On March 22, 2016, the OECD published its standardized electronic format for the exchange of Country-by-Country (“CbC”) Reports between Competent Authorities, including the CbC extensible markup language (“XML”) schema and related User Guide. Both documents were developed to assist the speedy and consistent implementation of CbC Reporting with a view to accommodating the electronic preparation, filing and exchange of CbC Reports. The CbC XML Schema has been primarily designed to be used for the automatic exchange of CbC Reports between Competent Authorities. However, the CbC XML Schema can also be relied upon by Reporting Entities for transmitting the CbC Report to their tax authorities, provided the use of the CbC XML Schema is mandated under domestic rules. The CbC XML Schema is made up of three sections:
1. Message header, which includes identification of the reporting entity, the taxing jurisdiction receiving the CbC report, the fiscal period to which the CbC report relates, and whether the CbC report is a new report or a correction of a previously filed report;
2. Constituent entity identification, which includes identifying data elements for each constituent entity that are not captured as part of the standard CbC report tables, including Tax ID #, jurisdiction that issued the ID#, and address of each constituent entity; and
3. The main content of the CbC report, including:
- – Table 1 – Overview of allocation of income, taxes and business activities by tax jurisdiction;
- – Table 2 – List of all the Constituent Entities of the MNE group included in each aggregation; and
- – Table 3 – Additional information
The complexities of producing CbC reports in the OECD XML schema is not one to be taken lightly. This, coupled with the other complexities of BEPS compliance, should further discourage MNEs from self-preparation of CbC reports. ONESOURCE can help.
Stay tuned for a series of blogs to be published over the next several weeks that will address the summary below.
- Preparing CbC Reports in the XML Schema proposed by the OECD is complex and requires a fair amount of computer programming
- It is very likely that jurisdictions will adopt the same schema for MNEs to submit their CbC reports but there will be variations to capture country specific requirements
- It is most likely that MNEs will end up having to file CbC reports directly to more than one jurisdiction which will also mean maintaining multiple XML reporting formats
- It is very likely that jurisdictions will modify their CbC XML Schemas year over year
- There is also a notification requirement and this must be satisfied by filing directly with each jurisdiction unlike the CbC report where multiple jurisdictions can receive the CbC report via automatic exchange
- In addition both the CbC report and the notification will have to be e filed meaning some form of machine to machine communication with the filing tax jurisdictions
- The OECD XML schema is asking for additional information compared to what is in the current OECD table 1, 2 and 3 templates including legal entity type which could be an additional data point that can be used by tax authorities to determine if roll up and reclass logic is correctly applied
- The OECD XML schema should also be seen as an opportunity to add explanatory narratives like the use of NOLs and other incentives to explain a low taxes paid and taxes accrued as well as to notify the tax authority as to which jurisdictions should be entitled to receive the CbC report via automatic exchange and which jurisdictions should not since the rules that determine this is complex and constantly evolving as countries continuously implement CbC rules often with retroactive effective dates.