OECD has updated guidelines for several aspects of Country-by-Country (CbC) reporting, including:
Dividends included in pre-tax book income
Definition of revenues and taxes paid
Aggregate data in one jurisdiction/eliminations
Treatment of major shareholdings / ownership by multiple groups
Short accounting periods
Parent surrogate filing
As the 2017 CbC report is almost due for US calendar-year taxpayers, it is imperative to review the OECD guidelines to ensure year-to-year consistency, with relevant statements attached for transparency.
A link to the guidelines is attached for reference.
EY’s Global Tax Alert provides a succinct summary of the latest OECD and BEPS developments, including:
G20 and exchange of information upon request standard
Multilateral instrument, 68 countries moving forward
Peer reviews on BEPS 4 minimum standards:
Action 5, harmful tax practices
Action 6, treaty abuse
Action 13, country-by-country reporting (CbCR)
Action 14, dispute resolution
Action 5 peer reviews of preferential tax regimes
Action 13, CbCR exchange relationships; important for US MNE’s and similar jurisdictions without obligatory 2016 reporting
MAP peer reviews
Discussion drafts on profit splits and attribution of profits re: PE’s; comment period to Sept. 15, 2017
Branch mismatch forthcoming revisions
Common reporting standard
OECD is still very busy, with a plethora of BEPS follow-up and other activities, although there seems to be continuing flexibility to gain collaboration that will also lead to added complexity and disputes.
The draft country-by-country (CbC) law has been forwarded to Parliament, in alignment with the EU Directive for 2016 tax year reporting.
A surrogate parent entity should file a CbC report with the Luxembourg tax authorities in one of the following cases:
The ultimate parent entity (UPE) is not obliged to file a CbC report in its country of residence,
The UPE is obliged to submit a CbC report, but there is no automatic exchange of CbC reports between Luxembourg and the country of residence of the UPE or
The UPE is obliged to submit a CbC report,and there is automatic exchange of CbC reports, but due to systematic failure, no effective exchange of information takes place.
As the terminology includes “obliged” vs. voluntary filings in some countries, the filing entity and disclosure rules should be reviewed. Additionally, there are significant penalties for late/non-filing.
The EY Global Tax Alert, linked for reference, provides additional details.
The OECD, in its June release of country-by-country (CbC) guidance, sets forth guidance of BEPS Action 13 re: parent-surrogate reporting that includes the US, Japan and tentatively Switzerland, for which there are no obligatory filing requirements for the calendar tax year 2016.
However, several countries have previously enacted legislation that may not literally accommodate such rules (i.e. voluntary filing to a parent surrogate). To the extent there is this possibility, will the parent surrogate country indemnify such taxpayers for non-filing penalties, etc. imposed by another country for failing to file according to its specific legislation? Alternatively, a detailed review of the specific legislation of all countries adopting CbC is in order. Simplification of CbC filing is the intent of the OECD Guidelines, however additional assurance would be welcome by the parent surrogate countries to support this presumption.
The Austrian Ministry of Finance has published its new country-by-country (CbC) and transfer pricing (TP) draft legislative rules, detailed in the referenced EY Global Tax Alert.
The Multilateral Competent Authority Agreement on the Exchange of Country by Country Reports is now included in Austrian domestic law. Moreover, the legal requirements stipulated in the European Directive regarding mandatory automatic exchange of information in the field of taxation (2011/16/EU) is now national law.
The CbC and TP documentation are effective for the 2016 taxable year. TP documentation can be requested by the tax authorities within 30 days after filing the corporate income tax return. CBC information is required, dependent on the size of the organisation, and is subject to significant penalties for late filing/inaccurate information. Information on surrogate entity filing is also within the draft guidance.
Notification of the CbC filer is required by the end of this year, as in several other countries, requiring all US based multinationals to monitor the EU pending legislation and consider alternatives for filing if the US Final Regulations do not obligate CbC filing for the 2016 tax year.
The BEPS/CbC/transparency impetus is still growing, with no signs of slowing down. Demands for additional transparency are mounting, while the complexity of reporting, and filing, the respective reports is significantly increasing.
The Asia-Pacific Regional Network on BEPS discussed the impact of BEPS on their region in its meeting on 12-13 February 2015, with over 50 senior tax officials from 21 jurisdictions and international organisations attending. Attendees included the Asian Development Bank, IMF, US Agency for International Development (USAID) and the Study Group on Asian Tax Administration and Research (SGATAR).
Twelve direct participants in the BEPS project consist of Australia, Japan, Korea, New Zealand, China, India, Indonesia, Malaysia, Singapore, Bangladesh, Philippines and Vietnam. The discussion summary is included for reference:
Participants supported the cooperative and inclusive process for developing countries to support the OECD/G20 strategy.
All stakeholders, including MNE’s, should be engaged to address BEPS solutions.
Recognition of uncoordinated regional efforts addressing interest deductibility (Action 4), PE (Action 7), transfer pricing issues (Actions 8-10), and transfer pricing documentation (Action 13).
The introduction of toolkits, further support, and assistance is welcomed, including their participation in the OECD dialogue process.
Further guidelines on dispute resolution were requested by business and NGO representatives.
Future involvement will focus on additional engagement, participation and collaboration with various partners.
Next meeting is scheduled for 16-18 March 2015.
As the BEPS project proceeds to finalize its deliverables this year, the input of this organization and other interested parties will provide a limited window of opportunity to share views and practical suggestions to ensure consistency for taxpayers and tax administrations regionally and globally. Accordingly, monitoring (including active participation in) future developments will be critical to form Best Practices for taxpayers and tax administrations.
Most importantly, it will be critical to ensure regional participants do not execute unitary legislation prior to release of the final OECD guidelines to ensure the BEPS process is successful. The timing of such initiatives should also be a priority for the Asia-Pacific Network, its participants and other countries around the world.
OECD Tax Inspectors Without Borders (TIWB) and Toolkit: 30 January 2015
Creation of task force and prior meeting of SGATAR: 1 December 2014
OECD BEPS Strategy for Developing Countries: 13 November 2014