The lack of quality data on corporate taxation has been a major limitation to measuring the fiscal and economic effects of tax avoidance, making it difficult for authorities to carry out transfer pricing assessements on transactions between linked companies and even more difficult to carry out audits.
The BEPS Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein. This report is called the Country-by-Country (CbC) Report.
To facilitate the implementation of the CbC Reporting standard, the BEPS Action 13 report includes a CbC Reporting Implementation Package which consists of (i) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the CbC Report in its jurisdiction of residence including backup filing requirements and (ii) three model Competent Authority Agreements that could be used to facilitate implementation of the exchange of CbC Reports, respectively based on the:
- Multilateral Convention on Administrative Assistance in Tax Matters;
- Bilateral tax conventions; and
- Tax Information Exchange Agreements (TIEAs).
The BEPS Action 13 report also included a requirement that a review of the CbC reporting minimum standard be completed by the end of 2020 (the 2020 review). In February 2020, the OECD launched a public consultation process on matters where its members seek input from stakeholders in conducting this 2020 review.
58 jurisdictions required or permitted the filing of CbC reports for 2016 and more than 90 jurisdictions have law in place introducing a CbC reporting obligation. In addition, over 2500 relationships are in place for the exchange of CbC reports between jurisdictions. This means that substantially every MNE with consolidated group revenue of at least EUR 750 million is already required to file a CbC report, and the gaps that do remain are closing.
The first exchanges of CbC reports took place in June 2018 and, with the OECD’s support, tax administrations are incorporating CbC reports into their tax risk assessment and assurance processes to understand better the risks posed to their jurisdictions. CbC reports are also at the heart of other programmes to provide greater tax certainty to MNEs, including the pilot for the OECD International Compliance Assurance Programme (ICAP).
The first set of aggregated and anonymised data from CbCRs were subsequently released in July 2020 (see Corporate Tax Statistics - Second Edition), and provide information on the global tax and economic activities of nearly 4000 multinational enterprise groups headquartered in 26 jurisdictions and operating across more than 100 jurisdictions worldwide.
have introduced CbC reporting filing obligation
bilateral relationships exist for the exchange of CbC reports
are covered in the third annual peer review process
Action specific content
This provides an overview for MNEs and tax administrations as to which members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) have introduced a CbC reporting obligation and basic facts concerning when these obligations come into effect and how they operate.
This provides an overview of which Inclusive Framework members have introduced requirements for constituent entities in MNE Groups to notify the jurisdiction's tax administration of whether a CbC report will be filed. This includes basic information such as who is subject to the requirement, the deadline for notifications and the format to be used.Find out more
As of December 2020, there are over 2700 bilateral exchange relationships activated with respect to jurisdictions committed to exchanging CbC reports, and the first automatic exchanges of CbC reports took place in June 2018. These include exchanges between the 90 signatories to the CbC Multilateral Competent Authority Agreement, between EU Member States under EU Council Directive 2016/881/EU and between signatories to bilateral competent authority agreements for exchanges under Double Tax Conventions or Tax Information Exchange Agreements, including over 41 bilateral agreements with the United States. Jurisdictions continue to negotiate arrangements for the exchange of CbC reports and the OECD will publish regular updates, to provide clarity for MNE Groups and tax administrations.Find out more
The multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention), by virtue of its Article 6, requires the Competent Authorities of the Parties to the Convention to mutually agree on the scope of the automatic exchange of information and the procedure to be complied with. Against that background, the multilateral Competent Authority Agreement on the Exchange of CbC Reports (CbC MCAA) has been developed, based on the Convention. In addition, two further model competent authority agreements have been developed for exchanges of CbC Reports, one for exchanges under Double Tax Conventions and one for exchanges under Tax Information Exchange Agreements.
The purpose of the CbC MCAA is to set forth rules and procedures as may be necessary for Competent Authorities of jurisdictions implementing BEPS Action 13 to automatically exchange CbC Reports prepared by the Reporting Entity of an MNE Group and filed on an annual basis with the tax authorities of the jurisdiction of tax residence of that entity with the tax authorities of all jurisdictions in which the MNE Group operates. A particular bilateral relationship under the CbC MCAA becomes effective only if both jurisdictions have the Convention in effect, have filed the required notifications under Section 8 and have listed each other.List of signatories
In September 2017, the OECD updated its standardised electronic format for the exchange of CbC Reports between jurisdictions – the CbCR XML Schema – as well as the related User Guide. The updated CbC XML Schema and User Guide now allows MNE Groups to indicate cases of stateless entities and stateless income, as well as to specify the commercial name of the MNE Group. Furthermore, certain clarifications have been made, in particular with respect to the correction mechanisms.
A dedicated XML Schema and User Guide have also been developed to provide structured feedback on received CbC information. The CbCR Status Message XML Schema will allow tax administrations to provide structured feedback to the sender on frequent errors encountered, with a view to improving overall data quality and receiving corrected information, where necessary. An updated version of this schema and user guidance is in use from 2020.
Guidance and handbooks
The Inclusive Framework has released a number of guidance and handbooks to assist and give greater certainty to tax administrations and MNE Groups alike in on the implementation and operation of Country-by-Country (CbC) Reporting under BEPS Action 13.
As jurisdictions have moved into the implementation stage, some questions of interpretation have arisen. In the interests of consistent implementation and certainty for both tax administrations and taxpayers, the Inclusive Framework has issued guidance to address certain key questions. This guidance is periodically updated. Also available is a compilation of the approaches adopted by jurisdictions, in cases where guidance provides flexibility.
Tax administrations have encountered a number of concerns with the data in CbC reports filed to date, and descriptions of the most common of these have been compiled in a table that is available to view. MNEs within the scope of CbC reporting should review these descriptions and ensure that these errors are not repeated in CbC reports they are preparing. Where a tax administration identifies that a CbC report filed with it contains errors (including but not limited to those described in the table) it should require these errors to be corrected by the Reporting MNE.
One of the conditions for receiving and using CbC Reports is that a jurisdiction must have in place the necessary framework and infrastructure to ensure the appropriate use of CbCR information. To assist jurisdictions in complying with this condition, the OECD has released guidance on the meaning of "appropriate use", the consequences of non-compliance with the appropriate use condition and approaches that may be used by tax authorities to ensure the appropriate use of CbCR information.
Country-by-Country Reporting: Handbook on Effective Implementation is a practical guide to assist countries in implementing CbC Reporting in line with the Action 13 minimum standard. This includes chapters on the filing and use of CbC Reports, the exchange of CbC Reports, operational aspects of CbC Reporting and guidance, stakeholder engagement and training.
Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment supports countries in the effective use of CbC Reports by incorporating them into a tax authority's risk assessment process. The handbook explores the advantages CbC Reports offer over other sources of data for risk assessment, how CbC Reports may be used by a tax administration to risk assess MNE groups including some of the tax risk indicators that may be identified, a number of challenges tax administrations may face in using CbC Reports and how these may be addressed, and other data sources that should be used alongside CbC Reports, where available.All reports
Country-by-Country reporting requirements, as set out in the 2015 BEPS Action 13 report, 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.
In February 2017, the OECD released the terms of reference and a methodology for the peer review of the Action 13 minimum standard. The methodology was subsequently updated in October 2020. The peer review is conducted in accordance with these terms of reference and methodologies by an ad hoc group comprising delegates of both Working Party 6 (on the Taxation of Multinational Enterprises) and Working Party 10 (on Exchange of Information), under the aegis of the Inclusive Framework.
The first two peer reviews, conducted between 2017 (Phase 1 Compilation of Peer Review Reports) and 2019 (Phase 2 Compilation of Peer Review Reports), reflected the phased implementation of CbC reporting and focused on different aspects of the key areas under review, being the domestic legal and administrative framework, the exchange of information framework, and the confidentiality and appropriate use of CbC reports. The third and subsequent peer reviews, conducted since 2019, consider all aspects of a jurisdiction’s implementation of CbC reporting (Phase 3 Compilation of Peer Review Reports).
Each year, a compilation of peer reviews is published containing a review of the implementation and operation of CbC reporting by IF members. An exception to this applies to jurisdictions which joined the Inclusive Framework after a certain date, and those that requested an exemption from peer review as they do not have any resident entities required to file a CbC report and do not wish to receive CbC reports under exchange of information or local filing.
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