On December 5, 2016, the OECD released updated guidance on the implementation of country-by-country (CbC) reporting under BEPS Action 13. The OECD also released a database containing information on CbC reporting implementation by various countries to date.
- Transitional filing options for multinational enterprises (MNEs) ("parent surrogate filing").
- The application of CbC reporting to investment funds.
- The application of CbC reporting to partnerships.
- The impact of currency fluctuations on the agreed €750 million CbC reporting filing threshold.
Parent Surrogate Filings
The December 5th guidance adds China, Hong Kong, and Nigeria as countries or regions that intend to have parent surrogate filing available for fiscal periods that begin on or from January 1, 2016. The October 12th guidance listed the following countries or regions that will allow parent surrogate filings for 2016:
The final BEPS Action 13 report recommended that countries or regions implement a legal requirement for CbC reporting with respect to MNEs' fiscal periods commencing on or after January 1, 2016. Where jurisdictions will not be able to implement CbC reporting with respect to the fiscal period commencing from January 1, 2016, this gives rise to a transition issue. In these situations, jurisdictions may be able to accommodate voluntary filing for Ultimate Parent Entities resident in their jurisdiction. This would allow the Ultimate Parent Entities of an MNE Group resident in those jurisdictions to voluntarily file their CbC report for the fiscal period commencing on or from January 1, 2016 in their jurisdiction of tax residence. This is referred to as "parent surrogate filing." Where surrogate filing (including parent surrogate filing) is available, there are no local filing obligations for the particular MNE in any jurisdiction which otherwise would require local filing in which the MNE has a Constituent Entity (referred to as the Local Jurisdiction), under the following conditions:
- The Ultimate Parent Entity has made available a CbC report conforming to the requirements of the final Action 13 report to the tax authority of its jurisdiction of tax residence by the filing deadline (i.e., 12 months after the last day of the Reporting Fiscal Year of the MNE Group).
- By the first filing deadline of the CbC report, the jurisdiction of tax residence of the Ultimate Parent Entity must have its laws in place to require CbC reporting (even if filing of a CbC report for the Reporting Fiscal Year in question is not required under those laws).
CbC Reporting Notifications
The December 5th guidance also includes a new section on CbC reporting notification requirements, which addresses whether countries or regions can still meet the BEPS Action 13 minimum standard on CbC reporting by extending the notification deadline for fiscal year 2016. The guidance says that countries or regions can extend the notification deadline because MNE groups may not know which entity should be the appropriate CbC reporting entity by December 31, 2016.
The model CbC reporting legislation included in the final BEPS Action 13 report does not provide a specific CbC reporting notification deadline for fiscal year 2016, and countries or regions may extend the 2016 deadline to another date, such as the deadline for filing corporate tax returns.
CbC Reporting Database
The CbC reporting database released on December 5th lists implementation information for various countries or regions:
- Whether the country or region has primary CbC reporting law in effect.
- Whether the country or region has secondary CbC reporting law in effect.
- First fiscal year for CbC reporting rules in effect.
- Whether local CbC reporting filings are required, and if so, the first fiscal year for which they are required.
- Whether the country or region allows surrogate CbC reporting filings.
- Whether the country or region allows parent surrogate filings (countries or regions listed above, as of December 5th).
The October 12th guidance says that the OECD intends to also include information in the CbC reporting database on agreements for each country or region that allow for exchange of CbC report information. One option is exchange of CbC information via the OECD Multilateral Competent Authority Agreement for the automatic exchange of CbC reports (“CbC MCAA”). Under the CbC MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting requirements in place and are a party to the OECD Convention on Mutual Administrative Assistance in Tax Matters.
Among other things, the CbC MCAA provides that CbC report information will be used to assess high-level transfer pricing and other BEPS-related risks, but not as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and full comparability analysis. The information may be used as a basis for further inquiring into the multinational's transfer pricing arrangements in the course of a tax audit. If an adjustment resulting from further inquiries based on the CbC report leads to undesirable economic outcomes, the tax authorities of the jurisdictions of residence of the affected entities must consult each other in attempting to resolve the case.