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
Although this initiative did not receive a majority vote by the EU Competitiveness Council (COMPET), the real story is whether a unanimous (Tax Directive, Article 115 TFEU) or majority (Accounting Directive, Article 501(1) TFEU) vote is needed.
The Legal Service of the Council of the EU concluded on 11 November 2016, that the proposal must be based on Article 115 TFEU. For the legal basis to be changed by the Council, nevertheless, unanimity is required.
Thereafter, the European Parliament’s Committee on Legal Affairs, pursuant to Rule 39(3) of the Rules of Procedure, decided of its own motion, to provide an opinion on the legal basis of the proposal amending the Accounting Directive. The Committee considered that there is a link between transparency and public scrutiny. It concluded on 12 January 2017 that the proposal must be based on Article 50(1) TFEU, instead of Article 115 TFEU. This opinion contradicted legal advice given to the Council of Member States in November 2016.
This contest will continue, with possible appeals depending on whether the Accounting or Tax Directive rules will be followed. To date, several countries do not agree to public reporting, thereby other EU Members have envisioned using the Accounting Directive majority rule vote to pass this initiative.
Click to access 2019G_005555-19Gbl_EU%20-%20Public%20CbCR%20not%20approved%20in%20latest%20vote.pdf
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
The EU Economic and Financial Affairs Council (ECOFIN) has drafted a directive, subject to European Parliament’s opinion, for EU consistency of country-by-country (CbC) reporting.
The proposed EU legal instrument provides for:
- 2016 CbC reporting to the Member State where it is resident
- Optional provision for non-EU parent companies; 2016 reporting is optional via its EU subsidiaries and such “secondary reporting” will be mandatory for the 2017 tax year.
- Automatic exchange of CbC reports between EU Member States
This surprising draft directive will alleviate some concerns by US headquartered MNE’s (as 2016 CbC reports will probably not be required), although only within the EU. To the extent non-EU Member States have CbC reporting obligations for the 2016 tax year, a Surrogate Entity or local filing may still be required for US MNE’s.
The EU is still recognized as a leader in pushing forward BEPS Action items, and this directive would provide much-needed consistency among Member States for CbC reporting. This development is important to monitor going forward, as well as observing other non-EU countries for a follow-the-leader approach.
The OECD’s Task Force on Tax and Development met in Paris, France, on 1 March 2016, to discuss the new inclusive framework proposed by the OECD for the global implementation of the BEPS project and to support developing countries on their domestic resource mobilisation efforts. Over 180 participants attended.
Co-Chaired by South Africa and the Netherlands, the Task Force is a multi-stakeholder advisory group set up to help to improve the enabling environment for developing countries to collect taxes fairly and effectively.
Recognition and participation in the Tax Inspectors Without Borders partnership was also an agenda item, including present (and future) toolkits for developing countries as a practical resource to implement BEPS Actions.
Participants also highlighted the need for the documentation toolkit to provide clear guidance on how the Country-by-Country Report should be used for risk assessment purposes.
The Task Force will endeavor to take the following steps, commencing with the first meeting in Kyoto Japan, 30 June- 1 July 2016.
- Support the development of 7 further toolkits to translate the BEPS deliverables into user friendly guidance for developing countries by 2018.
- Starting now, fully endorse the ATAF/EC/OECD/WBG transfer pricing capacity building support to address the full range of BEPS challenges in developing countries.
- Support the Tax Inspectors Without Borders programme project to increase the number of TIWB deployment programmes to 20 by the end of 2017 and 30 by the end of 2018.
A copy of the press release is provided for reference:
Click to access co-chairs-statement-task-force-tax-development-march-2016.pdf
Best Practices – To address mutual transparency, OECD and the member countries should be willing to share the contents, and objectives, of the various toolkits under preparation to better understand the risk process and actions by tax administrations around the world.
The EU, now recognized as the accelerator of BEPS for its Member States, have issued a roadmap of priorities and objectives for the near future. A link to Deloitte’s World Tax Advisor is provided, and the attached article therein.
I have highlighted certain parts of the roadmap worth watching:
- Country-by-Country reporting (will there be a consistent EU standard?)
- Hybrid mismatch arrangements
- Code of Conduct activities, including alignment of transfer pricing outcomes with value creation, an extension of BEPS Actions 8-10. (Note Sweden and UK are already using such Actions re: clarification of existing transfer pricing policy)
- Payments from an EU to non-EU country
- The EU Arbitration Convention is mentioned, although it’s practical effect on mitigating dispute resolution is limited
Click to access dtt-tax-worldtaxadvisor-160226.pdf
Dutch presidency issues EU-BEPS roadmap
The Netherlands, which currently holds the presidency of the council of the EU, issued an ambitious EU-BEPS “roadmap” on 19 February 2016 that sets out plans to move forward with previous EU proposals, as well as future efforts on areas relating to the OECD’s base erosion and profit shifting (BEPS) project. The roadmap includes the following:
- Preparing EU guidance on aligning transfer pricing outcomes with value creation, in accordance with BEPS actions 8-10;
- Identifying potential issues that arise when payments are made from the EU to a non- EU country;
- Assessing the opportunity for developing EU guidance for implementing the conclusions on BEPS action 12 (the disclosure of aggressive tax planning), notably, with a view to facilitating the exchange of information between tax authorities; and
- Developing guidelines on the conditions and rules for the issuance of tax rulings by EU member states.Additionally, the High Level Working Party on Taxation may discuss the current situation regarding the EU arbitration convention that allows the settlement of transfer pricing disputes.
EY’s Global Tax Alert summarizes recent BEPS developments around the world:
Click to access 2016G_CM6166_The%20Latest%20on%20BEPS%20-%2018%20January%202016.pdf
- Australia’s client experience roadmap re: its multinational anti-avoidance law (MAAL)
- Belgium’s adverse State Aid ruling by the European Commission re: its excess profit tax rulings, which is expected to be appealed
- Chile’s new sworn statement / tax disclosures (highlighted in a recent post)
- Finland’s draft proposal for country-by-country (CbC) reporting and transfer pricing documentation in a Master / Local file context
- Greece’s circular identifying preferential tax regimes
- Korea’s draft decree for transfer pricing documentation
- Luxembourg’s IP amendments and adoption of the EU Parent-Subsidiary Directive’s proposals
- Netherland’s CbC and transfer pricing documentation requirements
- Norway’s new rules for interest limitations, participation exemption regime inapplicable for hybrid instruments, and CbC reporting requirements
- Panama to announce its decision, in March, for adoption of the OECD BEPS recommendations
The trend for recent BEPS updates reflects an expansion of definitive actions into unilateral measures, decisions whether / when to adopt OECD’s BEPS recommendations, new disclosures, subjective anti-avoidance rules with inherent complexity, and each country’s expression of intent re: BEPS Actions coupled with local add-on documentation requirements.
Monitoring of the global developments in the post-BEPS era has introduced new challenges, requiring additional resources and thought processes for documenting transfer pricing methodologies and the business aspect of significant transactions.
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:
Click to access 2015G_CM5788_Denmark%20publishes%20proposal%20to%20introduce%20Country%20by%20Country%20Reporting.pdf
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
- OECD TP Guidelines:
- 7 countries (including the UK) to adopt the changes without need for legislative/administrative action
- 54 countries refer to OECD TP Guidelines by tax authorities/courts for interpretation, but are not binding
- 21 countries refer to OECD TP Guidelines in domestic legislation
- TP Guidelines are meant to be an extension of the Commentary to the arm’s length principle in Article 9; if the revised Guidelines go beyond such rules a change in existing treaties will be required for implementation, although the multilateral instrument in development under Action 15 may remedy this
- Tax authorities have used BEPS initiatives for leverage in Australia, Spain, Hungary, New Zealand, Finland, Indonesia, France and India
- TP and CbC documentation may be provided as an exchange of information if they are “foreseeably relevant”
- Legislative action will be required in most countries with current TP legislation to implement Master / Local File requirements
- Most countries will require a change in law for CbC reporting; 38 countries are/will have such implementation legislation, 49 countries are not yet known, while only 11 countries are not expected to implement in the short/medium term
- CbC information will be widely exchanged via exchange of information articles in double-tax treaties, tax information exchange agreements or Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (and the corresponding Multilateral Competent Authority Agreement)
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).
The European Parliament adopted a resolution to tackle tax avoidance and tax evasion via transparency measures to ameliorate limited resources of tax administrations. A summary and full content of the proposal are referenced herein:
- Publish country-by-country reporting (CBCR) template as part of annual reporting; The European Commission is to provide a legislative proposal to amend the Accounting Directive accordingly.
- Establish a consistent definition of “tax havens” by the end of 2015.
- Provide a blacklist of countries that do not combat tax evasion or that accept it.
- New treaties with developing countries should tax profits where value is created.
- EU Member States should agree on a Common Consolidated Corporate Tax Base (CCCTB).
- The EU should be taking a leading role to combat tax havens, tax fraud and evasion, leading by example.
- Beneficial information should be public; the Financial Action Task Force’s (FAFT) anti-money laundering recommendation is a minimum.
- Public scrutiny of tax governance and the monitoring of tax fraud cases; protect whistleblowers and journalistic sources.
- Transition period for developing countries to adopt the Automatic Exchange of Information mechanism.
These initiatives are accelerating the focus and intent for public tax disclosures in the very near future.
Most importantly, inclusion of the CBCR template as required documentation of annual reporting will automatically accelerate the due date for completion of such information. Thus, the year-end 2017 timeline proposed by the OECD will give way to this proposal and similar unilateral actions.
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