Denmark has published its requirements for country-by-country reporting (CbCR), effective for the 2016 tax year by ultimate Danish parent companies. The content of the report aligns with OECD BEPS Action 13, including the reporting date by the end of 2017.
There are notification requirements re: a “surrogate parent entity” for which the parent jurisdiction will be entering into exchange information agreements for CbCR.
Details are provided in EY’s Global Tax Alert:
The European Commission (EC) and European Parliament (EP), including the TAXE Committee on Rulings established by the EP, have recently endorsed many provisions that would normally require the unanimity of approval by the Member States. Knowing this has not resulted in success with prior initiatives, a renewed focus may be taking place re: Article 116 of the Treaty on the Functioning of the European Union (TFEU) which empowers the EC/EP to issue a Directive accordingly.
Article 116 TFEU:
Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member Sates is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.
If such consultation does not result in an agreement eliminating the distortion in question, the EP and the EC, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives. Any other appropriate measures provided for in the Treaties may be adopted.
The TFEU is the same legal mechanism used to address State Aid, and may also be the choice of implementation to establish Directives for one or more of the following initiatives:
Everyone should monitor the EC, EP and TAXE for continuing developments, as they may form the basis for new global standards to enact the intent of BEPS initiatives.
The Dutch State Secretary of Finance has released a draft law that correlates to BEPS Action 13 for transfer pricing documentation and country-by-country (CbC) report.
The CbC report will not be required to be filed in the Netherlands if such report is filed with a jurisdiction that has an information exchange agreement with the Netherlands on such reports.
The draft law should be reviewed by organisations with operations in the Netherlands, noting it follows the BEPS Action 13 proposal.
The contemporaneous requirement for the Master file and Local file should be met to avoid potential fines/penalties.
EY’s survey of nearly 100 jurisdictions provides timely insight into unilateral activities and required legislative efforts to implement OECD BEPS Actions 8-10, transfer pricing guidelines, and Action13, transfer pricing documentation / country-by-country (CbC) reporting.
A link to the survey is provided for reference:
Click to access EY-country-implementation-of-beps-actions-8-10-and-13.pdf
Key observations:
The survey is a “must read” for interested parties that will be affected by OECD Actions 8-10 and 13; it magnifies the imperative of collecting such information timely and is not dependent on which countries adopt certain provisions the first year (as information will be exchanged quickly around the world regardless of which jurisdiction the parent entity resides in).
This is a valuable insight into the use of country-by-country reporting, based on a report of 26 EU-based banks. Although the reporting criteria is based on the Capital Requirements Directive IV (CRD IV), the interpolations and extrapolations indicate the trend by which such reports could be used, especially when viewed in isolation by recipients in the public domain.
A link to the report is provided for reference:
Click to access CRDivCBCR2015.pdf
Key observations:
This report is indicative of conclusions that may be drawn, although data is incomplete and inconclusive, from a table of reported amounts in various jurisdictions.
Most importantly, the group utilized formulary apportionment to derive an expectation of profit levels among various jurisdictions.
Accordingly, all interested parties should review this report as the OECD is nearing completion of the BEPS Action Plans and CbC reporting.
Poland’s latest amendments to its Draft Bill incorporates a major change to the date for submission of a country-by-country report (CbCR).
The original draft (refer to 28 May 2015 post) provided a 1/1/2016 effective date, with the CbCR due at the end of 2017 for 2016 data. However, the latest draft moves the effective date of the Bill to 1/1/2017, however it also states that the CbCR must be attached to the 2016 corporate income tax return, generally due 3 months after the end of the tax year.
The final version of the bill should be monitored closely, as it would accelerate submission of the CbCR to 31 March 2017 for 2016 activity, which is significantly earlier than the 31/12/2017 date (for calendar year taxpayers) envisioned by the OECD’s BEPS Action 13 Discussion Draft.
The latest changes reflect the increasing emphasis on transparency and assessment of transfer pricing risk, a trend that is closely followed by all other countries in assessing their urgent need for transparency.
The EY publication link is attached for additional reference:
Click to access 2015G_CM5559_TP_Poland%20amends%20draft%20bill%20on%20TP%20documentation.pdf
The attached letter from the Congressional tax-writing Committees to US Treasury sets the stage for future US BEPS conformity and policy approach. This letter is especially revealing after the US has declined an invitation to be a member of the ad-hoc group for creating a BEPS Multilateral Instrument, of which over 80 countries have signaled their positive intent.
The letter also questions the positive verbal nods from the US that it has relevant legislative authority to collect the Country-by-Country report, and disseminate it, in accordance with OECD’s intent.
Additionally, the letter confirms that the US strongly adheres to the arm’s length transfer pricing principle, which was in clear evidence during the BEPS proceedings.
Only time will reveal the final answers, however the inward US focus is clearly evident as has been the case for other countries that have already adopted BEPS incentivized legislation that may not conform with OECD’s final guidelines.
The letter is attached for reference, with my highlights for emphasis.
Hatch, Ryan Call on Treasury to Engage Congress on OECD International Tax Project
Lawmakers Push to Ensure Global Tax Law Recommendations Benefit U.S. Interests
June 9, 2015 – PRESS RELEASE
Ryan: BRENDAN BUCK (202) 226-4774
Hatch: JULIA LAWLESS (202) 224-4515
WASHINGTON — In advance of the 2015 Organisation for Economic Cooperation and Development (OECD) conference on Base Erosion and Profit Shifting (BEPS) taking place this week in the nation’s capital, Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways & Means Committee Chairman Paul Ryan (R-WI) called on Treasury Secretary Jack Lew to work with Congress to ensure the international tax proposals being considered under the BEPS project are beneficial to American workers and job creators.
“As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees,” wrote Hatch and Ryan in a letter today. “We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.”
The text of the letter is a below and a signed copy can be found here.
—
June 9, 2015
The Honorable Jacob Lew
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Lew:
As the leaders of the Congressional tax-writing committees, we are writing to you about the need for the Treasury Department to remain engaged with Congress as you and your colleagues negotiate and develop proposals with member countries of the Organisation for Economic Co-operation and Development (OECD) and others on fundamental changes in international tax rules under the OECD’s Base Erosion and Profit Shifting (BEPS) project.
Congress is tasked with writing the tax laws of the United States, including those associated with cross-border activities of U.S. companies. Regardless of what the Treasury Department agrees to as part of the BEPS project, Congress will craft the tax rules that it believes work best for U.S. companies and the U.S. economy. Close consultation between Congress and the Treasury Department should inform the BEPS discussions. We expect that as we move forward on U.S. tax reform, U.S. tax policy will not be constrained by any concessions to other nations in the BEPS project to which Congress has not agreed.
As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees. We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.
We appreciate some of the work that your team has done as part of the OECDs BEPS project, especially efforts to defend and advocate certain long-standing tax principles, such as the arms-length transfer-pricing standard. However, we are troubled by some positions the Treasury Department appears to be agreeing to as part of this project. For example, we are concerned about the country-by-country (CbC) reporting standards that will contain sensitive information related to a U.S. multinational’s group operations. We are also concerned that Treasury has appeared to agree that foreign governments will be able to collect the so-called “master file” information directly from U.S. multinationals without any assurances of confidentiality or that the information collection is needed. The master file contains information well beyond what could be obtained in public filings and that is even more sensitive for privately-held multinational companies. We are also concerned about interest-deductibility limitation proposals on the basis of questionable empirics and metrics.
Some recent press reports have indicated that the Treasury Department believes it currently has the authority under the Internal Revenue Code to require CbC reporting by certain U.S. companies and that Internal Revenue Service (IRS) guidance on this reporting will be released later this year. We believe the authority to request, collect, and share this information with foreign governments is questionable. In addition, the benefits to the U.S. government from agreeing to these new reporting requirements are unclear, particularly since the IRS already has access to much of this information to administer U.S. tax laws. Therefore, we request that, before finalizing any decisions, the Treasury Department and IRS provide the tax-writing committees with a legal memorandum detailing its authority for requesting and collecting this CbC information from certain U.S. multinationals and master file information from U.S. subsidiaries of foreign multinationals. We also request that you provide a document: (i) identifying how the CbC reporting and other transfer pricing documentation obtained by the IRS on foreign multinationals operating in the United States will be utilized, and; (ii) providing the justification for agreeing that sensitive master file information on U.S. multinationals can be collected directly by foreign governments. In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the CbC and master file information.
We also have significant concerns about many of the provisions included in several other proposals of the BEPS project, including, among others, modifying the permanent establishment (PE) rules, using subjective general anti-abuse rules (GAAR) in tax treaties, and collecting even more sensitive data from U.S. companies to analyze and measure base erosion and profit shifting. These are but a few of the areas where we recommend that we work together to find consensus and identify a path forward for consideration as part of the BEPS negotiations and, if necessary, Congressional actions.
In the coming months, we look forward to working with you with respect to the BEPS project. In the interim, we want to remind the Treasury Department that it has the ability to refrain from signing on to the BEPS final reports, and we expect you to do just that if doing so protects the interests of the United States and of U.S. persons. Many of the OECD’s BEPS project objectives are sound, and international cooperation – as well as competition – in tax policies is desirable. We trust that you agree, however, that precipitous decisions to impose constraints on U.S. tax policy and added burdens on U.S. companies, especially on the basis of weak empirics and metrics, are not desirable.
Thank you for your attention to these important matters.
The OECD has released its final guidance on BEPS Action 13, Country-by-Country (CbC) Reporting Implementation Package. The CbC reporting complements the previous drafts for transfer pricing documentation in the form of a master file and local country file. The three pillars of reporting for this Action have been acknowledged by OECD as representing its definitive approach, with the dissemination of the Action 13 document to be issued later this year with the other Action items.
Click to access beps-action-13-country-by-country-reporting-implementation-package.pdf
Key points:
The manner in which countries implement this initiative should be closely monitored, as there will be differences to the general approach. For example, Poland recently introduced this proposal into its domestic legislation, whereas other countries have relied on the ultimate parent entity concept for collecting such information. Additionally, Spain also requires amounts to be reported in local currencies, a process that will not be uniform globally.
MNE’s should be cognizant of the flexibility required for this new transfer pricing risk initiative, while also foreseeing the recent public disclosure proposals by the European Parliament, European Commission and other interested parties.
The European Parliament recently voted unanimously for public disclosure rules to fight tax evasion, tax avoidance and establishing fair, well-balanced, efficient and transparent tax systems. A copy of the press release is provided for reference:
Summary:
The outcry for public reporting, currently underway by the OECD, European Parliament and European Commission is increasing exponentially within Europe. Other countries will obviously follow the EU approach, with perceptions of complicated international tax rules increasing disparity between application of the transfer pricing arm’s length principle.
The CbC reporting, and beneficial ownership detail, should be expected to be in the public domain if this trend continues. Currently, it is a sign of an incoming tsunami that cannot be completely avoided.
Australia’s Budget reveals its intent on becoming a leader in tax transparency and implementation of tools to address anti-avoidance initiatives. The provisions cite OECD BEPS initiatives, while deciding to act unilaterally on draft guidelines and introducing new transparency standards within its various proposals.
This Budget may set the stage for others to follow similar trends and timelines; accordingly such actions should be monitored in Australia as well as the rest of the world. The Public Tax Transparency Code is another signal that reporting of economic and tax activity will be used as a public measure to assess reasonableness for determining payment of a “fair share of tax.”
MNE’s have now fully realized the impending complexity, documentation demands and transparency standards that it will be judged by. Internal education, communication and alignment are now vital in establishing a MNE’s global tax risk framework.
A link to the Budget actions is provided for reference:
http://www.budget.gov.au/2015-16/content/glossy/tax/html/tax-05.htm
Key Corporate Tax provisions:
The Spanish Treasury has announced that a Country-by-Country (CbC) reporting obligation will be included in the new Regulations, expected to be adopted in the first half of 2015 and effective on 1/1/2016. This announcement follows an earlier decision by the UK to adopt CbC reporting for UK headquartered companies, also effective as of 2016 (refer to 12 December 2014 post).
The Spanish CbC reporting template is expected to mirror the OECD BEPS proposal to ensure alignment.
Best Practice notes:
The OECD has provided further observations on its country-by-country information template, based on the premise such information is a useful guide in the risk assessment of transfer pricing for relevant jurisdictions. KPMG has provided a summary of the latest notes by OECD on this topic:
As this important initiative develops into final form, additional questions that may be asked include:
Many other questions should be carefully considered, looking at both immediate issues for implementation and long-term effects for taxpayers and tax administrations.
Strategizing Multinational Tax Risks 