As I noted in my previous BEPS post, Country-by-Country (CbC) reporting is one of the most critical elements of BEPS Action 13 - Re-examining Transfer Pricing, and is likely to be widely adopted by many countries. In this post, I will discuss the specific data elements required, as outlined in the September 2014 Report on Action 13 (specifically Annex III), the February 2015 Implementation Guidance and the June 2015 Implementation Package, all issued by the OECD.
The OECD's recommended CbC reporting template requires MNEs to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group, as well as information about which entities do business in a particular jurisdiction and the business activities each entity engages in.
On the first page of the report, MNEs (that meet the filing threshold discussed later) must provide the following data by tax jurisdiction:
- Revenues, including a breakdown of amounts received from unrelated and related parties;
- Profit or loss before income tax;
- Income taxes paid (including certain withholding taxes);
- Income taxes accrued for the current year (excluding uncertain tax liabilities);
- Stated capital;
- Retained earnings;
- The number of employees; and
- Tangible assets (excluding cash and cash equivalents).
Page two of the report further requires MNEs to identify each legal entity and permanent establishment within the MNE group, their country of incorporation, tax residency and principle business activities.
Under the current OECD guidelines, only MNEs with consolidated revenues exceeding €750 million would be required to file a report, but this threshold is expected to be lowered over time. Generally, the report is filed in the tax jurisdiction of the ultimate parent entity, but the June 2015 Implementation Package provides for a "secondary mechanism" that effectively transfers the filing obligation to lower-tier entities.
The OECD has recommended that initial CbC reports be filed for years beginning on or after January 1, 2016, which means they would be due in December 2017.
While the data elements required on the CbC template may, on the surface, seem "not too bad," it is important to note that countries will have the freedom to request additional data for their reports. Even more important is the reality that, for some MNEs, gathering this data at the tax jurisdiction level may prove to be quite difficult. These data-gathering challenges and some practical approaches to solving them will be the subject of my next post.
Read Bill's previous post on this topic; BEPS: Country-by-Country Reporting Implementation.
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.