Country-by-Country Reporting: What’s your strategy?


Country-by-Country Reporting of financial data by multinational companies may seem a technical detailed issue to be left to tax and finance professionals. In fact, the implications go much wider. Companies need to address not just the operational challenge but also assess the strategic implications and opportunities.

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Country-by-country reporting

As the reaction to the financial crisis has developed, a significant strand of attention has been focused on the tax strategies of multinational companies. There is increasing public and political concern that some companies are paying less than what is considered to be a “fair” amount of tax in jurisdictions where they have major operations or customer bases. The perception is that complex ownership structures and sophisticated corporation tax planning techniques can be combined to reduce tax liabilities. As such there is increasing focus on where and how a company earns its profits and whether it is paying tax in those countries.

The OECD (Organisation for Economic Co-operation and Development) was tasked with tackling these issues and in response launched its Base Erosion and Profit Shifting initiative (BEPS). As part of this effort the OECD is seeking to reform transfer pricing documentation and introduce a mandatory form of reporting to tax authorities to enhance transparency of revenues, profits, taxes and other measures of substance across the globe. Action 13 of the BEPS Action Plan sets out the aim of developing rules that:

The view appears to be that, armed with a full and clear picture of where companies’ profits are generated, how this aligns to where their activity takes place and where they pay taxes, national governments will be better able to bring pressure to bear on perceived aggressive tax avoidance or non-compliance with the rules.

The resulting Country-by-Country (CBC) Reporting requirements are likely to pose a compliance burden for multinational companies, as gathering and reporting the data in the required format will require a new compliance process, potentially requiring new technologies or system changes, but certainly involving commitment from resources across the organization. Financial services companies are likely to face particular challenges as they will have to address these CBC requirements as well as those imposed under the EU Capital Requirements Directive IV (CRD IV), which requires public reporting of revenues, profits, taxes, employee numbers and public subsidies for regulated entities within the EU.


The OECD has outlined a three-tier approach to reporting: an overall ‘master file’ containing information about the group including its organization structure, description of its business, intangibles, and financial and tax position; and a ‘local file’ that is more akin to certain current local transfer pricing documentation requirements. The CBC template is likely to require the disclosure on a country-by-country basis of the following:

  • revenues (split between related party and unrelated party)
  • earnings before income tax
  • income tax paid (including WHT)
  • current income tax charge
  • stated capital and accumulated earnings
  • number of employees
  • tangible assets other than cash and cash equivalents.

The second section of the CBC template will require a listing of every entity tax resident in each country identifying where they are incorporated, if different from residence, and selecting the most appropriate indicators of activity from a set list of options.

Financial services companies that fall within the requirements of CRD IV now have to publicly report on an annual basis for each in scope entity:

  • nature of activities and geographical location
  • turnover
  • number of employees (on a full time equivalent basis)
  • profit or loss before tax
  • tax on profit or loss
  • public subsidies received.

This needs to be reported on a country-by-country basis, and depending on group holding structures and the local government implementation of CRD IV, the disclosure can be complex.

Many financial services groups should by now have made their first public disclosure under the CRD IV rules. Unfortunately that does not mean the work is done; the OECD requirements are more extensive as they require more data points, but also cover every entity in the group rather than just certain regulated entities.

The OECD timetable is now well-advanced. The Committee on Fiscal Affairs approved a template in June 2014, and we understand this approved CBC template will be issued publicly around the time of the G20 Finance Ministers meeting in Australia in September 2014. Depending on how this is implemented companies may need to comply with this from 2015 onwards.


“will include a requirement that [multi-national enterprises] provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template.”3

Significant uncertainties remain over the implementation process and timing. The OECD recognizes that if the standardization of transfer pricing documentation is to succeed, they need to try and deliver a coordinated implementation process with countries introducing the same template at the same time. However, the OECD cannot compel member governments to comply with their guidance, nor can they prevent countries from going it alone. And then of course there is the question of how the countries outside of the OECD approach this, given that not all of the G20 members who commissioned the BEPS project are members of the OECD. There seems little doubt that governments want to have access to this information and so we can expect to see a CBC template mandated more widely than in OECD countries. The question is whether there will be sufficient protections for companies to ensure that the data is treated confidentially and is appropriately used for risk assessment, and not audit or formulary apportionment. How tax authorities use the data and the questions and challenges they may raise, leads to the concerns about the potential additional, and perhaps more extensive, compliance burden for companies – who within a multinational is going to deal with all of the queries and challenges that will follow submission? And how will disputes be resolved particularly where there are no dispute resolution mechanisms in place between countries?

The OECD recognize these challenges and are going to do further work in the coming months to develop the implementation plan and sharing mechanism, with a view to making recommendations in January 2015.

The experience of implementing CRD IV across the EU could provide useful lessons; for example the need to ensure that the process is synchronized with the passage of the necessary domestic legislation in affected countries, and that legislation and guidance is in place and finalized well in advance of the first filing requirement. Since the OECD cannot directly impose its requirements, there is a danger that everything proceeds at the speed of the slowest participant; or conversely, that some governments decide to break ranks and press ahead unilaterally to gain domestic political advantage or simply to get early sight of the relevant data.

The attitude of global governments will be significant in this respect.

In the US, the view has been expressed by some that BEPS is designed to provide tax authorities outside the US with a weapon to attack US multinationals and extract more tax revenues from them in their own jurisdictions.2 The Council for International Business has said it feared that information reported could be used to underpin arbitrary and formulaic tax demands on US multinationals; the National Foreign Trade Council has said that the potential risks “far outweigh any marginal benefit that would be derived by tax authorities from such information.”3

The US Administration may find it difficult to secure the passage of necessary legislation through Congress: some officials have indicated they believe the relevant measures could be implemented administratively, without primary legislation, although others are more skeptical of whether this can be achieved.

Other countries have expressed concerns that the measures do not go far enough. For example, the French and Chinese delegates to the OECD have urged the OECD to consider requiring the parent company of a multinational group to automatically share the CBC template with its subsidiaries local tax authorities. In another example, a Chinese tax official recently noted that CBC ‘will help’, but does not allow a full assessment of a multinational group’s transactions.4

Any move towards unilateral development of tax and regulatory policy could be a significant stumbling block to coordinated international implementation. If the OECD is not able to lead a coordinated international initiative, countries may implement their own versions of CBC reporting, which could mean that multinational groups must comply with a patchwork of requirements around the world.

Compliance and beyond

Regardless of the precise implementation timetable, it seems inevitable that this will be implemented and multi nationals should be considering how they will comply and how this process can be built to become a ‘business as usual’ compliance process alongside others. Our practical experience suggests some of the key challenges will include:

  • gathering the data on a consistent global basis from multiple accounting systems
  • gaining comfort regarding the accuracy and consistency of the data
  • understanding and applying each country’s implementation and interpretation of the regulations
  • managing input from different parts of the business including finance, tax, HR and controlling, and ensuring sufficient resources can be made available to manage this additional compliance burden
  • getting comfortable that a compliant CBC template is being submitted taking into account for example, the fact that judgments will have to be made around definitions and areas where full data cannot be accessed as envisaged by the OECD
  • implementing technologies or making system changes to more accurately capture or report the data required.

However, the strategic view on this is also vital – what is the company’s strategy around disclosure and transparency? Is there an opportunity to use some of this data to publicly articulate the company’s position on tax? Is there a need or a desire to provide more narrative to the tax authorities to supplement the data and aid understanding? Would further narrative help to address up front some of the potential queries, thereby reducing the compliance burden down the line? Is the CBC template information what tax authorities are looking for and how does this fit with the information in the Master File?

Bringing all of this together goes beyond strict reporting compliance and involves many more functions than the tax department. This will require a consistent, coordinated response strategy, reflecting all key interests in the company and will need to be driven from a senior level.

This is not simply a question of how to comply most efficiently and cost-effectively with specific obligations. Leading banks – like major multinationals in other sectors – are realizing that an explicit strategic framework is necessary to guide the voluntary release and dissemination of financial, operating and tax information. This is increasingly an issue of corporate reputation management, requiring the development of a consistent communication strategy and a coherent narrative of corporate policy. Consistency of disclosure will also be critical to maintaining a sound public position, since data revealed to one agency may well be communicated to others; and any information shared with tax authorities could ultimately end up in the public domain. A compelling narrative should also act as a strong defense against information being misinterpreted.

Strategic challenge

The environment of global policy making, public expectation and information disclosure is changing rapidly. Tax strategies which may be legal are increasingly regarded as unacceptable; transfer pricing is perceived by some as a mechanism used by multinationals to artificially shift earnings to low tax jurisdictions, and supporting and defending business models will be tougher but ever more important in the future; the requirements around reporting and transparency will continue to increase.

The new requirements for disclosure, and for effective explanation, will bring significant operational challenges. But the strategic challenge is wider and more fundamental - can groups use disclosure as a way to restore public trust in corporations? How much should groups voluntarily disclose to stay ahead of the public debate? To meet this challenge, multi-national financial services companies will need to develop a clear philosophy and vision, integrated with other expressions of corporate values, and ensure that all relevant functions, in all relevant jurisdictions, endorse it. The necessary thinking should be starting now.

  1. Action Plan (PDF 1.45 MB)on Base Erosion and Profit Shifting, OECD, 2013.
  2. Camp, Hatch Statement on 2014 OECD Tax Conference
  3. OECD faces tough tax rules balancing act’, Financial Times, 12 November 2013.
  4. Bloomberg BNA Transfer Pricing report, 6 December 2014 Asia Pacific Rim

Additional contacts:

Andrea Grainger

Senior Manager

KPMG in the UK

Tel: +44 20 7694 1504


Francois Vincent



Tel: +33 1 5568 1492

Fidal is an independent legal entity that is separate from KPMG International and its member firms.

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