Action 13 of the 2013 OECD Action Plan on Base Erosion & Profit Shifting (BEPS), recognised that enhancing tax transparency is an essential part of tackling the BEPS problem. In short, providing tax administrations with better information to conduct transfer pricing risk assessments and audits.
In September 2014, in response to Action 13, the OECD published guidance on revised standards for transfer pricing documentation and a proposed template for a country-by-country report (CBCR), highlighting income, earnings, taxes paid and certain other measures of economic activity that multinational corporations (MNCs) should be required to disclose.
The OECD CBCR template requires MNCs to prepare a detailed report based on 3 distinct but complementary tables:
Table 1 - Overview of allocation of income and taxes by tax jurisdiction;
Table 2 - List of all entities included in each tax jurisdiction with a summary of main business activities; and
Table 3 - Additional Explanatory Information.
The information required is extensive and not easily structured and presented in the OECD required format (see Table contents below).
CBCR requirements are likely to pose a heavy compliance burden for MNCs, in terms of gathering all relevant information, and reporting the data in the required format. This will require a significant time commitment from resources across the organisation.
Some MNCs may conclude that CBCR preparation is a labour intensive but routine compliance issue best left to junior tax and finance professionals. Such a conclusion would be wrong and could potentially imperil the tax profile of an MNC in multiple jurisdictions for many years to come generating negative publicity and/or multiple simultaneous local tax audits. MNCs need to consider the strategic implications and opportunities of CBCR compliance as well as the operational and IT systems challenges.
We believe that:
TP Controller is the only solution currently on the market that includes functionality to enable users to create of an OECD compliant CBCR easily at the click of a button. All entity business descriptions used in TP Controller are OECD compliant. In addition, TP controller allows users direct access to the underlying global TP data that will be required to defend positions disclosed in your CBCR, assess global TP risk, and create the important content required for Table 3. Easy data uploads allow users to quickly generate a CBCR using different financial source data, whilst keeping all other parameters unchanged.
For Table 1, an MNE will need to report the following data aggregated by tax jurisdiction:
For Table 2, an MNE will need to report the following data by tax jurisdiction:
For Table 3, an MNE is asked to report certain additional information (i.e. source of data, exchange rates, other business activities etc.) and also has the opportunity to include any information or explanation they consider necessary or that would facilitate the understanding of the compulsory information provided in the CBCR.
Key strategic considerations for CBCR compliance will include:
Key operational challenges for CBCR compliance will include:
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