OECD publishes guidance on implementation of Country-by-Country Reporting

Jonas Van de Gucht 30 June 2016


On 29 June 2016, the OECD released its Guidance on the Implementation of Country-by-Country Reporting (CbCR). According to the OECD press release, this is “a new step in its continuing efforts to boost transparency in international tax matters”.

After the G20 leaders gave their approval regarding the final BEPS Package in November 2015, the focus has now shifted to ensuring a consistent implementation of Action 13 of the BEPS Action Plan (i.e. Transfer Pricing Documentation and Country-by-Country Reporting). As first steps towards a consistent implementation, the OECD has now published its guidance on how to put the new transfer pricing reporting standards into place. In this guidance document, the OECD covers the following topics:

Transitional filing options for MNEs that voluntarily file in the Parent jurisdiction

Where jurisdictions that are implementing CbCR are not able to do so from the fiscal period commencing 1 January 2016, transition issues could occur where local filing obligations arise in other jurisdictions without transition relief. In such situations, jurisdictions may be able to accommodate voluntary filing for “Ultimate Parent Entities” (UPEs) tax-resident in their jurisdiction. This voluntary filing of the CbCR by the UPE is known as “parent surrogate filing”, a form of surrogate filing the framework of which is set out in the Action 13 report.

Where surrogate filing (including parent surrogate filing) is available, there are no local filing obligations for the particular MNE in any jurisdiction which otherwise would require local filing in which the MNE has a Constituent Entity. However, this is subject to the following conditions:

  1. The UPE has made available a Country-by-Country Report to the tax authority of its jurisdiction of tax residence by the filing deadline; and
  2. The jurisdiction of tax residence of the UPE must have its laws in place to require CbCR; and
  3. A Qualifying Competent Authority Agreement must be in effect between the jurisdiction of tax residence of the UPE and the local jurisdiction; and
  4. The jurisdiction of tax residence of the UPE has not notified the local jurisdiction’s tax administration of systematic failure; and
  5. The following notifications have been provided:
    – The jurisdiction of tax residence of the UPE has been notified by the UPE; and
    – The local jurisdiction’s tax administration has been notified by a Constituent Entity of the MNE Group that is resident for tax purposes in the local jurisdiction that it is not the UPE nor the Surrogate Parent Entity, stating the identity and tax residence of the Reporting Entity.

Japan, Switzerland and the US have confirmed that parent surrogate filing will be available.

The application of CbCR to investment funds

The Guidance reiterates that there is no general exemption for investment funds. The governing principle is to follow the accounting consolidation rules in order to determine whether a certain investment fund should be considered as a Constituent Entity of a MNE group (if any) and obliged to follow the CbCR rules.

The application of CbCR to partnerships

The Guidance provides the same instructions as for investment funds. If the accounting consolidation rules apply to a partnership, then that partnership may be a Constituent Entity of a MNE group subject to CbCR rules.

For the purpose of completing the CbC report, if a partnership is not tax resident in any jurisdiction, then the partnership’s items, to the extent not attributable to a permanent establishment, should be included in the line in table 1 of the CbC report for stateless entities. Table 2 of the CbC report should include a row for stateless entities, and a sub-row for each stateless entity including partnerships that do not have a tax residence.

It is furthermore advisable for the MNE to provide an explanation in the notes section of the report on the partnership structure and on the stateless entities. Where a partnership is the UPE, the jurisdiction under whose laws the partnership is formed/organised will govern if there is no jurisdiction of tax residence.

The impact of currency fluctuations on the EUR 750 million filing threshold

On this topic, the Guidance states that a MNE group that complies with a local threshold (equivalent of EUR 750 million) should not be exposed to local filing in any other jurisdiction that is using a threshold denominated in a different currency. Furthermore, there is no requirement for a jurisdiction using a threshold denominated in a currency other than EUR to periodically revise this in order to reflect currency fluctuations. The appropriateness of the EUR 750 million threshold may be included in a review of the CbCR minimum standard to occur in 2020.

Read the OECD’s press release here.

Read the OECD Guidance on the Implementation of Country-by-Country Reporting here.

For more insights on Country-by-Country Reporting and to understand the implications for your organisation, please contact Jonas Van de Gucht.