Public Country-by-Country Reporting; Taxpayers' Rights

Appropriate Use of Country-by-Country Reports

The OECD has now published Guidance (available here) on the appropriate use of Country-by-Country Reports (‘CbCRs’) by national tax authorities. This is in response to some valid MNE concerns that tax authorities may misuse CbCRs. “Appropriate use” is clarified as being for (i) high-level transfer pricing assessment, (ii) assessment of BEPS-related risks, and (ii) economic or statistical analysis.

Tax authorities may use CbCR information to plan tax audits or to determine if further enquiries are required. However, for example, it is not permitted that CbCRs are used as the basis of a transfer pricing assessment on some formulary apportionment argument. If an MNE successfully demonstrates that such an assessment is only based on its CbCR in place of a full transfer pricing analysis, the tax authority must promptly retract the assessment. The Guidance explains other very valuable safeguards regarding appropriate use and MNEs must familiarise themselves with their rights in this respect in particular as CbCRs are likely to go public in Europe.

Proposed European Directive on making CbCRs public

The European Commission recently proposed a directive to complement CbCRs, which would require the public disclosure of CbCRs on company websites and a central directory for a period of five years. The measure would be applicable to all MNEs within the scope of CbCR that have any business footprint (whether an office, branch or subsidiary) in the EU. The information (eg net turnover, profit/loss, income tax accrued vs paid, description of activities, headcount, assets etc) is to be provided on a per Member State basis, with outside the EU data being aggregated. It is further proposed that the Commission is given powers to require more detailed information regarding activities in countries ‘black listed’ by the EU.

CbCR requirements apply to MNEs with a turnover exceeding €750million. However, the European Parliament is proposing that groups and businesses that exceed two of the following three thresholds are within scope of the European Public CbCR: (i) balance sheet total of €20 million, (ii) net turnover of €40 million, and (iii) 250 employees.

The final text of the proposal is under consideration. A copy is available here.

In a previous Law-Now (available here), we reported that HM Treasury has the ability to issue regulations requiring MNEs to publish their CbCRs.

Base Erosion and Profit Shifting (BEPS) Project

Some other important BEPS outcomes and immediate action items for your business are discussed here.