The debate on the disclosure of information on tax continues to be high on the agenda of many governments and in boardrooms. The Organisation for Economic Co-Operation and Development (OECD)’s proposal for introducing a mandatory Country by Country Reporting (CbyCR) template to be submitted to tax authorities is now a reality. The template is part of their Action Plan on Base Erosion and Profit Shifting (BEPS) and is part of a package involving the reform of transfer pricing documentation.
The final template and guidance was published on 16 September 2014 and details can be found on the OECD website (external link).
As a reminder, the responses to the original consultation document issued on 30 January 2014 are available on the OECD website (external link). A number of the concerns raised were addressed and have been reflected in the current template and guidance. In particular the current approach permits companies flexibility in sources of data for the template which is welcomed. Companies will however need to carefully assess which data sources to use in getting the balance right between minimising the compliance burden and providing the most accurate view of their tax position and value chain.
The OECD are doing further work to assess the implementation approach and mechanism for submitting and sharing the CbyC template and Master and Local file. A recommendation is expected by February 2015 so at the latest, we would expect countries to start implementing after that date, although there is a possibility that some countries may take steps before then.
Given the time it will take for companies to assess the requirements, determine the most appropriate data gathering approach and implement new processes and potentially new technologies, companies should now start to prepare.
There are a number of complexities that companies will have to consider in their strategy including determining the relevant entities in scope, interpreting the OECD guidance in key areas such as definitions of revenue and corporate income tax, gathering data consistently and accurately for each country/entity, and aligning the CbyCR template with the new Master File and Local File.
The OECD CbyCR template is not the only country by country reporting requirement. A briefing document issued by our UK colleagues (PDF 742 KB) summarises the various other mandatory reporting requirements affecting companies in certain specific sectors. Companies in these sectors will need to comply with these regulations plus the OECD CbyCR template so will need to assess how to gather data efficiently to meet all relevant regulations. There are some differences in the definitions and requirements and companies will want to assess how to articulate the reason for any differences between these reports and the CbyC template as they will all be available to tax authorities.
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