- The draft report Transfer Pricing Documentation and Country-by-Country Reporting, released on 16 September 2014 1
- Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country Reporting, released on 6 February 2015 2
- Country-by-Country Reporting Implementation Package, released on 8 June 2015 3
- A “master file” that provides tax administrations with high-level information on the global business operations and transfer pricing policies of a multinational enterprise (MNE)
- A specific “local file” that provides a local tax administration with information on material related-party transactions, the amounts involved and the company’s analysis of the transfer pricing determinations made on those transactions
- A CbC reporting template that includes information on revenue (related and unrelated party), profits, income tax paid and taxes accrued, employees, stated capital and retained earnings, and tangible assets for each tax jurisdiction in which the MNE does business. In addition, the template includes information identifying each entity within the MNE group doing business in a particular tax jurisdiction and the business activities each entity conducts.
The OECD mandates that countries participating in the BEPS project carefully monitor the implementation of these new standards and reassess no later than the end of 2020 whether modifications should be made to the content of these reports to require reporting of additional data.
- The MNE group’s organizational structure
- A description of the MNE’s business or businesses
- The MNE’s intangibles
- The MNE’s intercompany financial activities
- The MNE’s financial and tax positions
- The size and the nature of the local economy
- The importance of the MNE group in that economy
- The size and nature of local operating entities, in addition to the overall size and nature of the MNE group
Implementation and filing
- Table I: overview of allocation of income, taxes and business activities by tax jurisdiction
- Table II: list of all constituent entities of the MNE group included in each aggregation by tax jurisdiction, including designation of main business activity
- Table III: additional Information
CbC reporting template
- Tax jurisdiction
The required information is to be reported on a tax jurisdiction by tax jurisdiction basis.
A separate line should be included for all constituent entities deemed by the reporting MNE not to be resident in any jurisdiction for tax purposes.
Separate columns are provided for revenues generated from unrelated party transactions, revenues from transactions with related parties, and the sum.
For this purpose, revenues should include revenues from sales of inventory and properties, services, royalties, interest, premiums and any other amounts derived from transactions with related or unrelated persons.
Revenues from payments received from other constituent entities that are treated as dividends in the payer’s tax jurisdiction are excluded.
- Profit (loss) before income tax
The sum of the profit (loss) before income tax for all constituent entities resident for tax purposes in the particular jurisdiction.
This should include all extraordinary income and expense items.
- Income tax paid (on cash basis)
The total income tax actually paid during the relevant fiscal year by all constituent entities resident for tax purposes in the particular jurisdiction to the residence tax jurisdiction and to all other tax jurisdictions.
Taxes paid should include withholding taxes paid by other entities (both related and unrelated) with respect to payments to a Constituent Entity.
- Income tax accrued (current year)
The sum of the accrued current tax expense recorded on taxable profits or losses of the year of reporting of all constituent entities resident for tax purposes in the particular jurisdiction.
The current tax expense should reflect only operations in the current year and should not include deferred taxes or provisions for uncertain tax liabilities.
- Stated capital
- Accumulated earnings
- Number of full-time equivalent employees, with the option to include independent contractors
- Net book value of tangible assets other than cash and cash equivalents
CbC reporting implementation package
- Model legislation that jurisdictions can adapt to their own legal systems, where changes to current legislation are required. Further, key elements of secondary mechanisms for reporting have been developed.
- Implementing arrangements for the automatic exchange of the CbC reports under international agreements have been developed.
Action 13 implementation
- The multilateral Convention on Mutual Administrative Assistance in Tax Matters
- Bilateral tax treaties
- Tax information exchange agreements
In limited circumstances, countries may use secondary mechanisms, including local filing, as a backup.
The guidance provided in the Final Report with respect to the master file and local file differs from current documentation requirements.
These differences will require companies to review their existing documentation and the process used to produce it.
The CbC template introduced in the Final Report is an entirely new reporting requirement.
Companies will have to review the requirements carefully to understand the most appropriate application of the guidelines to their particular operating structure.
For annual compliance, companies need to plan the necessary steps to collect the required information as efficiently as possible, including developing sustainable processes and responsibilities with regard to the new reporting.
As the guidance provided by the OECD regarding the new reporting requirements now is final, companies should monitor developments with respect to the adoption of these new reporting requirements in the countries in which they operate.
What is the action trying to achieve?
- To increase transparency around MNEs’ tax affairs by requiring them to provide information to tax authorities regarding the global allocation of income, taxes paid, and certain indicators of the location of economic activity among the tax jurisdictions in which MNE groups operate. This will be done through the country-by-country (CbC) template.
- To simplify transfer pricing documentation compliance burdens for taxpayers and make the documentation more valuable for tax authorities.
Were any of the action recommendations unexpected?
Is there any interaction between this action and the others?
Have any countries made specific comments in relation to this action?
What’s going to happen next, and how uniform might implementation be?
Given the time needed to gather and review all of the information that will be required, companies should not leave anything to the last minute.
 See EY Global Tax Alert, OECD releases report under BEPS Action 13 on Transfer Pricing Documentation and Country-by-Country Reporting, dated 23 September 2014.
 See EY Global Tax Alert, OECD issues implementation guidelines for country-by-country reporting under BEPS Action 13, dated 9 February 2015.
 See EY Global Tax Alert, OECD issues implementation package for country-by-country reporting under BEPS Action 13, dated 23 June 2015.
This article was first published in EY´s Tax Policy and controversy briefing 17
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