What do you see as the main points of agreement coming out of the BEPS discussions this summer on country-by-country reporting and what impact do you hope these will have on the operating environment for multinational businesses?
Pascal Saint-Amans: A template has been agreed on. This will require all multinational countries to report, on an annual basis, six elements of information about every country in which they are operating to every country in which they are operating: turnover, profit, paid taxes, accrued taxes, number of employees, and assets deployed to conduct business activity. It has also been agreed that this information will go to tax administrations only and not to the general public.
This is a massive agreement. We have all 44 of the G20 and OECD countries — 90% of the world economy — agreeing on an equal footing, which I think proves how important it will be. Very simply, the completed template will help to stop aggressive tax planning and change practices that are currently about divorcing the location of business activities from the location of taxable profits.
We’ve come to a point where the international tax framework is used to plan non-taxation, and this will come to an end through the measures we are developing. Tax administrations will be able to identify very clearly, in a single document, whether or not they “smell a rat,” such as where, for example, you have all your profits in a zero-tax jurisdiction where you have no sales, no employees and no assets.
OECD’s Pascal Saint-Amans and EY’s Global Tax Policy Leader, Chris Sanger, spoke at the recent Asia Pacific Tax Symposium in Singapore.
What have been the major stumbling blocks to progress in this area?
The idea of country-by-country reporting has been in the air for some years, but there was no progress because of a lack of strong political support. We got that support in 2013, both at the G8 Leaders’ Summit, which requested a template on country-by-country reporting, and then at the G20.
Once we had the political commitment, it was easier to negotiate. Clearly countries do not have the same views. But they all agreed that the right thing to do was agree on a common template, so that we didn’t end up with a proliferation. That would have been a disaster for the business community and not be helpful for tax administrations either.
This all sounds easy, but it is tedious and extremely complicated to negotiate. Our job is to come to practical solutions, and we’ve done that.
Throughout this process, how would you characterize the attitude of business?
I’m not sure there is a single position from the business community. I’ve perceived mixed feelings including recognition that it is not illegitimate to impose country-by-country reporting, although some don’t like it and have said that as well.
But, all have rightfully indicated that the cost of compliance should be taken into account and flexibility offered so we don’t end up with expensive, inconsistent, or unreasonable mechanisms. We have been extremely sensitive to the compliance costs of companies.
There will be a pretty good level of flexibility in choosing the method of doing country-by-country reporting. Some companies can take a bottom-up approach; others cannot because of the way their accounts are done and the level at which they consolidate data. We leave companies to choose the most efficient, least costly way to report, but they have to stick to it across time.
Director, OECD’s Center for Tax Policy and Administration
Saint-Amans was appointed as Director of the Center for Tax Policy and Administration (CTPA) at the OECD on 1 February 2012. Prior to this, he played a key role in the advancement of the OECD tax transparency agenda in the context of the G20.
What are the next challenges for implementing country-by-country reporting?
In the coming months the technical issues need to be decided, such as whether there should be exemptions for small and medium-sized enterprises and entities which might not be relevant for the exercise.
We will also look at whether companies will fill in the template for every country where they operate or do so once for the tax administration in their headquarters country, and then that tax administration would communicate it automatically to all the others.
An important longer-term challenge is that transparency is great, but it doesn’t mean that the information should be everywhere. It should be just for tax administrations, and we need to make clear and have agreement on the process through which tax administrations will obtain the information.
We have challenges in terms of making sure the information is protected, is held confidentially, and is shared only with tax administrations, but that this process is done in an efficient, timely manner. If the process doesn’t happen quickly, pressure may well grow to make the information public.
This article is included in Tax Insights issue 12 (pdf, 3.26 MB).
DID YOU LIKE THIS ARTICLE?
DID YOU LIKE THIS ARTICLE?
Subscribe to the Tax Insights newsletter for the latest thinking in tax.