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.
Thirty-one countries have signed the OECD’s multilateral competent authority agreement (MCAA) for the automatic exchange of country-by-country (CbC) reports, excluding the U.S.
The signatory countries are:
The position of the US, noticeably absent from the list, is to enter into bilateral agreements with appropriate countries that have safeguards and governance in place, as well as countries that have an income tax treaty or tax information exchange agreement in effect.
OECD BEPS Action 13 provided models for the recommended CbC reporting options; a multilateral agreement, a double tax convention model and a model based on a tax information exchange agreement.
It will be critical to monitor the development of the CbC exchange process, in addition to timing mismatches and the necessity to identify a surrogate country, with additional complexities to consider.
HMRC has provided a technical consultation and explanatory memorandum for new regulations of UK’s country-by-country (CbC) reporting. Comments are due by 16 Nov. 2015. A link is provided for reference:
An interesting, and debatable, provision is Section 9 of the technical consultation, Provision for information, which is copied herein. To the extent that a company is considered a “reporting entity,” the provision provides for a request of information, that may reasonably be required, (within 14 days in a form specified by HMRC) to substantiate the accuracy of the CbC report.
On the heels of the OECD release of the Action Items, including Action 13 CbC reporting, HMRC has released this documentation for consultation. However, Section 9 may be far-reaching in that there is no transparency into the intent of HMRC or purpose of such potential request.
For example, does this exercise include the accuracy of all entities included in the CbC report? What type of documentation would be requested, and in what form? Should the request be limited to UK entities only? If there are potential inaccuracies in countries other than the UK, what happens then? What transparency is provided for this process? Will this request be reviewed prior to informing the taxpayer? Will such review be shared with other countries?
This provision seems to be far-reaching, and could be followed by other countries. Therefore, it is paramount that all multinationals monitor such developments, as this will significantly increase complexity.
Provision of information
9.—(1) An officer of Revenue and Customs may, by notice in writing, require a reporting entity to provide the officer with such information (including copies of any relevant books, documents or other records) as the officer may reasonably require for the purposes of determining whether information contained in a country-by-country report filed by that entity is accurate.
(2) A notice under paragraph (1) may specify or describe the information to be provided.
(3) Where a person is required to provide information under paragraph (1), the person must do so—
(a) within such period, being no less than 14 days; and
(b) at such time, by such means and in such form (if any),
as is reasonably specified or described by Revenue and Customs.