What You Need To Know About BEPS: Country-by-Country Report Preparation for MNE's
The rules are now clear. Every MNE with at least 750 million Euro of revenue in 2015 must prepare Country-by-Country (CbC) reports for the 2016 fiscal year. If the ultimate parent company does not file, then a surrogate or the local entity will most likely be required to comply.
The timeline seems to afford MNEs with plenty of time to comply, but this can be deceptive. Indeed, in most cases MNEs will be required to file a notification by the end of FY 2016 either with the jurisdiction of the ultimate parent or that of local filing or surrogate parent, in order to identify the reporting entity.
The basic question is if an MNE has to file a CbC report in multiple jurisdictions does it need to file the CbC report directly with each local tax authority and in doing so does the CbC report need to be compliant with each local countries’ rules.
For more information regarding BEPS from the OECD,
Base Erosion and Profit Shifting (BEPS)
In an increasingly interconnected world, national tax laws have not always kept pace with global corporations, fluid movement of capital, and the rise of the digital economy, leaving gaps and mismatches that can be exploited to generate double non-taxation. This undermines the fairness and integrity of tax systems.
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit these gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).
Research undertaken since 2013 confirms the potential magnitude of the BEPS problem. Estimates conservatively indicate annual losses of anywhere from 4 - 10% of global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually.
BEPS is a global problem which requires global solutions. For the first time ever in tax matters, OECD and G20 countries worked together on an equal footing. More than a dozen developing countries have participated directly in the work and more than 80 non-OECD, non-G20 jurisdictions have provided input.
Fifteen actions equip governments with the domestic and international instruments needed to tackle BEPS. The final BEPS package gives countries the tools they need to ensure that profits are taxed where economic activities generating the profits are performed and where value is created, while at the same time give business greater certainty by reducing disputes over the application of international tax rules, and standardising compliance requirements.
Over the course of the next few months, we will help you better understand the ever-changing landscape of BEPS regulations.
Country-by-country reports should be prepared for the first time for qualifying MNEs fiscal years (FYs) starting on or after January 1, 2016. They should be filed with the relevant national tax administrations by the end of the 12-month period following the end of the relevant FY. Therefore, where the MNE’s FY follows the calendar year, the first CbC report should be filed with the relevant national tax administration by 31 December 2017. If the FY starts after 1 January 2016, the first report should be filed by the end of the 12-month period following the close of the FY. Hence, for an MNE whose FY starts on July 1, 2016, the first report should be filed by June 30, 2018, being by the end of the 12-month period following the end of the FY. For these purposes, the fiscal year of a qualifying MNE refers to the consolidated reporting period for financial statement purposes and not to taxable years or to the financial reporting periods of individual subsidiaries.
The timeline seems to afford MNEs with plenty of time to comply, but this can be deceptive. Indeed, in most cases MNEs will be required to file a notification by the end of FY 2016 either with the jurisdiction of the ultimate parent or that of local filing or surrogate parent, in order to identify the reporting entity. Moreover, they will need to make sure they have the infrastructure in place to comply and would want to verify that by dry runs. Finally, they will need to comply with specific resource and time-costly requirements. For example, the Netherlands requires filing in a specific XML schema, and the MNE will want to make sure that the capability is available at the level of the reporting entity.
Normally, the ultimate parent company of a qualifying MNE must report on behalf of the group. The reporting ultimate parent files the report with the tax authorities of its country of residence. Therefore, in an ordinary situation, Xco, the ultimate parent of MNE Group X and a tax resident of Country X, prepares and files the report with the Tax Authorities of Country X. The authorities of Country X will then exchange the reports with all other eligible countries in which the MNE has a Constituent Entity, being a local entity or permanent establishment.
A qualifying MNE is one which meets a reporting threshold expressed in a monetary value for a given reporting year. The OECD guidance sets the threshold at EUR 750 million in consolidated revenues or its near equivalent in local currency. The threshold is calculated by reference to the fiscal year immediately preceding the reporting year.
Stay tuned for the next blog post where we look at obligations in reporting for MNE’s.
Thomson Reuters is your global partner for international tax compliance challenges. Our BEPS research and technology solutions address your immediate and ongoing needs for country-by-country reporting and other Action Items, while providing a solid foundation for future impact on your organization.