BEPS: How will your organisational structure cope with Country-by-Country reporting?

On 5 October 2015, the OECD published the final package of recommendations to reform the international tax system – the "Base Erosion and Profit Shifting" (BEPS) Project. One recommendation that is likely to achieve wide take-up amongst tax authorities is Country-by-Country (CbC) reporting.

In brief, CbC reporting will impose an additional compliance requirement on groups with a turnover in excess of €750m, whereby MNEs will need to provide information on each jurisdiction they operate in, including the particular activities carried out by each entity, revenue generated and income tax paid.

CbC reporting is effective for reporting Fiscal Years of multinational groups beginning on or after 2016, for reporting in 2017.

How will this impact multinational enterprises (MNEs)? 
The introduction of CbC reporting is likely to impose an additional compliance burden which most businesses will find time consuming and expensive to satisfy.

With additional reporting requirements, tax authorities will receive much more information on an organisations global activities than they have had to date, with groups disclosing details of group revenues, number of employees, capital and tangible fixed assets by jurisdiction (amongst other things). HMRC may challenge some arrangements disclosed in the reports and this could result in lengthy and costly enquiries being opened.

So what does that mean in terms of risk?
In addition to increased reporting requirements, MNEs will also need to consider the potential reputational risk that CbC reporting might pose to their organisation.

With the number of tax authorities that will receive these reports, there are concerns that some will be leaked to the Press. The volume of sensitive information which will be contained in these reports makes this a potentially serious data risk for businesses.

Furthermore, with tax avoidance currently a hot topic with the mainstream media, there is a risk that leaked data may be misconstrued or manipulated with the objective of ‘tax shaming’ certain organisations.

With global firms such as Starbucks, Google and Amazon having come under fire for what is perceived to be aggressive tax avoidance strategies, there seems to be a growing culture of naming and shaming companies.

This is particularly pertinent for consumer facing enterprises and organisations that work closely with governments, for whom reputational damage could have long lasting effects.

How can Multinationals adapt?
Businesses should be considering how tax authorities and other readers are likely to interpret the data provided in the CbC reports that they file. There is a risk that a group with entities operating in perceived ‘tax havens’ (e.g. Jersey, Luxembourg or the Cayman Islands) could result in additional scrutiny from HMRC and potentially the mainstream media.

Now is an opportune time for organisations to review their group structure and consider whether there are operations in negatively perceived jurisdictions that are surplus to requirement.

Carrying out an entity rationalisation program will not only help to streamline your group structure but with the additional disclosure requirements arising from CbC reporting, it might also help safeguard your organisations reputation.

Do you have regional entities which could put you at risk? Have you considered how your corporate structure is impacted by BEPS? Share your thoughts below or for more information on how PwC can help and to discuss your situation in confidence schedule a meeting here.


Nick Copland | Business Restructuring Manager
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Sam Davis | Business Restructuring Associate
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