Country-by-Country tax reporting
Country-by-Country tax reporting has become a fact of life for multinational enterprises (MNEs) with worldwide revenue above EUR 750 million.
While most MNEs have developed processes to gather and report the required information, how well are they managing the risk associated with the Report?
Have they integrated the reporting process into their ongoing transfer pricing management and documentation?
Is the information generated by the reporting process consistent with the intent of their global transfer pricing policy?
Action 13 of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan introduced a CbC reporting template which certain multinational enterprises (MNE) are required to complete and submit (usually) to the tax authority in their home country.
Following a consultation process, the template was published in September 2014 and was finalised on October 5, 2015 when the OECD also published final implementation guidance.
The final OECD report recommended that CbC reporting commence for periods starting on or after January 1, 2016. In general, multinationals with consolidated group revenue of less than EUR 750 million (or equivalent in local currency) in the prior financial year are exempted from filing the CbC Report.
However, for those not exempt, filing with the parent country tax authority is typically due within 12 months of the group’s financial year-end. If the country of the MNE parent does not require reporting, it is the responsibility of the MNE to designate a surrogate parent in a country where the CbC Report can be filed.
One of the main reasons that tax authorities implemented the CbC reporting requirement was to gain a better understanding of a multinational group’s activities, value drivers, profit creation, and taxes paid in each of the jurisdictions in which it operates.