Print Page   |   Report Abuse
News & Press: TaxTalk

Country-by-Country Reporting - increasing transparency in multinational enterprises

26 January 2015   (0 Comments)
Posted by: Author: Roxanna Nyiri
Share |

Author: Roxanna Nyiri (BDO)

It 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 Reporting. 

Facts: What is Country-by-Country Reporting? 

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 local file. 

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:

  • Ensure that better documentation is prepared to allow for more effective transfer pricing review and tax audits on a wider basis;
  • Acknowledge 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 administrators:

"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.” 

The effect of this new visibility will be:

  • Increased 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.”

What 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 withholding tax;
  • Stated capital and accumulated earnings;
  • Number of local employees;
  • Tangible assets (but not cash or equivalents).

3 Key Questions for Multinationals  

"There are three key questions for multinationals that need to be answered for CbCR,” says Nyiri. 

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?

The adoption 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 package.

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 overseas subsidiaries. 

When 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 announced. 

Best practice 

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 necessary. 

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.

"Should 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.


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

Membership Management Software Powered by YourMembership  ::  Legal