Base erosion and profit shifting

Country-by-Country Reporting: Update on exchange relationships and implementation

 

Last updated: Dec 2017

 

OVERVIEW

Country-by-Country Reporting under the BEPS Action 13 minimum standard applies to reporting fiscal years of MNE groups commencing on or after 1 January 2016, and the first automatic exchanges of CbC Reports will take place no later than June 2018. Jurisdictions that are members of the OECD Inclusive Framework on BEPS have made significant progress to ensure that MNE groups within the scope of the minimum standard are required to file CbC reports; that a framework is in place for the automatic exchange of CbC reports; and that local filing is required only where permitted under the minimum standard. A summary of this progress is set out below. 

 

Implementation of a CbC reporting obligation

Over 40 jurisdictions1 that are members of the Inclusive Framework have introduced a CbC reporting obligation for MNE groups for reporting fiscal years commencing on or after 1 January 2016. In total, around 60 Inclusive Framework jurisdictions2 have introduced, or taken steps to begin introduction of, a CbC reporting obligation, including those with a later commencement date.

 

The international framework for the exchange of CbC reports

In excess of 1400 relationships for the exchange of CbC reports have been activated. These include relationships:

  • between the 68 jurisdictions that are signatories to the CbC multilateral competent authority agreement
  • between the 28 EU Member States under European Council Directive 2016/881/EU
  • between jurisdictions that have bilateral qualifying competent agreements in effect (including bilateral arrangements between the US and 31 jurisdictions3).

 

Steps taken to reduce the incidence of local filing by constituent entities in MNE groups

While not forming part of the Action 13 minimum standard, exceptionally a jurisdiction may require the filing of a CbC report by a resident constituent entity that is not the ultimate parent entity of its group (referred to as local filing). There is no requirement for a jurisdiction to apply local filing but, where it does so, this may be done only in three specific circumstances.


First, where the ultimate parent entity of an MNE group is not obligated to file a CbC Report in its residence jurisdiction.

Second, where the residence jurisdiction of the ultimate parent entity has a current international agreement (multilateral or bilateral tax convention or tax information exchange agreement providing for the automatic exchange of tax information) with the residence jurisdiction of a constituent entity, but there is no qualifying competent authority agreement in place between the two jurisdictions. This does not include circumstances where there is no such international agreement in effect.

Third, where there has been a systemic failure to exchange CbC Reports by the residence jurisdiction of the ultimate parent entity.


Even where one of these circumstances is present, local filing is not permitted where a CbC report will be filed by another constituent entity in the MNE group acting as a substitute for the ultimate parent entity (referred to as surrogate parent filing), subject to conditions.


More than 10 Inclusive Framework jurisdictions4 with CbC reporting commencement dates later than 1 January 2016 will (or are likely to) allow the ultimate parent entity of an MNE group to file a CbC report on a voluntary basis (referred to as parent voluntary filing) and will exchange these reports under international agreements with other jurisdictions. This should prevent local filing for constituent entities in these MNE groups, so long as an international agreement and qualifying competent authority agreement for the exchange of these CbC reports are in effect5.


Thirty seven jurisdictions6 which intend to exchange CbC reports under the multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention) have declared that CbC reports may be exchanged even for periods before the Convention is in effect for other purposes. This ensures that CbC reports for fiscal years commencing in 2016 can be exchanged under the Convention with jurisdictions where otherwise the Convention is only in effect from 2017 or later, so long as both jurisdictions in the exchange relationship have lodged such a declaration.

 

Where such a declaration is not possible, a number of jurisdictions have agreed or are in the process of agreeing supplementary bilateral qualifying competent authority agreements that will enable the exchange of CbC reports under their existing double tax agreements and tax information exchange agreements. In the future, these arrangements will cease to apply as the Convention comes into force and exchanges may take place under the CbC multilateral competent authority agreement.


Brazil deposited its instrument of ratification of the Convention on 1 June 2016 and so, in general, the Convention is in effect from 1 January 2017. In addition to taking steps to ensure the exchange of CbC reports for fiscal years commencing in 2016, Brazil has amended its CbC reporting regulations to provide targeted transitional relief from local filing for fiscal years commencing in 2016. Under this relief, where a qualifying competent authority agreement is in place for fiscal years commencing from 1 January 2017, a Brazilian constituent entity in a foreign MNE group will not be required to comply with local filing for fiscal years commencing in 2016. However, the constituent entity may subsequently be required to comply with local filing in Brazil for such a fiscal year if:

 

  • by 31 December 2017, there is no agreement in place to enable retroactively the automatic exchange of 2016 CbC reports (e.g. by lodging a unilateral declaration or entering into a bilateral qualifying competent authority agreement), and
  • the jurisdiction of the MNE group’s ultimate parent entity applies local filing to constituent entities in Brazilian MNE groups. 


As regards China, as the Convention is in effect from 1 January 2017, China will not apply local filing requirements for the 2016 fiscal year, as a transitional relief.


A number of jurisdictions7 have deferred, or are likely to defer, the commencement date for CbC reporting to 1 January 2017 or later. If the commencement date for CbC reporting is deferred, local filing will therefore not apply in these jurisdictions for fiscal years commencing in 2016.

 

An evolving landscape for CbC reporting

The global landscape for CbC Reporting by MNE groups is still evolving. This initial period may be challenging for both tax administrations and MNE groups (e.g. where during a transitional period an MNE group may be exposed to local filing in multiple jurisdictions but has prepared its CbC report in accordance with the rules in place in its parent jurisdiction), which may call for a pragmatic approach that takes into account best efforts made to comply with CbC related obligations. These challenges should diminish over time, as the global landscape for CbC Reporting becomes more settled and both tax administrations and MNE groups gain in experience. 

The steps described above are reflected in the latest summary of the status of the implementation of CbC reporting by jurisdictions. The OECD continues to work closely with jurisdictions to support the effective implementation of CbC reporting in accordance with the Action 13 minimum standard, and to put in place relationships for the exchange of CbC reports, to ensure that the first year of CbC reporting operates as intended from the perspective of both tax authorities and MNE groups.

 

Further information

The Country-by-Country Reporting requirements form one of the four BEPS minimum standards. Each of these minimum standards is 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 on CbC reporting, and to participating in the peer review. 


1 Including, based on current information provided by jurisdictions, Australia, Austria, Belgium, Bermuda, Brazil, Bulgaria, Canada, Chile, Colombia, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Guernsey, Hungary, Indonesia, Ireland, Italy, Jersey, Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, Norway, the Netherlands, New Zealand, People's Republic of China, Poland, Portugal, Romania, the Slovak Republic, Slovenia, South Africa, Spain, Sweden and the United Kingdom. 

2 Including, in addition to those in footnote 1 and based on current information provided by jurisdictions, Argentina, the Cayman Islands, Gabon, Hong Kong China, Iceland, India, Isle of Man, Japan, Liechtenstein, Malaysia, Mauritius, Nigeria, Peru, Russia, Singapore, Switzerland, Turkey (subject to secondary legislation), the United States and Uruguay. In addition, in Israel it is likely that CbC Reporting requirements will apply for fiscal years commencing on or after 1 January 2017.

3 Australia, Belgium, Bermuda, Brazil, Canada, Colombia, the Czech Republic, Denmark, Finland, France, Guernsey, Iceland, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, the Netherlands, New Zealand, Norway, Portugal, the Slovak Republic, South Africa, Spain, Sweden and the United Kingdom (see www.irs.gov/businesses/country-by-country-reporting-jurisdiction-status-table). These arrangements include a joint statement issued by France and the US that CbC reports for 2016 will be exchanged spontaneously.

4 Including, based on current information provided by jurisdictions, Hong Kong China, Isle of Man, Israel (likely), Japan, Liechtenstein, Malaysia, Nigeria, Russia, Singapore, Switzerland and the United States.

5 More information is included in OECD Guidance on the Implementation of CbC Reporting, Part V, Question 1 on "Transitional filing options for MNEs ("parent surrogate filing")".

6 Australia, Belgium, Brazil, Bulgaria, Cayman Islands, Colombia, Costa Rica, Denmark, Finland, France, Germany, Greece, Guernsey, India, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Latvia, Liechenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, Singapore, the Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland and the United Kingdom.

 7 Including, based on current information provided by jurisdictions, Israel, Peru and Turkey. In Israel, it is likely that CbC Reporting requirements will apply for fiscal years commencing on or after 1 January 2017.