A key component of the transparency pillar of the Base Erosion and Profit Shifting (BEPS) minimum standards is the obligation for all large multinational enterprise groups (MNE Groups) to file a Country-by-Country (CbC) report. The Action 13 Report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for these MNE Groups to report annually, and for each tax jurisdiction in which they do business, the amount of revenue, profit before income tax and income tax paid and accrued, as well as the number of employees, stated capital, retained earnings and tangible assets. MNE Groups should also identify each entity within the group doing business in a particular jurisdiction and provide an indication of the business activities each entity engages in. In 2018 for the first time, tax authorities around the world received information on large foreign headed MNE Groups which was not previously available, enabling them to grasp the structure of the businesses while enhancing their risk assessment capacity.
In general, the Ultimate Parent Entity (UPE) of an MNE Group will prepare and file its CbC report with the tax administration in its jurisdiction of tax residence. That tax administration will automatically exchange the CbC report with the tax administrations in the jurisdictions listed in the CbC report as being a place in which the MNE Group has a Constituent Entity resident for tax purposes. This will be carried out under an International Agreement (such as the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC) or a Double Tax Convention (DTC) or a Tax Information Exchange Agreement (TIEA) permitting automatic exchange of information (AEOI). A Qualifying Competent Authority Agreement (QCAA) which sets out the operational details of the exchange of CbC reports will need to be in place.
As one of the four BEPS minimum standards, the Country-by-Country reporting (CbCR) requirements contained in the 2015 Action 13 Report are subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the Action 13 minimum standard and to participating in the peer review, on an equal footing. The peer review process focuses on three key elements of the minimum standard: (i) the domestic legal and administrative framework, (ii) the exchange of information (EOI) framework and (iii) the appropriate use of CbC reports.
Implementation of CbC Reporting is well underway as the peer review process evidences: over 80 jurisdictions have now introduced an obligation for relevant MNE Groups to file a CbC report in their domestic legal framework.
