article 6(1), Article 21 and paragraphs 1 and 2 of this Article, any parent undertaking, including a public-interest entity, shall be exempted from the obligation imposed in Article 22 if: (a) it only has subsidiary undertakings which are immaterial, both individually and collectively; or (b) all its subsidiary undertakings can be excluded from consolidation by virtue of paragraph 9 of this Article.
Article 24 The preparation of consolidated financial statements
1. Chapters 2 and 3 shall apply in respect of consolidated financial statements, taking into account the essential adjustments resulting from the particular characteristics of consolidated financial statements as compared to annual financial statements. 2. The assets and liabilities of undertakings included in a consolidation shall be incorporated in full in the consolidated balance sheet. 3. The book values of shares in the capital of undertakings included in a consolidation shall be set off against the proportion which they represent of the capital and reserves of those undertakings in accordance with the following: (a) except in the case of shares in the capital of the parent undertaking held either by that undertaking itself or by another undertaking included in the consolidation, which shall be treated as own shares in accordance with Chapter 3, that set-off shall be effected on the basis of book values as they stand on the date on which those undertakings are included in a consolidation for the first time. Differences arising from that set-off shall, as far as possible, be entered directly against those items in the consolidated balance sheet which have values above or below their book values; (b) a Member State may permit or require set-offs on the basis of the values of identifiable assets and liabilities as at the date of acquisition of the shares or, in the event of acquisition in two or more stages, as at the date on which the undertaking became a subsidiary; (c) any difference remaining after the application of point (a) or resulting from the application of point (b) shall be shown as goodwill in the consolidated balance sheet; (d) the methods used to calculate the value of goodwill and any significant changes in value in relation to the preceding financial year shall be explained in the notes to the financial statements; (e) where the offsetting of positive and negative goodwill is authorised by a Member State, the notes to the financial statements shall include an analysis of the goodwill; (f) negative goodwill may be transferred to the consolidated profit and loss account where such a treatment is in accordance with the principles set out in Chapter 2. 4. Where shares in subsidiary undertakings included in the consolidation are held by persons other than those undertakings, the amount attributable to those shares shall be shown separately in the consolidated balance sheet as non-controlling interests. 5. The income and expenditure of undertakings included in a consolidation shall be incorporated in full in the consolidated profit and loss account. 6. The amount of any profit or loss attributable to the shares referred to in paragraph 4 shall be shown separately in the consolidated profit and loss account as the profit or loss attributable to non-controlling interests. 7. Consolidated financial statements shall show the assets, liabilities, financial positions, profits or losses of the undertakings included in a consolidation as if they were a single undertaking. In particular, the following shall be eliminated from the consolidated financial statements: (a) debts and claims between the undertakings; (b) income and expenditure relating to transactions between the undertakings; and (c) profits and losses resulting from transactions between the undertakings, where they are included in the book values of assets. 8. Consolidated financial statements shall be drawn up as at the same date as the annual financial statements of the parent undertaking. A Member State may, however, permit or require consolidated financial statements to be drawn up as at another date in order to take account of the balance sheet dates of the largest number or the most important of the undertakings included in the consolidation, provided that: (a) that fact shall be disclosed in the notes to the consolidated financial statements and reasons given; (b) account shall be taken, or disclosure made, of important events concerning the assets and liabilities, the financial position and the profit or loss of an undertaking included in a consolidation which have occurred between that undertaking's balance sheet date and the consolidated balance sheet date; and (c) where an undertaking's balance sheet date precedes or follows the consolidated balance sheet date by more than three months, that undertaking shall be consolidated on the basis of interim financial statements drawn up as at the consolidated balance sheet date. 9. If the composition of the undertakings included in a consolidation has changed significantly in the course of a financial year, the consolidated financial statements shall include information which makes the comparison of successive sets of consolidated financial statements meaningful. This obligation may be fulfilled by the preparation of an adjusted comparative balance sheet and an adjusted comparative profit and loss account. 10. Assets and liabilities included in consolidated financial statements shall be measured on a uniform basis and in accordance with Chapter 2. 11. An undertaking which draws up consolidated financial statements shall apply the same measurement bases as are applied in its annual financial statements. However, Member States may permit or require that other measurement bases in accordance with Chapter 2 be used in consolidated financial statements. Where use is made of this derogation, that fact shall be disclosed in the notes to the consolidated financial statements and reasons given. 12. Where assets and liabilities included in consolidated financial statements have been measured by undertakings included in the consolidation using bases differing from those used for the purposes of the consolidation, those assets and liabilities shall be re-measured in accordance with the bases used for the consolidation. Departures from this requirement shall be permitted in exceptional cases. Any such departures shall be disclosed in the notes to the consolidated financial statements and reasons given. 13. Deferred tax balances shall be recognised on consolidation provided that it is probable that a charge to tax will arise within the foreseeable future for one of the undertakings included in the consolidation. 14. Where assets included in consolidated financial statements have been the subject of value adjustments solely for tax purposes, they shall be incorporated in the consolidated financial statements only after those adjustments have been eliminated.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Non-Financial Reporting Directive (Directive 2014/95/EU, the NFRD), amending the Accounting Directive, was adopted in 2014. 1 Companies within the scope of the NFRD had to report in accordance with its provisions for the first time in 2018 (covering financial year 2017). The NFRD applies to large public-interest entities with an average number of employees in excess of 500, and to public-interest entities that are parent companies of a large group with an average number of employees in excess of 500 on a consolidated basis. 2 The NFRD exempts subsidiaries from its reporting obligations if their parent company does the reporting for the whole group, including the subsidiaries. Approximately 11 700 companies are subject to the reporting requirements of the NFRD 3 . The NFRD introduced a requirement for companies to report both on how sustainability issues affect their performance, position and development (the ‘outside-in’ perspective), and on their impact on people and the environment (the ‘inside-out’ perspective). This is often known as ‘double materiality’. In accordance with the NFRD, in 2017 the Commission published non-binding reporting guidelines for companies. 4 In 2019, it published additional guidelines, on reporting climate-related information. 5 These guidelines have not sufficiently improved the quality of information companies disclose pursuant to the NFRD. The European Commission committed itself to proposing a revision of the Non-Financial Reporting Directive in the European Green Deal and its 2020 Work Programme. 6 The European Green Deal aims to transform the EU into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050. 7 It will decouple economic growth from resource use, and ensure that all EU regions and citizens participate in a socially just transition to a sustainable economic system. It also aims to protect, conserve and enhance the EU's natural capital, and to protect the health and well-being of citizens from environment-related risks and impacts. The revision of the NFRD will contribute to the objective of building an economy that works for people. It will strengthen the EU’s social market economy, helping to ensure that it is future-ready and that it delivers stability, jobs, growth and investment. These goals are especially important considering the socio-economic damage caused by the COVID-19 pandemic and the need for a sustainable, inclusive and fair recovery. In line with the Commission’s Sustainable Finance Action Plan, the EU has taken a number of measures to ensure that the financial sector plays a significant part in achieving the objectives of the European Green Deal 8 . Better data from companies about the sustainability risks they are exposed to, and their own impact on people and the environment, is essential for the successful implementation of the European Green Deal and the Sustainable Finance Action Plan. By making companies more accountable for and transparent about their impact on people and the environment, this proposal can also help strengthen relations between business and society. It will also create opportunities for companies , investors, civil society and other stakeholders to radically improve the way sustainability information is reported and used thanks to digital technologies. In December 2019, in its conclusions on the Capital Markets Union, the Council stressed the importance of reliable, comparable and relevant information on sustainability risks, opportunities and impacts, and called on the Commission to consider the development of a European non-financial reporting standard 9 . In its May 2018 resolution on sustainable finance, the European Parliament called for the further development of reporting requirements in the framework of the Non-Financial Reporting Directive (NFRD). 10 In its December 2020 resolution on sustainable corporate governance, it welcomed the Commission’s commitment to reviewing the NFRD, called for an extension of the scope of the NFRD to additional categories of companies , and welcomed the Commission’s commitment to developing EU non-financial reporting standards 11 . The European Parliament also considered that non-financial information published by companies pursuant to the NFRD should be subject to a mandatory audit. The primary users of sustainability information disclosed in companies’ annual reports are investors and non-governmental organisations, social partners and other stakeholders. Investors, including asset managers, want to better understand the risks of, and opportunities afforded by, sustainability issues for their investments, as well as the impacts of those investments on people and the environment. Non-governmental organisations, social partners and other stakeholders want to hold undertakings to greater account for their impacts of their activities on people and the environment. The current legal framework does not ensure that the information needs of these users are met. This is because some companies from which users want sustainability information do not report such information, while many that do report sustainability information do not report all the information that is relevant for users. When information is reported, it is often neither sufficiently reliable, nor sufficiently comparable, between companies. The information is often difficult for users to find and is rarely available in a machine-readable digital format. Information on intangibles, including internally generated intangibles, is under-reported, even though these intangibles represent the majority of private sector investment in advanced economies (e.g. human capital, brand, and intellectual property and intangibles related to research and development). The information needs of users have increased significantly in recent years and will almost certainly continue to do so. There are several reasons for this. One is the growing awareness of investors that sustainability issues can put the financial performance of companies at risk . Another is the growing market for investment products that explicitly seek to conform to certain sustainability standards or achieve certain sustainability objectives. Yet another is regulation, including the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. As a result of both these regulations, asset managers and financial advisers need more sustainability information from investee companies 12 . Finally, the COVID-19 pandemic is likely to further accelerate the growth in demand for sustainability information from companies , for example regarding the vulnerability of workers and the resilience of supply chains. There is therefore a widening gap between the sustainability information companies report and the needs of the intended users of that information. On the one hand, this means that investors are unable to take sufficient account of sustainability-related risks in their investment decisions. This in turn has the potential to create systemic risks that threaten financial stability. On the other hand, the gap means that investors cannot channel financial resources to companies with sustainable business models and activities. This in turn undermines the achievement of the objectives of the European Green Deal. It also hampers stakeholders’ ability to hold undertakings accountable for the impact they have on people and the environment, creating an accountability deficit liable to undermine the efficient functioning of the social market economy. The current situation is also problematic for companies that have to report. The lack of precision in the current requirements, and the large number of private standards and frameworks in existence, make it difficult for companies to know exactly what information they should report. They often experience difficulties in getting the information they themselves need from suppliers, clients and investee companies. Many companies receive requests for sustainability information from stakeholders in addition to the information they report to comply with current legal requirements. All of this generates unnecessary business costs. The objective of this proposal is therefore to improve sustainability reporting at the least possible cost, in order to better harness the potential of the European single market to contribute to the transition towards a fully sustainable and inclusive economic and financial system in accordance with the European Green Deal and the UN Sustainable Development Goals. The proposal aims to ensure that there is adequate publicly available information about the risks that sustainability issues present for companies, and the impacts of companies themselves on people and the environment. This means that companies from which users need sustainability information should report such information, and that companies should report all information users consider relevant. Reported information should be comparable, reliable and easy for users to find and make use of with digital technologies. This entails changing the status of sustainability information to make it more comparable to that of financial information. The proposal will help reduce systemic risks to the economy. It will also improve the allocation of financial capital to companies and activities that address social, health and environmental problems. Finally, it will make companies more accountable for their impacts on people and the environment, thereby building trust between them and society. The proposal aims to reduce unnecessary costs of sustainability reporting for companies, and to enable them to meet the growing demand for sustainability information in an efficient manner. It will bring clarity and certainty on what sustainability information to report, and make it easier for preparers to get the information they need for reporting purposes from their own business partners (suppliers, clients and investee companies). It should also reduce the number of demands companies receive for sustainability information in addition to the information they publish in their annual reports. There are a number of important international initiatives in place. Their aim is to help to achieve the worldwide convergence and harmonisation of sustainability reporting standards. The EU fully supports this ambition. EU companies and investors that operate globally will benefit from such convergence and harmonisation. The Commission supports initiatives by the G20, the G7, the Financial Stability Board and others to generate international commitment to develop a baseline of global sustainability reporting standards that would build on the work of the Task Force on Climate-related Financial Disclosures. The proposals of the International Financial Reporting Standards Foundation to create a new Sustainability Standards Board are especially relevant in this context, as is the work already carried out by established initiatives including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Climate Disclosure Standards Board (CDSB) and CDP (formerly the Carbon Disclosure Project). This proposal aims to build on and contribute to international sustainability reporting initiatives. EU sustainability reporting standards should be developed in constructive two-way cooperation with leading international initiatives, and they should align with those initiatives as far as possible while taking into account European specificities. This proposal consists of one Directive that would amend four existing pieces of legislation. In the first place, it would amend the Accounting Directive, revising some exiting provisions and adding certain new provisions about sustainability reporting. In addition, it would amend the Audit Directive and the Audit Regulation, to cover the audit of sustainability information. Finally, it would amend the Transparency Directive to extend the scope of the sustainability reporting requirements to companies with securities listed on regulated markets, and to clarify the supervisory regime for sustainability reporting by these companies.
Revised version (Article 24 The preparation of consolidated financial statements):
1. Chapters 2 and 3 shall apply in respect of consolidated financial statements, taking into account the essential adjustments resulting from the particular characteristics of consolidated financial statements as compared to annual financial statements. 2. The assets and liabilities of undertakings included in a consolidation shall be incorporated in full in the consolidated balance sheet. 4. Where shares in subsidiary undertakings included in the consolidation are held by persons other than those undertakings, the amount attributable to those shares shall be shown separately in the consolidated balance sheet as non-controlling interests. 5. The income and expenditure of undertakings included in a consolidation shall be incorporated in full in the consolidated profit and loss account. 6. The amount of any profit or loss attributable to the shares referred to in paragraph 4 shall be shown separately in the consolidated profit and loss account as the profit or loss attributable to non-controlling interests. 8. Consolidated financial statements shall be drawn up as at the same date as the annual financial statements of the parent undertaking. A Member State may, however, permit or require consolidated financial statements to be drawn up as at another date in order to take account of the balance sheet dates of the largest number or the most important of the undertakings included in the consolidation, provided that: (a) that fact shall be disclosed in the notes to the consolidated financial statements and reasons given; (b) account shall be taken, or disclosure made, of important events concerning the assets and liabilities, the financial position and the profit or loss of an undertaking included in a consolidation which have occurred between that undertaking's balance sheet date and the consolidated balance sheet date; and (c) where an undertaking's balance sheet date precedes or follows the consolidated balance sheet date by more than three months, that undertaking shall be consolidated on the basis of interim financial statements drawn up as at the consolidated balance sheet date. 9. If the composition of the undertakings included in a consolidation has changed significantly in the course of a financial year, the consolidated financial statements shall include information which makes the comparison of successive sets of consolidated financial statements meaningful. This obligation may be fulfilled by the preparation of an adjusted comparative balance sheet and an adjusted comparative profit and loss account. 10. Assets and liabilities included in consolidated financial statements shall be measured on a uniform basis and in accordance with Chapter 2. 11. An undertaking which draws up consolidated financial statements shall apply the same measurement bases as are applied in its annual financial statements. However, Member States may permit or require that other measurement bases in accordance with Chapter 2 be used in consolidated financial statements. Where use is made of this derogation, that fact shall be disclosed in the notes to the consolidated financial statements and reasons given. 12. Where assets and liabilities included in consolidated financial statements have been measured by undertakings included in the consolidation using bases differing from those used for the purposes of the consolidation, those assets and liabilities shall be re-measured in accordance with the bases used for the consolidation. Departures from this requirement shall be permitted in exceptional cases. Any such departures shall be disclosed in the notes to the consolidated financial statements and reasons given. 13. Deferred tax balances shall be recognised on consolidation provided that it is probable that a charge to tax will arise within the foreseeable future for one of the undertakings included in the consolidation. 14. Where assets included in consolidated financial statements have been the subject of value adjustments solely for tax purposes, they shall be incorporated in the consolidated financial statements only after those adjustments have been eliminated.
Article 25 Business combinations within a group
1. A Member State may permit or require the book values of shares held in the capital of an undertaking included in the consolidation to be set off against the corresponding percentage of capital only, provided that the undertakings in the business combination are ultimately controlled by the same party both before and after the business combination, and that control is not transitory. 2. Any difference arising under paragraph 1 shall be added to or deducted from consolidated reserves, as appropriate. 3. The application of the method described in paragraph 1, the resulting movement in reserves and the names and registered offices of the undertakings concerned shall be disclosed in the notes to the consolidated financial statements.
Article 26 Proportional consolidation
1. Where an undertaking included in a consolidation manages another undertaking jointly with one or more undertakings not included in that consolidation, Member States may permit or require the inclusion of that other undertaking in the consolidated financial statements in proportion to the rights in its capital held by the undertaking included in the consolidation. 2. Article 23(9) and (10) and Article 24 shall apply mutatis mutandis to the proportional consolidation referred to in paragraph 1 of this Article.
Article 27 Equity accounting of associated undertakings
1. Where an undertaking included in a consolidation has an associated undertaking, that associated undertaking shall be shown in the consolidated balance sheet as a separate item with an appropriate heading. 2. When this Article is applied for the first time to an associated undertaking, that associated undertaking shall be shown in the consolidated balance sheet either: (a) at its book value calculated in accordance with the measurement rules laid down in Chapters 2 and 3. The difference between that value and the amount corresponding to the proportion of capital and reserves represented by the participating interest in that associated undertaking shall be disclosed separately in the consolidated balance sheet or in the notes to the consolidated financial statements. That difference shall be calculated as at the date on which that method is used for the first time; or (b) at an amount corresponding to the proportion of the associated undertaking's capital and reserves represented by the participating interest in that associated undertaking. The difference between that amount and the book value calculated in accordance with the measurement rules laid down in Chapters 2 and 3 shall be disclosed separately in the consolidated balance sheet or in the notes to the consolidated financial statements. That difference shall be calculated as at the date on which that method is used for the first time. A Member State may prescribe the application of one or other of the options provided for in points (a) and (b). In such cases, the consolidated balance sheet or the notes to the consolidated financial statements shall indicate which of those options has been used. In addition, for the purposes of points (a) and (b), a Member State may permit or require the calculation of the difference as at the date of acquisition of the shares or, where they were acquired in two or more stages, as at the date on which the undertaking became an associated undertaking. 3. Where an associated undertaking's assets or liabilities have been valued by methods other than those used for consolidation in accordance with Article 24(11), they may, for the purpose of calculating the difference referred to in points (a) and (b) of paragraph 2, be revalued by the methods used for consolidation. Where such revaluation has not been carried out, that fact shall be disclosed in the notes to the consolidated financial statements. A Member State may require such revaluation. 4. The book value referred to in point (a) of paragraph 2, or the amount corresponding to the proportion of the associated undertaking's capital and reserves referred to in point (b) of paragraph 2, shall be increased or reduced by the amount of any variation which has taken place during the financial year in the proportion of the associated undertaking's capital and reserves represented by that participating interest; it shall be reduced by the amount of the dividends relating to that participating interest. 5. In so far as the positive difference referred to in points (a) and (b) of paragraph 2 cannot be related to any category of assets or liabilities, it shall be treated in accordance with the rules applicable to the item ‧goodwill‧ as set out in point (d) of Article 12(6), the first subparagraph of Article 12(11), point (c) of Article 24(3), and Annex III and Annex IV. 6. The proportion of the profit or loss of the associated undertakings attributable to the participating interests in such associated undertakings shall be shown in the consolidated profit and loss account as a separate item under an appropriate heading. 7. The eliminations referred to in Article 24(7) shall be effected in so far as the facts are known or can be ascertained. 8. Where an associated undertaking draws up consolidated financial statements, paragraphs 1 to 7 shall apply to the capital and reserves shown in such consolidated financial statements. 9. This Article need not be applied where the participating interest in the capital of the associated undertaking is not material.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal A healthy Single Market needs a fair, efficient and growth-friendly corporate tax system, based on the principle that companies should pay taxes in the country where profits are generated. Aggressive tax planning undermines this principle. The majority of companies do not engage in aggressive tax planning and suffer a competitive disadvantage to those that do. Small and medium-sized companies are particularly affected by this phenomenon. Fighting against tax avoidance and aggressive tax planning, both at EU a nd global level, is a political priority for the European Commission. As part of a broader strategy for a Fair and Efficient Corporate Tax System in the EU 1 , p ublic scrutiny can help to ensure that profits are effectively taxed where they are generated. Pu blic scrutiny can reinforce public trust and strengthen companies' corporate social responsibility by contributing to the welfare through paying taxes in the country where they are active. In addition, it can also promote a better informed debate on potent ial shortcomings in tax laws. The Commission announced in March 2015 a comprehensive list of initiatives in its Action Plan on a Fairer Corporate Tax System (COM(2015)302) and proposed as part of the subsequent Anti-Tax Avoidance Package 2 (ATAP), to implem ent in the Union Action 13 of the OECD Action Plan endorsed by the G20 to fight base erosion and profit shifting (hereafter, BEPS). As a result, tax authorities will receive a country-by-country report from multinational enterprises (MNEs) on income tax pa id which should enable better compliance with tax laws. Responding to the calls from the G20 and elsewhere, greater transparency on the side of companies is needed to enable public scrutiny of whether tax is paid where profits are produced. This proposal requires that MNEs disclose publicly in a specific report the income tax they pay together with other relevant tax-related information. MNEs, whether headquartered in the EU or outside, with turnover of more than EUR 750m will need to comply with these additional transparency requirements. For the first time, not only European businesses but also non-European multinational companies doing business in Europe will have the same reporting obligations. Third country jurisdictions which do not respect international tax good governance standards create particular opportunities for tax avoidance and tax evasion. If MNEs are active in such jurisdictions, special transparency requirements should apply. This proposal focusses on corporate groups with a worldwide con solidated net turnover of more than EUR 750 million, in line with the scope of global OECD initiatives on tax transparency. The proposal does not impose any obligations on small and medium-sized companies 3 . It is proportionate both in terms of scope and i nformation to be disclosed so as to limit compliance and other costs for affected companies, as well as to avoid jeopardising their competitiveness or expose them unduly to double taxation risks. It fits into the multilateral approach supported by the G20 and the OECD. The Commission will continue to work proactively on these issues with all relevant international partners.
Revised version (Article 27 Equity accounting of associated undertakings):
1. Where an undertaking included in a consolidation has an associated undertaking, that associated undertaking shall be shown in the consolidated balance sheet as a separate item with an appropriate heading. 2. When this Article is applied for the first time to an associated undertaking, that associated undertaking shall be shown in the consolidated balance sheet either: (a) at its book value calculated in accordance with the measurement rules laid down in Chapters 2 and 3. The difference between that value and the amount corresponding to the proportion of capital and reserves represented by the participating interest in that associated undertaking shall be disclosed separately in the consolidated balance sheet or in the notes to the consolidated financial statements. That difference shall be calculated as at the date on which that method is used for the first time; or (b) at an amount corresponding to the proportion of the associated undertaking's capital and reserves represented by the participating interest in that associated undertaking. The difference between that amount and the book value calculated in accordance with the measurement rules laid down in Chapters 2 and 3 shall be disclosed separately in the consolidated balance sheet or in the notes to the consolidated financial statements. That difference shall be calculated as at the date on which that method is used for the first time. When this Article is applied for the first time to an associated undertaking, that associated undertaking shall be shown in the consolidated balance sheet either: (a) at its book value calculated in accordance with the measurement rules laid down in Chapters 2 and 3. The difference between that value and the amount corresponding to the proportion of capital and reserves represented by the participating interest in that associated undertaking shall be disclosed separately in the consolidated balance sheet or in the notes to the consolidated financial statements. That difference shall be calculated as at the date on which that method is used for the first time; or (b) at an amount corresponding to the proportion of the associated undertaking's capital and reserves represented by the participating interest in that associated undertaking. The difference between that amount and the book value calculated in accordance with the measurement rules laid down in Chapters 2 and 3 shall be disclosed separately in the consolidated balance sheet or in the notes to the consolidated financial statements. That difference shall be calculated as at the date on which that method is used for the first time. A Member State may prescribe the application of one or other of the options provided for in points (a) and (b). In such cases, the consolidated balance sheet or the notes to the consolidated financial statements shall indicate which of those options has been used. In addition, for the purposes of points (a) and (b), a Member State may permit or require the calculation of the difference as at the date of acquisition of the shares or, where they were acquired in two or more stages, as at the date on which the undertaking became an associated undertaking. 3. Where an associated undertaking's assets or liabilities have been valued by methods other than those used for consolidation in accordance with Article 24(11), they may, for the purpose of calculating the difference referred to in points (a) and (b) of paragraph 2, be revalued by the methods used for consolidation. Where such revaluation has not been carried out, that fact shall be disclosed in the notes to the consolidated financial statements. A Member State may require such revaluation. 4. The book value referred to in point (a) of paragraph 2, or the amount corresponding to the proportion of the associated undertaking's capital and reserves referred to in point (b) of paragraph 2, shall be increased or reduced by the amount of any variation which has taken place during the financial year in the proportion of the associated undertaking's capital and reserves represented by that participating interest; it shall be reduced by the amount of the dividends relating to that participating interest. 5. In so far as the positive difference referred to in points (a) and (b) of paragraph 2 cannot be related to any category of assets or liabilities, it shall be treated in accordance with the rules applicable to the item ‘goodwill’ as set out in point (d) of Article 12(6), the first subparagraph of Article 12(11), point (c) of Article 24(3), and Annex III and Annex IV. 6. The proportion of the profit or loss of the associated undertakings attributable to the participating interests in such associated undertakings shall be shown in the consolidated profit and loss account as a separate item under an appropriate heading. 7. The eliminations referred to in Article 24(7) shall be effected in so far as the facts are known or can be ascertained. 8. Where an associated undertaking draws up consolidated financial statements, paragraphs 1 to 7 shall apply to the capital and reserves shown in such consolidated financial statements. 9. This Article need not be applied where the participating interest in the capital of the associated undertaking is not material.
Article 28 The notes to the consolidated financial statements
1. The notes to the consolidated financial statements shall set out the information required by Articles 16, 17 and 18, in addition to any other information required under other provisions of this Directive, in a way which facilitates the assessment of the financial position of the undertakings included in the consolidation taken as a whole, taking account of the essential adjustments resulting from the particular characteristics of consolidated financial statements as compared to annual financial statements, including the following: (a) in disclosing transactions between related parties, transactions between related parties included in a consolidation that are eliminated on consolidation shall not be included; (b) in disclosing the average number of employees employed during the financial year, there shall be separate disclosure of the average number of employees employed by undertakings that are proportionately consolidated; and (c) in disclosing the amounts of emoluments and advances and credits granted to members of the administrative, managerial and supervisory bodies, only amounts granted by the parent undertaking and its subsidiary undertakings to members of the administrative, managerial and supervisory bodies of the parent undertaking shall be disclosed. 2. The notes to the consolidated financial statements shall, in addition to the information required under paragraph 1, set out the following information: (a) in relation to undertakings included in the consolidation: (i) the names and registered offices of those undertakings, (ii) the proportion of the capital held in those undertakings, other than the parent undertaking, by the undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings, and (iii) information as to which of the conditions referred to in Article 22(1), (2) and (7) following the application of Article 22(3), (4) and (5) has formed the basis on which the consolidation has been carried out. That disclosure may, however, be omitted where consolidation has been carried out on the basis of point (a) of Article 22(1) and where the proportion of the capital and the proportion of the voting rights held are the same. The same information shall be given in respect of undertakings excluded from a consolidation on the grounds of immateriality pursuant to point (j) of Article 6(1) and Article 23(10), and an explanation shall be given for the exclusion of the undertakings referred to in Article 23(9); (b) the names and registered offices of associated undertakings included in the consolidation as described in Article 27(1) and the proportion of their capital held by undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings; (c) the names and registered offices of undertakings proportionally consolidated under Article 26, the factors on which joint management of those undertakings is based, and the proportion of their capital held by the undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings; and (d) in relation to each of the undertakings, other than those referred to in points (a), (b) and (c), in which undertakings included in the consolidation, either themselves or through persons acting in their own names but on behalf of those undertakings, hold a participating interest: (i) the name and registered office of those undertakings, (ii) the proportion of the capital held, (iii) the amount of the capital and reserves, and the profit or loss for the latest financial year of the undertaking concerned for which financial statements have been adopted. The information concerning capital and reserves and the profit or loss may also be omitted where the undertaking concerned does not publish its balance sheet. 3. Member States may allow the information required by points (a) to (d) of paragraph 2 to take the form of a statement filed in accordance with Article 3(3) of Directive 2009/101/EC. The filing of such a statement shall be disclosed in the notes to the consolidated financial statements. Member States may also allow that information to be omitted when its nature is such that its disclosure would be seriously prejudicial to any of the undertakings to which it relates. Member States may make such omissions subject to prior administrative or judicial authorisation. Any such omission shall be disclosed in the notes to the consolidated financial statements.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 28 The notes to the consolidated financial statements):
1. The notes to the consolidated financial statements shall set out the information required by Articles 16, 17 and 18, in addition to any other information required under other provisions of this Directive, in a way which facilitates the assessment of the financial position of the undertakings included in the consolidation taken as a whole, taking account of the essential adjustments resulting from the particular characteristics of consolidated financial statements as compared to annual financial statements, including the following: (a) in disclosing transactions between related parties, transactions between related parties included in a consolidation that are eliminated on consolidation shall not be included; (b) in disclosing the average number of employees employed during the financial year, there shall be separate disclosure of the average number of employees employed by undertakings that are proportionately consolidated; and (c) in disclosing the amounts of emoluments and advances and credits granted to members of the administrative, managerial and supervisory bodies, only amounts granted by the parent undertaking and its subsidiary undertakings to members of the administrative, managerial and supervisory bodies of the parent undertaking shall be disclosed. 2. The notes to the consolidated financial statements shall, in addition to the information required under paragraph 1, set out the following information: (a) in relation to undertakings included in the consolidation: (i) the names and registered offices of those undertakings, (ii) the proportion of the capital held in those undertakings, other than the parent undertaking, by the undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings, and (iii) information as to which of the conditions referred to in Article 22(1), (2) and (7) following the application of Article 22(3), (4) and (5) has formed the basis on which the consolidation has been carried out. That disclosure may, however, be omitted where consolidation has been carried out on the basis of point (a) of Article 22(1) and where the proportion of the capital and the proportion of the voting rights held are the same. The same information shall be given in respect of undertakings excluded from a consolidation on the grounds of immateriality pursuant to point (j) of Article 6(1) and Article 23(10), and an explanation shall be given for the exclusion of the undertakings referred to in Article 23(9); (a) in relation to undertakings included in the consolidation: (i) the names and registered offices of those undertakings, (ii) the proportion of the capital held in those undertakings, other than the parent undertaking, by the undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings, and (iii) information as to which of the conditions referred to in Article 22(1), (2) and (7) following the application of Article 22(3), (4) and (5) has formed the basis on which the consolidation has been carried out. That disclosure may, however, be omitted where consolidation has been carried out on the basis of point (a) of Article 22(1) and where the proportion of the capital and the proportion of the voting rights held are the same. The same information shall be given in respect of undertakings excluded from a consolidation on the grounds of immateriality pursuant to point (j) of Article 6(1) and Article 23(10), and an explanation shall be given for the exclusion of the undertakings referred to in Article 23(9); (b) the names and registered offices of associated undertakings included in the consolidation as described in Article 27(1) and the proportion of their capital held by undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings; (c) the names and registered offices of undertakings proportionally consolidated under Article 26, the factors on which joint management of those undertakings is based, and the proportion of their capital held by the undertakings included in the consolidation or by persons acting in their own names but on behalf of those undertakings; and (d) in relation to each of the undertakings, other than those referred to in points (a), (b) and (c), in which undertakings included in the consolidation, either themselves or through persons acting in their own names but on behalf of those undertakings, hold a participating interest: (i) the name and registered office of those undertakings, (ii) the proportion of the capital held, (iii) the amount of the capital and reserves, and the profit or loss for the latest financial year of the undertaking concerned for which financial statements have been adopted. (d) in relation to each of the undertakings, other than those referred to in points (a), (b) and (c), in which undertakings included in the consolidation, either themselves or through persons acting in their own names but on behalf of those undertakings, hold a participating interest: (i) the name and registered office of those undertakings, (ii) the proportion of the capital held, (iii) the amount of the capital and reserves, and the profit or loss for the latest financial year of the undertaking concerned for which financial statements have been adopted. The information concerning capital and reserves and the profit or loss may also be omitted where the undertaking concerned does not publish its balance sheet. 3. Member States may allow the information required by points (a) to (d) of paragraph 2 to take the form of a statement filed in accordance with Article 3(3) of Directive 2009/101/EC. The filing of such a statement shall be disclosed in the notes to the consolidated financial statements. Member States may also allow that information to be omitted when its nature is such that its disclosure would be seriously prejudicial to any of the undertakings to which it relates. Member States may make such omissions subject to prior administrative or judicial authorisation. Any such omission shall be disclosed in the notes to the consolidated financial statements.
Article 29 The consolidated management report
1. The consolidated management report shall, as a minimum, in addition to any other information required under other provisions of this Directive, set out the information required by Articles 19 and 20, taking account of the essential adjustments resulting from the particular characteristics of a consolidated management report as compared to a management report in a way which facilitates the assessment of the position of the undertakings included in the consolidation taken as a whole. 2. The following adjustments to the information required by Articles 19 and 20 shall apply: (a) in reporting details of own shares acquired, the consolidated management report shall indicate the number and nominal value or, in the absence of a nominal value, the accounting par value of all of the parent undertaking's shares held by that parent undertaking, by subsidiary undertakings of that parent undertaking or by a person acting in his own name but on behalf of any of those undertakings. A Member State may permit or require the disclosure of those particulars in the notes to the consolidated financial statements; (b) in reporting on internal control and risk management systems, the corporate governance statement shall refer to the main features of the internal controls and risk management systems for the undertakings included in the consolidation, taken as a whole. 3. Where a consolidated management report is required in addition to the management report, the two reports may be presented as a single report.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal A healthy Single Market needs a fair, efficient and growth-friendly corporate tax system, based on the principle that companies should pay taxes in the country where profits are generated. Aggressive tax planning undermines this principle. The majority of companies do not engage in aggressive tax planning and suffer a competitive disadvantage to those that do. Small and medium-sized companies are particularly affected by this phenomenon. Fighting against tax avoidance and aggressive tax planning, both at EU a nd global level, is a political priority for the European Commission. As part of a broader strategy for a Fair and Efficient Corporate Tax System in the EU 1 , p ublic scrutiny can help to ensure that profits are effectively taxed where they are generated. Pu blic scrutiny can reinforce public trust and strengthen companies' corporate social responsibility by contributing to the welfare through paying taxes in the country where they are active. In addition, it can also promote a better informed debate on potent ial shortcomings in tax laws. The Commission announced in March 2015 a comprehensive list of initiatives in its Action Plan on a Fairer Corporate Tax System (COM(2015)302) and proposed as part of the subsequent Anti-Tax Avoidance Package 2 (ATAP), to implem ent in the Union Action 13 of the OECD Action Plan endorsed by the G20 to fight base erosion and profit shifting (hereafter, BEPS). As a result, tax authorities will receive a country-by-country report from multinational enterprises (MNEs) on income tax pa id which should enable better compliance with tax laws. Responding to the calls from the G20 and elsewhere, greater transparency on the side of companies is needed to enable public scrutiny of whether tax is paid where profits are produced. This proposal requires that MNEs disclose publicly in a specific report the income tax they pay together with other relevant tax-related information. MNEs, whether headquartered in the EU or outside, with turnover of more than EUR 750m will need to comply with these additional transparency requirements. For the first time, not only European businesses but also non-European multinational companies doing business in Europe will have the same reporting obligations. Third country jurisdictions which do not respect international tax good governance standards create particular opportunities for tax avoidance and tax evasion. If MNEs are active in such jurisdictions, special transparency requirements should apply. This proposal focusses on corporate groups with a worldwide con solidated net turnover of more than EUR 750 million, in line with the scope of global OECD initiatives on tax transparency. The proposal does not impose any obligations on small and medium-sized companies 3 . It is proportionate both in terms of scope and i nformation to be disclosed so as to limit compliance and other costs for affected companies, as well as to avoid jeopardising their competitiveness or expose them unduly to double taxation risks. It fits into the multilateral approach supported by the G20 and the OECD. The Commission will continue to work proactively on these issues with all relevant international partners.
Revised version (Article 29 The consolidated management report):
1. The consolidated management report shall, as a minimum, in addition to any other information required under other provisions of this Directive, set out the information required by Articles 19 and 20, taking account of the essential adjustments resulting from the particular characteristics of a consolidated management report as compared to a management report in a way which facilitates the assessment of the position of the undertakings included in the consolidation taken as a whole. 2. The following adjustments to the information required by Articles 19 and 20 shall apply: (a) in reporting details of own shares acquired, the consolidated management report shall indicate the number and nominal value or, in the absence of a nominal value, the accounting par value of all of the parent undertaking's shares held by that parent undertaking, by subsidiary undertakings of that parent undertaking or by a person acting in his own name but on behalf of any of those undertakings. A Member State may permit or require the disclosure of those particulars in the notes to the consolidated financial statements; (b) in reporting on internal control and risk management systems, the corporate governance statement shall refer to the main features of the internal controls and risk management systems for the undertakings included in the consolidation, taken as a whole. The following adjustments to the information required by Articles 19 and 20 shall apply: (a) in reporting details of own shares acquired, the consolidated management report shall indicate the number and nominal value or, in the absence of a nominal value, the accounting par value of all of the parent undertaking's shares held by that parent undertaking, by subsidiary undertakings of that parent undertaking or by a person acting in his own name but on behalf of any of those undertakings. A Member State may permit or require the disclosure of those particulars in the notes to the consolidated financial statements; (b) in reporting on internal control and risk management systems, the corporate governance statement shall refer to the main features of the internal controls and risk management systems for the undertakings included in the consolidation, taken as a whole. 3. Where a consolidated management report is required in addition to the management report, the two reports may be presented as a single report.
Article 30 General publication requirement
1. Member States shall ensure that undertakings publish within a reasonable period of time, which shall not exceed 12 months after the balance sheet date, the duly approved annual financial statements and the management report, together with the opinion submitted by the statutory auditor or audit firm referred to in Article 34 of this Directive, as laid down by the laws of each Member State in accordance with Chapter 2 of Directive 2009/101/EC. Member States may, however, exempt undertakings from the obligation to publish the management report where a copy of all or part of any such report can be easily obtained upon request at a price not exceeding its administrative cost. 2. Member States may exempt an undertaking referred to in Annex II to which the coordination measures prescribed by this Directive apply by virtue of point (b) of Article 1(1) from publishing its financial statements in accordance with Article 3 of Directive 2009/101/EC, provided that those financial statements are available to the public at its head office, in the following cases: (a) all the members of the undertaking concerned that have unlimited liability are undertakings referred to in Annex I governed by the laws of Member States other than the Member State whose law governs that undertaking, and none of those undertakings publishes the financial statements of the undertaking concerned with its own financial statements; (b) all the members of the undertaking concerned that have unlimited liability are undertakings which are not governed by the laws of a Member State but which have a legal form comparable to those referred to in Directive 2009/101/EC. Copies of the financial statements shall be obtainable upon request. The price of such a copy may not exceed its administrative cost. 3. Paragraph 1 shall apply with respect to consolidated financial statements and consolidated management reports. Where the undertaking drawing up the consolidated financial statements is established as one of the types of undertaking listed in Annex II and is not required by the national law of its Member State to publish the documents referred to in paragraph 1 in the same manner as prescribed in Article 3 of Directive 2009/101/EC, it shall, as a minimum, make those documents available to the public at its head office and a copy shall be provided upon request, the price of which shall not exceed its administrative cost.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Non-Financial Reporting Directive (Directive 2014/95/EU, the NFRD), amending the Accounting Directive, was adopted in 2014. 1 Companies within the scope of the NFRD had to report in accordance with its provisions for the first time in 2018 (covering financial year 2017). The NFRD applies to large public-interest entities with an average number of employees in excess of 500, and to public-interest entities that are parent companies of a large group with an average number of employees in excess of 500 on a consolidated basis. 2 The NFRD exempts subsidiaries from its reporting obligations if their parent company does the reporting for the whole group, including the subsidiaries. Approximately 11 700 companies are subject to the reporting requirements of the NFRD 3 . The NFRD introduced a requirement for companies to report both on how sustainability issues affect their performance, position and development (the ‘outside-in’ perspective), and on their impact on people and the environment (the ‘inside-out’ perspective). This is often known as ‘double materiality’. In accordance with the NFRD, in 2017 the Commission published non-binding reporting guidelines for companies. 4 In 2019, it published additional guidelines, on reporting climate-related information. 5 These guidelines have not sufficiently improved the quality of information companies disclose pursuant to the NFRD. The European Commission committed itself to proposing a revision of the Non-Financial Reporting Directive in the European Green Deal and its 2020 Work Programme. 6 The European Green Deal aims to transform the EU into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050. 7 It will decouple economic growth from resource use, and ensure that all EU regions and citizens participate in a socially just transition to a sustainable economic system. It also aims to protect, conserve and enhance the EU's natural capital, and to protect the health and well-being of citizens from environment-related risks and impacts. The revision of the NFRD will contribute to the objective of building an economy that works for people. It will strengthen the EU’s social market economy, helping to ensure that it is future-ready and that it delivers stability, jobs, growth and investment. These goals are especially important considering the socio-economic damage caused by the COVID-19 pandemic and the need for a sustainable, inclusive and fair recovery. In line with the Commission’s Sustainable Finance Action Plan, the EU has taken a number of measures to ensure that the financial sector plays a significant part in achieving the objectives of the European Green Deal 8 . Better data from companies about the sustainability risks they are exposed to, and their own impact on people and the environment, is essential for the successful implementation of the European Green Deal and the Sustainable Finance Action Plan. By making companies more accountable for and transparent about their impact on people and the environment, this proposal can also help strengthen relations between business and society. It will also create opportunities for companies , investors, civil society and other stakeholders to radically improve the way sustainability information is reported and used thanks to digital technologies. In December 2019, in its conclusions on the Capital Markets Union, the Council stressed the importance of reliable, comparable and relevant information on sustainability risks, opportunities and impacts, and called on the Commission to consider the development of a European non-financial reporting standard 9 . In its May 2018 resolution on sustainable finance, the European Parliament called for the further development of reporting requirements in the framework of the Non-Financial Reporting Directive (NFRD). 10 In its December 2020 resolution on sustainable corporate governance, it welcomed the Commission’s commitment to reviewing the NFRD, called for an extension of the scope of the NFRD to additional categories of companies , and welcomed the Commission’s commitment to developing EU non-financial reporting standards 11 . The European Parliament also considered that non-financial information published by companies pursuant to the NFRD should be subject to a mandatory audit. The primary users of sustainability information disclosed in companies’ annual reports are investors and non-governmental organisations, social partners and other stakeholders. Investors, including asset managers, want to better understand the risks of, and opportunities afforded by, sustainability issues for their investments, as well as the impacts of those investments on people and the environment. Non-governmental organisations, social partners and other stakeholders want to hold undertakings to greater account for their impacts of their activities on people and the environment. The current legal framework does not ensure that the information needs of these users are met. This is because some companies from which users want sustainability information do not report such information, while many that do report sustainability information do not report all the information that is relevant for users. When information is reported, it is often neither sufficiently reliable, nor sufficiently comparable, between companies. The information is often difficult for users to find and is rarely available in a machine-readable digital format. Information on intangibles, including internally generated intangibles, is under-reported, even though these intangibles represent the majority of private sector investment in advanced economies (e.g. human capital, brand, and intellectual property and intangibles related to research and development). The information needs of users have increased significantly in recent years and will almost certainly continue to do so. There are several reasons for this. One is the growing awareness of investors that sustainability issues can put the financial performance of companies at risk . Another is the growing market for investment products that explicitly seek to conform to certain sustainability standards or achieve certain sustainability objectives. Yet another is regulation, including the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. As a result of both these regulations, asset managers and financial advisers need more sustainability information from investee companies 12 . Finally, the COVID-19 pandemic is likely to further accelerate the growth in demand for sustainability information from companies , for example regarding the vulnerability of workers and the resilience of supply chains. There is therefore a widening gap between the sustainability information companies report and the needs of the intended users of that information. On the one hand, this means that investors are unable to take sufficient account of sustainability-related risks in their investment decisions. This in turn has the potential to create systemic risks that threaten financial stability. On the other hand, the gap means that investors cannot channel financial resources to companies with sustainable business models and activities. This in turn undermines the achievement of the objectives of the European Green Deal. It also hampers stakeholders’ ability to hold undertakings accountable for the impact they have on people and the environment, creating an accountability deficit liable to undermine the efficient functioning of the social market economy. The current situation is also problematic for companies that have to report. The lack of precision in the current requirements, and the large number of private standards and frameworks in existence, make it difficult for companies to know exactly what information they should report. They often experience difficulties in getting the information they themselves need from suppliers, clients and investee companies. Many companies receive requests for sustainability information from stakeholders in addition to the information they report to comply with current legal requirements. All of this generates unnecessary business costs. The objective of this proposal is therefore to improve sustainability reporting at the least possible cost, in order to better harness the potential of the European single market to contribute to the transition towards a fully sustainable and inclusive economic and financial system in accordance with the European Green Deal and the UN Sustainable Development Goals. The proposal aims to ensure that there is adequate publicly available information about the risks that sustainability issues present for companies, and the impacts of companies themselves on people and the environment. This means that companies from which users need sustainability information should report such information, and that companies should report all information users consider relevant. Reported information should be comparable, reliable and easy for users to find and make use of with digital technologies. This entails changing the status of sustainability information to make it more comparable to that of financial information. The proposal will help reduce systemic risks to the economy. It will also improve the allocation of financial capital to companies and activities that address social, health and environmental problems. Finally, it will make companies more accountable for their impacts on people and the environment, thereby building trust between them and society. The proposal aims to reduce unnecessary costs of sustainability reporting for companies, and to enable them to meet the growing demand for sustainability information in an efficient manner. It will bring clarity and certainty on what sustainability information to report, and make it easier for preparers to get the information they need for reporting purposes from their own business partners (suppliers, clients and investee companies). It should also reduce the number of demands companies receive for sustainability information in addition to the information they publish in their annual reports. There are a number of important international initiatives in place. Their aim is to help to achieve the worldwide convergence and harmonisation of sustainability reporting standards. The EU fully supports this ambition. EU companies and investors that operate globally will benefit from such convergence and harmonisation. The Commission supports initiatives by the G20, the G7, the Financial Stability Board and others to generate international commitment to develop a baseline of global sustainability reporting standards that would build on the work of the Task Force on Climate-related Financial Disclosures. The proposals of the International Financial Reporting Standards Foundation to create a new Sustainability Standards Board are especially relevant in this context, as is the work already carried out by established initiatives including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Climate Disclosure Standards Board (CDSB) and CDP (formerly the Carbon Disclosure Project). This proposal aims to build on and contribute to international sustainability reporting initiatives. EU sustainability reporting standards should be developed in constructive two-way cooperation with leading international initiatives, and they should align with those initiatives as far as possible while taking into account European specificities. This proposal consists of one Directive that would amend four existing pieces of legislation. In the first place, it would amend the Accounting Directive, revising some exiting provisions and adding certain new provisions about sustainability reporting. In addition, it would amend the Audit Directive and the Audit Regulation, to cover the audit of sustainability information. Finally, it would amend the Transparency Directive to extend the scope of the sustainability reporting requirements to companies with securities listed on regulated markets, and to clarify the supervisory regime for sustainability reporting by these companies.
Revised version (Article 30 General publication requirement):
1. Member States shall ensure that undertakings publish within a reasonable period of time, which shall not exceed 12 months after the balance sheet date, the duly approved annual financial statements and the management report, in the electronic reporting format referred to in Article 29d of this Directive where applicable, together with the opinion and statement submitted by the statutory auditor or audit firm referred to in Article 34 of this Directive, as laid down by the laws of each Member State in accordance with Chapter III of Title 1 of Directive (EU) 2017/1132 of the European Parliament and of the Council ( 27 ). Member States may require undertakings subject to Articles 19a and 29a to make the management report available to the public on their website, free of charge. Where an undertaking does not have a website, Member States may require it to make a written copy of its management report available upon request. Where an independent assurance services provider expresses the opinion referred to in point (aa) of the second subparagraph of Article 34(1), that opinion shall be published together with the documents referred to in the first subparagraph of this paragraph. Member States may, however, exempt undertakings from the obligation to publish the management report where a copy of all or part of any such report can be easily obtained upon request at a price not exceeding its administrative cost. The exemption laid down in the fourth subparagraph of this paragraph shall not apply to undertakings subject to the requirements on sustainability reporting laid down in Articles 19a and 29a. 2. Copies of the financial statements shall be obtainable upon request. The price of such a copy may not exceed its administrative cost. 3. Paragraph 1 shall apply with respect to consolidated financial statements and consolidated management reports. Where the undertaking drawing up the consolidated financial statements is established as one of the types of undertaking listed in Annex II and is not required by the national law of its Member State to publish the documents referred to in paragraph 1 in the same manner as prescribed in Article 3 of Directive 2009/101/EC, it shall, as a minimum, make those documents available to the public at its head office and a copy shall be provided upon request, the price of which shall not exceed its administrative cost.
Article 31 Simplifications for small and medium-sized undertakings
1. Member States may exempt small undertakings from the obligation to publish their profit and loss accounts and management reports. 2. Member States may permit medium-sized undertakings to publish: (a) abridged balance sheets showing only those items preceded by letters and roman numerals in Annexes III and IV and disclosing separately, either in the balance sheet or in the notes to the financial statements: (i) C (I) (3), C (II) (1), (2), (3) and (4), C (III) (1), (2), (3) and (4), D (II) (2), (3) and (6) and D (III) (1) and (2) under ‧Assets‧ and C, (1), (2), (6), (7) and (9) under ‧Capital, reserves and liabilities‧ in Annex III, (ii) C (I) (3), C (II) (1), (2), (3) and (4), C (III) (1), (2), (3) and (4), D (II) (2), (3) and (6), D (III) (1) and (2), F (1), (2), (6), (7) and (9) and (I) (1), (2), (6), (7) and (9) in Annex IV, (iii) the information required as indicated in brackets in D (II) under ‧Assets‧ and C under ‧Capital, reserves and liabilities‧ in Annex III, in total for all the items concerned and separately for D (II) (2) and (3) under ‧Assets‧ and C (1), (2), (6), (7) and (9) under ‧Capital, reserves and liabilities‧, (iv) the information required as indicated in brackets in D (II) in Annex IV, in total for all the items concerned, and separately for D (II) (2) and (3); (b) abridged notes to their financial statements without the information required in points (f) and (j) of Article 17(1). This paragraph shall be without prejudice to Article 30(1), in so far as that Article relates to the profit and loss account, the management report and the opinion of the statutory auditor or audit firm.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 31 Simplifications for small and medium-sized undertakings):
1. Member States may exempt small undertakings from the obligation to publish their profit and loss accounts and management reports. 2. Member States may permit medium-sized undertakings to publish: (a) abridged balance sheets showing only those items preceded by letters and roman numerals in Annexes III and IV and disclosing separately, either in the balance sheet or in the notes to the financial statements: (i) C (I) (3), C (II) (1), (2), (3) and (4), C (III) (1), (2), (3) and (4), D (II) (2), (3) and (6) and D (III) (1) and (2) under ‘Assets’ and C, (1), (2), (6), (7) and (9) under ‘Capital, reserves and liabilities’ in Annex III, (ii) C (I) (3), C (II) (1), (2), (3) and (4), C (III) (1), (2), (3) and (4), D (II) (2), (3) and (6), D (III) (1) and (2), F (1), (2), (6), (7) and (9) and (I) (1), (2), (6), (7) and (9) in Annex IV, (iii) the information required as indicated in brackets in D (II) under ‘Assets’ and C under ‘Capital, reserves and liabilities’ in Annex III, in total for all the items concerned and separately for D (II) (2) and (3) under ‘Assets’ and C (1), (2), (6), (7) and (9) under ‘Capital, reserves and liabilities’, (iv) the information required as indicated in brackets in D (II) in Annex IV, in total for all the items concerned, and separately for D (II) (2) and (3); (a) abridged balance sheets showing only those items preceded by letters and roman numerals in Annexes III and IV and disclosing separately, either in the balance sheet or in the notes to the financial statements: (i) C (I) (3), C (II) (1), (2), (3) and (4), C (III) (1), (2), (3) and (4), D (II) (2), (3) and (6) and D (III) (1) and (2) under ‘Assets’ and C, (1), (2), (6), (7) and (9) under ‘Capital, reserves and liabilities’ in Annex III, (ii) C (I) (3), C (II) (1), (2), (3) and (4), C (III) (1), (2), (3) and (4), D (II) (2), (3) and (6), D (III) (1) and (2), F (1), (2), (6), (7) and (9) and (I) (1), (2), (6), (7) and (9) in Annex IV, (iii) the information required as indicated in brackets in D (II) under ‘Assets’ and C under ‘Capital, reserves and liabilities’ in Annex III, in total for all the items concerned and separately for D (II) (2) and (3) under ‘Assets’ and C (1), (2), (6), (7) and (9) under ‘Capital, reserves and liabilities’, (iv) the information required as indicated in brackets in D (II) in Annex IV, in total for all the items concerned, and separately for D (II) (2) and (3); (b) abridged notes to their financial statements without the information required in points (f) and (j) of Article 17(1). This paragraph shall be without prejudice to Article 30(1), in so far as that Article relates to the profit and loss account, the management report and the opinion of the statutory auditor or audit firm.
Article 32 Other publication requirements
1. Where the annual financial statements and the management report are published in full, they shall be reproduced in the form and text on the basis of which the statutory auditor or audit firm has drawn up his/her/its opinion. They shall be accompanied by the full text of the audit report. 2. If the annual financial statements are not published in full, the abridged version of those financial statements, which shall not be accompanied by the audit report, shall: (a) indicate that the version published is abridged; (b) refer to the register in which the financial statements have been filed in accordance with Article 3 of Directive 2009/101/EC or, where the financial statements have not yet been filed, disclose that fact; (c) disclose whether an unqualified, qualified or adverse audit opinion was expressed by the statutory auditor or audit firm, or whether the statutory auditor or audit firm was unable to express an audit opinion; (d) disclose whether the audit report included a reference to any matters to which the statutory auditor or audit firm drew attention by way of emphasis without qualifying the audit opinion.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Non-Financial Reporting Directive (Directive 2014/95/EU, the NFRD), amending the Accounting Directive, was adopted in 2014. 1 Companies within the scope of the NFRD had to report in accordance with its provisions for the first time in 2018 (covering financial year 2017). The NFRD applies to large public-interest entities with an average number of employees in excess of 500, and to public-interest entities that are parent companies of a large group with an average number of employees in excess of 500 on a consolidated basis. 2 The NFRD exempts subsidiaries from its reporting obligations if their parent company does the reporting for the whole group, including the subsidiaries. Approximately 11 700 companies are subject to the reporting requirements of the NFRD 3 . The NFRD introduced a requirement for companies to report both on how sustainability issues affect their performance, position and development (the ‘outside-in’ perspective), and on their impact on people and the environment (the ‘inside-out’ perspective). This is often known as ‘double materiality’. In accordance with the NFRD, in 2017 the Commission published non-binding reporting guidelines for companies. 4 In 2019, it published additional guidelines, on reporting climate-related information. 5 These guidelines have not sufficiently improved the quality of information companies disclose pursuant to the NFRD. The European Commission committed itself to proposing a revision of the Non-Financial Reporting Directive in the European Green Deal and its 2020 Work Programme. 6 The European Green Deal aims to transform the EU into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050. 7 It will decouple economic growth from resource use, and ensure that all EU regions and citizens participate in a socially just transition to a sustainable economic system. It also aims to protect, conserve and enhance the EU's natural capital, and to protect the health and well-being of citizens from environment-related risks and impacts. The revision of the NFRD will contribute to the objective of building an economy that works for people. It will strengthen the EU’s social market economy, helping to ensure that it is future-ready and that it delivers stability, jobs, growth and investment. These goals are especially important considering the socio-economic damage caused by the COVID-19 pandemic and the need for a sustainable, inclusive and fair recovery. In line with the Commission’s Sustainable Finance Action Plan, the EU has taken a number of measures to ensure that the financial sector plays a significant part in achieving the objectives of the European Green Deal 8 . Better data from companies about the sustainability risks they are exposed to, and their own impact on people and the environment, is essential for the successful implementation of the European Green Deal and the Sustainable Finance Action Plan. By making companies more accountable for and transparent about their impact on people and the environment, this proposal can also help strengthen relations between business and society. It will also create opportunities for companies , investors, civil society and other stakeholders to radically improve the way sustainability information is reported and used thanks to digital technologies. In December 2019, in its conclusions on the Capital Markets Union, the Council stressed the importance of reliable, comparable and relevant information on sustainability risks, opportunities and impacts, and called on the Commission to consider the development of a European non-financial reporting standard 9 . In its May 2018 resolution on sustainable finance, the European Parliament called for the further development of reporting requirements in the framework of the Non-Financial Reporting Directive (NFRD). 10 In its December 2020 resolution on sustainable corporate governance, it welcomed the Commission’s commitment to reviewing the NFRD, called for an extension of the scope of the NFRD to additional categories of companies , and welcomed the Commission’s commitment to developing EU non-financial reporting standards 11 . The European Parliament also considered that non-financial information published by companies pursuant to the NFRD should be subject to a mandatory audit. The primary users of sustainability information disclosed in companies’ annual reports are investors and non-governmental organisations, social partners and other stakeholders. Investors, including asset managers, want to better understand the risks of, and opportunities afforded by, sustainability issues for their investments, as well as the impacts of those investments on people and the environment. Non-governmental organisations, social partners and other stakeholders want to hold undertakings to greater account for their impacts of their activities on people and the environment. The current legal framework does not ensure that the information needs of these users are met. This is because some companies from which users want sustainability information do not report such information, while many that do report sustainability information do not report all the information that is relevant for users. When information is reported, it is often neither sufficiently reliable, nor sufficiently comparable, between companies. The information is often difficult for users to find and is rarely available in a machine-readable digital format. Information on intangibles, including internally generated intangibles, is under-reported, even though these intangibles represent the majority of private sector investment in advanced economies (e.g. human capital, brand, and intellectual property and intangibles related to research and development). The information needs of users have increased significantly in recent years and will almost certainly continue to do so. There are several reasons for this. One is the growing awareness of investors that sustainability issues can put the financial performance of companies at risk . Another is the growing market for investment products that explicitly seek to conform to certain sustainability standards or achieve certain sustainability objectives. Yet another is regulation, including the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. As a result of both these regulations, asset managers and financial advisers need more sustainability information from investee companies 12 . Finally, the COVID-19 pandemic is likely to further accelerate the growth in demand for sustainability information from companies , for example regarding the vulnerability of workers and the resilience of supply chains. There is therefore a widening gap between the sustainability information companies report and the needs of the intended users of that information. On the one hand, this means that investors are unable to take sufficient account of sustainability-related risks in their investment decisions. This in turn has the potential to create systemic risks that threaten financial stability. On the other hand, the gap means that investors cannot channel financial resources to companies with sustainable business models and activities. This in turn undermines the achievement of the objectives of the European Green Deal. It also hampers stakeholders’ ability to hold undertakings accountable for the impact they have on people and the environment, creating an accountability deficit liable to undermine the efficient functioning of the social market economy. The current situation is also problematic for companies that have to report. The lack of precision in the current requirements, and the large number of private standards and frameworks in existence, make it difficult for companies to know exactly what information they should report. They often experience difficulties in getting the information they themselves need from suppliers, clients and investee companies. Many companies receive requests for sustainability information from stakeholders in addition to the information they report to comply with current legal requirements. All of this generates unnecessary business costs. The objective of this proposal is therefore to improve sustainability reporting at the least possible cost, in order to better harness the potential of the European single market to contribute to the transition towards a fully sustainable and inclusive economic and financial system in accordance with the European Green Deal and the UN Sustainable Development Goals. The proposal aims to ensure that there is adequate publicly available information about the risks that sustainability issues present for companies, and the impacts of companies themselves on people and the environment. This means that companies from which users need sustainability information should report such information, and that companies should report all information users consider relevant. Reported information should be comparable, reliable and easy for users to find and make use of with digital technologies. This entails changing the status of sustainability information to make it more comparable to that of financial information. The proposal will help reduce systemic risks to the economy. It will also improve the allocation of financial capital to companies and activities that address social, health and environmental problems. Finally, it will make companies more accountable for their impacts on people and the environment, thereby building trust between them and society. The proposal aims to reduce unnecessary costs of sustainability reporting for companies, and to enable them to meet the growing demand for sustainability information in an efficient manner. It will bring clarity and certainty on what sustainability information to report, and make it easier for preparers to get the information they need for reporting purposes from their own business partners (suppliers, clients and investee companies). It should also reduce the number of demands companies receive for sustainability information in addition to the information they publish in their annual reports. There are a number of important international initiatives in place. Their aim is to help to achieve the worldwide convergence and harmonisation of sustainability reporting standards. The EU fully supports this ambition. EU companies and investors that operate globally will benefit from such convergence and harmonisation. The Commission supports initiatives by the G20, the G7, the Financial Stability Board and others to generate international commitment to develop a baseline of global sustainability reporting standards that would build on the work of the Task Force on Climate-related Financial Disclosures. The proposals of the International Financial Reporting Standards Foundation to create a new Sustainability Standards Board are especially relevant in this context, as is the work already carried out by established initiatives including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Climate Disclosure Standards Board (CDSB) and CDP (formerly the Carbon Disclosure Project). This proposal aims to build on and contribute to international sustainability reporting initiatives. EU sustainability reporting standards should be developed in constructive two-way cooperation with leading international initiatives, and they should align with those initiatives as far as possible while taking into account European specificities. This proposal consists of one Directive that would amend four existing pieces of legislation. In the first place, it would amend the Accounting Directive, revising some exiting provisions and adding certain new provisions about sustainability reporting. In addition, it would amend the Audit Directive and the Audit Regulation, to cover the audit of sustainability information. Finally, it would amend the Transparency Directive to extend the scope of the sustainability reporting requirements to companies with securities listed on regulated markets, and to clarify the supervisory regime for sustainability reporting by these companies.
Revised version (Article 32 Other publication requirements):
1. Where the annual financial statements and the management report are published in full, they shall be reproduced in the form and text on the basis of which the statutory auditor or audit firm has drawn up his/her/its opinion. They shall be accompanied by the full text of the audit report.
Article 33 Responsibility and liability for drawing up and publishing the financial statements and the management report
1. Member States shall ensure that the members of the administrative, management and supervisory bodies of an undertaking, acting within the competences assigned to them by national law, have collective responsibility for ensuring that: (a) the annual financial statements, the management report and, when provided separately, the corporate governance statement; and (b) the consolidated financial statements, consolidated management reports and, when provided separately, the consolidated corporate governance statement, are drawn up and published in accordance with the requirements of this Directive and, where applicable, with the international accounting standards adopted in accordance with Regulation (EC) No 1606/2002. 2. Member States shall ensure that their laws, regulations and administrative provisions on liability, at least towards the undertaking, apply to the members of the administrative, management and supervisory bodies of the undertakings for breach of the duties referred to in paragraph 1.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 33 Responsibility and liability for drawing up and publishing the financial statements and the management report):
1. Member States shall ensure that the members of the administrative, management and supervisory bodies of an undertaking, acting within the competences assigned to them by national law, have collective responsibility for ensuring that: (a) the annual financial statements, the management report, the corporate governance statement when provided separately and the report referred to in Article 19a(4); and (b) the consolidated financial statements, the consolidated management reports, the consolidated corporate governance statement when provided separately and the report referred to in Article 29a(4), are drawn up and published in accordance with the requirements of this Directive and, where applicable, with the international accounting standards adopted in accordance with Regulation (EC) No 1606/2002. 2. Member States shall ensure that their laws, regulations and administrative provisions on liability, at least towards the undertaking, apply to the members of the administrative, management and supervisory bodies of the undertakings for breach of the duties referred to in paragraph 1.
Article 34 General requirement
1. Member States shall ensure that the financial statements of public-interest entities, medium-sized and large undertakings are audited by one or more statutory auditors or audit firms approved by Member States to carry out statutory audits on the basis of Directive 2006/43/EC. The statutory auditor(s) or audit firm(s) shall also: (a) express an opinion on: (i) whether the management report is consistent with the financial statements for the same financial year, and (ii) whether the management report has been prepared in accordance with the applicable legal requirements; (b) state whether, in the light of the knowledge and understanding of the undertaking and its environment obtained in the course of the audit, he, she or it has identified material misstatements in the management report, and shall give an indication of the nature of any such misstatements. 2. The first subparagraph of paragraph 1 shall apply mutatis mutandis with respect to consolidated financial statements. The second subparagraph of paragraph 1 shall apply mutatis mutandis with respect to consolidated financial statements and consolidated management reports.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 34 General requirement):
1. Member States shall ensure that the financial statements of public-interest entities, medium-sized and large undertakings are audited by one or more statutory auditors or audit firms approved by Member States to carry out statutory audits on the basis of Directive 2006/43/EC. The statutory auditor(s) or audit firm(s) shall also: (a) express an opinion on: (i) whether the management report is consistent with the financial statements for the same financial year, and (ii) whether the management report has been prepared in accordance with the applicable legal requirements; (a) express an opinion on: (i) whether the management report is consistent with the financial statements for the same financial year, and (ii) whether the management report has been prepared in accordance with the applicable legal requirements; (b) state whether, in the light of the knowledge and understanding of the undertaking and its environment obtained in the course of the audit, he, she or it has identified material misstatements in the management report, and shall give an indication of the nature of any such misstatements. 2. The first subparagraph of paragraph 1 shall apply mutatis mutandis with respect to consolidated financial statements. The second subparagraph of paragraph 1 shall apply mutatis mutandis with respect to consolidated financial statements and consolidated management reports. 3. This Article shall not apply to the non-financial statement referred to in Article 19a(1) and the consolidated non-financial statement referred to in Article 29a(1) or to the separate reports referred to in Articles 19a(4) and 29a(4).
Article 35 Amendment of Directive 2006/43/EC as regards the audit report
Article 28 of Directive 2006/43/EC is replaced by the following:
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 35 Amendment of Directive 2006/43/EC as regards the audit report):
Article 28 of Directive 2006/43/EC is replaced by the following: 
‘Article 28
Audit reporting
1. The audit report shall include:
(a) an introduction which shall, as a minimum, identify the financial statements that are the subject of the statutory audit, together with the financial reporting framework that has been applied in their preparation;
(a) an introduction which shall, as a minimum, identify the financial statements that are the subject of the statutory audit, together with the financial reporting framework that has been applied in their preparation;
(b) a description of the scope of the statutory audit which shall, as a minimum, identify the auditing standards in accordance with which the statutory audit was conducted;
(b) a description of the scope of the statutory audit which shall, as a minimum, identify the auditing standards in accordance with which the statutory audit was conducted;
(c) an audit opinion, which shall be either unqualified, qualified or an adverse opinion and shall state clearly the opinion of the statutory auditor as to: (i) whether the annual financial statements give a true and fair view in accordance with the relevant financial reporting framework, and, (ii) where appropriate, whether the annual financial statements comply with statutory requirements. If the statutory auditor is unable to express an audit opinion, the report shall contain a disclaimer of opinion;
(c) an audit opinion, which shall be either unqualified, qualified or an adverse opinion and shall state clearly the opinion of the statutory auditor as to:
(i) whether the annual financial statements give a true and fair view in accordance with the relevant financial reporting framework, and,
(i) whether the annual financial statements give a true and fair view in accordance with the relevant financial reporting framework, and,
(ii) where appropriate, whether the annual financial statements comply with statutory requirements.
(ii) where appropriate, whether the annual financial statements comply with statutory requirements.
If the statutory auditor is unable to express an audit opinion, the report shall contain a disclaimer of opinion;
(d) a reference to any matters to which the statutory auditor draws attention by way of emphasis without qualifying the audit opinion;
(d) a reference to any matters to which the statutory auditor draws attention by way of emphasis without qualifying the audit opinion;
(e) the opinion and statement referred to in the second subparagraph of Article 34(1) of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC ( 18 ).
(e) the opinion and statement referred to in the second subparagraph of Article 34(1) of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC ( 18 ).
2. The audit report shall be signed and dated by the statutory auditor. Where an audit firm carries out the statutory audit, the audit report shall bear the signature of at least the statutory auditor(s) carrying out the statutory audit on behalf of the audit firm. In exceptional circumstances Member States may provide that such signature(s) need not be disclosed to the public if such disclosure could lead to an imminent and significant threat to the personal security of any person. In any case the name(s) of the person(s) involved shall be known to the relevant competent authorities.
3. The audit report on the consolidated financial statements shall comply with the requirements set out in of paragraphs 1 and 2. In reporting on the consistency of the management report and the financial statements as required by point (e) of paragraph 1, the statutory auditor or audit firm shall consider the consolidated financial statements and the consolidated management report. Where the annual financial statements of the parent undertaking are attached to the consolidated financial statements, the audit reports required by this Article may be combined.
PROVISIONS CONCERNING EXEMPTIONS AND RESTRICTIONS ON EXEMPTIONS
Article 36 Exemptions for micro-undertakings
1. Member States may exempt micro-undertakings from any or all of the following obligations: (a) the obligation to present ‧Prepayments and accrued income‧ and ‧Accruals and deferred income‧. Where a Member State makes use of that option, it may permit those undertakings, only in respect of other charges as referred to in point (b)(vi) of paragraph 2 of this Article, to depart from point (d) of Article 6(1) with regard to the recognition of ‧Prepayments and accrued income‧ and ‧Accruals and deferred income‧, provided that this fact is disclosed in the notes to the financial statements or, in accordance with point (b) of this paragraph, at the foot of the balance sheet; (b) the obligation to draw up notes to the financial statements in accordance with Article 16, provided that the information required by points (d) and (e) of Article 16(1) of this Directive and by Article 24(2) of Directive 2012/30/EU is disclosed at the foot of the balance sheet; (c) the obligation to prepare a management report in accordance with Chapter 5, provided that the information required by Article 24(2) of Directive 2012/30/EU is disclosed in the notes to the financial statements or, in accordance with point (b) of this paragraph, at the foot of the balance sheet; (d) the obligation to publish annual financial statements in accordance with Chapter 7 of this Directive, provided that the balance sheet information contained therein is duly filed, in accordance with national law, with at least one competent authority designated by the Member State concerned. Whenever the competent authority is not the central register, commercial register or companies register, as referred to in Article 3(1) of Directive 2009/101/EC, the competent authority is required to provide the register with the information filed. 2. Member States may permit micro-undertakings: (a) to draw up only an abridged balance sheet showing separately at least those items preceded by letters in Annexes III or IV, where applicable. In cases where point (a) of paragraph 1 of this Article applies, items E under ‧Assets‧ and D under ‧Liabilities‧ in Annex III or items E and K in Annex IV shall be excluded from the balance sheet; (b) to draw up only an abridged profit and loss account showing separately at least the following items, where applicable: (i) net turnover, (ii) other income, (iii) cost of raw materials and consumables, (iv) staff costs, (v) value adjustments, (vi) other charges, (vii) tax, (viii) profit or loss. 3. Member States shall not permit or require the application of Article 8 to any micro-undertaking making use of any of the exemptions provided for in paragraphs 1 and 2 of this Article. 4. In respect of micro-undertakings, annual financial statements drawn up in accordance with paragraphs 1, 2 and 3 of this Article shall be regarded as giving the true and fair view required by Article 4(3), and consequently Article 4(4) shall not apply to such financial statements. 5. If point (a) of paragraph 1 of this Article applies, the balance sheet total referred to in point (a) of Article 3(1) shall consist of the assets referred to in items A to D under ‧Assets‧ in Annex III or items A to D in Annex IV. 6. Without prejudice to this Article, Member States shall ensure that micro-undertakings are otherwise regarded as small undertakings. 7. Member States shall not make available the derogations provided for in paragraphs 1, 2 and 3 in respect of investment undertakings or financial holding undertakings. 8. Member States which at 19 July 2013 have brought into force laws, regulations or administrative provisions in compliance with Directive 2012/6/EU of the European Parliament and of the Council of 14 March 2012 amending Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities ( 18 ) , may be exempted from the requirements set out in Article 3(9) with regard to the conversion into national currencies of thresholds set out in Article 3(1) when applying the first sentence of Article 53(1). 9. By 20 July 2018 the Commission shall submit to the European Parliament, to the Council and to the European Economic and Social Committee a report on the situation of micro-undertakings taking account, in particular, of the situation at national level regarding the number of undertakings covered by the size criteria and the reduction of administrative burdens resulting from the exemption from the publication requirement.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 36 Exemptions for micro-undertakings):
1. Member States may exempt micro-undertakings from any or all of the following obligations: (a) the obligation to present ‘Prepayments and accrued income’ and ‘Accruals and deferred income’. Where a Member State makes use of that option, it may permit those undertakings, only in respect of other charges as referred to in point (b)(vi) of paragraph 2 of this Article, to depart from point (d) of Article 6(1) with regard to the recognition of ‘Prepayments and accrued income’ and ‘Accruals and deferred income’, provided that this fact is disclosed in the notes to the financial statements or, in accordance with point (b) of this paragraph, at the foot of the balance sheet; (b) the obligation to draw up notes to the financial statements in accordance with Article 16, provided that the information required by points (d) and (e) of Article 16(1) of this Directive and by Article 24(2) of Directive 2012/30/EU is disclosed at the foot of the balance sheet; (c) the obligation to prepare a management report in accordance with Chapter 5, provided that the information required by Article 24(2) of Directive 2012/30/EU is disclosed in the notes to the financial statements or, in accordance with point (b) of this paragraph, at the foot of the balance sheet; (d) the obligation to publish annual financial statements in accordance with Chapter 7 of this Directive, provided that the balance sheet information contained therein is duly filed, in accordance with national law, with at least one competent authority designated by the Member State concerned. Whenever the competent authority is not the central register, commercial register or companies register, as referred to in Article 3(1) of Directive 2009/101/EC, the competent authority is required to provide the register with the information filed. 2. Member States may permit micro-undertakings: (a) to draw up only an abridged balance sheet showing separately at least those items preceded by letters in Annexes III or IV, where applicable. In cases where point (a) of paragraph 1 of this Article applies, items E under ‘Assets’ and D under ‘Liabilities’ in Annex III or items E and K in Annex IV shall be excluded from the balance sheet; (b) to draw up only an abridged profit and loss account showing separately at least the following items, where applicable: (i) net turnover, (ii) other income, (iii) cost of raw materials and consumables, (iv) staff costs, (v) value adjustments, (vi) other charges, (vii) tax, (viii) profit or loss. (b) to draw up only an abridged profit and loss account showing separately at least the following items, where applicable: (i) net turnover, (ii) other income, (iii) cost of raw materials and consumables, (iv) staff costs, (v) value adjustments, (vi) other charges, (vii) tax, (viii) profit or loss. 3. Member States shall not permit or require the application of Article 8 to any micro-undertaking making use of any of the exemptions provided for in paragraphs 1 and 2 of this Article. 4. In respect of micro-undertakings, annual financial statements drawn up in accordance with paragraphs 1, 2 and 3 of this Article shall be regarded as giving the true and fair view required by Article 4(3), and consequently Article 4(4) shall not apply to such financial statements. 5. If point (a) of paragraph 1 of this Article applies, the balance sheet total referred to in point (a) of Article 3(1) shall consist of the assets referred to in items A to D under ‘Assets’ in Annex III or items A to D in Annex IV. 6. Without prejudice to this Article, Member States shall ensure that micro-undertakings are otherwise regarded as small undertakings. 7. Member States shall not make available the derogations provided for in paragraphs 1, 2 and 3 in respect of investment undertakings or financial holding undertakings. 8. Member States which at 19 July 2013 have brought into force laws, regulations or administrative provisions in compliance with Directive 2012/6/EU of the European Parliament and of the Council of 14 March 2012 amending Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities ( 19 ), may be exempted from the requirements set out in Article 3(9) with regard to the conversion into national currencies of thresholds set out in Article 3(1) when applying the first sentence of Article 53(1). 9. By 20 July 2018 the Commission shall submit to the European Parliament, to the Council and to the European Economic and Social Committee a report on the situation of micro-undertakings taking account, in particular, of the situation at national level regarding the number of undertakings covered by the size criteria and the reduction of administrative burdens resulting from the exemption from the publication requirement.
Article 37 Exemption for subsidiary undertakings
Notwithstanding the provisions of Directives 2009/101/EC and 2012/30/EU, a Member State shall not be required to apply the provisions of this Directive concerning the content, auditing and publication of the annual financial statements and the management report to undertakings governed by their national laws which are subsidiary undertakings, where the following conditions are fulfilled: (1) the parent undertaking is subject to the laws of a Member State; (2) all shareholders or members of the subsidiary undertaking have, in respect of each financial year in which the exemption is applied, declared their agreement to the exemption from such obligation; (3) the parent undertaking has declared that it guarantees the commitments entered into by the subsidiary undertaking; (4) the declarations referred to in points (2) and (3) of this Article are published by the subsidiary undertaking as laid down by the laws of the Member State in accordance with Chapter 2 of Directive 2009/101/EC; (5) the subsidiary undertaking is included in the consolidated financial statements drawn up by the parent undertaking in accordance with this Directive; (6) the exemption is disclosed in the notes to the consolidated financial statements drawn up by the parent undertaking; and (7) the consolidated financial statements referred to in point (5) of this Article, the consolidated management report, and the audit report are published for the subsidiary undertaking as laid down by the laws of the Member State in accordance with Chapter 2 of Directive 2009/101/EC.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Non-Financial Reporting Directive (Directive 2014/95/EU, the NFRD), amending the Accounting Directive, was adopted in 2014. 1 Companies within the scope of the NFRD had to report in accordance with its provisions for the first time in 2018 (covering financial year 2017). The NFRD applies to large public-interest entities with an average number of employees in excess of 500, and to public-interest entities that are parent companies of a large group with an average number of employees in excess of 500 on a consolidated basis. 2 The NFRD exempts subsidiaries from its reporting obligations if their parent company does the reporting for the whole group, including the subsidiaries. Approximately 11 700 companies are subject to the reporting requirements of the NFRD 3 . The NFRD introduced a requirement for companies to report both on how sustainability issues affect their performance, position and development (the ‘outside-in’ perspective), and on their impact on people and the environment (the ‘inside-out’ perspective). This is often known as ‘double materiality’. In accordance with the NFRD, in 2017 the Commission published non-binding reporting guidelines for companies. 4 In 2019, it published additional guidelines, on reporting climate-related information. 5 These guidelines have not sufficiently improved the quality of information companies disclose pursuant to the NFRD. The European Commission committed itself to proposing a revision of the Non-Financial Reporting Directive in the European Green Deal and its 2020 Work Programme. 6 The European Green Deal aims to transform the EU into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050. 7 It will decouple economic growth from resource use, and ensure that all EU regions and citizens participate in a socially just transition to a sustainable economic system. It also aims to protect, conserve and enhance the EU's natural capital, and to protect the health and well-being of citizens from environment-related risks and impacts. The revision of the NFRD will contribute to the objective of building an economy that works for people. It will strengthen the EU’s social market economy, helping to ensure that it is future-ready and that it delivers stability, jobs, growth and investment. These goals are especially important considering the socio-economic damage caused by the COVID-19 pandemic and the need for a sustainable, inclusive and fair recovery. In line with the Commission’s Sustainable Finance Action Plan, the EU has taken a number of measures to ensure that the financial sector plays a significant part in achieving the objectives of the European Green Deal 8 . Better data from companies about the sustainability risks they are exposed to, and their own impact on people and the environment, is essential for the successful implementation of the European Green Deal and the Sustainable Finance Action Plan. By making companies more accountable for and transparent about their impact on people and the environment, this proposal can also help strengthen relations between business and society. It will also create opportunities for companies , investors, civil society and other stakeholders to radically improve the way sustainability information is reported and used thanks to digital technologies. In December 2019, in its conclusions on the Capital Markets Union, the Council stressed the importance of reliable, comparable and relevant information on sustainability risks, opportunities and impacts, and called on the Commission to consider the development of a European non-financial reporting standard 9 . In its May 2018 resolution on sustainable finance, the European Parliament called for the further development of reporting requirements in the framework of the Non-Financial Reporting Directive (NFRD). 10 In its December 2020 resolution on sustainable corporate governance, it welcomed the Commission’s commitment to reviewing the NFRD, called for an extension of the scope of the NFRD to additional categories of companies , and welcomed the Commission’s commitment to developing EU non-financial reporting standards 11 . The European Parliament also considered that non-financial information published by companies pursuant to the NFRD should be subject to a mandatory audit. The primary users of sustainability information disclosed in companies’ annual reports are investors and non-governmental organisations, social partners and other stakeholders. Investors, including asset managers, want to better understand the risks of, and opportunities afforded by, sustainability issues for their investments, as well as the impacts of those investments on people and the environment. Non-governmental organisations, social partners and other stakeholders want to hold undertakings to greater account for their impacts of their activities on people and the environment. The current legal framework does not ensure that the information needs of these users are met. This is because some companies from which users want sustainability information do not report such information, while many that do report sustainability information do not report all the information that is relevant for users. When information is reported, it is often neither sufficiently reliable, nor sufficiently comparable, between companies. The information is often difficult for users to find and is rarely available in a machine-readable digital format. Information on intangibles, including internally generated intangibles, is under-reported, even though these intangibles represent the majority of private sector investment in advanced economies (e.g. human capital, brand, and intellectual property and intangibles related to research and development). The information needs of users have increased significantly in recent years and will almost certainly continue to do so. There are several reasons for this. One is the growing awareness of investors that sustainability issues can put the financial performance of companies at risk . Another is the growing market for investment products that explicitly seek to conform to certain sustainability standards or achieve certain sustainability objectives. Yet another is regulation, including the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation. As a result of both these regulations, asset managers and financial advisers need more sustainability information from investee companies 12 . Finally, the COVID-19 pandemic is likely to further accelerate the growth in demand for sustainability information from companies , for example regarding the vulnerability of workers and the resilience of supply chains. There is therefore a widening gap between the sustainability information companies report and the needs of the intended users of that information. On the one hand, this means that investors are unable to take sufficient account of sustainability-related risks in their investment decisions. This in turn has the potential to create systemic risks that threaten financial stability. On the other hand, the gap means that investors cannot channel financial resources to companies with sustainable business models and activities. This in turn undermines the achievement of the objectives of the European Green Deal. It also hampers stakeholders’ ability to hold undertakings accountable for the impact they have on people and the environment, creating an accountability deficit liable to undermine the efficient functioning of the social market economy. The current situation is also problematic for companies that have to report. The lack of precision in the current requirements, and the large number of private standards and frameworks in existence, make it difficult for companies to know exactly what information they should report. They often experience difficulties in getting the information they themselves need from suppliers, clients and investee companies. Many companies receive requests for sustainability information from stakeholders in addition to the information they report to comply with current legal requirements. All of this generates unnecessary business costs. The objective of this proposal is therefore to improve sustainability reporting at the least possible cost, in order to better harness the potential of the European single market to contribute to the transition towards a fully sustainable and inclusive economic and financial system in accordance with the European Green Deal and the UN Sustainable Development Goals. The proposal aims to ensure that there is adequate publicly available information about the risks that sustainability issues present for companies, and the impacts of companies themselves on people and the environment. This means that companies from which users need sustainability information should report such information, and that companies should report all information users consider relevant. Reported information should be comparable, reliable and easy for users to find and make use of with digital technologies. This entails changing the status of sustainability information to make it more comparable to that of financial information. The proposal will help reduce systemic risks to the economy. It will also improve the allocation of financial capital to companies and activities that address social, health and environmental problems. Finally, it will make companies more accountable for their impacts on people and the environment, thereby building trust between them and society. The proposal aims to reduce unnecessary costs of sustainability reporting for companies, and to enable them to meet the growing demand for sustainability information in an efficient manner. It will bring clarity and certainty on what sustainability information to report, and make it easier for preparers to get the information they need for reporting purposes from their own business partners (suppliers, clients and investee companies). It should also reduce the number of demands companies receive for sustainability information in addition to the information they publish in their annual reports. There are a number of important international initiatives in place. Their aim is to help to achieve the worldwide convergence and harmonisation of sustainability reporting standards. The EU fully supports this ambition. EU companies and investors that operate globally will benefit from such convergence and harmonisation. The Commission supports initiatives by the G20, the G7, the Financial Stability Board and others to generate international commitment to develop a baseline of global sustainability reporting standards that would build on the work of the Task Force on Climate-related Financial Disclosures. The proposals of the International Financial Reporting Standards Foundation to create a new Sustainability Standards Board are especially relevant in this context, as is the work already carried out by established initiatives including the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Climate Disclosure Standards Board (CDSB) and CDP (formerly the Carbon Disclosure Project). This proposal aims to build on and contribute to international sustainability reporting initiatives. EU sustainability reporting standards should be developed in constructive two-way cooperation with leading international initiatives, and they should align with those initiatives as far as possible while taking into account European specificities. This proposal consists of one Directive that would amend four existing pieces of legislation. In the first place, it would amend the Accounting Directive, revising some exiting provisions and adding certain new provisions about sustainability reporting. In addition, it would amend the Audit Directive and the Audit Regulation, to cover the audit of sustainability information. Finally, it would amend the Transparency Directive to extend the scope of the sustainability reporting requirements to companies with securities listed on regulated markets, and to clarify the supervisory regime for sustainability reporting by these companies.
Revised version (Article 37 Exemption for subsidiary undertakings):
Notwithstanding the provisions of Directives 2009/101/EC and 2012/30/EU, a Member State shall not be required to apply the provisions of this Directive concerning the content, auditing and publication of the annual financial statements and the management report to undertakings governed by their national laws which are subsidiary undertakings, where the following conditions are fulfilled: (1) the parent undertaking is subject to the laws of a Member State; (2) all shareholders or members of the subsidiary undertaking have, in respect of each financial year in which the exemption is applied, declared their agreement to the exemption from such obligation; (3) the parent undertaking has declared that it guarantees the commitments entered into by the subsidiary undertaking; (5) the subsidiary undertaking is included in the consolidated financial statements drawn up by the parent undertaking in accordance with this Directive; (6) the exemption is disclosed in the notes to the consolidated financial statements drawn up by the parent undertaking; and (7) the consolidated financial statements referred to in point (5) of this Article, the consolidated management report, and the audit report are published for the subsidiary undertaking as laid down by the laws of the Member State in accordance with Chapter 2 of Directive 2009/101/EC.
Article 38 Undertakings which are members having unlimited liability of other undertakings
1. Member States may require undertakings referred to in point (a) of Article 1(1) which are governed by their laws and which are members having unlimited liability of any undertaking referred to in point (b) of Article 1(1) (‧the undertaking concerned‧), to draw up, have audited and publish, with their own financial statements, the financial statements of the undertaking concerned in accordance with this Directive; in such case the requirements of this Directive shall not apply to the undertaking concerned. 2. Member States shall not be required to apply the requirements of this Directive to the undertaking concerned where: (a) the financial statements of the undertaking concerned are drawn up, audited and published in accordance with the provisions of this Directive by an undertaking which: (i) is a member having unlimited liability of that undertaking concerned, and (ii) is governed by the laws of another Member State; (b) the undertaking concerned is included in consolidated financial statements drawn up, audited and published in accordance with this Directive by: (i) a member having unlimited liability, or (ii) where the undertaking concerned is included in the consolidated financial statements of a larger body of undertakings drawn up, audited and published in conformity with this Directive, a parent undertaking governed by the laws of a Member State. This exemption shall be disclosed in the notes to the consolidated financial statements. 3. In the cases referred to in paragraph 2, the undertaking concerned shall, upon request, reveal the name of the undertaking publishing the financial statements.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 38 Undertakings which are members having unlimited liability of other undertakings):
1. Member States may require undertakings referred to in point (a) of Article 1(1) which are governed by their laws and which are members having unlimited liability of any undertaking referred to in point (b) of Article 1(1) (‘the undertaking concerned’), to draw up, have audited and publish, with their own financial statements, the financial statements of the undertaking concerned in accordance with this Directive; in such case the requirements of this Directive shall not apply to the undertaking concerned. 2. Member States shall not be required to apply the requirements of this Directive to the undertaking concerned where: (a) the financial statements of the undertaking concerned are drawn up, audited and published in accordance with the provisions of this Directive by an undertaking which: (i) is a member having unlimited liability of that undertaking concerned, and (ii) is governed by the laws of another Member State; (a) the financial statements of the undertaking concerned are drawn up, audited and published in accordance with the provisions of this Directive by an undertaking which: (i) is a member having unlimited liability of that undertaking concerned, and (ii) is governed by the laws of another Member State; (b) the undertaking concerned is included in consolidated financial statements drawn up, audited and published in accordance with this Directive by: (i) a member having unlimited liability, or (ii) where the undertaking concerned is included in the consolidated financial statements of a larger body of undertakings drawn up, audited and published in conformity with this Directive, a parent undertaking governed by the laws of a Member State. This exemption shall be disclosed in the notes to the consolidated financial statements. (b) the undertaking concerned is included in consolidated financial statements drawn up, audited and published in accordance with this Directive by: (i) a member having unlimited liability, or (ii) where the undertaking concerned is included in the consolidated financial statements of a larger body of undertakings drawn up, audited and published in conformity with this Directive, a parent undertaking governed by the laws of a Member State. This exemption shall be disclosed in the notes to the consolidated financial statements. 3. In the cases referred to in paragraph 2, the undertaking concerned shall, upon request, reveal the name of the undertaking publishing the financial statements.
Article 39 Profit and loss account exemption for parent undertakings preparing consolidated financial statements
A Member State shall not be required to apply the provisions of this Directive concerning the auditing and publication of the profit and loss account to undertakings governed by its national laws which are parent undertakings, provided that the following conditions are fulfilled: (1) the parent undertaking draws up consolidated financial statements in accordance with this Directive and is included in those consolidated financial statements; (2) the exemption is disclosed in the notes to the annual financial statements of the parent undertaking; (3) the exemption is disclosed in the notes to the consolidated financial statements drawn up by the parent undertaking; and (4) the profit or loss of the parent undertaking, determined in accordance with this Directive, is shown in its balance sheet.
Article 40 Restriction of exemptions for public-interest entities
Unless expressly provided for in this Directive, Member States shall not make the simplifications and exemptions set out in this Directive available to public-interest entities. A public-interest entity shall be treated as a large undertaking regardless of its net turnover, balance sheet total or average number of employees during the financial year.
Article 41 Definitions relating to reporting on payments to governments
For the purpose of this Chapter, the following definitions shall apply: (1) ‧undertaking active in the extractive industry‧ means an undertaking with any activity involving the exploration, prospection, discovery, development, and extraction of minerals, oil, natural gas deposits or other materials, within the economic activities listed in Section B, Divisions 05 to 08 of Annex I to Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006 establishing the statistical classification of economic activities NACE Revision 2 ( 19 ) ; (2) ‧undertaking active in the logging of primary forests‧ means an undertaking with activities as referred to in Section A, Division 02, Group 02.2 of Annex I to Regulation (EC) No 1893/2006, in primary forests; (3) ‧government‧ means any national, regional or local authority of a Member State or of a third country. It includes a department, agency or undertaking controlled by that authority as laid down in Article 22(1) to (6) of this Directive; (4) ‧project‧ means the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities with a government. None the less, if multiple such agreements are substantially interconnected, this shall be considered a project; (5) ‧payment‧ means an amount paid, whether in money or in kind, for activities, as described in points 1 and 2, of the following types: (a) production entitlements; (b) taxes levied on the income, production or profits of companies, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes; (c) royalties; (d) dividends; (e) signature, discovery and production bonuses; (f) licence fees, rental fees, entry fees and other considerations for licences and/or concessions; and (g) payments for infrastructure improvements.
Amendment rationale: CONTEXT OF THE PROPOSAL The proposal for a Council Directive adapting Directive 2013/34/EU is necessitated by the accession of the Republic of Croatia to the European Union. The Treaty concerning the accession of the Republic of Croatia to the European Union[1] (hereinafter: “the Treaty of Accession”) was signed by all Member States of the European Union and the Republic of Croatia at Brussels on 9 December 2011. Article 3(3) of the Treaty of Accession provides that it shall enter into force on 1 July 2013 provided that all the instruments of ratification have been deposited before that date. Article 3(4) of the Treaty of Accession enables the institutions of the Union to adopt before accession measures referred to, inter alia, in Article 50 of the Act concerning the conditions of accession of the Republic of Croatia[2] (hereinafter: “the Act of Accession”). These measures shall enter into force only subject to and on the date of the entry into force of the Treaty of Accession. Article 50 of the Act of Accession provides that where acts of the institutions adopted prior to accession require adaptation by reason of accession, and the necessary adaptations have not been provided for in this Act of Accession or its Annexes, the Council or the Commission (if the original acts were adopted by the Commission) shall adopt the necessary acts. The Directive 2013/34/EU was adopted on 26 June 2013 and published in the Official Journal of the European Union on 29 June 2013. It does not include necessary references to the companies established in Croatia that should be within the scope of the Directive. Council Directive 2013/24/EU of 13 May 2013 adapting certain directives in the field of company law, by reason of the accession of the republic of Croatia adapted Directives 78/660/EEC and 83/349/EEC, in order to add to the scope of those Directives the relevant list of Croatian limited liability companies. However, these directives were repealed when Directive 2013/34/EU entered into force in July 2103. Therefore it is necessary to take into account this evolution of the Union law and adapt Directive 2013/34/EU accordingly. The present proposal for a Council Directive covers the technical adaptations to Directive 2013/34/EU that are required by reason of the accession of Croatia.
Revised version (Article 41 Definitions relating to reporting on payments to governments):
For the purpose of this Chapter, the following definitions shall apply: (1) ‘undertaking active in the extractive industry’ means an undertaking with any activity involving the exploration, prospection, discovery, development, and extraction of minerals, oil, natural gas deposits or other materials, within the economic activities listed in Section B, Divisions 05 to 08 of Annex I to Regulation (EC) No 1893/2006 of the European Parliament and of the Council of 20 December 2006 establishing the statistical classification of economic activities NACE Revision 2 ( 20 ); (2) ‘undertaking active in the logging of primary forests’ means an undertaking with activities as referred to in Section A, Division 02, Group 02.2 of Annex I to Regulation (EC) No 1893/2006, in primary forests; (3) ‘government’ means any national, regional or local authority of a Member State or of a third country. It includes a department, agency or undertaking controlled by that authority as laid down in Article 22(1) to (6) of this Directive; (4) ‘project’ means the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities with a government. None the less, if multiple such agreements are substantially interconnected, this shall be considered a project; (5) ‘payment’ means an amount paid, whether in money or in kind, for activities, as described in points 1 and 2, of the following types: (a) production entitlements; (b) taxes levied on the income, production or profits of companies, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes; (c) royalties; (d) dividends; (e) signature, discovery and production bonuses; (f) licence fees, rental fees, entry fees and other considerations for licences and/or concessions; and (g) payments for infrastructure improvements. (5) ‘payment’ means an amount paid, whether in money or in kind, for activities, as described in points 1 and 2, of the following types: (a) production entitlements; (b) taxes levied on the income, production or profits of companies, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes; (c) royalties; (d) dividends; (e) signature, discovery and production bonuses; (f) licence fees, rental fees, entry fees and other considerations for licences and/or concessions; and (g) payments for infrastructure improvements.
Article 42 Undertakings required to report on payments to governments
1. Member States shall require large undertakings and all public-interest entities active in the extractive industry or the logging of primary forests to prepare and make public a report on payments made to governments on an annual basis. 2. That obligation shall not apply to any undertaking governed by the law of a Member State which is a subsidiary or parent undertaking, where both of the following conditions are fulfilled: (a) the parent undertaking is subject to the laws of a Member State; and (b) the payments to governments made by the undertaking are included in the consolidated report on payments to governments drawn up by that parent undertaking in accordance with Article 44.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal A healthy Single Market needs a fair, efficient and growth-friendly corporate tax system, based on the principle that companies should pay taxes in the country where profits are generated. Aggressive tax planning undermines this principle. The majority of companies do not engage in aggressive tax planning and suffer a competitive disadvantage to those that do. Small and medium-sized companies are particularly affected by this phenomenon. Fighting against tax avoidance and aggressive tax planning, both at EU a nd global level, is a political priority for the European Commission. As part of a broader strategy for a Fair and Efficient Corporate Tax System in the EU 1 , p ublic scrutiny can help to ensure that profits are effectively taxed where they are generated. Pu blic scrutiny can reinforce public trust and strengthen companies' corporate social responsibility by contributing to the welfare through paying taxes in the country where they are active. In addition, it can also promote a better informed debate on potent ial shortcomings in tax laws. The Commission announced in March 2015 a comprehensive list of initiatives in its Action Plan on a Fairer Corporate Tax System (COM(2015)302) and proposed as part of the subsequent Anti-Tax Avoidance Package 2 (ATAP), to implem ent in the Union Action 13 of the OECD Action Plan endorsed by the G20 to fight base erosion and profit shifting (hereafter, BEPS). As a result, tax authorities will receive a country-by-country report from multinational enterprises (MNEs) on income tax pa id which should enable better compliance with tax laws. Responding to the calls from the G20 and elsewhere, greater transparency on the side of companies is needed to enable public scrutiny of whether tax is paid where profits are produced. This proposal requires that MNEs disclose publicly in a specific report the income tax they pay together with other relevant tax-related information. MNEs, whether headquartered in the EU or outside, with turnover of more than EUR 750m will need to comply with these additional transparency requirements. For the first time, not only European businesses but also non-European multinational companies doing business in Europe will have the same reporting obligations. Third country jurisdictions which do not respect international tax good governance standards create particular opportunities for tax avoidance and tax evasion. If MNEs are active in such jurisdictions, special transparency requirements should apply. This proposal focusses on corporate groups with a worldwide con solidated net turnover of more than EUR 750 million, in line with the scope of global OECD initiatives on tax transparency. The proposal does not impose any obligations on small and medium-sized companies 3 . It is proportionate both in terms of scope and i nformation to be disclosed so as to limit compliance and other costs for affected companies, as well as to avoid jeopardising their competitiveness or expose them unduly to double taxation risks. It fits into the multilateral approach supported by the G20 and the OECD. The Commission will continue to work proactively on these issues with all relevant international partners.
Revised version (Article 42 Undertakings required to report on payments to governments):
1. Member States shall require large undertakings and all public-interest entities active in the extractive industry or the logging of primary forests to prepare and make public a report on payments made to governments on an annual basis. 2. That obligation shall not apply to any undertaking governed by the law of a Member State which is a subsidiary or parent undertaking, where both of the following conditions are fulfilled: (a) the parent undertaking is subject to the laws of a Member State; and (b) the payments to governments made by the undertaking are included in the consolidated report on payments to governments drawn up by that parent undertaking in accordance with Article 44. That obligation shall not apply to any undertaking governed by the law of a Member State which is a subsidiary or parent undertaking, where both of the following conditions are fulfilled: (a) the parent undertaking is subject to the laws of a Member State; and (b) the payments to governments made by the undertaking are included in the consolidated report on payments to governments drawn up by that parent undertaking in accordance with Article 44.
Article 43 Content of the report
1. Any payment, whether made as a single payment or as a series of related payments, need not be taken into account in the report if it is below EUR 100 000 within a financial year. 2. The report shall disclose the following information in relation to activities as described in points (1) and (2) of Article 41 in respect of the relevant financial year: (a) the total amount of payments made to each government; (b) the total amount per type of payment as specified in points (5)(a) to (g) of Article 41 made to each government; (c) where those payments have been attributed to a specific project, the total amount per type of payment as specified in point (5)(a) to (g) of Article 41, made for each such project and the total amount of payments for each such project. Payments made by the undertaking in respect of obligations imposed at entity level may be disclosed at the entity level rather than at project level. 3. Where payments in kind are made to a government, they shall be reported in value and, where applicable, in volume. Supporting notes shall be provided to explain how their value has been determined. 4. The disclosure of the payments referred to in this Article shall reflect the substance, rather than the form, of the payment or activity concerned. Payments and activities may not be artificially split or aggregated to avoid the application of this Directive. 5. In the case of those Member States which have not adopted the euro, the euro threshold identified in paragraph 1 shall be converted into national currency by: (a) applying the exchange rate published in the Official Journal of the European Union as at the date of the entry into force of any Directive fixing that threshold, and (b) rounding to the nearest hundred.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal A healthy Single Market needs a fair, efficient and growth-friendly corporate tax system, based on the principle that companies should pay taxes in the country where profits are generated. Aggressive tax planning undermines this principle. The majority of companies do not engage in aggressive tax planning and suffer a competitive disadvantage to those that do. Small and medium-sized companies are particularly affected by this phenomenon. Fighting against tax avoidance and aggressive tax planning, both at EU a nd global level, is a political priority for the European Commission. As part of a broader strategy for a Fair and Efficient Corporate Tax System in the EU 1 , p ublic scrutiny can help to ensure that profits are effectively taxed where they are generated. Pu blic scrutiny can reinforce public trust and strengthen companies' corporate social responsibility by contributing to the welfare through paying taxes in the country where they are active. In addition, it can also promote a better informed debate on potent ial shortcomings in tax laws. The Commission announced in March 2015 a comprehensive list of initiatives in its Action Plan on a Fairer Corporate Tax System (COM(2015)302) and proposed as part of the subsequent Anti-Tax Avoidance Package 2 (ATAP), to implem ent in the Union Action 13 of the OECD Action Plan endorsed by the G20 to fight base erosion and profit shifting (hereafter, BEPS). As a result, tax authorities will receive a country-by-country report from multinational enterprises (MNEs) on income tax pa id which should enable better compliance with tax laws. Responding to the calls from the G20 and elsewhere, greater transparency on the side of companies is needed to enable public scrutiny of whether tax is paid where profits are produced. This proposal requires that MNEs disclose publicly in a specific report the income tax they pay together with other relevant tax-related information. MNEs, whether headquartered in the EU or outside, with turnover of more than EUR 750m will need to comply with these additional transparency requirements. For the first time, not only European businesses but also non-European multinational companies doing business in Europe will have the same reporting obligations. Third country jurisdictions which do not respect international tax good governance standards create particular opportunities for tax avoidance and tax evasion. If MNEs are active in such jurisdictions, special transparency requirements should apply. This proposal focusses on corporate groups with a worldwide con solidated net turnover of more than EUR 750 million, in line with the scope of global OECD initiatives on tax transparency. The proposal does not impose any obligations on small and medium-sized companies 3 . It is proportionate both in terms of scope and i nformation to be disclosed so as to limit compliance and other costs for affected companies, as well as to avoid jeopardising their competitiveness or expose them unduly to double taxation risks. It fits into the multilateral approach supported by the G20 and the OECD. The Commission will continue to work proactively on these issues with all relevant international partners.
Revised version (Article 43 Content of the report):
1. Any payment, whether made as a single payment or as a series of related payments, need not be taken into account in the report if it is below EUR 100 000 within a financial year. The report shall disclose the following information in relation to activities as described in points (1) and (2) of Article 41 in respect of the relevant financial year: (a) the total amount of payments made to each government; Payments made by the undertaking in respect of obligations imposed at entity level may be disclosed at the entity level rather than at project level. 3. Where payments in kind are made to a government, they shall be reported in value and, where applicable, in volume. Supporting notes shall be provided to explain how their value has been determined. 4. The disclosure of the payments referred to in this Article shall reflect the substance, rather than the form, of the payment or activity concerned. Payments and activities may not be artificially split or aggregated to avoid the application of this Directive. 5. In the case of those Member States which have not adopted the euro, the euro threshold identified in paragraph 1 shall be converted into national currency by: (a) applying the exchange rate published in the Official Journal of the European Union as at the date of the entry into force of any Directive fixing that threshold, and (b) rounding to the nearest hundred. In the case of those Member States which have not adopted the euro, the euro threshold identified in paragraph 1 shall be converted into national currency by: (a) applying the exchange rate published in the Official Journal of the European Union as at the date of the entry into force of any Directive fixing that threshold, and (b) rounding to the nearest hundred.
Article 44 Consolidated report on payments to governments
1. A Member State shall require any large undertaking or any public-interest entity active in the extractive industry or the logging of primary forests and governed by its national law to draw up a consolidated report on payments to governments in accordance with Articles 42 and 43 if that parent undertaking is under the obligation to prepare consolidated financial statements as laid down in Article 22(1) to (6). A parent undertaking is considered to be active in the extractive industry or the logging of primary forests if any of its subsidiary undertakings are active in the extractive industry or the logging of primary forests. The consolidated report shall only include payments resulting from extractive operations and/or operations relating to the logging of primary forests. 2. The obligation to draw up the consolidated report referred to in paragraph 1 shall not apply to: (a) a parent undertaking of a small group, as defined in Article 3(5), except where any affiliated undertaking is a public-interest entity; (b) a parent undertaking of a medium-sized group, as defined in Article 3(6), except where any affiliated undertaking is a public-interest entity; and (c) a parent undertaking governed by the law of a Member State which is also a subsidiary undertaking, if its own parent undertaking is governed by the law of a Member State. 3. An undertaking, including a public-interest entity, need not be included in a consolidated report on payments to governments where at least one of the following conditions is fulfilled: (a) severe long-term restrictions substantially hinder the parent undertaking in the exercise of its rights over the assets or management of that undertaking; (b) extremely rare cases where the information necessary for the preparation of the consolidated report on payments to governments in accordance with this Directive cannot be obtained without disproportionate expense or undue delay; (c) the shares of that undertaking are held exclusively with a view to their subsequent resale. The above exemptions shall apply only if they are also used for the purposes of the consolidated financial statements.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal A healthy Single Market needs a fair, efficient and growth-friendly corporate tax system, based on the principle that companies should pay taxes in the country where profits are generated. Aggressive tax planning undermines this principle. The majority of companies do not engage in aggressive tax planning and suffer a competitive disadvantage to those that do. Small and medium-sized companies are particularly affected by this phenomenon. Fighting against tax avoidance and aggressive tax planning, both at EU a nd global level, is a political priority for the European Commission. As part of a broader strategy for a Fair and Efficient Corporate Tax System in the EU 1 , p ublic scrutiny can help to ensure that profits are effectively taxed where they are generated. Pu blic scrutiny can reinforce public trust and strengthen companies' corporate social responsibility by contributing to the welfare through paying taxes in the country where they are active. In addition, it can also promote a better informed debate on potent ial shortcomings in tax laws. The Commission announced in March 2015 a comprehensive list of initiatives in its Action Plan on a Fairer Corporate Tax System (COM(2015)302) and proposed as part of the subsequent Anti-Tax Avoidance Package 2 (ATAP), to implem ent in the Union Action 13 of the OECD Action Plan endorsed by the G20 to fight base erosion and profit shifting (hereafter, BEPS). As a result, tax authorities will receive a country-by-country report from multinational enterprises (MNEs) on income tax pa id which should enable better compliance with tax laws. Responding to the calls from the G20 and elsewhere, greater transparency on the side of companies is needed to enable public scrutiny of whether tax is paid where profits are produced. This proposal requires that MNEs disclose publicly in a specific report the income tax they pay together with other relevant tax-related information. MNEs, whether headquartered in the EU or outside, with turnover of more than EUR 750m will need to comply with these additional transparency requirements. For the first time, not only European businesses but also non-European multinational companies doing business in Europe will have the same reporting obligations. Third country jurisdictions which do not respect international tax good governance standards create particular opportunities for tax avoidance and tax evasion. If MNEs are active in such jurisdictions, special transparency requirements should apply. This proposal focusses on corporate groups with a worldwide con solidated net turnover of more than EUR 750 million, in line with the scope of global OECD initiatives on tax transparency. The proposal does not impose any obligations on small and medium-sized companies 3 . It is proportionate both in terms of scope and i nformation to be disclosed so as to limit compliance and other costs for affected companies, as well as to avoid jeopardising their competitiveness or expose them unduly to double taxation risks. It fits into the multilateral approach supported by the G20 and the OECD. The Commission will continue to work proactively on these issues with all relevant international partners.
Revised version (Article 44 Consolidated report on payments to governments):
1. A Member State shall require any large undertaking or any public-interest entity active in the extractive industry or the logging of primary forests and governed by its national law to draw up a consolidated report on payments to governments in accordance with Articles 42 and 43 if that parent undertaking is under the obligation to prepare consolidated financial statements as laid down in Article 22(1) to (6). A parent undertaking is considered to be active in the extractive industry or the logging of primary forests if any of its subsidiary undertakings are active in the extractive industry or the logging of primary forests. The consolidated report shall only include payments resulting from extractive operations and/or operations relating to the logging of primary forests. The obligation to draw up the consolidated report referred to in paragraph 1 shall not apply to: (a) a parent undertaking of a small group, as defined in Article 3(5), except where any affiliated undertaking is a public-interest entity; (b) a parent undertaking of a medium-sized group, as defined in Article 3(6), except where any affiliated undertaking is a public-interest entity; and (c) a parent undertaking governed by the law of a Member State which is also a subsidiary undertaking, if its own parent undertaking is governed by the law of a Member State. An undertaking, including a public-interest entity, need not be included in a consolidated report on payments to governments where at least one of the following conditions is fulfilled: (a) severe long-term restrictions substantially hinder the parent undertaking in the exercise of its rights over the assets or management of that undertaking; (b) extremely rare cases where the information necessary for the preparation of the consolidated report on payments to governments in accordance with this Directive cannot be obtained without disproportionate expense or undue delay; (c) the shares of that undertaking are held exclusively with a view to their subsequent resale. The above exemptions shall apply only if they are also used for the purposes of the consolidated financial statements.
Article 45 Publication
1. The report referred to in Article 42 and the consolidated report referred to in Article 44 on payments to governments shall be published as laid down by the laws of each Member State in accordance with Chapter 2 of Directive 2009/101/EC. 2. Member States shall ensure that the members of the responsible bodies of an undertaking, acting within the competences assigned to them by national law, have responsibility for ensuring that, to the best of their knowledge and ability, the report on payments to governments is drawn up and published in accordance with the requirements of this Directive.