On September 6, 2017, the OECD’s Inclusive Framework on BEPS released two sets of guidance for tax administrations and MNE groups regarding the implementation and operation of country-by-country (CbC) reporting. See BEPS Action 13.
Existing guidance on the implementation of CbC reporting has been updated to address the following issues:
- Definition of revenues.
- Amount of income tax accrued and income tax paid.
- Short accounting period.
The OECD also released guidance on the appropriate use of the information contained in CbC reports. This includes guidance on the meaning of “appropriate use”, the consequences of non-compliance with the appropriate use condition and approaches that may be used by tax administrations to ensure the appropriate use of CbC reporting information.
The Action 13 final report explains appropriate use as follows: “Jurisdictions should use appropriately the information in the Country-by-Country Report template…. In particular, jurisdictions will commit to use the Country-by-Country Report for assessing high-level transfer pricing risk. Jurisdictions may also use the Country-by-Country Report for assessing other BEPS-related risks.
The guidance provides a checklist for jurisdictions to determine whether they are effectively implementing the appropriate use of CbC information. The checklist includes the following questions:
- Do the multilateral and/or bilateral competent authority agreements concerning CbC Reporting signed by your jurisdiction include the appropriate use of information contained in CbC Reports, as a condition of obtaining and using CbC Reports?
- Does your tax authority have a clear written policy in place governing the use of CbC Reports, including guidance on appropriate use?
- Is this policy effectively communicated to all staff likely to have access to CbC Reports in the course of their work?
- Is the use of CbC Reports controlled or monitored to ensure appropriate use, which may include: i) imposing restrictions on access to CbC Reports, and/or ii) ensuring that appropriate use is adequately evidenced?
- Is guidance or training provided to appropriate tax authority staff in your jurisdiction that clearly sets out their commitments: i) to notify the Co-ordinating Body Secretariat (for exchanges pursuant to the multilateral CAA) or other competent authority (for exchanges pursuant to the model bilateral CAAs) immediately of any cases of non-compliance with the appropriate use condition; and ii) to promptly concede any competent authority proceeding that involves a tax adjustment using an income allocation formula based on CbCR information?
- Are there measures in place to ensure controls are reviewed and updated as required, and the outcomes of these reviews documented?