Country-by-country (CbC) reporting under the OECD’s base erosion and profit shifting (BEPS) project is effective in Australia for tax years beginning on or after 1 January 2016.
In understanding where the economic substance of multinational entities is located, a key focus will be placed by tax authorities on the number of employees that the multinational has in each country.
Human resource and mobility teams need to be working with their tax and transfer pricing teams as the CbC report requires reporting of “employees on a full-time equivalent basis.” The determination of which employees qualify as “full-time equivalents” is left to the judgment of the taxpayer, subject only to the requirement that the determination be reasonable and that it be applied consistently among all of the jurisdictions and from year to year.
Reporting on “full-time equivalents” on a global basis will present challenges to organisations as differences may exist across countries. Other definitional issues to be considered include:
Perhaps the most challenging definitional issues will be the treatment of independent contractors, leased employees, contingent workers or outsourced employees.
While the stated goal of CbC reporting is to enhance transparency for tax administrations and to allow for the better assessment of the transfer pricing risks of multinationals, the CbC rules do not place specific limitations on the use of the data reported. CbC reports filed with the Australian Taxation Office (ATO) may be exchanged with other tax jurisdictions, and in return, the ATO can request CbC reports that are filed with foreign tax authorities. These reports may also be shared with state and local tax authorities. Therefore, these disclosures could potentially lead to additional audits by various tax authorities as to whether pension/superannuation contributions are being made appropriately or other employment tax withholding and reporting obligations are being fulfilled.
HR and mobility teams need to consider discuss the implications of CbC reporting with their tax and transfer pricing teams to agree on the approach. Together, the HR and tax teams will need to:
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