• Author
  • Recommend
  • Tags
  • Connect
  • Download


BEPS Action 13: what to expect on CbC reporting

The OECD issues revised standards and a template for reporting income, taxes paid and certain measures of economic activity.

On 5 October 2015, the Organisation for Economic Co-operation and Development (OECD) released its final report on Action 13, Transfer Pricing Documentation and Country-by-Country Reporting (the Final Report), under its Action Plan on Base Erosion and Profit Shifting (BEPS).

This Final Report was released in a package that included final reports on all 15 BEPS actions.

The Final Report largely follows and consolidates the prior documents issued on this topic:

  • 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

The Final Report contains revised standards for transfer pricing documentation and a template for country-by-country (CbC) reporting of income, taxes paid and certain measures of economic activity, both of which will be included in the OECD Transfer Pricing Guidelines.

The revised standards entail a three-tiered approach to transfer pricing documentation and CbC reporting:

  • 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 new CbC reporting requirements are to be implemented for fiscal years beginning on or after 1 January 2016 and apply to MNEs with annual consolidated group revenue equal to or exceeding €750 million.

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 Final Report contains revised guidance on documentation and reporting that will be included in the OECD Transfer Pricing Guidelines as a replacement for the current content of Chapter V.

The report sets out a three-tiered standardized approach to transfer pricing documentation and CbC reporting, which consists of a “master file,” a specific “local file” and a “CbC reporting template.”

According to the OECD, taken together, these three documents will require taxpayers to articulate consistent transfer pricing positions and will provide tax administrations with useful information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed, and, in the event audits are called for, provide information to commence and target audit inquiries.

Easier to spot artificial moves?

The Final Report further indicates that this information should make it easier for tax administrations to identify whether companies have engaged in transfer pricing and other practices that have the effect of artificially shifting substantial amounts of income into tax-advantaged environments.

Finally, the OECD states that the countries participating in the BEPS project agree that these new reporting provisions, and the transparency they will encourage, will contribute to the objective of understanding, controlling, and tackling BEPS behaviors.

To achieve these objectives, countries should adopt a standardized approach to transfer pricing documentation, to be implemented in their domestic law.

The three-tiered structure is described below.

Master file

The master file should provide an overview of the MNE group business, its overall transfer pricing policies, and its global allocation of income and economic activity to place the MNE group’s transfer pricing practices in their global economic, legal, financial and tax context.

The Final Report states that there is no intention to require exhaustive listings of minutiae, as this would be both unnecessarily burdensome and inconsistent with the objectives of the master file.

In producing the master file, taxpayers should use prudent business judgment in determining the appropriate level of detail for the information supplied, keeping in mind the objective of the master file to provide tax administrations with a high-level overview of the MNE’s global operations and policies.

The use of cross-references to other existing documents, together with copies of the relevant documents, should be deemed to satisfy the relevant requirement.

The Final Report indicates that information is considered important if its omission would affect the reliability of the transfer pricing outcomes. It does not provide more detailed guidance, such as materiality thresholds, on what is considered important.

Five categories

The information required in the master file can be grouped in five categories:

  • 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

Taxpayers should generally present the information in the master file for the MNE as a whole but organization of the information by line of business is permitted where well justified by the facts.

The Final Report states that where line of business presentation is used, care should be taken so that centralized group functions and transactions between business lines are properly described in the master file.

A broader perspective

The master file differs from typical current documentation standards.

It has a global scope and should provide a global overview.

A description of the supply chain for the group’s largest products and service offerings will have to be included. Important transactions with respect to intangibles, financial transactions, and business restructurings must be listed.

Finally, the master file should contain a list and brief description of the MNE group’s existing unilateral advance pricing agreements (APAs) and other tax rulings relating to the allocation of income among countries.

These differences will require companies to review their existing documentation and their process for preparing the documentation.

Local file

Whereas the master file provides a high-level overview, the local file should provide more detailed information relating to specific material intercompany transactions.

The information required in the local file should supplement the master file and help in assessing whether the taxpayer has complied with the arm’s-length principle in its material transfer pricing positions affecting a specific jurisdiction.

Individual country transfer pricing documentation requirements should include specific materiality thresholds that account for:

  • 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

What about smaller enterprises?

It is recommended that small and medium-sized enterprises (SMEs) not be required to produce the amount of documentation that might be expected from larger enterprises.

However, SMEs should be required to provide information and documents about their material cross-border transactions upon a specific request of the tax administration in the course of a tax examination or for transfer pricing risk assessment purposes.

How is this different?

Like the new rules for the master file, the guidance for the local file contains some specific deviations from typical current documentation standards.

First, it is clear that a specific local file must be prepared, including financial information and allocation schedules, to show how the financial data used in applying the transfer pricing method may be tied to the annual financial statements.

This suggests that generic documentation describing the transfer pricing policy for the group as a whole could be used.

Furthermore, the local file should contain a description of the reasons for concluding that relevant transactions were priced on an arm’s-length basis based on the application of the selected transfer pricing method.

A company will need to be able to support that both the transfer pricing policy and the actual results are at arm’s length.

The local file requires that the reported amount of intragroup payments and receipts for each category of controlled transactions involving the local entity (i.e., payments and receipts for products, services, royalties, interest, etc.) be broken down by tax jurisdiction of the foreign payer or recipient.

It should be noted that the Final Report refers to payments and receipts and not to consideration charged.

The Final Report indicates that various types of agreements will have to be reported, including all material intercompany agreements concluded by the local entity and copies of existing unilateral and bilateral or multilateral APAs and other tax rulings to which the local tax jurisdiction is not a party and which are related to controlled transactions described above.

As for the master file, the local file requirements and the differences from typical current documentation approaches will require companies to review their existing documentation and the process for preparing such documentation.

Compliance issues

The Final Report contains specific guidance with respect to certain compliance issues, such as timing and penalties.

It states that taxpayers should try to determine transfer prices based upon information reasonably available at the time of the transaction and should confirm the arm’s-length nature of their transactions at the time of filing their tax returns.

Among the compliance issues listed, several are of particular practical importance for taxpayers.

The Final Report recommends that transfer pricing documentation be periodically reviewed to determine whether functional and economic analyses are still accurate and relevant as well as to confirm the validity of the applied transfer pricing methodology.

Assessments and updates

In general, the master file, the local file and the CbC report should be reviewed and updated annually.

With respect to database searches for comparables, the Final Report indicates that these should be updated every three years.

However, the financial data for the comparables should be updated every year.

The Final Report further expresses a strong preference for the use of local comparables over the use of regional comparables.

The language in which transfer pricing documentation should be submitted should be established under local laws.

Countries are encouraged to allow for the filing of transfer pricing documentation in commonly used languages where the usefulness of the documents will not be compromised.

Where tax administrations believe that translation of documents is necessary, they should make specific requests for translation and should provide sufficient time.

Implementation and filing

The master file and local file elements of the transfer pricing documentation standard will have to be implemented through local country legislation or administrative procedures.

The master file and local file will be filed directly with the tax administrations in each relevant jurisdiction as required by those administrations.

CbC reporting

The Final Report provides for CbC reporting to be done separately from the master file and the local file.

The CbC reporting template is divided into three tables:

  • 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

The Final Report states that “the country-by-country report will be helpful for high-level transfer pricing risk assessment purposes.”

It further emphasizes that such information “should not be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and a full comparability analysis.”

Such information “does not constitute conclusive evidence that transfer prices are or are not appropriate.”

Finally, the Final Report states that the information should not be used “to propose transfer pricing adjustments based on a global formulary apportionment of income.”

Framework for government-to-government mechanisms to exchange CbC reports

The Final Report describes a framework under which jurisdictions should require, in a timely manner, the filing of CbC reports by the ultimate parent entities of MNE groups resident there and exchange this information on an automatic basis with the jurisdictions in which the MNE groups operate.

The report indicates that if a jurisdiction fails to provide information to another jurisdiction, a secondary mechanism would be accepted as appropriate, through local filing or by moving the obligation for requiring the filing of CbC reports and automatically exchanging such information to the next tier parent country.

CbC reporting template

The ultimate parent of an MNE group (the reporting MNE) is required to complete a template reporting the allocation of the group’s income, taxes and business activities on a tax jurisdiction by tax jurisdiction basis.

The reporting MNE may choose to use data from consolidation reporting packages, separate entity statutory financial statements, regulatory financial statements, or internal management accounts, but should be consistent from year to year.

The Final Report states that a reconciliation of the CbC report to the consolidated financial statements is not required.

Table I of the CbC reporting template requires the reporting MNE to provide the following information annually:

  • 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.

  • Revenues

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

Table II of the CbC reporting template would require the reporting MNE to annually provide a list, by legal entity name, of all the constituent entities that are resident for tax purposes in each tax jurisdiction.

For each constituent entity, identification of the main business activities is also required.

Table III of the template provides room for the reporting MNE to include any information or explanation that it considers necessary or that would facilitate the understanding of the provided information.

CbC reporting implementation package

An implementation package has been developed for government-to-government exchange of CbC Reports.

It includes:

  • 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 Final Report indicates that consistent and effective implementation of the transfer pricing documentation standards, particularly the CbC report, is essential.

Therefore, countries participating in the OECD/G20 BEPS Project agreed on the core elements of the implementation of transfer pricing documentation and CbC reporting.

This agreement calls for the master file and the local file to be delivered by MNEs directly to local tax administrations.

CbC reports should be filed in the jurisdiction of tax residence of the ultimate parent entity and shared among jurisdictions through automatic exchange of information, pursuant to government-to-government mechanisms such as:

  • 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?

Action 13 had two primary goals:

  • 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?


The OECD had set out the three-tiered approach in its draft September 2014 Action 13 report, so there were no surprises in the Final Report.

Is there any interaction between this action and the others?

The CbC template will be used as a risk assessment tool by tax authorities.

It is possible that any inconsistencies in the information provided could raise questions in the authorities’ minds as to whether inappropriate tax planning has taken place, so one could say the template might provide an audit roadmap for the tax authorities to look into issues addressed under other BEPS action items.

Regarding transfer pricing documentation, the information to be included in the master and local files relates to the substantive changes developed under Actions 8–10 on aligning profits with value creation.

The master/local file information is intended to provide tax authorities with details on issues such as intangibles, the functions of asset-owning entities, and risk allocation.

Rulings, which are substantively addressed under Action 5 (Harmful Tax Practices), will be provided in the master and local files (a summary of the ruling in the master file, and a copy of the full text in the local file).

Have any countries made specific comments in relation to this action?

Throughout the process, there was much controversy and debate on whether the data reported on the CbC templates should be made public.

While some countries and various nongovernmental organizations pushed for making the data public, other countries argued that the data should be shared only with tax authorities to protect commercially sensitive information.

The OECD ultimately decided that CbC reports should remain confidential, and chose a mechanism under which CbC reports will be turned over to the tax authority in the country of the ultimate parent company.

That will enable countries to stop exchanging information with countries about which they have confidentiality concerns.

Unsettled question

In the European Union, the question of whether CbC data should be publicly disclosed has not yet been resolved.

While the European Parliament has been pushing to extend public CbC reporting obligations (which are already imposed in the EU on the banking sector and logging and extractive industries) to certain multinationals in other industries, a proposed CbC reporting directive released by the European Commission on 28 January 2016 would not require the public disclosure of CbC reports.

However, the Commission noted that the proposal does not preclude it from deciding in the future to propose public disclosure obligations on companies.

The Commission is currently carrying out an impact assessment to determine whether multinationals should be required to publicly disclose certain information on a CbC basis.

The Commission expects to finalize the impact assessment and announce a decision on the matter in spring 2016.

Concerns about misuse

Aside from the public disclosure issue, some governments still have concerns that other tax authorities could misuse the information, for example by leaking it to the press or basing transfer pricing adjustments on the data.

The OECD’s US delegate, Robert Stack, Treasury Deputy Assistant Secretary (International Tax Affairs), said in public comments after the Final Reports were issued that potential misuse of CbC data is “absolutely something we’re going to be on the lookout for, if countries are going to take things like head count and make assumptions about allocable profit.”

Stack said the US would be “willing and able” to suspend information exchange with countries that misuse data taken from CbC reports. 

What’s going to happen next, and how uniform might implementation be?

At least a dozen countries introduced legislation in 2015 to implement the new transfer pricing documentation and CbC requirements.

Interestingly, the transfer pricing documentation recommendations also seem to have been picked up by a number of non-OECD countries, providing them with a mechanism to bring themselves into greater alignment with OECD members.

In 2016, we are likely to see a steady drumbeat of countries proposing and implementing legislation as well as signing competent authority agreements to provide the legal basis for exchanging CbC reports.

Although the countries participating in the BEPS project committed to the consistent implementation of Action 13, we have already seen some variations in the way that countries are setting out the requirements on issues such as timing, materiality thresholds and definition of terms.

Uncertainty and confusion

These issues have the possibility of creating uncertainty for reporting businesses.

In addition, the secondary reporting mechanism is an issue that could create confusion.

Some MNEs may believe that if their ultimate parent country does not introduce CbC reporting that the company does not need to worry about CbC reporting in that jurisdiction.

However, even if that country does not introduce it, the company may still be subject to CbC reporting because other countries will likely have a secondary reporting mechanism in place, requiring CbC reporting for the full group including the ultimate parent.

Many commentators foresee countries pushing for more information, either broader or deeper information at the entity level when Action 13 receives a full review in 2020.

When asked about this in an October 2014 interview with EY, Josephine Feehily, who was at that time Chair of the Irish Revenue Commission and Chair of the OECD’s Forum on Tax Administration, stated that: “Whether what is currently envisaged under CbC will whet administrations’ appetite for more information will depend on what transpires from the analysis of the data that is received in the first offering and their ability to leverage the data. But I think you are right to ask the question (of whether tax administrations will push for entity level reporting), and I think that question will be asked when the time for review comes around.”

What are the potential impacts on business?

For CbC reporting, companies should now be doing readiness assessments to see whether they have the data that will be required and whether they are able to efficiently source such data from their systems.

Companies should also review the data carefully to determine whether any of the information could be misinterpreted by the tax authorities, or whether the data may need to be explained either in Table III of the CbC template or in the transfer pricing documentation.

Our 2015 report titled A new mountain to climb: tax reputation risk, growing transparency demands and the importance of data readiness4provides detailed analysis and guidance that companies may wish to consider in fulfilling these two important activities.

Divvying up the work

Many companies are addressing their CbC reporting readiness by splitting the work stream into two functions — one focusing on the data availability, the other on the substance of the content. Business may also wish to consider organizing their project team into one in which the members are fully up to speed on both functions.

This will enhance the team’s effectiveness and prevent discordance.

For transfer pricing documentation, companies should perform a gap analysis of what information they already have for the new transfer pricing documents, in particular for the master file, and what they will need to obtain.

Proceeding with care

Companies should also give very careful thought to the structure they choose for the master file, including definitions and what level of aggregation to use.

The choice of structure will be critical; amending the structure down the road could be seen as a red flag to tax authorities, potentially triggering an audit or other scrutiny and enquiries.

Most importantly, companies should not take a “sit and wait” approach.

While the 31 December 2017 date for filing the first CbC reports may seem far off, companies should already be preparing to implement the Action 13 requirements.

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.

This article was first published in EY´s Tax Policy and controversy briefing 17


Ernst & Young Belastingadviseurs LLP, Transfer Pricing, Rotterdam:

Ronald van den Brekel           

+31 88 4079016



Ernst & Young Advisory Services (Pty) Ltd., Transfer Pricing, Johannesburg:

Michel Verhoosel

+27 11 502 0392



Ernst & Young LLP, Transfer Pricing, New York:

Tatyana Pashova

+ 1 212 773 4830



Ernst & Young LLP, Transfer Pricing, Washington, DC:

Karen Kirwan

+1 202 327 8731


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

Font size


Tax topics >

No filter criteria selected.

Industries >

No filter criteria selected.

Countries >

No filter criteria selected.

 < Close


 < Close


 < Close

Tax topics

 < Close


 < Close


 < Close

0 articles have been saved