Strategizing Multinational Tax Risks

The Spanish Treasury has announced that a Country-by-Country (CbC) reporting obligation will be included in the new Regulations, expected to be adopted in the first half of 2015 and effective on 1/1/2016.  This announcement follows an earlier decision by the UK to adopt CbC reporting for UK headquartered companies, also effective as of 2016 (refer to 12 December 2014 post).

The Spanish CbC reporting template is expected to mirror the OECD BEPS proposal to ensure alignment.

Best Practice notes:

1. Timing: The OECD Guidelines are expected to include CbC reporting for the 2016 tax year, with one year provided to provide such documentation due to differing tax years of subsidiaries, timing of statutory reports, etc. upon which the relevant information is based.  The UK and Spanish CbC reporting are also focusing on 2016, although no date has been yet prescribed for providing the documentation to the tax authorities.  The dates legislated into law by the countries may precede the OECD suggested timeline.
2. Coordination of CbC and TP documentation: If there are perceptive gaps or issues that are to further explained and referenced in the transfer pricing documentation, the date for providing contemporaneous TP documentation may be earlier than the CbC reporting date.  Therefore, planning should start now to take into consideration that not enough time may be available in 2017 to coordinate both sets of reports effectively.
3. CbC definitions:  Ideally the UK, Spain and other countries adopting CbC will use consistent definitions for the items to be reported for global consistency.  To the extent there are different definitions, additional complexity, time and cost will be incurred by MNE’s.
4. Items to report for CbC: At an early stage, it appears that the UK and Spain are adopting identical items for reporting purposes.  However, it is expected that some countries will use the OECD Guidelines as a base upon which other “wish list” items are to be included, resulting in further complexity.
5. Sharing of CbC information: The first countries to adopt CbC reporting may share such information as a means of transparency with other tax authorities.  Therefore, it is expected that all countries may have access to this information very quickly irrespective of their domestic laws.