The OECD Corporate Tax Statistics, Second Edition, published this year reveals interesting trends, including the results of the anonymized and aggregated Country-by-Country (CbC) data which includes statistics from 26 countries for the 2016 tax year.
Tax administrations are moving toward more data analysis as an audit tool, and multinationals should be aware of this data which is used as a risk assessment tool, among others.
The OECD International Compliance Assurance Programme (ICAP) is a voluntary programme for a multilateral co-operative risk assessment and assurance process.
ICAP uses Country-by-Country (CbC) data as part of its risk assessment analysis and includes potential benefits for participating taxpayers re: certainty and avoiding double taxation, among other benefits.
ICAP is still fairly new in practice, although the process should be understood as a tool in pro-active compliance.
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.
Click to access public-consultation-document-review-country-by-country-reporting-beps-action-13-march-2020.pdf
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 published the December 20109 update for implementation of country-by-country reporting (CbCR).
The table of contents conveniently provides the date for the updating of the relevant sections. The local filing section indicates a December 2019 update.
The guidance link is referenced for review.
Click to access guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf
Royal Dutch Shell PLC has published their 2018 tax contribution report, including country-by-country (CbC) statistics.
Public transparency of CbC reports has been in the vision of the EU (Dec. 6, 2019 blog), although it has not yet passed.
Shell’s report reflects a proactive effort to promote global transparency, and is an exemplary model to follow.
Click to access shell_tax_contribution_report_2018.pdf
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
- Accumulated earnings/loss
- 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.
Click to access guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf
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.
Click to access 2018G_03277-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%201%20June%202018.pdf
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.
Click to access 2017G_07009-171Gbl_TP_FR%20CbCR%20requirements%20may%20impact%20US%20MNE%20groups.pdf
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.
Click to access 2017G_05868-171Gbl_TP_South%20African%20RS%20releases%20Public%20Notice%20concerning%20CbCR%20master%20and%20local%20file.pdf
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
- Shining Light on the Shadow Economy
- CbC: Handbook on effective implementation
Click to access 2017G_05389-171Gbl_OECD%20publishes%20two%20handbooks%20on%20Country-by-Country%20reporting.pdf
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.
Click to access 2017G_05086-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%208%20September%202017.pdf
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
- 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.
Click to access 2017G_04094-171Gbl_OECD%20provides%20updates%20on%20tax%20activities%20in%20Tax%20Talk%20webcast.pdf