As I’ve noted in prior posts, the OECD’s Country-by-Country (CbC) template is a "game-changer" for both taxpayers and tax authorities ushering in an unprecedented level of transparency. I've talked about how the template will pose major data-gathering challenges for Multi-national enterprises (MNEs). MNE's must also realize that the submission and subsequent sharing of the CbC reporting template to a wide audience of tax jurisdictions is expected to create a surge in global tax examinations. These audits could expose MNEs to the risk of double taxation, particularly in those countries without adequate competent authority agreements in place. In addition, the escalation of these tax disputes and the public disclosure of CbC reports could lead to reputational risk. Tax departments should avoid the natural tendency to “back-burner” these new reporting requirements by immediately taking proactive steps to ensure the accuracy of the template and the creation of a defensible audit trail. The time to act is now.
What can you do now?
Don't treat CbC reporting as merely a compliance burden. Treat it as a strategic tax risk-management issue. Make sure your CFO is aware of the reporting requirement and the new reputational risk it presents.
Evaluate current financial systems. Assess whether those systems will be able to provide the data elements needed in the format that is needed to comply. Some MNEs will need to consider whether additional technology investments will be needed to collect, store, analyze and prepare the CbC template and perform the reconciliations I discussed in my previous post.
Perform "dry runs". Map out the CbC template process. Determine if any current processes can be leveraged or must be added to prepare the CbC template. Strategize about how the data on the template will be presented, including accounting standard to be chosen.
Consider additional resources. These resources could include technology or people to support both the preparation of the CbC template and the resultant examination influx. These additional costs will need to be factored into the corporate tax departments’ budgets and discussed with their CFOs, senior management, audit committees, and other stakeholders as soon as possible.
Given the global visibility the new CbC Report gives into tax matters of a company, the data management challenges to properly prepare the report, the expected increase in tax controversy, and the increased reputational risk, affected MNE's are well advised to take the proactive steps noted above in preparing for this game-changing new tax disclosure to effectively manage new tax and reputational risks.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.
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William Brennan was formerly a Chief Tax Officer at Vertex, Inc. He has over 33 years of tax experience with a record of building, developing, and leading large corporate tax departments. Bill has worked in many industries throughout his career including healthcare, software, financial services, transportation and manufacturing. His tax practice experience has included planning, intercompany transfer pricing, structuring/restructuring of business operations, offshore intangibles, contract manufacturing, cross-border financing, mergers and acquisitions, legislation, private letter rulings, examinations, administrative appeals, and litigation. As a former Vertex Chief Tax Officer, Bill provided insight and thought leadership regarding in-house corporate tax department operations, global tax law and policies, and emerging tax industry trends. In addition, Bill advised Vertex’s Board of Directors and senior management on the development of the company’s income tax solutions under Vertex Enterprise. Prior to working at Vertex, Bill was the Vice President-Taxes at McKesson Corporation for 12 years. McKesson Corporation is a Fortune 15 company with revenue in excess of $130 billion, and is the largest pharmaceutical distributor and health care information technology company in North America. In addition, Bill has held senior leadership roles for a number of other Fortune 500 companies throughout his career. Bill received a Master of Science in Taxation from Golden Gate University and a Bachelor’s degree in Accounting from Marquette University. He is a licensed CPA and a member of the AICPA, IFA and USCIB.