In the framework of BEPS Action 13, the OECD delivered guidance on transfer pricing documentation and country-by-country (“CbC” hereafter) reporting in September 2014. For the records, CbC reporting will consist, for Multinational Enterprises (“MNEs”), in providing tax administrations with information relating to the global allocation of the MNE’s income, taxes paid, along with some activity indicators.
On 6 February 2015, the OECD issued practical guidance for Member States in that context. Guidance relates to (I.) the scope of the CbC reporting requirement, (II.) the date when the CbC reporting should start, (III.) the mechanisms to be used by Member States for exchanging CbC reports and (IV.) the obligations imposed on Member States in that framework.
It is to be noted that very few MNEs will be required to file CbC report by the end of 2017, OECD says. A comprehensive implementation package will be released in April 2015. It will nevertheless be up to the Member States to put CbC reporting in force in their own jurisdictions.
I. At least 85% of MNEs to be exempted
The OECD mentioned that all MNEs should be required to file the CbC report every year. However, the Organisation proposed a significant exemption. MNEs with annual consolidated revenues in the immediately preceding fiscal year of less than €750 million should be exempted. In practice, MNEs with consolidated turnover of less than €750 million by 31 December 2015 would not have to file the CbC with respect to fiscal year ending on 31 December 2016. Given this threshold, OECD stressed out that 85% to 90% of MNEs should be out of the scope of the CbC. OECD strongly recommends that no other exemption is granted by Member States apart from the general exemption aforementioned.
II. First CbC reports to be filed by the end of 2017
It is recommended that no CbC reporting should be required prior to fiscal years beginning on or after 1st January 2016. In addition, MNEs should benefit from a one year period to file their CbC report. In practice, for a fiscal year closed on 31 December 2016, the CbC reports should be filed no later than 31 December 2017 (if the MNE exceeded the €750 million threshold for fiscal year closed on 31 December 2015).
III. A single filing for the whole group
The OECD will assist countries in implementing the new transfer pricing documentation standard, including CbC reporting, within local regulations. It is proposed that only ultimate parent entities of MNE would have to prepare and file the CbC report in their jurisdiction of residence. The guidance confirms that the primary method for sharing such reports will be government-to-government mechanisms. By way of exception, in case a jurisdiction fails to provide information, local filing at the level of the subsidiary is recognized as legitimate. Further guidelines will be released in April 2015. Regarding the above, exchanges in that framework should start in 2018.
IV. Guarantees for tax payers
Practitioners and MNEs have expressed strong concerns about potential misuses or publicity of CbC reports. Countries participating in the OECD works agreed on the need to guarantee consistency, confidentiality and appropriate use of the CbC reports. In such extent, the OECD mentioned that jurisdictions should implement and enforce legal protections of the confidentiality of the reported information. Furthermore, they must accept that only MNEs’ ultimate parent entities prepare and file the CbC report. Finally, CbC report must only be used for assessing high-level transfer pricing risk, and other BEPS-related risks. It is stressed that Member States must not propose adjustments based on an income allocation formula on the ground of information contained in the CbC report.
CMS Bureau Francis Lefebvre Tax Intelligence Department