Part of the ESG reporting, the finance cut series.
The Article 40a regime under CSRD reaches a non-EU parent where EU net turnover exceeds EUR 450 million in each of the last two consecutive financial years and where the group has an EU subsidiary or branch above EUR 200 million in net turnover in the preceding financial year. Most UK groups cannot produce either revenue cut reliably today. The first task is fixing the data, not drafting the report.
What does the Article 40a test actually require?
Under Article 40a of the amended Accounting Directive - as amended by the Omnibus I Directive, Directive (EU) 2026/470, and as described by the National Law Review and confirmed by ICAEW's July 2026 analysis - a non-EU ultimate parent group is in scope when two conditions are satisfied. First, net turnover generated in the EU must exceed EUR 450 million at group level in each of the two most recent consecutive financial years. Second, the group must have at least one EU subsidiary or, where there is no such subsidiary, an EU branch whose own net turnover exceeds EUR 200 million in the preceding financial year. The two-year look-back applies to the EUR 450 million limb only; the EUR 200 million subsidiary or branch limb is measured on the preceding financial year alone. Where both conditions are met, the qualifying EU subsidiary or branch is required to publish a sustainability report, and that report covers the ultimate non-EU parent's whole group. EFRAG published the exposure draft of ESRS for certain non-EU undertakings on 23 July 2026; the consultation closes 31 October 2026. EFRAG expects to deliver technical advice to the European Commission in January 2027, with application expected for financial years beginning on or after 1 January 2028. No firmer date exists in the published text.
Why can most UK groups not answer the EUR 450 million question today?
The threshold turns on revenue generated in the EU, not revenue booked by an EU legal entity - and those two figures are rarely the same in a UK group's consolidation system.
A UK parent typically consolidates by legal entity, with revenue attributed to the selling entity's country of incorporation. A German GmbH selling to a French customer produces EU revenue on both a selling-entity and a customer-destination measure. A UK holding company selling directly to a French customer produces UK-entity revenue but EU-destination revenue. The Directive refers to net turnover generated in the EU; it does not specify whether that means revenue attributed to the selling entity's EU location or revenue attributed to the EU location of the customer. Selling-entity and customer-destination are the two readings a group must choose between with its advisers, and the published text does not settle it. The group should therefore be able to produce both cuts from its consolidation system. Most cannot today.
Finance teams that rely solely on statutory entity accounts may be working from an incomplete picture. The same limitation applies equally whichever interpretation ultimately prevails: if the system cannot segment revenue by customer location, it cannot produce the destination cut; if it does not map entity registrations to EU jurisdictions cleanly, it cannot produce the selling-entity cut with confidence. Building both dimensions into the consolidation is the only position that keeps the group's options open while the interpretive question is resolved.
How do two consecutive years and euro translation interact?
The two-year condition on the EUR 450 million limb means the group needs a look-back that is already running. If the regime applies from financial years beginning on or after 1 January 2028, a group with a December year-end would need EU-turnover data for financial years 2026 and 2027. Those years are running now, or have already started. Groups that have not built a revenue cut by EU dimension into their consolidation process will face a gap they cannot retrospectively fill with precision. The EUR 200 million subsidiary or branch limb requires only the preceding year's data, but that year must still be captured at the right level of granularity.
The euro translation question sits alongside this. Most UK groups report in sterling. Converting EU revenue to euros for threshold testing requires a documented translation policy - whether to use average rate, closing rate, or a contract-specific rate. The Directive does not specify the rate for this purpose in the published EFRAG materials reviewed for this article; where the applicable standard is silent, the group's policy choice should be documented and applied consistently across both look-back years for the EUR 450 million limb so that the threshold test is reproducible and auditable. An undocumented rate choice that the group cannot defend is a material weakness in the scoping analysis.
How is the EUR 200 million subsidiary or branch test measured?
The EUR 200 million test applies per entity - it is the net turnover of the individual EU subsidiary or branch in the preceding financial year, not the aggregate EU turnover of all subsidiaries. A group with several mid-sized EU subsidiaries, none individually above EUR 200 million, does not meet this limb of the test even if their combined turnover is large. Equally, a single large EU subsidiary that clears EUR 200 million in its own right satisfies this condition independently of what any other entity in the group generates. The entity-level measurement matters because it determines which legal entity carries the publication obligation; that entity is the one required to file the group-level report in its member state.
What does "the report covers the whole group" mean for consolidation boundaries?
The sustainability report filed by the qualifying EU subsidiary covers the ultimate non-EU parent's whole group, which means the consolidation perimeter for CSRD reporting purposes is the same perimeter - or a question closely related to it - as the financial consolidation. For a detailed treatment of how the reporting boundary is determined and who in the group owns that decision, see Who owns the CSRD reporting boundary and CSRD as a consolidation problem.
What is the UK's own sustainability reporting position?
The UK Sustainability Reporting Standards regime for listed issuers is a separate and parallel development. The FCA published Consultation Paper CP26/5 in 2026 covering sustainability disclosures requirements; a policy statement is still awaited at the time of writing. UK SRS and Article 40a CSRD are distinct obligations with different triggers, different standards, and potentially different scope boundaries. This article does not speculate on how the two regimes interact in practice; UK-listed groups with EU subsidiaries should take specific advice on which obligations apply and whether any consolidation of effort across the two regimes is achievable once the FCA's final rules are published.
What should a UK group CFO do before 2028?
The most valuable action is also the most straightforward: build both a selling-entity EU revenue cut and a customer-destination EU revenue cut into the monthly group consolidation now, so that whichever interpretation prevails the two-year look-back for the EUR 450 million limb exists with adequate granularity when it is needed. This is a data architecture decision. It requires the chart of accounts and reporting dimensions to capture customer location at transaction or segment level alongside entity registration, and it requires a documented euro translation policy applied consistently from the point of capture.
Three things follow from that foundation. First, the group can monitor whether it is approaching the EUR 450 million threshold in real time, under either reading, rather than discovering a problem retrospectively. Second, the scoping analysis for Article 40a becomes a finance-owned, auditable calculation that can be defended to auditors and regulators. Third, if the group is clearly below the threshold on both measures, it has evidence to support that conclusion - which matters as much as being able to confirm in-scope status.
Groups already running a group consolidation model with entity-level and destination-level dimensions are closest to ready. Groups running entity-only consolidations face the more significant rebuild. The time to assess that gap is now, ahead of the 2026 and 2027 data years that will form the look-back on the EUR 450 million limb. To understand where your finance function currently sits on this capability and what the gap to AI-embedded ESG consolidation is worth in pounds, see the Finance Value Score value report.
Common questions
What is the EU turnover threshold for non-EU parents under Article 40a CSRD?
Under Article 40a of the amended Accounting Directive, as amended by Directive (EU) 2026/470, a non-EU parent group is in scope where EU net turnover exceeds EUR 450 million in each of the last two consecutive financial years and the group has at least one EU subsidiary or, where there is no such subsidiary, an EU branch with its own net turnover above EUR 200 million in the preceding financial year. The two-year consecutive look-back applies to the EUR 450 million limb only. The qualifying EU subsidiary or branch then publishes a sustainability report covering the whole group.
When does Article 40a apply to non-EU groups?
EFRAG published the ESRS for certain non-EU undertakings exposure draft on 23 July 2026, with a consultation closing date of 31 October 2026. EFRAG expects to deliver technical advice to the European Commission in January 2027. Application is expected for financial years beginning on or after 1 January 2028; no firmer date has been confirmed in EFRAG's published materials.
Does the EUR 200 million test apply to all EU subsidiaries combined or to each one separately?
The EUR 200 million test applies per entity - to the individual EU subsidiary or branch in the preceding financial year, not to the aggregate of all EU entities in the group. A group with multiple smaller EU subsidiaries that do not individually exceed EUR 200 million does not meet this limb of the test even if their combined turnover is substantial.
Why is EU-destination revenue different from EU-entity revenue in a UK group consolidation?
A UK group's consolidation typically attributes revenue to the selling entity's country of incorporation. Where a UK entity sells directly to EU customers, that revenue is UK-entity revenue but EU-destination revenue. The Article 40a threshold refers to net turnover generated in the EU, but the Directive does not specify whether that means the selling entity's location or the customer's location. A group needs to be able to produce both cuts and take advice on which interpretation applies to its facts.
Is the UK Sustainability Reporting Standards regime the same as Article 40a CSRD?
No. UK SRS for listed issuers, consulted on by the FCA in CP26/5, is a separate regime with different triggers and standards. A policy statement from the FCA is still awaited. UK-listed groups with EU subsidiaries may face obligations under both regimes and should take specific advice once the FCA's final rules are published.