Country-by-Country Reporting - increasing transparency in multinational enterprises
26 January 2015
Posted by: Author: Roxanna Nyiri
Author: Roxanna Nyiri (BDO)
was stated in a communique of the GB20 Leaders that "cross-border tax evasion
and avoidance undermines our public finances and our people’s trust in the
fairness of the tax system.” In light of this we look at the goals of the BEPS
Action plan which addresses Transfer Pricing Documentation and Country-by-Country
Facts: What is
Country-by-country reporting (CbCR)
is intended as a tool for tax authorities to risk assess multinational
enterprises’ (MNEs) transfer pricing. This will greatly increase transparency
for local tax authorities through the reporting of key financial metrics across
a group. Its adoption is part of the OECD’s desire for a wider ‘culture of
compliance’ that can also be seen in the wider changes to the transfer pricing
documentation requirements in the new Chapter V.
The adoption of CbCR reporting by the Organisation for Economic
Co-operation and Development (OECD) forms part of a new, three-tier,
transfer pricing documentation requirement for MNEs alongside a master file and
The CbCR obligation is set out in Chapter V of the OECD’s new Guidelines
on transfer pricing which were issued as part of the ongoing review of base
erosion and profit shifting (BEPS) in international tax.
The goals of Action 13 of base erosion and profit shifting (BEPS) which address Transfer
Pricing Documentation and CbCR are:
that better documentation is prepared to allow for more effective transfer
pricing review and tax audits on a wider basis;
the need for more information on a business’s global organisation to achieve
this better understanding.
Country-by-Country Reporting is one of the main
consequences of this work – the Organisation for
Economic Co-operation and Development (OECD) is of the view that the
‘big picture’ of an organisation’s global value chain is key for tax
"CbCR will greatly increase the transparency of businesses’
value chains and the robustness and effectiveness of associated transfer
pricing policies,” says Roxanna Nyiri, Head of Transfer Pricing at BDO South Africa.
"A similar expectation is an increase in risks associated with this greater visibility.”
effect of this new visibility will be:
transfer pricing risk from the availability of annual headline data across a
group to each tax authority;
- The need to
ensure transfer pricing policies are appropriately tailored for the facts,
circumstances and requirements of each territory;
- To further raise
the profile of transfer pricing and its tax effects among multinational
enterprises’ (MNEs) stakeholders.
"To safeguard against these
increased risks, businesses need to take action now by testing the efficacy of
their transfer pricing policies and data gathering processes,” says Nyiri. "Businesses
will need to ensure their transfer pricing policies are both current and
effective, and that relevant financial metrics can be provided with confidence.”
are the reporting requirements?
CbCR requires the annual
submission of information in a standard template for each territory where the
group has a taxable presence. This covers:
- Revenues split
between related and unrelated parties;
- Earnings before
income tax (but after expenses and exceptional items);
- Income taxes paid
on both a cash and accrued basis (to local and other countries), including
- Stated capital
and accumulated earnings;
- Number of local
- Tangible assets
(but not cash or equivalents).
3 Key Questions for Multinationals
are three key questions for multinationals that need to be answered for CbCR,”
1. Are transfer pricing
policies current and robust?
CbCR provides tax authorities
with a greater level of visibility. MNEs will need to ensure their transfer
pricing policies remain current – in line with the business model and have not
fallen behind commercial activity.
2. Does our implementation
of the transfer pricing policy give us expected results?
CbCR is focused wholly on
results. To guarantee robust implementation, these results should be tested
against transfer pricing policy and supporting comparable information.
3. Do we have the processes
to efficiently extract and confirm the required information?
Meeting the requirements of
CbCR also requires providing information with confidence. It is critical to
test the business’s ability to report issues early.
Who will CbCR affect?
of CbCR could affect all MNEs, regardless of size. There is no exemption for
any MNEs in each jurisdiction. The
formal requirement to prepare CbCR will follow obligations for transfer pricing
documentation as the OECD includes CbCR in the three-tier documentation
Local exemptions from transfer
pricing documentation could remove local CbCR filing requirements but MNEs
headquartered in such territories should be prepared to provide information about
will CbCR start?
A formal start date is yet to
be announced - the OECD will report back early in 2015.
Full implementation may depend
on formal local adoption; although the global nature of CbCR information means
that having just one compliant territory in a group will require preparation of
the form. The UK is touted to be an early adopter but no start date has been
Tax authorities will use CbCR
data to risk-review local operations of an MNE. In anticipation of these
reviews, MNEs need to prepare themselves by taking any remedial action
Best practice filing
arrangements will also be announced in early 2015. Sensitivity to the
disclosure of data within a business is acknowledged. Central filing and tax
authority access of CbCR is a consideration of the OECD. However, direct local
filing on tax authority request is likely to be the practice.
Evolution of the template
should also be expected. The OECD will revisit CbCR standards before the end of
2020 in efforts to continuously improve their operation.
you be unsure of anything relating to the information required, speak to a
Transfer Pricing specialist for help. No formal start date has been announced
yet, so there is still time to get prepared,” concludes Nyiri.
This article first appeared on the January/February edition on Tax Talk.