The US jurisdictional Country-by-Country (CbC) status table, link provided herein, provides a quick reference into the countries that will automatically accept the US 2016 CbC report, as it is not an obligatory filing for US MNE’s. To the extent a country is not on this list, a detailed review will be required to ensure that timely reporting is done, possibly on a surrogate country basis.
This list should be monitored to ensure proper governance of the CbC reporting requirements, noting that filing less reports is simpler due to possible different rules, currencies and/or interpretations of similar rules by different countries.
On May 29. 2017 the EU Council adopted the Anti-Tax Avoidance Directive (ATAD), to be effective by 1/1/2020 between EU and the rest of world for hybrid mismatch arrangements. This Directive is known as ATAD-2 and follows the intent of BEPS Action 2, hybrid mismatch arrangements.
ATAD 2 expands the scope to address hybrid permanent establishment (PE) mismatches, hybrid transfers, imported mismatches, reverse hybrid mismatches and dual resident mismatches.
EY’s Global Tax Alert provides additional details; all hybrid mismatch arrangements will be of limited use going forward to the extent they are included in these new rules.
India has released its APA annual report, providing valuable insight into recently filed APAs and the process.
- Intragroup services by the Indian applicants have been the most covered international transactions in the bilateral APAs.
- The transaction net margin method has been used in 70% of the unilateral cases and 90% of the bilateral cases.
- India has concluded unilateral APAs in 29 months and bilateral APAs in 39 months.
As India is recognized as very creative and aggressive in its transfer pricing practices, this report should be reviewed to test whether an APA should be filed, as well as in other countries for additional certainty.
EY’s Global Tax Alert provides additional details, included for reference.
EY’s Global Tax Alert provides details on Australia’s new Diverted Profits Tax (DPT), effective in 2018 for calendar year taxpayers.
- Penalty up to 40% can be assessed
- Interaction with transfer pricing documentation and country-by-country (CbC) risk assessment
- Diverted profits taxed at less than 24% are vulnerable
- Proactive review of one’s documentation and risk assessment is recommended
Australia has patterned their DPT after the UK implemented a similar scheme, although posing some different characteristics.
As countries are reaching out to tax profits that are subject to a lower rate of tax elsewhere, this is providing a license to tax that cannot be ignored by multinationals with Australian operations.
Members of the European Parliament (MEPs) have put forth additional recommended disclosures and requirements for the Accounting Directive of public Country-by-Country (CbC) reporting, prior to enactment of the original proposal.
The Accounting Directive allows a simple majority for passage, and involves additional complexities and cost as the OECD model is now just a starting point for new information.
The Parliament would also like to extend the proposal to include the following information in company reports:
- The geographical location of the activities
- The number of employees employed on a full-time equivalent basis
- The value of assets and annual cost of maintaining those assets
- Sales and purchases
- The value of investments broken down by tax jurisdiction
- The amount of the net turnover, including a distinction between the turnover made with related parties and the turnover made with unrelated parties
- Stated capital
- Tangible assets other than cash or cash equivalents
- Public subsidies received
- The list of subsidiaries operating in each tax jurisdiction both inside and outside the EU and data for those subsidiaries corresponding to the data requirements on the parent undertaking
- All payments made to governments on an annual basis as defined in the Directive, including production entitlements, income taxes, royalties and dividends
- The report shall not only be published on the website of the company in at least one of the official languages of the EU, but the undertaking shall also file the report in a public registry managed by the Commission
EY’s Global Tax Alert, referenced herein, provides the relevant details, although it appears the CbC report is not being construed as one tool for total transfer pricing assessment, but a public tool to determine one’s fair share of tax irrespective of the legal laws and limitations in each country.
An alternative approach would be to design a standard (transfer pricing) audit template for the tax authorities that would include some, or all, of the above factors to the extent deemed important to assess a company’s tax liability in that relevant jurisdiction. However, this non-public and Best Practice audit tool is not the focus in this post-BEPS world, to date.