Executive summary

On 18 October 2021, the Organisation for Economic Co-operation and Development (OECD) released the compilation of the outcomes of the fourth phase of peer reviews (the Compilation) of the minimum standard on Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting) of the Base Erosion and Profit Shifting (BEPS) project.

According to the executive summary accompanying the Compilation, over 100 jurisdictions have introduced legislation to impose a filing obligation for Country-by-Country (CbC) Reporting (CbCR) on multinational enterprise (MNE) groups, covering almost all MNE groups with consolidated group revenue of at least €750 million. Where legislation is in place, the implementation of CbCR has been found to be largely consistent with the Action 13 minimum standard. However, 33 jurisdictions have received a general recommendation to either put in place or finalize their domestic legal or administrative framework. Of the jurisdictions that have already introduced the legislation, 43 jurisdictions received one or more recommendations to make improvements to specific areas of their framework. Moreover, 83 jurisdictions have multilateral or bilateral competent authority agreements in place, which results in more than 3,000 exchange relationships. In addition, 84 jurisdictions have provided detailed information about the use of CbC reports, enabling the Inclusive Framework to obtain sufficient assurance that measures are in place to ensure the appropriate use.

Further work will continue to monitor the implementation and operation of CbCR and the progress made by jurisdictions to address the recommendations that have been made through the peer review process.

Detailed discussion

Background

In October 2015, the OECD released the final reports on all 15 focus areas of the BEPS Action Plan.¹ Action 13 established CbCR requirements as a minimum standard, which is subject to peer review. On 1 February 2017, the OECD released terms of reference for the peer review of BEPS Action 13 on CbCR (Peer Review Document).² The terms of reference in the Peer Review Document focus on three key aspects of CbCR: (i) the domestic legal and administrative framework; (ii) the exchange of information framework; and (iii) the confidentiality and appropriate use of CbC reports.

The peer review process is a staged approach, which is intended to allow for the early detection of inconsistencies with the minimum standard as well as to provide the opportunity to take action to address inconsistencies. Each phase of the peer review focused on different key aspects of jurisdictions’ implementation. During phase one of the peer review, the review focused on the domestic legal and administrative framework as well as certain aspects of confidentiality. During phase two, the review focused on the exchange of information framework and appropriate use. For phase three and the current phase four, the review covers all three key aspects of jurisdictions’ implementation.

On 23 May 2018, the OECD released the first compilation of annual peer reviews, reflecting the review of 95 jurisdictions that provided legislation or information pertaining to the implementation of CbCR.³ On 3 September 2019, the OECD released the second compilation of annual peer reviews, covering a total of 116 jurisdictions.⁴ Following, on 24 September 2020, the OECD released the third compilation of annual peer reviews, covering a total of 131 jurisdictions.⁵

In addition, on 29 October 2020, the OECD released an updated version of the peer review documents on the BEPS Action 13. The updated peer review documents include the agreed terms of reference containing the evaluation criteria for the minimum standard and the assessment methodology for the peer review process. While the terms of reference have been continued unchanged, the updated peer review documents contain a revised assessment methodology that replaces the original methodology that was agreed by the Inclusive Framework in 2017 and that expired with the completion of the third annual peer review in September 2020.

Annual peer review report on CbCR (Phase four– Compilation)

On 18 October 2021, the OECD released the fourth compilation of annual peer reviews and an accompanying press release. The reviews generally reflect the status of CbCR implementation as of 31 March 2021, with the exception of the information on the exchange of CbC reports, which reflects the status as of 31 December 2020. These peer reviews follow the revised assessment methodology published in October 2020.

The Compilation covers the peer review of 132 jurisdictions participating in the Inclusive Framework.⁶ Eight Inclusive Framework members⁷ were not included in the peer review, either because they joined after 1 December 2020 (at which point it was too late to incorporate them into the current peer review process) or because they opted out of the peer review in accordance with the peer review terms of reference. Jurisdictions opting out of the peer review are required to confirm that they do not have any resident entities that are the Ultimate Parent Entity of an MNE group with revenue above the consolidated revenue threshold, and that they will not require local filing of CbC reports. Each of the jurisdictions reviewed received its own individual report, which together make up the Compilation.

Part A: Domestic legal and administrative framework

The first part of each jurisdiction’s report analyzes whether the jurisdiction has put in place a domestic legal and administrative framework to ensure CbCR by the required taxpayers to the tax administration, and, when applicable, whether the recommendations made in the first annual peer review have been addressed by the assessed jurisdiction or whether the recommendations remain in place because they have not yet been addressed. Part A covers the following: (i) parent entity filing obligation; (ii) scope and timing of the parent entity filing obligation; (iii) limitation on the local filing obligation; (iv) limitation on local filing in the case of surrogate filing; and (v) effective implementation.

According to the executive summary accompanying the Compilation, over 100 jurisdictions have a domestic legal framework for CbCR in place, covering almost all MNE groups with consolidated group revenue at or above the threshold of €750 million. Several jurisdictions have final legislation approved that is awaiting official publication. According to the OECD press release, where legislation is in place, the implementation of CbCR has been found largely consistent with the Action 13 minimum standard.

Of the 132 assessed jurisdictions, 33 jurisdictions received a general recommendation to put in place or finalize their domestic legal and administrative framework, and 43 jurisdictions received one or more recommendations for improvements to specific areas of their framework. This includes amending definitions in the legislation to ensure they are in line with the minimum standard, clarifying and amending the group revenue threshold, and limiting requirements for local filing of reports.

Part B: Exchange of information framework

The second part of each report addresses whether and to what extent jurisdictions have international exchange of information agreements in place that allow for the automatic exchange of CbC reports. This involves reviewing all aspects of exchange of information, including the following: (i) exchange of information framework; (ii) content of information exchanged; (iii) completeness of exchanges; (iv) timeliness of exchanges; (v) process for temporary suspension of exchange or termination of qualifying competent authority agreement (QCAA); (vi) consultation with the other Competent Authority before determining systemic failure or significant non-compliance; (vii) format for information exchange; and (viii) method for transmission. The report also describes whether the recommendations made in the first annual peer review have been addressed by the assessed jurisdiction or whether the recommendations remain in place because they have not yet been addressed.

According to the Compilation, 83 jurisdictions have multilateral or bilateral competent authority agreements in place. As of 12 August 2021, 91 jurisdictions⁸ have signed the CbC Multilateral Competent Authority Agreement (CbC MCAA) and over 3,000 bilateral exchange relationships have been activated. These include exchange relationships under the CbC MCAA, between European Union (EU) Member States under EU Council Directive 2016/881/EU and between signatories to bilateral competent authority agreements for exchanges under Double Tax Conventions or Tax Information Exchange Agreements.

The Compilation encourages jurisdictions that do not have effective agreements in place to take further steps to sign the CbC MCAA and/or activate the bilateral relationships under the CbC MCAA. Another option suggested in the Compilation is for countries that have not signed the CbC MCAA to continue to work actively toward signing bilateral competent authority agreements with jurisdictions in the Inclusive Framework that meet the confidentiality, consistency, and appropriate use conditions.

Of the 132 assessed jurisdictions, 57 jurisdictions⁹ met all the terms of reference regarding the exchange of information. The remaining 75 jurisdictions received one or more recommendations for improvements in specific areas. These recommendations include taking steps to have qualifying competent authority agreements in place with jurisdictions participating in the Inclusive Framework that meet the confidentiality, consistency and appropriate use conditions, and with which the assessed jurisdiction has an exchange of information agreement in effect that provides for the automatic exchange of tax information. The recommendations also include taking steps to implement processes or written procedures to ensure that the exchange of information is conducted in a manner consistent with the terms of reference relating to the exchange of information framework ahead of the first actual exchanges of information.

Part C: Confidentiality and appropriate use

The third and final part of each report assesses whether jurisdictions have measures in place to ensure that CbC reports are kept confidential and are used appropriately. With respect to confidentiality, jurisdictions should: (i) have international exchange of information mechanisms that provide that any information received shall be treated as confidential; (ii) have in place and enforce legal protections of the confidentiality of the information contained in CbC reports that are received by way of local filing; (iii) have effective penalties for unauthorized disclosures or unauthorized use of confidential information; and in general, (iv) ensure confidentiality in practice. When applicable, the report provides recommendations to the assessed jurisdiction to take steps to ensure that the appropriate use condition is met.

With respect to appropriate use, the peer review process includes an assessment of whether jurisdictions have in place mechanisms to ensure that CbC reports that are received can only be used to assess high-level transfer pricing risks and other BEPS-related risks, as well as for economic and statistical analysis where appropriate, and that CbC reports cannot be used as a substitute for a detailed transfer pricing analysis or on their own as conclusive evidence regarding the appropriateness of transfer prices or to make adjustments to the income of any taxpayer on the basis of an allocation formula.

According to the Compilation, 84 jurisdictions have provided detailed information, enabling the Inclusive Framework to obtain sufficient assurance that measures are in place to ensure the appropriate use of CbC reports. Other jurisdictions either did not yet have measures in place relating to appropriate use, indicated that they are taking steps to have measures in place to ensure appropriate use of information, or did not provide information on this point. Moreover, 15 jurisdictions¹⁰ are non-reciprocal jurisdictions (i.e., they have committed to send CbC reports to their exchange partners but will not receive CbC reports submitted to the tax authorities in other jurisdictions and will not apply local filing). As such, for these 15 jurisdictions, there was no assessment done on their compliance with respect to Part C.

For assessment of the confidentiality requirements, the Compilation notes that the reviews relied on the work and conclusions of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum has conducted preliminary expert assessments of confidentiality and data safeguards with respect to the standard on automatic exchange of information (AEOI). Of the 132 assessed jurisdictions, 89 have undergone an assessment by the Global Forum on confidentiality and data safeguards in the context of implementing the AEOI standard and did not receive any recommendation. In contrast, 10 jurisdictions are currently working on an action plan issued by the Global Forum as a consequence of its review. The action plan contains non-public information on jurisdictions’ internal systems and procedures; therefore, the outcomes of that work are not published, and no further information regarding the review of confidentiality is provided in the Compilation.

Next steps

The wider review of the BEPS Action 13 minimum standard is ongoing and is a separate project from the peer review process. Through the review, the Inclusive Framework will assess whether modifications will be made to the content and requirements contained in BEPS Action 13. The outcomes of this wider review are expected to be released in the coming months. Once this review is completed, the Inclusive Framework will consider whether any further changes to the peer review methodology are needed and, if so, the timing of such changes. In addition, according to the press release, the OECD expects to release the next peer review in the third quarter of 2022.

Implications

The peer review process will continue to monitor the implementation and operation of CbCR and to report on progress made by jurisdictions to address recommendations that have been made.

The Compilation highlights the significant progress made with respect to implementation of CbCR requirements around the world and the increased sharing of tax and financial data among tax authorities as a result. Taxpayers should therefore expect that information provided to one tax authority through the filing of a CbC report will be shared with other relevant jurisdictions. In addition, plans for future deployment of OECD risk assessment tools, together with the existing use of CbCR data analytics by many tax authorities, underscores the need for MNEs to be confident that their data governance approach is sufficient to meet both current and future demands. According to the Compilation, there are still some jurisdictions for which the peer review as not provided assurance regarding the appropriate use of CbCR reports. This could mean that some jurisdictions do not have in place mechanisms (legal or administrative measures) to ensure that CbC reports are used only to assess high-level transfer pricing or BEPS-related risks and are not used to make adjustments to a taxpayer’s income.

Further, CbC reports are central to several related projects (e.g., the OECD/G20 BEPS 2.0 project; the International Compliance Assurance Programme; and the EU project on effective tax rates). Thus, the use of CbCR data for other purposes highlight the increased importance of the peer review reports to ensure compliance with the minimum standard under BEPS Action 13.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ronald van den Brekel | ronald.van.den.brekel@nl.ey.com

Marlies de Ruiter | marlies.de.ruiter@nl.ey.com

Maikel Evers | maikel.evers@nl.ey.com

Ernst & Young Belastingadviseurs LLP, Amsterdam

David Corredor Velasquez | david.corredor.velasquez@nl.ey.com

Konstantina Tsilimigka | konstantina.tsilimigka@nl.ey.com

Roberto Aviles Gutierrez | roberto.aviles.gutierrez@nl.ey.com

Ernst & Young Limited (New Zealand), Auckland

• Matt Andrew | matt.andrew@nz.ey.com

Ernst & Young LLP (United States), Global Tax Desk Network, New York

Jose A. (Jano) Bustos | joseantonio.bustos@ey.com

Ernst & Young LLP (United States), Washington, DC

Barbara M. Angus | barbara.angus@ey.com

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Endnotes

See EY Global Tax Alert, OECD releases final reports on BEPS Action Plan, dated 6 October 2015.

See EY Global Tax Alert, OECD releases peer review documents on BEPS Action 5 on Harmful Tax Practices and on BEPS Action 13 on Country-by-Country Reporting, dated 6 February 2017.