Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘country by country report’

Public CbC reporting: France moves forward

France’s lower house of Parliament has approved an amendment that would require public reporting of country-by-country (CbC) information.  The amendment will need approval by the Senate, with final confirmation by the French National Assembly before being enacted.

This step represents another move forward, along with the EU proposals, to provide CbC information to the public domain.

Multinational companies should prepare today for public CbC reporting in the near future, as the cannon shots have been fired and they will soon land, resulting in a multitude of inquiries and perceptive conclusions.  Additionally, organisations should have a seamless process to receive, review and decide on communicative courses of action in response.

Category:

OECD, Tax Risk Management

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TAXE: Final report for Parliamentary actions

The EU Parliament’s resolutions were passed by a vote of 508 to 108, with 85 abstentions.  The proposals call for mandatory country-by-country (CbC) reporting, a common consolidated corporate tax base (CCCTB), defined tax terms and transparency / exchange of tax rulings.  A summary press release and the full report are provided for reference:

http://www.europarl.europa.eu/news/en/news-room/content/20151120IPR03607/html/Parliament-calls-for-corporate-tax-makeover

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2015-0408+0+DOC+XML+V0//EN&language=EN

Key points:

  • Welcomes the EU Parent-Subsidiary Directive amendments, effective at year-end 2015, for a general anti-abuse rule and hybrid mismatches.
  • EU Commission has breached its obligations under Article 108 of the Lisbon Treaty by not launching state aid investigations previously.
  • EU Member States should respect the principle of profits taxation where they are generated.
  • Promote good practices on transfer pricing and the pricing of loans and finance fees in intra-group transactions.
  • Commission to further investigate restrictions of deductions for intercompany royalty payments (i.e. counter profit shifting).
  • All rulings that have an impact on other Member States to be presented in the CbC report, and shared with the Commission and tax administrations.  Rulings to be publicly disclosed in accordance with confidentiality requirements.
  • Mandatory CCCTB, with a deadline for the consolidation element and without any further impact assessments.
  • Develop measures to tackle cross-border VAT fraud.
  • Reform of the Code of Conduct on business taxation.
  • New State Aid guidelines by mid-2017.
  • EU to be a global leader in tax transparency.
  • More extensive CbC report, with intra-group transactions.
  • Accelerate European Tax Identification Number project.
  • Aggressive tax planning is incompatible with Corporate Social Responsibility (CSR).
  • Outgoing financial flows from EU are taxed at least once (i.e. withholding tax).
  • Transition period for developing countries to align with Global Standard on Automatic Information Exchange.

This report is compelling, far-reaching and a resource that will be used worldwide, as most non-EU countries will attempt to follow the ever-increasing EU intensity and propensity for changes in the international tax arena.  Thereby, it is a must read and a learning tool for non-tax executives in multinational organisations, as well as tax advisors, tax administrations and other interested parties.

Category:

OECD / UN

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Transparency & Disclosure: zooming in

EY’s recent publication takes a close-up view of transparency and disclosure trends, including a detailed analysis of several countries’ latest trends.  A link to the report is provided for reference:

Click to access EY-are-you-ready-for-your-close-up.pdf

Key Points:

  • Transparency issues of the future:
    • Country-by-Country (CbC) implementation and inconsistency of approaches
    • New transfer pricing documentation requirements
    • Public access for CbC reports and tax rulings
    • Growing trend to disclose a company’s planning, strategy, risk appetites and effective tax rates
    • Tax codes of conduct, formal and informal
    • Increased disclosure of aggressive tax positions
    • Electronic data gathering
    • Use of third-party data
    • Direct ERP access
    • Matching of data and watching for transactional trends
  • EU transparency update, including proposed Directives
  • Country transparency updates: Argentina, Australia, Brazil, China, Denmark, Ecuador, France, Germany, Greece, Mexico, Netherlands, Poland, Singapore, South Africa, South Korea, Spain, UK, US

The level of future transparency will continue to increase, with new and dissimilar demands by countries around the world.  This report unveils the global trends and issues, with comprehensive analyses of various transparency trends of major countries.  Accordingly, it is a publication that should be reviewed to better understand where the current trends are requiring future demands for transparency in a new world of international taxation.

Category:

Tax Risk Management

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Public disclosures: Get ready!

As tax disclosures, more specifically the country-by-country (CbC) report, approach probable reality, what is your company doing to prepare for such transformation?

  1. Is the CbC report being prepared with perceptive gap Q & A’s addressed?
  2. Who is the first / primary point of contact for a public query – How are contact details communicated for global awareness?
  3. Is tax aligned with corporate communications re: who is responsible for preparing, delivering, answering queries?
  4. Are shareholders aligned in the process, to disclose or not disclose?
  5. Will tax posture change, via public disclosures, as public disclosures become more common?
  6. What is the impact of your peer companies providing proactive disclosures?
  7. Is there a process to monitor tax disclosures of peer companies for review, not to be surprised.
  8. Is there a similar process for internal queries as a response to ever-growing tax investigations / allegations in the public?

These questions highlight the priority needed to focus upon this new trend and proactively address this new world!  Tax authorities will be reviewing such disclosures, so multinational organisations should be also aware.

Category:

Tax Risk Management

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China’s proposed TP documentation; Non-transparent

China’s State Administration of Taxation (SAT) has issued a consultation draft encompassing transfer pricing documentation; comments are due by 16 October 2015.  The draft includes OECD BEPS Action concepts, such as the form of transfer pricing documentation, although retaining arguable local concepts and introducing intangible definitions prior to the final OECD Guidelines.

Click to access 2015G_CM5783_TP_Chinas%20TAs%20issue%20groundbreaking%20consultation%20draft%20to%20update%20TP%20rules%20in%20a%20Post-BEPS%20environment.pdf

Key observations:

  • The three tier TP documentation concept of Master File, Local File and Country-by-Country report (for Chinese based multinationals) is introduced.
  • A “Special File” is also required for intercompany services, providing copies of agreements, allocation keys and evidence supporting the “benefit test.”
  • “Intangibles” is broader than the OECD proposals, including marketing channels and customer lists.
  • Advance Pricing Agreement (APA) procedures are clarified.
  • The use of transfer pricing comparables is broad and runs counter to the transparency or consistency test.  The use of secret comparables, one comparable, one or multiple year results are allowed.
  • Anti-shifting provisions are to be used for transactions with entities of little substance, thereby increasing Chinese profits.
  • Profitability monitoring will be used to establish a tax risk hierarchy system.

Although the Consultation report includes consistent BEPS measures, there are also concepts included that do not provide consistency with other countries, increasing the risks of double taxation.  Thereby, China is inwardly focusing on its fisc while representing a “rogue” player on the OECD playing field.

All multinationals with operations in China should determine their course of action for these proposals, including a review of holding companies for intercompany transactions with Chinese entities.  

Category:

Transfer Pricing

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Denmark’s CbC proposals

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

Category:

OECD, Transfer Pricing

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TFEU: Tool for EU Directives

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:

  • EU Common Corporate Tax Base (CCTB)
  • Country-by-Country (CbC) reporting, public disclosure
  • Tax rulings, (redacted) public disclosure
  • Permanent Establishment (PE) definition
  • Anti-BEPS Directive, transforming OECD “soft law” into an EU legislative framework
  • Interest & Royalty Directive requiring confirmation of EU tax being paid elsewhere
  • EU Dispute Resolution approach

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.

Category:

OECD

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Dutch draft TP & CbC law

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.

Click to access 2015G_CM5764_TP_NL%20releases%20draft%20law%20implementing%20new%20TP%20doc%20requirements%20in%20line%20with%20BEPS%20Action%2013.pdf

  • The draft law states that a transfer pricing adjustment may not be based on the CbC report.
  • The CbC report aligns with the BEPS Action 13 requirements.
  • The Master and Local file re: transfer pricing documentation will be required contemporaneously with the filing of the tax return, with such information to be provided upon request.
  • A criminal offense will take place, for the most serious cases, if the CbC reporting requirements are not satisfied.

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.

Category:

OECD

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BEPS TP & CbC reporting: EY Survey

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:

  • 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).

Category:

Tax Risk Management

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ATO interim report: Corporate tax avoidance

The Senate Economics References Committee has published its interim report entitled “Corporate tax avoidance.”  Part I, “You cannot tax what you cannot see” provides an excellent frame of reference for the discussions therein.

It is worthwhile noting that there is a section “Government Senators’ Dissenting Report” expressing concerns about some recommendations therein; this should be a additional warning sign of the recommendations put forth.  Conversely, there are “Additional Comments from the Australian Greens” fully supporting the report in its entirety.

The final report is due in November 2015, although this interim release provides an indication of the thought trends currently in process by the Australian Tax Office (AT0).  A link to the report is provided for reference:

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporate_Tax_Avoidance/Report_part_1

Key observations:

  • 17 recommendations provided addressing (1) evidence of, and multilateral efforts to combat, tax avoidance and aggressive minimization, (2) multilateral actions to protect Australia’s revenue base, and (3) capacity of Australian government agencies to collect corporate taxes.
  • Australian government to work with other countries having significant marketing hubs to improve the transparency of information
  • Australian government continues to take the load re: OECD BEPS initiatives; international collaboration should not prevent the Australian Government from taking unilateral action
  • Mandatory tax reporting (transparency) code
  • Existing transparency laws to be identical for private and public companies
  • Public register of tax avoidance settlements reached with the ATO
  • Public excerpts from the Country-by-Country OECD reports, based on the EU’s standards
  • Annual public report on aggressive tax minimization and avoidance activities
  • Section 3.95 discusses a novel concept: “Effective tax borne” effective tax rate formula, a metric that seeks to reflect all of the channel profit derived from business activities involving Australia and the Australian and global tax paid on that channel profit.  Appendix 3 provides additional rules for application of this formula, noting that there has not yet been a consultation with taxpayers or other stakeholders.  The metric envisions that the entire supply chain profit is a profit of the economic group arising from Australian business activities (i.e. intercompany purchases of goods and services from offshore related parties).  Numerator is either the Australian tax paid on business activities by the economic group, or the global tax paid by such group.  Denominator is the total economic profit from business activities which are linked to Australia.  Withholding taxes of economic group profit are includable, whereas royalties and excises are not.  Numerous rules apply for intercompany adjustments.

Australia is still recognized as a leader in the pursuit of the BEPS objectives, using transparency as a weapon to fight ensuing battles.

This report not only extends the strong cry for public disclosure of tax information, it suggests a new concept to examine the effective tax rate of jurisdictions having activities with an Australian related party.  However, it is hopeful the envisaged complexity, cost/benefit and technical nuances of the “effective tax borne” concept are presented to stakeholders with enough time to review, plan and adjust/eliminate the final recommendation accordingly.

As Australia leads, many others follow.  This report is required reading for all interested parties, as the ideas presented have a high probability of appearing in other jurisdictions in a similar form and formulating the same intent for transparency.

Category:

Tax Risk Management, Transfer Pricing

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European Parliament urges CBCR public transparency

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:

http://www.europarl.europa.eu/oeil/popups/summary.do?id=1396472&t=d&l=en

http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P8-TA-2015-0265

Key observations:

  • 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.

Category:

OECD, Tax Risk Management

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European Parliament’s resolution: Ambitious disclosure plan

The European Parliament, following its recent push for public disclosure (03 June 2015 post), passed a non-binding resolution by 550 votes to 57 to make this happen.

A copy of the press release is provided for reference:

http://www.europarl.europa.eu/news/en/news-room/content/20150703IPR73914/html/Tax-MEPs-advocate-country-by-country-reporting-to-help-developing-countries

Key observations:

  • Country-by-country tax reporting (CbCR) should be publicly disclosed to fight tax evasion and avoidance.
  • Perceived benefits of public disclosures include better tax justice and an end to tax havens.
  • All countries should adopt CbCR.
  • Company ownership should be in the public domain.
  • EU institutions should monitor actions by the Member States to determine ongoing funding decisions.

The EU continues to be a proactive force in introducing public disclosure changes, which will be a spark for all other countries to follow.  Accordingly, monitoring such activities will be a key to understanding future trends and disclosures that can be planned for currently.

 

 

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Tax Risk Management

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Poland’s latest Draft Bill accelerates 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

Category:

OECD, Tax Risk Management

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US & BEPS conformity: (Un)certainty

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.

Category:

OECD / UN

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BEPS Action 13 CbC reports: To whom, by whom, for whom

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:

  • Three model Competent Authority Agreements based on the Multilateral Convention on Administrative Assistance in Tax Matters, bilateral tax conventions, and Tax Information Exchange Agreements (TIEAs).
  • In accordance with the recent OECD webcast, countries will have 6 months for the initial year to exchange such information (i.e. June 30, 2018 calendar year basis for the 2016 tax information submitted by Dec. 31, 2017, and 3 months for the following reporting year).
  •   Introduces the term “Surrogate Parent Entity” for substitute reporting.
  • Provides conditions for application of the Surrogate Parent Entity approach.
  • The CbC report shall be filed in a form identical to the OECD template.
  • Confidentiality provisions are discussed.
  • Penalties: “It is assumed that jurisdictions would wish to extend their existing transfer pricing documentation penalty regime to the requirements to file the CbC report.”

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.

Category:

OECD

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