The UK House of Commons Notice of Amendments, as of 29 June 2020, includes an interesting proposed amendment re: Country-by-Country (CbC) reporting. A CbC report would be submitted as part of the UK group’s tax strategy for taxpayers subject to the DST.
The CbC public transparency initiative was included in proposed legislation in other countries, including France and the U.S. These proposals were never finalized, and the UK proposal, for certain groups, may be nearing certainty.
The OECD has published its consultation document: Review of Country-by-Country Reporting (BEPS Action 13). Comments are requested no later than March 6th.
Chapter 1 contains general topics concerning the implementation and operation of BEPS Action 13, including the MNE group experience of CbC reporting implementation by jurisdictions, the use of CbC reports by tax administrations and other aspects of BEPS Action 13, being the master file and local file.
Chapter 2 contains topics concerning the scope of CbC reporting, including the definition of an MNE group, and the level and operation of consolidated group revenue threshold.
Chapter 3 contains topics concerning the content of a CbC report, including whether aggregate or consolidated information should be provided in Table 1, whether information in Table 1 should be presented by entity rather than by tax jurisdiction, and whether additional or different information is needed.
One key item in the report is in Section 12: Should Table 1 information be presented on an entity or jurisdictional basis? There are arguments pro and con, and this is an important item to monitor.
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 details several important global developments worth watching:
Phase 2 US tax reform – individual taxes, what else?
OECD’s first peer review reporting on BEPS Action 13: TP Documentation and County-by-Country (CbC) reporting (attached herein for reference)
EU Directive on cross-border reportable arrangements, reporting to commence in 2020 although effective date will be June/July 2018.
The reportable arrangements are a must read for international tax colleagues to understand the impact of arrangements planned for currently that may become a transparent arrangement to be reported in the EU.
The OECD CbC report is also helpful to understand the trend that CbC reports will generate ongoing, and the viewpoint of the countries that administer this process.
The OECD BEPS Actions, including CbC reporting, significantly impact international tax compliance burdens and challenges going forward. Additionally, US tax reform still has experts deliberating their practical application, notwithstanding future legislation.
The French Parliament has announced rules for the transmission of the French Country-by-Country (CbC) reports by US MNE’s, although it is yet not 100% certain whether such rules are penalty proof or 100% certain.
As the US has not formally named France as a partner exchanging such information, these dialogues apparently continue. Thus, all taxpayers should be monitoring this important area through year-end for future developments and additional certainty.
EY’s Global Tax Alert summarily describes the applicable procedures.
The South African Revenue Service (SARS) released its final notice re: requirements for filing the Country-by-Country (CbC) report, Master File and Local File, in alignment with OECD BEPS Action Item 13.
It is interesting that, pursuant to minimum thresholds, both a Master File and Local File are required to be filed, rather than only the Local File. This may become more of a norm, versus an exception, as the global transfer pricing and risk environment will need to be reviewed in alignment with local business operations. Hopefully, the review will encompass confidential limitations on the information received and will only encompass transfer pricing practices of the local operations rather than extend CbC presumptions or Master File analogies against the local data.
EY’s Global Tax Alert provides the relevant details of the SARS requirement.
OECD has published new handbooks, one of which relates to country-by-country (CbC) reports and how tax administrations can incorporate this information into their tax risk processes, inclusive of risk tools and governance processes.
Other reports/handbooks have also been issued that will be a valuable reference:
Tax Administration 2017
The Changing Tax Compliance Environment and the role of audit
EY’s Global Tax Alert highlights several postulates for potential US tax reform, in which both the House and Senate are busily writing new language this month to push this reform effort by President Trump.
The OECD’s additional guidance on Country-by-Country reporting is also reiterated, and the short-term extension for the US debt limit is provided to further the tax reform process.
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.
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.
EY’s Global Tax Alert, referenced herein, provides a summary of the latest US international tax developments, including the exchange of BEPS related information.
US recently finalized two model competent authority agreements that will be used for exchanging country-by-country (CbC) reports. One model will apply to information exchanged under US tax treaties, the other will be used with US tax information exchange agreements (TIEAs). A tax treaty or TIEA serves as the legal basis for the exchange of tax information in the CbC reports.
Most importantly, the US has two requirements for countries exchanging CbC reports under OECD’s Action 13: (1) a legal instrument authorizing the exchange, and (2) adequate data security. With respect to the security prerequisite, this presents uncertainty as to which countries are not considered to have the requisite security. However, will this “list” be communicated in advance so MNE’s are in compliance with that country’s laws requiring the submission of CbC data? This should be a forethought, rather than an afterthought, to the process.
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
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.