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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While the primary mechanism for the preparation and filing of CbC reports is by the ultimate parent entity of the MNE group, the obligation can be shifted from the ultimate parent to another reporting entity (secondary mechanism) in the following 3 situations:
- The ultimate parent entity of the MNE Group is not required to file a CbC report in its jurisdiction of tax residence; or
- The jurisdiction of residence of the ultimate parent entity has an effective international agreement allowing the exchange of tax information with the jurisdiction of the Constituent Entity, but no qualifying Competent Authority Agreement has been concluded between both jurisdictions by the time of filing the CbC report for the reporting FY; or
- Whilst the framework for exchange does exist, there has been a systemic failure by the jurisdiction of tax residence of the ultimate parent entity to exchange CbC reports with the jurisdiction of the Constituent Entity, and that systemic failure was duly notified to the Constituent Entity.
The obligation is shifted to the local Constituent Entity in a given jurisdiction if that Constituent Entity is a tax resident of that jurisdiction and one of the 3 conditions listed above is met. Instead of local filing by one Constituent Entity, the MNE may elect to appoint a qualifying surrogate parent company responsible for the preparation and filing of CbC reports on its behalf. Where the obligation is shifted to a surrogate parent, it would appear that the reporting surrogate should be able to report pursuant to the requirements established under the domestic laws of its country of residence, including with regard to such matters as accounting standards, currency, required data, reporting format or reporting language. The process is rendered yet more complex by the proposed EU rules which, in case of multiple operations within the EU by a non-EU MNE, foresee either the appointment of a qualifying surrogate parent, or the selection of an entity in one EU Member State as the reporting entity whereupon the CbC reports are exchange by the authorities of that EU Member State with all other Member States in which the MNE has an entity or a PE.
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 in terms of applicable tax year (fiscal year for MNE is calendar year but local subsidiary has a June year-end), reporting threshold (local country reporting threshold is 650 million Euros but OECD guidelines is 750 million Euros), items to be reported (local country requires related party interest and royalties to be includes in CbC table 1), currency conversion rules (local country requires currency conversion using local GAAP whereas OECD requirement is average exchange rate), reporting format (local country has a specific form that needs to be filled in) etc. As no clear guidance on these potential mismatches has yet been issued by the jurisdictions requiring CbC reports, MNEs must be prepared to adjust for varying requirements.
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