OECD’s BEPS Action 13 provides for a Surrogate Entity substitution concept if the headquarter jurisdiction of a multinational does not provide for country-by-country (CbC) reporting for the 2016 tax year. The concept is ideal, if a CbC reporting country considers this Surrogate Entity concept in its legislation.
A review of CbC legislative actions by different countries reveals that such legislation will be inconsistent and will require the multinational to file separate CbC reports in various countries, irrespective of its choice of appointing a surrogate country that has an extensive tax treaty network with exchange of information provisions.
For example, the legislative language of Spain does not provide for the Surrogate Entity concept, thereby requiring a Finnish (and possibly U.S., dependent on Final Regulations) based multinational to file the 2016 Spanish CbC report in Euros. One of the Spanish tax authority representatives recently expressed an opinion that no advance rulings/arrangements will be acceptable for CbC Surrogate Entity filing: The law is the law.
Several issues for consideration by a multinational thinking of a Surrogate include:
- Every country’s CbC adopted legislation will require review to determine if a Surrogate filing is acceptable.
- For countries that will require a local filing, adoption of such country’s CbC rules will be required re: content, timing, reporting currency, etc.
- Upon conclusion of the dynamic review, the CbC template may require adaptation for local filings of countries that have OECD + CbC legislation, adding details beyond those prescribed in BEPS Action 13.
- Most countries have penalties (fines/civil/criminal) applicable for failure to file a CbC report.
The definition of a Surrogate Entity, in addition to BEPS Action 13, are included for reference.
The term “Surrogate Parent Entity” means one Constituent Entity of the MNE Group that has been appointed by such MNE Group, as a sole substitute for the Ultimate Parent Entity, to file the country-by-country report in that Constituent Entity’s jurisdiction of tax residence, on behalf of such MNE Group, when one or more of the conditions set out in subsection (ii) of paragraph 2 of Article 2 applies.