The countdown for country by country reporting is on - are you ready?
October 20, 2017
We are entering the final countdown to the first multinational enterprise groups having to file their country by country reports. For December year-end groups, these will be due before 31 December 2017. Country by country reporting (CbCR) is more than just another compliance burden. Knowing how to interpret the technical rules and ensuring you are meeting your filing obligations is just one aspect. Early consideration of what CbCR says about your organisation’s tax structure and how tax authorities in the UK and overseas will use the CbCR for BEPS and TP risk assessment to determine if your MNE Group is more or less likely to be subject to tax audit is crucial.
In recent days the OECD has issued two handbooks covering effective implementation, and effective tax risk assessment for country by country reporting. .
Both handbooks are practical guides for tax authorities in relation to the Implementation of CbCR. The Handbook on Effective Risk Assessment is of particular interest, outlining the various risk assessment options available to tax authorities, the BEPS risks that the CbCR is intended to help tax authorities address and the risk indicators that may be used from information in the CbCRs.
What we already know is tax that authorities are using data to assess taxpayers, but CbC reports are going to provide them significantly more global insight.. The CbC report information is seen as better than other information for identifying possible transfer pricing risks and therefore the importance of assessing and anticipating the likely questions that will be raised in relation to the various disclosures.
Although tax authorities will adopt different risk assessment approaches, the handbook shows the way in which the whole package will be used to to assess the activities of MNE Groups from jurisdiction to jurisdiction, across peers and from year to year.
Positive risk indicators will be identified using the CbC report and other data but taxpayers can help themselves by doing their own risk assessment and by ensuring they understand the importance, and tailoring, of their disclosures.
Tools like PwC's CbCR analyzer can be used to carry out detailed risk assessment to allow MNE groups to pre-screen their data before the filing deadlines.This technology visualises the CbCR data around a number of key ratios that we expect the tax authorities will focus on when risk assessing both the clients BEPS and transfer pricing risk.
I have recently been helping helping a number of clients to review their technical interpretations of the CbCR guidance. Following on from the risk assessment we can help understand whether the reporting process is consistent with the OECD guidance but equally as valuable we can benchmark MNE’s against what we are seeing others do in this area.
A further issue for MNEs is the CbCR requirement to file the final CBC report in XML.We are helping MNEs convert their templates into the required XML format, prepare XML formated CBC reports for filing with relevant tax authorities, validating the reports and making sure that these are compatible with the relevant territory or territories’ OECD scheme.
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