The rules are now clear. Every MNE with at least 750 million Euro of revenue in 2015 must prepare Country-by-Country (CbC) reports for the 2016 fiscal year. If the ultimate parent company does not file, then a surrogate or the local entity will most likely be required to comply.
The timeline seems to afford MNEs with plenty of time to comply, but this can be deceptive. Indeed, in most cases MNEs will be required to file a notification by the end of FY 2016 either with the jurisdiction of the ultimate parent or that of local filing or surrogate parent, in order to identify the reporting entity.
The basic question is if an MNE has to file a CbC report in multiple jurisdictions does it need to file the CbC report directly with each local tax authority and in doing so does the CbC report need to be compliant with each local countries’ rules.
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Country-by-country reports should be prepared for the first time for qualifying MNEs fiscal years (FYs) starting on or after January 1, 2016. They should be filed with the relevant national tax administrations by the end of the 12-month period following the end of the relevant FY. Therefore, where the MNE’s FY follows the calendar year, the first CbC report should be filed with the relevant national tax administration by 31 December 2017. If the FY starts after 1 January 2016, the first report should be filed by the end of the 12-month period following the close of the FY. Hence, for an MNE whose FY starts on July 1, 2016, the first report should be filed by June 30, 2018, being by the end of the 12-month period following the end of the FY. For these purposes, the fiscal year of a qualifying MNE refers to the consolidated reporting period for financial statement purposes and not to taxable years or to the financial reporting periods of individual subsidiaries.
The timeline seems to afford MNEs with plenty of time to comply, but this can be deceptive. Indeed, in most cases MNEs will be required to file a notification by the end of FY 2016 either with the jurisdiction of the ultimate parent or that of local filing or surrogate parent, in order to identify the reporting entity. Moreover, they will need to make sure they have the infrastructure in place to comply and would want to verify that by dry runs. Finally, they will need to comply with specific resource and time-costly requirements. For example, the Netherlands requires filing in a specific XML schema, and the MNE will want to make sure that the capability is available at the level of the reporting entity.
Normally, the ultimate parent company of a qualifying MNE must report on behalf of the group. The reporting ultimate parent files the report with the tax authorities of its country of residence. Therefore, in an ordinary situation, Xco, the ultimate parent of MNE Group X and a tax resident of Country X, prepares and files the report with the Tax Authorities of Country X. The authorities of Country X will then exchange the reports with all other eligible countries in which the MNE has a Constituent Entity, being a local entity or permanent establishment.
A qualifying MNE is one which meets a reporting threshold expressed in a monetary value for a given reporting year. The OECD guidance sets the threshold at EUR 750 million in consolidated revenues or its near equivalent in local currency. The threshold is calculated by reference to the fiscal year immediately preceding the reporting year.
Stay tuned for the next blog post where we look at obligations in reporting for MNE’s.
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