On 6 April 2017, the OECD has published further guidance for tax administrations and MNE Groups on Country-by-Country (CbC) reporting (Base Erosion and Profit Shifting (BEPS) Action 13). The guidance was released by the Inclusive Framework, which brings together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 BEPS Package.
The purpose of the document is to clarify a number of interpretation issues that arose in relation to the information that should be included in the CbC report, and to provide guidance to jurisdictions when implementing the model legislation of the Action 13 report into their domestic rules.
More specifically, the guidance issued addresses the following six topics:
- The definition of ‘revenues’: extraordinary income and gains from investment activities are to be included;
- The definition of ‘related party’ for the purpose of completing Table 1 of the CbC report: this should be interpreted as the Constituent Entities listed in Table 2 of the CbC report;
- The accounting principles/standards for assessing the existence of/membership in a group in which respect the guidance states that in general if the equity interests of the Ultimate Parent Entity are traded on a public securities exchange, jurisdictions will require the Group to use the consolidation rules in the accounting standards already used by the Group and, on the other hand, if the equity interests of the Ultimate Parent Entity are not traded on a public securities exchange jurisdictions may allow the Group to choose to use either local GAAP of the jurisdiction of the Ultimate Parent Entity or IFRS as its governing accounting standard. However the guidance adds that the jurisdictions have some freedom in terms of the accounting standards to be used;
- The treatment of major shareholdings: in general where there are minority interests held by unrelated parties in a Constituent Entity 100 percent of the entity’s revenue should be included in the consolidated group revenue for the purpose of applying the 750 million Euro threshold and thus should not be pro-rated. However, jurisdictions may allow the entity’s revenue to be pro-rated if the accounting rules require proportionate consolidation in the presence of minority interests;
- The definition of ‘total consolidated group revenue’: it is allowed for jurisdictions to require inclusion of extraordinary income and gains from investment activities in total consolidated group revenue if those items are presented in the consolidated financial statements under applicable accounting rules;
- Transitional filing options for MNEs (“parent surrogate filing”): in addition to Japan, Switzerland and the United States, now also Hong Kong, Lichtenstein, Nigeria and Russia have confirmed they will have parent surrogate filing available for Ultimate Parent Entities that are resident in their jurisdiction, with respect to fiscal periods commencing on or from 1 January 2016.
All guidance published up to this point in time is bundled in the guidance document, which will be further updated should any additional guidance be released.
For more insights on CbC reporting, and to understand the implications for your organisation please contact Jonas Van de Gucht.