On April 13, 2016, Switzerland’s Federal Council announced that it initiated a consultation on the OECD Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reports (the “MCAA”) that the government signed on to with 30 other countries on January 27, 2016. The MCAA describes the type of information to be exchanged between Switzerland and other countries with respect to the activities of certain multinational enterprises (MNEs). The MCAA has not yet been submitted to the Swiss Federal Assembly for consideration.
The MCAA consultation will run through July 13, 2016, and includes an explanatory report, proposed country-by-country reporting (CbCR) legislation, proposed MCAA legislation, and a supporting letter by the Federal Council.
The CbC reporting legislation generally aligns with the OECD BEPS Action 13 recommendations, but it does not propose to adopt master and local filing. The CbC report would be filed in English, German, French or Italian within 12 months following the end of the reporting period. Penalties for non-compliance would amount up to CHF 250,000.
The press release states that CbCR will likely enter into force in Switzerland in 2018, with the first automatic exchange of CbC information to take place in 2020. However, taxpayers would be permitted to voluntarily file CbC reports before 2018, which Switzerland would then transmit to other participating countries, while maintaining confidentiality of the CbC data.
Background on CbCR. In 2015, the OECD recommended a new three-tiered standardized approach to transfer pricing documentation under Action 13 of the BEPS project. The approach was formally endorsed by G20 leaders in the same year.
Referred to as a “minimum standard,” the recommended approach would require MNEs with annual consolidated group revenue equal to or exceeding €750 million to prepare and submit an annual CbC report to:
- Report the number of employees, stated capital, retained earnings, and tangible assets in each jurisdiction where business is conducted;
- Identify each entity within the group doing business in a particular jurisdiction; and
- Provide details of the business activities of each entity.
The OECD recommended that the annual CbC reports are filed in the jurisdiction of the tax residence of the ultimate parent entity and shared between jurisdictions through the automatic exchange of information on a government-to-government basis under one of the following tax agreements:
- The Multilateral Convention on Mutual Administrative Assistance in Tax Matters;
- Bilateral tax treaties; or
- Tax information exchange agreements (TIEAs).
The April 13, 2016 press release states that Switzerland’s Parliament adopted the Convention on December 18, 2016, but it has not yet been ratified.
The Convention mentioned above, jointly developed by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010, is the most comprehensive multilateral instrument for addressing tax cooperation between jurisdictions, according to the OECD.
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