The OECD has released its final guidance on BEPS Action 13, Country-by-Country (CbC) Reporting Implementation Package. The CbC reporting complements the previous drafts for transfer pricing documentation in the form of a master file and local country file. The three pillars of reporting for this Action have been acknowledged by OECD as representing its definitive approach, with the dissemination of the Action 13 document to be issued later this year with the other Action items.
- Three model Competent Authority Agreements based on the Multilateral Convention on Administrative Assistance in Tax Matters, bilateral tax conventions, and Tax Information Exchange Agreements (TIEAs).
- In accordance with the recent OECD webcast, countries will have 6 months for the initial year to exchange such information (i.e. June 30, 2018 calendar year basis for the 2016 tax information submitted by Dec. 31, 2017, and 3 months for the following reporting year).
- Introduces the term “Surrogate Parent Entity” for substitute reporting.
- Provides conditions for application of the Surrogate Parent Entity approach.
- The CbC report shall be filed in a form identical to the OECD template.
- Confidentiality provisions are discussed.
- Penalties: “It is assumed that jurisdictions would wish to extend their existing transfer pricing documentation penalty regime to the requirements to file the CbC report.”
The manner in which countries implement this initiative should be closely monitored, as there will be differences to the general approach. For example, Poland recently introduced this proposal into its domestic legislation, whereas other countries have relied on the ultimate parent entity concept for collecting such information. Additionally, Spain also requires amounts to be reported in local currencies, a process that will not be uniform globally.
MNE’s should be cognizant of the flexibility required for this new transfer pricing risk initiative, while also foreseeing the recent public disclosure proposals by the European Parliament, European Commission and other interested parties.