On November 28, 2017, Italy issued Order 275956 (the “Order”) on country-by-country (CbC) reporting requirements. See BEPS Action 13. The Order implements provisions of the Decree of the Ministry of Economy and Finance of February 23, 2017.
With effect from the tax year beginning on January 1, 2016 or later, CbC reports must be submitted by the resident parent company (or a resident group entity) of a multinational group of companies whose total revenues from the consolidated financial statements are, in relation to the tax period prior to the reporting year, at least €750M, or an equivalent amount in local currency on January 1, 2015, as indicated in the consolidated financial statements for the previous tax period.
The annual CbC report is submitted by the reporting entities within twelve months following the last day of the group’s reporting period. For the first reporting year, the reporting entity with a tax period beginning on January 1, 2016 or later and ending before December 31, 2016 must submit the CbC report by December 31, 2017.
Table 1 of the CbC report must include the following:
- Tax jurisdictions where the group entities are resident for tax purposes or where permanent establishments (PEs) are located.
- Sum of the revenues of all the entities belonging to the MNE group in the relevant tax jurisdiction. Income from extraordinary operations and capital gains derived from the sale of assets are considered. Revenues do not include payments received from other group entities that are considered dividends in the payer’s tax jurisdiction.
- Profits/losses before income taxes of all group entities resident for tax purposes in the relevant tax jurisdiction. This must include all items relating to extraordinary income and costs. Profits/losses of the PE must be disclosed with reference to the tax jurisdiction in which it is located.
- Income taxes paid (on the basis of cash accounting) consisting of the total amount of income taxes actually paid during the relevant tax period by all the group entities resident for tax purposes in the relevant tax jurisdiction.
- Income taxes accrued (current year) consisting of the amount of current taxes accrued on taxable profit/loss for the year.
- Declared capital consisting of the sum of the share capital and capital reserves of all group entities resident for tax purposes in the relevant tax jurisdiction.
- Sum of the undistributed profits at the end of the year of all group entities resident for tax purposes in the relevant tax jurisdiction. With regard to PEs, unallocated profits must be reported by the legal entity to which they belong.
- Total number of employees, on a full-time equivalent (FTE) basis, of all group entities resident for tax purposes in the relevant tax jurisdiction.
- Sum of the net book values of tangible fixed assets, resulting from the balance sheet, of all group entities resident for tax purposes in the relevant tax jurisdiction.
The currency of the amounts disclosed is the currency used by the reporting entity in its consolidated financial statements or financial statements.
Table 2 of the CbC report must include the following:
- List of group entities resident in each tax jurisdiction indicated in Table 1, identifying the name of each group entity resident for tax purposes in the relevant tax jurisdiction.
- Name of the tax jurisdiction where the group entity was established, if different from the jurisdiction of tax residence.
- Nature of the principal activity or activities performed by each group entity in the relevant tax jurisdiction.
Table 3 of the CbC report must indicate, in addition to the name of the multinational group, the reference tax period, the source of the data and any further information or summary explanation that the company considers necessary.
Entities submitting the CbC report must use the same data sources each year, including from: (i) Consolidated financial statements; (ii) individual financial statements prepared by group entities; (iii) related internal accounting; or (iv) regulatory accounting. Where a data source is changed from one year to another, the reporting entities must state the reasons for this change and its consequences in Table 3. Where the reporting entity must use multiple data sources, the reasons for this choice should be indicated in Table 3. It is not necessary to reconcile the reporting data with the consolidated financial statements, or make adjustments for differences among the accounting principles applied in the various tax jurisdictions.
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