On June 8, 2015 the Organisation for Economic Co-operation and Development (OECD) released a package of measures for the implementation of a new CbC Reporting plan developed under Action 13 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. Following the September 2014 report and Guidance on the Implementation of Transfer Pricing Documentation and CbC Reporting Proposals in February 2015, the CbC implementation package can assist jurisdictions with the effective local implementation of CbC Reporting and consists of model legislation and three model Competent Authority Agreements.
BEPS 13 Project: CbC Reporting
A key objective of the BEPS 13 project is to increase transparency through improved transfer pricing documentation standards, including through the use of CbC Reporting. CbC Reporting obliges MNEs to provide tax administrations information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group.
The new Implementation Package
Jurisdictions are encouraged to expand the coverage of their international agreements for the exchange of information, which will be an essential and integral part of the implementation and ongoing monitoring process regarding CbC Reporting. The new Implementation Package contains model – local – legislation regarding the filing of CbC Reports and three Model Competent Authority Agreements to facilitate the exchange of CbC Reports among tax administrations.
Model - local -legislation
- The model – local – legislation is to be used by countries to require the ultimate parent entity of an MNE group to file the CbC Report in its jurisdiction of residence.
- The model legislation provides for backup filing requirements: a) when the jurisdiction of the ultimate parent entity does not require filing, b) when the jurisdiction of the ultimate parent does not have a Qualifying Competent Authority Agreement, or c) in case there has been a “Systematic Failure” in the jurisdiction of the ultimate parent entity. In those cases a “Surrogate Parent Entity” can substitute the ultimate parent company and file the CbC Report on behalf of the MNE Group.
- If no (Surrogate) Parent is appointed, local members of MNEs are obliged to file CbC at a local level.
Model Competent Authority Agreements
The three Model Competent Authority Agreements facilitate the exchange of CbC Reports among tax administrations. The model agreements are based on:
- the Multilateral Convention on Administrative Assistance in Tax Matters,
- bilateral (double) tax conventions,
- and Tax Information Exchange Agreements (TIEAs).
The purpose is to set forth rules and procedures to automatically exchange CbC Reports prepared by the Reporting Entity of an MNE Group, and filed in the jurisdiction of the (Surrogate) Parent entity, with the tax authorities of all jurisdictions in which the MNE Group operates. The above items 1) - 3) aim to achieve a global coverage which will not only be limited to OECD member countries.
Countries participating in the OECD/G20 BEPS Project approved the package at the last meeting of the OECD Committee on Fiscal Affairs, held on May 27-28.
The OECD currently has no intention of issuing a further report on BEPS 13 and is leaving the implementation, including the application of any penalties, at the discretion of the local jurisdictions. The OECD does intend to develop an XML Schema and a related User Guide. This is to accommodate jurisdictions to eventually electronically exchange CbC Reports within three months (six months in the first year) after receipt of the CbC information from the MNE.
As outlined in the September 2014 report on BEPS 13, the CbC Report is part of a three-tiered structure, along with a global master file and a local file, which together represent a standardized approach to transfer pricing documentation. The CbC Report is intended to provide tax administrations with relevant and reliable information to perform an efficient and robust transfer pricing risk assessment. The CbC Reporting is subject to a EUR 750 million threshold, which a MNE needs to exceed in terms of consolidated turnover. The implementation of (and thresholds, if any, for) the master and local transfer pricing files are left at the discretion of the individual jurisdictions.
The Dutch Ministry of Finance already publicly announced that it supports the OECD transparency initiatives, but also the EU initiatives on transparency. Whereas BEPS 13 only prescribes exchange of information between tax administrations, the EU initiatives are aimed at sharing information with the general public. As such, the call for increasing tax transparency is being echoed around the globe. Therefore, MNEs need to consider their transfer pricing policies and documentation in order to ascertain whether they are ready to respond to the new world of transparency.
In order to respond to possible risks and opportunities arising from the transparency entailed by BEPS 13, Meijburg & Co has developed the Diagnostic Review to assist MNEs in assessing their BEPS readiness.