Country-by-Country (CbCR) reporting is part of Action 13: Transfer Pricing Documentation and Country-by-Country Reporting of the Base Erosion and Profit Shifting (BEPS) initiative by the OECD.
Part of a three-tiered approach
CbCR is just one part of a three-tiered approach in BEPS Action 13.
Multinational enterprises (MNEs) are also required to submit a master file, which provides high-level information regarding global operations and transfer pricing policies to all the relevant tax administrations for that MNE. Further, they must also submit a local file that is specific to each relevant country.
As we discussed previously, CbCR will only be required for the largest MNEs that have consolidated annual revenue of €750 million or more.
The information requirements are demanding
For MNEs that have to undertake CbCR reporting, there is a lot of information to collect and report. For example, MNEs must report annually on items such as the amount of revenue, profit, and tax they generate in each tax jurisdiction in which they operate. Further, MNEs have to report on how many employees and tangible assets, among other items, they hold in each tax jurisdiction.
The challenge for impacted MNEs will be how they can best collect, process and collate this data without facing significant drains on their businesses’ costs and time.
There is guidance available
Collecting such a large amount of information is no mean feat. That’s why the OECD has provided additional resources to help relevant MNEs prepare their CbC reports. There are currently two handbooks and two guidance notes available to help tax administrations and MNEs prepare their CbCR reports, which are entitled:
· Guidance on the implementation of CbC Reporting;
· Guidance on the appropriate use of information contained in CbC Reports;
· Handbook on Effective Implementation; and
· Handbook on Effective Tax Risk Assessment
In respect of the Guidance on the implementation of CbCR Reporting, two new updates were made in February 2018 regarding the “definition of total consolidated group revenue” (Chapter IV.2) and “non-compliance with the confidentiality, appropriate use and consistency conditions and Systematic Failure” (Chapter V.3). The other guidance and handbooks have not been updated since September 2017.
Getting the right processes in place
In the UK, from 1 January 2016, any MNE that meets the requirements for CbCR reporting is required to file an annual report with HMRC in XML format.
The deadline to file a CbCR report with HMRC is generally 12 months after the relevant accounting period, so MNEs with an accounting period end of 31 December will have filed their 2016 CbCR reports on 31 December 2017.
Although the first CbCR reports have now been filed, it is crucial than MNEs consider whether the processes they had in place were sufficient for ongoing reporting, and in particular whether more time-efficient and cost-effective measures could be employed to meet future filing deadlines.
DataTracks specializes in providing comprehensive CBCR software that suits your business. Whether you need help converting your report into an XML file, or would like to use software that helps you prepare your report accurately in-house, we have a solution that works for you.