January 13, 2020
OECD releases additional guidance on Country-by-Country Reporting and a summary of related notification requirements
The Organisation for Economic Co-operation and Development (OECD) has released additional guidance1 which is designed to give greater certainty to tax administrations and multinational enterprise (MNE) groups regarding the implementation and operation of Base Erosion and Profit Shifting (BEPS) Action 13 Country-by-Country (CbC) Reporting (CbCR). The new CbCR guidance (the Guidance) makes it clear that, under the BEPS Action 13 minimum standard, the automatic exchange of CbC reports filed under local filing rules is not intended.
The OECD also posted on its website a summary of CbCR notification requirements (the Summary) in Inclusive Framework member jurisdictions, to help MNE groups comply with the notification requirements in those jurisdictions where the MNE has constituent entities.
On 5 October 2015, the OECD released its final report on Action 13 (the final report), Transfer Pricing Documentation and Country-by-Country Reporting,2 under its BEPS Action Plan. The report introduced a standardized, three-tiered approach to transfer pricing documentation for MNEs, consisting of a master file, a local file, and a CbC report.
To give greater certainty to tax administrations and MNE groups on the implementation and operation of CbCR rules, the OECD has been issuing additional guidance since June 2016.3 The OECD updated the Guidance in December 2016,4 April 2017,5 July 2017,6 September 2017,7 November 2017,8 February 2018,9 September 201810 and November 2019.11
The OECD has also released various other materials to support jurisdictions introducing CbCR. In September 2017, for example, the OECD issued two handbooks (one on the effective implementation of CbCR and another on effective tax risk assessment for tax administrations),12 and a report on the appropriate use of information contained in CbC reports.13 In November 2019, the OECD published a summary of common errors made by MNE groups in preparing CbC reports, and in December 2019, a summary of CbCR notification requirements.
Updated guidance on the implementation of CbCR
The Action 13 Report provides that a constituent entity of the MNE group other than the ultimate parent entity (UPE) or a surrogate entity may be required to file a CbC report directly with the tax authority in its residence jurisdiction (local filing) but only where one or more of the following applies:
The new Guidance addresses whether the automatic exchange of CbC reports filed under local filing rules is intended under the BEPS Action 13 minimum standard. To this end, question 4.4 has been added to section V of the Guidance (issues relating to the sharing mechanism of the CbC report (Exchange of Information, surrogate filing and local filing)).
According to the Guidance, the minimum standard under Action 13 does not anticipate the automatic exchange of CbC reports filed in accordance with local filing rules. The automatic exchange of locally filed CbC reports could, the Guidance says, result in the exchange of multiple CbC reports of the same MNE group, which the report further notes “could potentially overwhelm and confuse tax administrations.”
It is noted, however, that this guidance does not prevent the automatic exchange of locally filed CbC reports within the European Union (EU) under Directive 2016/881/EU. Also, this guidance does not concern the spontaneous exchange of CbC reports or the exchange of CbC reports on request.
The OECD in December 2019 also posted a summary of CbCR notification requirements in Inclusive Framework member jurisdictions, with the objective of helping MNE groups to comply with notification requirements in the jurisdictions where they have constituent entities.
The summary includes information on 89 jurisdictions,14 of which 69 have a notification requirement in place, and includes the following information for each jurisdiction:
Since the OECD released the Action 13 final report, there has been ongoing and increasing activity around CbCR requirements. The Guidance marks the OECD’s 10th release of practical questions and responses that have arisen concerning the implementation and operation of CbCR.
The Guidance will continue to be updated with any further output that may be agreed by the inclusive Framework on BEPS. Additionally, the release of the Summary of CbCR notification requirements is a positive development and will help MNE groups to comply with these requirements. Taxpayers should embed this new information into their existing compliance and reporting processes, and well as continue to closely monitor the OECD Guidance, including how jurisdictions implement or react to it.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Belastingadviseurs LLP, Amsterdam
Ernst & Young LLP (United States), Global Tax Desk Network, New York
Ernst & Young LLP (United States), Washington, DC