Tax & Accounting Blog

CbC Report Formats – Does One Size Fit All?

BEPS, Blog, ONESOURCE September 12, 2017

Now that most MNEs are approaching their first filing deadline for their Country-by-Country reports, the question arises whether all implementing jurisdictions are requiring the report to be generated and submitted in the OECD XML Schema when filing directly with the tax authority. This would make the most sense, given that the tax authority is in turn required to use the OECD  XML Schema to automatically exchange reports with other jurisdictions that have bilateral or multilateral CbC competent authority agreements in place.

In practice, however, it appears that the CbC reporting formats vary widely by country. This includes excel formats (e.g., China), various PDF formats (e.g., Canada, France), .txt formats (e.g., Brazil), modified XML Schema formats (e.g., Netherlands, UK, US). Further, there are several countries that have not put out a format as yet, but maintain that it will not be the OECD XML Schema (e.g., Mexico).

A reasonable question to ask is should an MNE really need to worry about reporting formats in more than just their ultimate parent jurisdiction. After all, in an ideal world the CbC report is meant to be filed with the tax authority of the ultimate parent jurisdiction and that report will then be automatically exchanged with all other constituent entity jurisdictions entitled to receive the CbC report. However, there are several reasons why this may not be the case.

The ultimate parent jurisdiction does not have a CbC competent authority agreement with all the other jurisdictions that require CbC reports. For example, the US to date has entered into just 20 bilateral agreements and has plans to enter into an additional 20. Also, among those countries relying on the multilateral CbC exchange agreement (65 in total), it is still not clear whether a number of those exchange relationships have even been activated and, in certain cases, whether the exchange will be effective for the 2016 reporting year.

In addition, there will be issues if an MNE is using voluntary parent filing (e.g. US MNEs with fiscal years starting before June 30, 2016) and has failed to timely file the required notifications with the local jurisdictions. It is also an open question whether secondary local filing will be required if an MNE parent is filing under normal conditions, but the foreign jurisdiction notification requirements were not met.

Let’s take the case of a US MNE with a calendar year end that is filing in the US, using the Netherlands as a surrogate for those jurisdictions without exchange with the US,  and filing locally in Ireland due to a failure to provide the proper notification by the deadline (December 31, 2016). Can the XML that is generated for the US be automatically converted into the XML formats required by the Netherlands and Ireland? The short answer is, only if the software solution supports all three country schemas precisely and allows automatic conversion from one format to another.

Some of the other challenges related to varying CbC report formats include:

  • Use of different country codes, e.g., for US format, the country code for China is CH, but for OECD,  CH is the country code for Switzerland;
  • Illegal characters, e.g., commas and periods not allowed in name or address in one XML schema but allowed in another;
  • Varying character count limits in various fields depending on the  XML schema;
  • Various mandatory fields required in addition to the fields in the OECD table 1, 2 and 3 templates, e.g., TIN mandatory for reporting entity in one XML schema but not for another, certain address fields mandatory for one schema but not for another, and the list goes on and on.

Features of an ideal solution [1]

  • Ability to generate multiple country compliant CbC forms from one input
  • User-friendly format showing all required data in a form view, including UI hinting for mandatory warnings on missing data, illegal characters,  character limits, etc. with the ability to fix the issue in line
  • Ideally, automatic stripping of illegal characters to continue the theme of user friendliness
  • Validation warnings in layman’s terms in advance of the form being filed so there are no issues with the tax authority rejecting the report
  • Automatic generation of transmittal-type letters that indicate the jurisdictions entitled to receive a CbC report through automatic exchange, including for reports filed by ultimate parent, reports filed by surrogate parent, and reports filed locally by non-parent constituent entities

 

[1] BEPS Action Manager can generate multiple country compliant CbC reports with all these features. Countries supported include US, Brazil, Netherlands, Australia, Bermuda, Germany, Ireland, Japan, UK and all countries following the OECD XML schema. Support for Canada, France, Spain and any other country not following the OECD XML schema will be added in the next several weeks.

 

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