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IMA Tax Policy Blog

Court-By-Country Reporting – A Progress Report

The call for multinational entities to report, in a standardized format, more information about their business activities and tax position in each country in which they have branches and subsidiaries is a key element of the Organization for Economic Cooperation and Development’s (OECD’s) wider base erosion and profit shifting (BEPS) work. This article looks at the background to the development of what become known as country-by-country reporting, and what territories around the world are doing to put these requirements into place at jurisdictional level.

New CbC Reporting Guidance

Additional guidance on CbC reporting rules and countries’ domestic frameworks was released by the OECD on December 5, 2016, in two documents.

The first document comprises details on jurisdictions’ legal frameworks for CbC reporting, including the status of the legislation, first reporting periods, availability of surrogate filing, voluntary filing rules, and whether local filing is required.

The second document sets out additional guidance in respect of cases where a notification to the tax administration may be required to identify the reporting entity within a MNE Group (as provided in Article 3 of the Model Legislation in the BEPS Action 13 Report). The guidance confirms that if such notifications are required, jurisdictions have flexibility as to the due date for such notifications. The OECD said this may be particularly relevant during the transition period where jurisdictions are still completing their implementation of CbC reporting, as MNE Groups may not yet have the necessary information to submit their notifications.

The guidance also confirms that jurisdictions may wish to consider other transitional relief for MNE Groups with respect to these notifications, which would also be consistent with the minimum standard.

It is believed that this reporting threshold will exclude approximately 85 to 90 percent of MNE groups from the requirement to file the CbC Report, but that the CbC Report will nevertheless be filed by MNE groups controlling approximately 90 percent of corporate revenues.

Automatic Exchange Of CbC Reports

To facilitate the implementation of the CbC Reporting standard, the BEPS Action 13 report includes a CbC Reporting Implementation Package which consists of model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the CbC Report in its jurisdiction of residence including backup filing requirements. It also mentions three model Competent Authority Agreements that could be used to facilitate implementation of the exchange of CbC Reports, respectively based on the following mechanisms:

  • The Multilateral Convention on Administrative Assistance in Tax Matters;
  • Bilateral tax conventions; and
  • Tax Information Exchange Agreements.

The Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”), by virtue of its Article 6, requires the Competent Authorities of the Parties to the Convention to mutually agree on the scope of the automatic exchange of information and the procedure to be complied with. Against that background, the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the “CbC MCAA”) has been developed, based on the Convention and inspired by the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (the “CRS MCAA”) –  concluded in the context of the implementation of the Common Reporting Standard. In addition, two further model competent authority agreements have been developed for exchanges of CbC Reports, one for exchanges under Double Tax Conventions and one for exchanges under Tax Information Exchange Agreements.

The purpose of the CbC MCAA is to set forth rules and procedures as may be necessary for Competent Authorities of jurisdictions implementing BEPS Action 13 to automatically exchange CbC Reports prepared by the Reporting Entity of an MNE Group and filed on an annual basis with the tax authorities of the jurisdiction of tax residence of that entity with the tax authorities of all jurisdictions in which the MNE Group operates.

In March 2016, the OECD released its standardized electronic format for the exchange of CbC Reports between jurisdictions – the CbC XML Schema – as well as the related User Guide.

As at January 26, 2017 a total of 57 countries had signed the MCAA for the automatic exchange of CbC reports.

Jurisdictional Developments

The remainder of this article recounts how CbC reporting requirements are being implemented into national law in various key jurisdictions.

United States

Final regulations for the CbC reporting requirement were published in June 2016, and the US Internal Revenue Service (IRS) issued an early release of draft instructions for Form 8975, Country-by-Country (CbC) Report, in February 2017. The form provides for annual reporting by the US ultimate parent of a multinational enterprise group with revenue of USD850m or more in the preceding accounting year.

The filer must list the US MNE group’s business entities, indicating each entity’s tax jurisdiction (if any), country of organization and main business activity, and provide financial and employee information for each tax jurisdiction in which the US MNE does business. The financial information includes revenues, profits, income taxes paid and accrued, stated capital, accumulated earnings, and tangible assets other than cash.

Form 8975 and its Schedules A (Form 8975) must be filed with the IRS with the income tax return of the ultimate parent of a US MNE group for the tax year in or within which the reporting period covered by the Form 8975 ends. The first required reporting period for an ultimate parent is the 12-month reporting period that begins on or after the first day of a tax year of the ultimate parent that begins on or after June 30, 2016.

However, the IRS has recognized that a Form 8975 can also be filed for earlier periods if, in accordance with OECD recommendations, local CbC reporting from foreign subsidiaries of US MNE groups is required by other jurisdictions for periods that begin on or after January 1, 2016.

Beginning on September 1, 2017, Form 8975 may therefore be filed for an early reporting period at the same time as the income tax return for the taxable year of the US MNE group’s ultimate parent within which the early reporting period ends.

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