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
- Digital taxation
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.
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.
As 2016 draws to a close, and 2016 country-by-reporting (CbC) obligations become effective for the 2016 tax year, Dec. 31, 2016 is an important filing deadline to file CbC “notifications” in many countries advising tax administrations which entity/ “surrogate entity” will be filing such report when it is due.
This deadline is significant for MNE’s with HQ’s in countries that do not require CbC reporting in 2016 (US, Switzerland, and others), with legislatively imposed fines/penalties for non-compliance.
Apart from various forms of guidance, there is not one place to gather such dynamic information. Thus, every MNE should prepare a matrix of countries in which they conduct business operations (including dormant entities, etc.) with corresponding legislation from every country to ensure such deadlines are timely met. Some countries prescribe forms for the notification, although these forms may not be currently printed or available. Therefore, it is recommended to provide some written notification that should ensure no penalties are ultimately applicable.
EY’s Global Tax Alert provides information for Singapore’s recently announced 2016 CbC voluntary filing rules.
This topic will be dynamic, changing almost daily during the next week. Therefore, prudent monitoring of new developments is suggested for this new reporting tool.
The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.
OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.
Belgium: New innovation deduction covering patent and other IP rights.
EU: Proposal for hybrid mismatch rules with non-EU countries
Norway: Adoption and regulations for CbC reporting
UK: Interest limitation rules, among other provisions
US: CbC Form 8975 released
From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.
The Dutch Secretary of Finance has thoughtfully issued a Decree, whereby the notification period for informing the tax administration of the Country-by-Country (CbC) report for tax year 2016 is delayed until Sept. 1, 2017.
it is intended to officially confirm that the Dutch tax authorities will accept CbC reports that have been filed in other jurisdictions on a voluntary basis (parent surrogate filing) in line with guidance issued by the Organisation for Economic Co-operation and Development (OECD)
The Dutch State Secretary of Finance expects that it may take until August 2017 to have clarity on the automatic exchange of information matching process for reporting fiscal years starting on or after 1 January 2016.
Hopefully, other countries will follow this practical approach, as it represents a win-win for taxpayers and the tax administration. However, other countries still need to be reviewed, especially for US multinationals, to verify additional notifications required by Dec. 31, 2016.
As MNE’s are preparing for the country-by-country (CbC) reporting in 2017 for the 2016 tax year, it is readily apparent that the OECD’s intent of Dec. 31, 2017 is readily being eroded by several countries.
For example, US has proposed reporting (obligatory for the 2017 tax year) as of Sept. 15 of the following year, aligned with timing for filing of the federal income tax return.
China has imposed a May 31 date, if a Cbc report is required, aligned with its tax return due date.
Other countries are choosing different dates for CbC reporting, as well as Master File and Local File reporting, that impose additional compliance and timing demands on all MNE’s, based on the earliest date chosen by a country in which it operates.
What does this mean? Earlier preparation, compressed timelines, mismatching of Master File, Local File and CbC reports, notwithstanding its intended comprehensive alignment.
Additionally, all US MNE’s must now review rules to determine if a surrogate filing entity is required for the 2016 CbC report as the US report is not obligatory. The stated filing entity must be communicated by this year-end, 2016, with varying penalty amounts applicable for non-reporting.
As a simple idea is turning into a tsunami of complexity, tax administrations will have to understand how such information is beneficial for transfer pricing risk analysis, as most people will concede that a CbC report has no direct relationship to transfer pricing.