Taxation of digital transactions at the international level is coming – it’s just a matter of time. The OECD and the European Commission (EC) separately published recommendations for digital taxation earlier this year.
How should international taxation evolve to reflect an increasingly digital global economy? It’s a crucial question and one that a growing number of stakeholders are striving to address. The OECD and the European Commission (EC) have separate, but related, efforts under way to do so, for example, and tax leaders will want to monitor these initiatives. Both organizations issued important publications in March; a subsequently published PwC Tax Policy Bulletin contains useful overviews of each effort.
Simplification may have been one of the primary drivers of U.S. tax reform, but the final legislation has made it clear that tax calculations and filings will be more complex for many businesses and individuals, keeping tax accountants and attorneys very busy for the foreseeable future.
Tax leaders who’ve grown weary from beating down a procession of major tax management challenges – only to see an onslaught of new tax challenges pop up each time – might find that their jobs feel like an endless version of the arcade game Whac-A-Mole.
The CbC report will be filed with the tax administrator in the tax jurisdiction of the MNE's ultimate parent. Thereafter, that tax jurisdiction is responsible for submitting the template to other tax jurisdictions in which the MNE operates. The primary method for automatically exchanging the template between tax administrators will be government-to-government mechanisms, such as bilateral tax treaties and tax information exchange agreements. There is a lurking vulnerability of information mismanagement between governments.
Because of its inherent importance as an initial audit risk assessment tool, one must assume that the template will serve as part of the transfer pricing analyses and reconciliations needed once a transfer pricing audit is invoked by the various taxing authorities.
All multinational entities will be required to file the annual CbC reporting template unless the group has less than €750 million (approximately $840 million) of consolidated financial revenue for the preceding year.