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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Until the last week of January 2016, only 9 jurisdictions had implemented Country-by-Country (CbC) reporting requirements under domestic law from 2016: Australia, Denmark, France, Ireland, Italy, Mexico, Netherlands, Poland and Spain. Therefore, every MNE which meets the threshold (EUR 750 million in 2015, varies by jurisdiction) and has an entity or a permanent establishment in any of those countries, is required to prepare and file CbC reports, unless a temporary exemption is applied for and granted as can be the case for example in Australia. Then the end of January saw an exponential acceleration in the roll out of CbC reporting.
First, 31 countries met at the OECD Paris headquarters on January 27 to sign the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country (CbC) reports. The initial signatories were joined soon after by Senegal, which signed the MCAA on February, 4. Under the MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting requirements in place and are a party to the OECD Council of Europe Convention on Mutual Administrative Assistance in Tax Matters. A condition for signing the MCAA is that the participating countries have notified the OECD secretariat that they have in place or will introduce CbC reporting requirements for the 2016 fiscal year. Besides the 9 countries which had already introduced CbC reporting before signing up to the MCAA, an additional 23 have committed to introducing a CbC reporting requirement effective for FY 2016. These include, amongst others, Chile, Costa Rica, Japan, Malaysia, Nigeria, Norway, South Africa and Switzerland.
One day later, the European Commission presented a package of measures targeted at corporate tax avoidance in the EU, including an amendment to the EU Administrative Cooperation Directive whereby each of the 28 EU Member States will require their ultimate parent companies to file CbC reports for fiscal years starting on or after January 1, 2016. The Directive is now before the European Parliament, and when approved by the Council will need to be transposed into the national laws of the 28 Member States by January 1, 2017 latest. While the Directive is primarily aimed at intra-EU exchange of CbC reports filed by ultimate parent companies resident in the EU, MNEs with non-EU ultimate parent companies are not off the hook. Indeed, an MNE group with 2015 FY revenues in excess of EUR 750 million and an ultimate parent company outside the EU, will be required to file directly in the EU or appoint a qualifying surrogate parent to comply with the obligation, to the extent the jurisdiction of the ultimate non-EU parent either does not require CbC reporting, does not have a Competent Authority Agreement with the relevant EU Member State, or otherwise fails to effectively exchange CbC reports.
In conclusion, every MNE with 2015 FY revenues in excess of EUR 750 million, a non-EU ultimate parent, and either an entity or a permanent establishment in any of the 28 EU Member States may safely assume that it will be required to file CbC reports for FY 2016, whether with the ultimate parent jurisdiction, directly with an EU Member State, or through a qualifying surrogate parent.
Stay tuned for the next blog post where we analyze the specifics for MNE’s and preparing CbC reports and uncover some of the possible misconceptions.
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