Country by Country Reporting (CbCR): What’s new?

In international business, transparency is now the need of the hour as the tax landscape goes through multiple changes. The equitable and unprejudiced payment of taxes on the part of multinationals in countries they operate and operate in is constantly under the vigilance of the media, NGOs and lobby groups. In this scenario, mandatory legislation for a Country by Country reporting of financial and tax data is being implemented and encouraged.

Country-by-Country Reporting (CbCR):

Country-by-Country (CbC) is a report that has been mandated under Base Erosion and Profit Shifting (BEPS) Action Plan 13 wherein every multinational is provided a template to report their annual numbers and tax liabilities. Most times, this allows the companies an avenue to draw up careful strategies to move profits from higher–tax jurisdictions to lower–tax jurisdictions. The CbC report breaks down key elements of the financial statements to be submitted by multinationals by jurisdiction. MNE Groups are to provide the global allocation of their income, taxes and other locational indicators of economic activity. This unique information on MNE Groups’ operations across the world, they believe, will improve tax authorities’ risk-assessment capabilities.

There are as many as 60 jurisdictions among members of the IF (Inclusive Framework). These jurisdictions have taken initiatives for a CbC reporting system commencing in 2016. On November 5th this year, the OECD brought out additional interpretative guidance relating to the country-by-country (CbC) reporting requirement to help MNE Groups avoid common errors made in preparing CbC reports.

This is likely to provide more certainty to tax administrations and multinationals. Numbers of questions have been answered with respect to treatment of dividends received, operation of local filing, use of rounded amounts and information pertaining to source of data submitted. An exhaustive list of common errors has also been released which can be referred to on the OECD website.

Some salient updates from the recent release:

  • The OECD has confirmed and reiterated that the dividends from “Revenue” were excluded from profit and loss statements before arriving at the final Income Tax figure.
  • Rounding off figures on the part of certain jurisdictions has been leading to distortions and inconstancies in the final report. In the new update, the OECD clarifies that a pre-determined policy be followed for a reasonable round-off computation.
  • Clarity on the topic of a parent entity of a MNE being a tax resident in a jurisdiction where a securities exchange is present has also been provided.
  • Sources of data accumulation has to be specified clearly be it internal management accounts or regulatory financial statements.

Common errors while preparing the CbC report is also to be avoided. Examples cited were:

  • Tax Identification Number not being mentioned
  • Multiple currencies being used
  • Wrong column or row while adding amounts
  • Wrong jurisdiction codes

Measures have also been taken to minimize local filing by entities.

While, filing of a CbC report by a resident entity is mandatory, the filing company may not be the eventual parent entity of its group. There is no necessity for an authority to apply for local filing.

DataTracks has extensive experience in  tagging for tax computation. Formulating internal guidance manuals, putting in place structured controls, end-to-end project management and using technology to transform the sphere of mandatory reporting and voluntary submission compliance. We have also been involved in the consultations with the OECD and national tax authorities and as a result have a deep understanding of the requirements that need to be adhered to.  Contact or your spoc at DataTracks to discuss how the recent updates impact your company.