If the current view by the OECD and country revenue authorities is that BEPS guidelines, in particular Country-by-Country Reporting (“CbCR”), are just a minimum standard, what does this mean for corporate taxpayers trying to comply? Does this mean the door is wide open for continued change year over year? Are corporate taxpayers being lulled into a false sense of security if they just follow the current guidelines without thinking about future changes? Is there a high probability that countries are just using the guidelines today as the “easy button” to adopt and get moving on BEPS compliance as requested by the OECD and that once up and running, they will move the goalposts as soon as they can?
BEPS Action 13 from the OECD provides recommended guidelines for CbCR for multinational corporations (MNCs). These guidelines have recently been portrayed as only minimum standards. This was clearly articulated in recent discussions and presentations, including the OECD’s International Tax Conference, and Bloomberg BNA and Baker McKenzie’s Global Transfer Pricing Conference, both of which took place last month in Washington, D.C.
This articulation of “it’s just a minimum standard” got me thinking. Is the rapid adoption of these guidelines just countries taking the path of least resistance in the short-run? Since these standards were published last year, individual countries have begun to adopt, and in some cases, adapt them, creating their own unique reporting requirements. To date, most countries have adopted the standard OECD BEPS Action 13 CbCR guidelines and not made significant changes to the required information to be reported. The problem with countries’ adoption of minimum standards is that it can lull tax functions into a false sense of security. That’s because countries can subsequently expand on these standards – and many likely will. A significant expansion beyond the guidelines would give rise to more intense tax data management and reconciliation challenges.
The primary issue for tax departments to keep in mind is that minimum standards are a starting point, not an end point. Countries that adopt the minimum standards may subsequently add their own additional requirements on top of those standards. If this occurs, will there be a need for the OECD to revisit the guidelines in 2020?
Let’s be clear, just complying with the minimum standards is no picnic; it requires significant process and technology adjustments. At a fundamental level, CbCR will necessitate a reconciliation of the filed CbCR template to:
- The MNC’s public financial statements;
- Local statutory statements;
- Legal entity books and accounts; and
- Locally-filed tax returns.
As this CEO Insights article notes, there are several important steps MNCs should take now to address Action 13 and the CbCR filing. In the article, MNCs are advised to take the necessary steps in preparing for game-changing tax disclosures and consider advanced technology in order to effectively manage new tax and reputational risks.
While these steps are necessary for MNCs that wish to embrace a proactive approach to BEPS, more process and technology adjustments will be needed after countries realize the “easy button” isn’t enough for them. I recommend you proceed with caution and keep abreast of continuing developments to enable you and your tax team to adjust accordingly.
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.