In September 2014 the Organisation for Economic Co-operation and Development (OECD) released recommendations for guidance on transfer pricing documentation and country-by-country reporting as one of the initial seven deliverables prepared under the Base Erosion and Profit Shifting (BEPS) Action Plan (BEPS Action 13).
A key objective of the BEPS 13 project is to increase transparency through improved transfer pricing documentation standards, including through the use of a country-by-country reporting template that requires multinationals to provide tax administrations with, for example, information on revenues, profits, taxes accrued and paid, along with certain activity indicators.
On February 6, 2015 the OECD announced that the OECD and G20 countries had reached agreement on an implementation package for country-by-country reporting in 2016 and a related government-to-government exchange mechanism to start in 2017.
Implementation package CbC reporting
Timing of preparation and filing of the CbC Report
The OECD has recommended that the first CbC Reports to be filed by multinational enterprises (MNEs) should be for fiscal years beginning on or after January 1, 2016. MNEs will be allowed one year from the close of the fiscal year to which the CbC Report relates to prepare and file the CbC Report. This means that the first CbC Reports should be filed by December 31, 2017. For MNEs with a fiscal year ending on a date other than December 31, the first CbC Report should be filed in 2018, 12 months after the close of the relevant MNE fiscal year.
Which MNE groups are required to file a CbC Report?
The OECD and G20 require country-by-country reporting by multinationals whose consolidated group turnover was EUR 750 million or higher in the immediately preceding fiscal year. This revenue threshold will be reconsidered in the 2020 OECD/G20 review. No other exemptions from filing the CbC Report should be adopted.
Confidentiality and exchange of information
Tax administrations will begin exchanging the first country-by-country reports in 2017. Countries have emphasized the need to protect tax information confidentiality. The guidance confirms that the primary method for sharing such reports between tax administrations is through the automatic exchange of information, pursuant to government-to-government mechanisms such as bilateral tax treaties, the multilateral convention on mutual agreement assistance, or tax information exchange agreements. In certain exceptional cases, secondary methods, including local filing, may be used.
Action 13 of the BEPS Action Plan calls for a review of the existing transfer pricing documentation rules and the development of a template for country-by-country reporting of income, taxes, and economic activity for tax administrations.
Mechanisms will also be developed to monitor whether jurisdictions comply with their commitments and to monitor the effectiveness of the filing and dissemination mechanisms. Participating jurisdictions should endeavor to introduce the necessary domestic legislation in a timely manner. They are also encouraged to expand the coverage of their international agreements on the exchange of information. The implementation of the package will be monitored on an ongoing basis. The outcome of this monitoring will be taken into consideration in the 2020 review.
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