On May 18, 2018, the Swedish tax authority (Skatteverket) issued guidelines, clarifying its use of country-by-country (CbC) report information.
The guidelines are discussed below.
On September 6, 2017, the OECD released guidance on the appropriate use of information contained in CbC reports, such as 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 report information.
The ability of a jurisdiction to obtain and use CbC reports is conditional upon its appropriate use of the information. The OECD says that appropriate use is restricted to:
- High-level transfer pricing risk assessment – this should not by itself be used as a basis for proposing changes to transfer prices or adjusting a taxpayer’s income using global formulary apportionment. However, the OECD says there is nothing to prevent a tax authority from using CbC report information in planning a tax audit or as the basis for making further inquiries into the group’s transfer pricing arrangements or other tax matters in the course of an audit.
- Assessment of other BEPS-related risks – this refers to the high-level assessment of tax risks that may result in the erosion of a country’s tax base. In practice, while CbC reports may be used to identify indicators of possible tax risk, it will usually only be possible to understand the arrangements giving rise to that risk once further inquiries have been conducted.
- Economic and statistical analysis, where appropriate.
Under the recitals to the multilateral and model bilateral competent authority agreements (CAAs), jurisdictions indicate that they have, or expect to have, in place by the time the first exchange of CbC reports takes place, appropriate safeguards to ensure that information received is used for the purposes of assessing high-level transfer pricing risks and other BEPS-related risks, as well as for economic and statistical analysis, where appropriate.
The OECD guidance notes that where a tax authority proposes tax adjustments based solely on information contained in a CbC report, there is a significant risk that these adjustments will be based on inaccurate assumptions. This could result in an incorrect tax assessment being issued, and possibly double taxation.
Approaches to ensure appropriate use of CbC report information
As a checklist, the OECD guidance says a jurisdiction should be able to answer yes to six basic questions, or should expect to be able to do so before the first exchange of CbC reports takes place.
- Do the multilateral and/or bilateral CAAs 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: (1) imposing restrictions on access to CbC reports, and/or (2) 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:
- 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.
- To promptly concede any competent authority proceeding that involves a tax adjustment using an income allocation formula based on CbC report information?
- Are there measures in place to ensure controls are reviewed and updated as required, and the outcomes of these reviews documented?
Section 5.2 of the guidelines says that Swedish law explicitly allows for the following use of CbC report information by the Skatteverket:
- Overall analysis of transfer pricing risks, and other risks of tax base erosion. This includes assessing the risk that any entity in a multinational group does not comply with current Swedish transfer pricing rules.
- Economic and statistical analysis.
Section 3 of the guidelines says that the Skatteverket does not intend to make corporate tax decisions based solely on the information in CbC reports. Instead, the Skatteverket intends to base any such decisions on additional corroborating information.
Section 4 says that Sweden intends to treat all CbC report information as confidential, whether filed directly with the Skatteverket, or obtained from other countries via automatic exchange.
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