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Country by Country Reporting Update

By Kash Mansori
Posted: June 14, 2016

The trickle of countries incorporating Country-by-Country Reporting (“CBCR”) requirements into their tax codes has grown into a steady stream. In the past month upcoming legislative or administrative provisions pertaining to CBCR were announced in Austria, Belgium, Germany, Sweden, Switzerland, and Bermuda, the European Parliament approved new CBCR legislation governing the EU, and it was revealed that China would formally establish its own CBCR requirements later this year. Meanwhile, the IRS is expected to release its own draft CBCR requirements by the end of June.

As you may be aware, CBCR is one of the recommendations contained in the final reports of the OECD’s Base Erosion and Profit Shifting (“BEPS”) project. It entails multinational taxpayers preparing informational tax filings that summarize the MNE’s revenues, profit before income tax, taxes paid, employees, and related indicators for each country in which the MNE operates, following a standardized reporting template.

Once the system is fully up and running, the idea is that each MNE will complete these CBCR tables once each year, and then submit them to the tax authority in the home jurisdiction of the group’s parent company. Then that tax authority will share the report with each of the tax authorities in all of the other jurisdictions in which the MNE has affiliates.

The specific templates proposed by the OECD are reproduced below. The first table is designed to give tax authorities a snapshot of where (by country) the MNE has significant operations, where it records its revenues, and where it pays taxes. The second table provides a summary of the functional responsibilities of each of the legal entities within the MNE group. Finally, a third field will allow the MNE to provide a short explanation and important context to the information contained in the first two tables. These tables are intended to provide tax authorities with a quick and compact look at the overall reasonableness of the MNE’s tax position from a high level. 


Most MNEs are probably going to be required to prepare the CBCR tables using FY 2016 data sometime during 2017 in at least one of the jurisdictions in which they operate. But there’s no reason they couldn’t do it before then, and that is exactly what we at WTP are advising our clients: prepare the CBCR tables this year, using FY 2015 data as a practice run for the real thing in a year or two.

We believe a CBCR practice run is important. First, it will give the MNE a chance to figure out exactly what data sources and data definitions to use as it completes the tables. The CBCR rules grant MNEs some discretion over both (as long as they are consistent from year to year), so many taxpayers will find it useful to have an extra year to determine the data sources and definitions that work best for them. Deciding what context and explanations to include in the open third table will also be very useful.

In addition, having completed the CBCR for purely internal purposes using FY 2015 data can give MNEs an opportunity to look at the tables from the perspective of the tax authorities that will be receiving that information in another year or two. This will allow the MNE to consider which aspects of their overall tax story may stand out to tax authorities, which aspects may need additional explanation or support, and which aspects they are comfortable with. The MNE will then have some time to clarify or strengthen their transfer pricing documentation in the areas that need it most. 

The upcoming CBCR regime is intended to provide tax authorities with the additional transparency they have been seeking. But from the taxpayer perspective, it raises a number of issues that merit careful consideration. Preparation and practice could go a long way toward ensuring that small issues do not get blown out of proportion once tax authorities around the world have access to these snapshots of their taxpayers’ businesses and tax footprints.

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