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.
The Austrian Ministry of Finance has published its new country-by-country (CbC) and transfer pricing (TP) draft legislative rules, detailed in the referenced EY Global Tax Alert.
The Multilateral Competent Authority Agreement on the Exchange of Country by Country Reports is now included in Austrian domestic law. Moreover, the legal requirements stipulated in the European Directive regarding mandatory automatic exchange of information in the field of taxation (2011/16/EU) is now national law.
The CbC and TP documentation are effective for the 2016 taxable year. TP documentation can be requested by the tax authorities within 30 days after filing the corporate income tax return. CBC information is required, dependent on the size of the organisation, and is subject to significant penalties for late filing/inaccurate information. Information on surrogate entity filing is also within the draft guidance.
Notification of the CbC filer is required by the end of this year, as in several other countries, requiring all US based multinationals to monitor the EU pending legislation and consider alternatives for filing if the US Final Regulations do not obligate CbC filing for the 2016 tax year.
The BEPS/CbC/transparency impetus is still growing, with no signs of slowing down. Demands for additional transparency are mounting, while the complexity of reporting, and filing, the respective reports is significantly increasing.
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.
OECD’s BEPS Action 13 provides for a Surrogate Entity substitution concept if the headquarter jurisdiction of a multinational does not provide for country-by-country (CbC) reporting for the 2016 tax year. The concept is ideal, if a CbC reporting country considers this Surrogate Entity concept in its legislation.
A review of CbC legislative actions by different countries reveals that such legislation will be inconsistent and will require the multinational to file separate CbC reports in various countries, irrespective of its choice of appointing a surrogate country that has an extensive tax treaty network with exchange of information provisions.
For example, the legislative language of Spain does not provide for the Surrogate Entity concept, thereby requiring a Finnish (and possibly U.S., dependent on Final Regulations) based multinational to file the 2016 Spanish CbC report in Euros. One of the Spanish tax authority representatives recently expressed an opinion that no advance rulings/arrangements will be acceptable for CbC Surrogate Entity filing: The law is the law.
Several issues for consideration by a multinational thinking of a Surrogate include:
Every country’s CbC adopted legislation will require review to determine if a Surrogate filing is acceptable.
For countries that will require a local filing, adoption of such country’s CbC rules will be required re: content, timing, reporting currency, etc.
Upon conclusion of the dynamic review, the CbC template may require adaptation for local filings of countries that have OECD + CbC legislation, adding details beyond those prescribed in BEPS Action 13.
Most countries have penalties (fines/civil/criminal) applicable for failure to file a CbC report.
The definition of a Surrogate Entity, in addition to BEPS Action 13, are included for reference.
The term “Surrogate Parent Entity” means one Constituent Entity of the MNE Group that has been appointed by such MNE Group, as a sole substitute for the Ultimate Parent Entity, to file the country-by-country report in that Constituent Entity’s jurisdiction of tax residence, on behalf of such MNE Group, when one or more of the conditions set out in subsection (ii) of paragraph 2 of Article 2 applies.