Strategizing Multinational Tax Risks

TEI has submitted comments to the OECD addressing potential changes to the current Country-by-Country (CbC) reporting regime.

Extract of some comments:

• The cost/benefit of a high level risk analysis should be weighed against the costs and system of multinationals having to implement such recommendations.
• Secondary filings are still required due to lack of signed bilateral agreements; additional the countries do not have consistent (e.g. XML) filing processes.
• When countries finalize CbC legislation, the required report should be the following year, allowing time to review and design such requirements by multinationals.
• The Master File is not consistent among countries; this leads to further costs and time to implement.  Proposed changes should be implemented for the local file.
• The consolidated group revenue threshold should not be changed
• OECD should postpone asking for more items such as related party interest, royalty, services, R&D expenses, etc.  This information duplicates the same items in the local tax returns.
• Preparing country consolidate level reporting is significantly more complex to prepare, in part because of elimination entry tracing.
• The definition of deferred taxes and other items should be further clarified.

Multinationals filing U.S. GAAP financials also face some of these same issues as FASB is considering similar data as part of the tax footnote, for example.  They are currently weighing the cost/benefit of such information, most importantly the level of insight gained by the reader of the financial statements.

Additionally, countries are still proposing the public disclosure of CbC reports, including a recent proposal by the U.S.

Tax practitioners should follow this trend, as one country is all that is required to prompt insight, and questions, into the underlying data.

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