Country-by-Country Reporting Q&As

Country-by-Country Reporting Q&As

The latest information on the EU’s work and proposals on public and non-public CBCR.

Set out below are various questions relating to the EU’s CBCR initiatives on public and non-public CBCR. The corresponding comments are intended to provide clarifications or observations of a general nature, but are not intended as advice. For specific questions you should consult a qualified tax specialist. For the definitions of specific terms regard should, where necessary, be had to the text of the applicable legal source.

A. Public CBCR Q&As – based on the draft amending Directive (COM/2016/0198 final) issued 12 April 2016, which would amend Directive 2013/34/EU

  1. What is the current status of the public CBCR rules?
    A proposal for a Directive on public CBCR was issued by the EU Commission on 12 April 2016 (document reference COM/2016/0198 final – 2016/0107 (COD)). The proposal would amend an existing Directive (2013/34/EU, the ‘Accounting Directive’) and needs a qualified majority (broadly 16 Member States representing at least 65 percent of the EU population) approval of Member States as well as approval by the European Parliament. The European Parliament is likely to support the proposal but may want it to go even further. Assuming the proposed Directive is formally adopted and comes into force in its current form, Member States would have twelve months to implement the rules in their domestic legislation.

  2. What is the interaction of the EU’s rules with other CBCR initiatives?
    The proposal bears similarities to the non-public CBCR but differs in some important respects. It also builds on earlier EU public CBCR initiatives, i.e. those applying to the extractive sector (the EITI standard) and to the financial sector (CRD IV - Directive 2013/36/EU).

  3. What is the first reporting year?
    The draft directive does not specify a particular year but does provide that the rules would apply, at the latest, to financial years beginning on or after two years from the date the amended Directive comes into force. Member States would therefore in principle be free to apply the rules to earlier periods.

  4. What triggers a reporting obligation?
    A reporting obligation will arise when there is a multinational group or stand-alone undertaking (this is a key difference with the non-public CBCR rules) with a (consolidated) net turnover of at least EUR 750 million, and either the Ultimate Parent Undertaking (UPU) or a Subsidiary Undertaking (SU) is an undertaking (typically defined as a company) governed by the law of a Member State or which has a branch in a Member State.  

  5. Who has to report and where is it reported?
    The UPU must file the report with its tax jurisdiction if it is governed by the laws of an EU Member State. If the UPU is not governed by the laws of a Member State (i.e., the UPU’s tax jurisdiction is a non-EU country), all EU SUs or, if none, EU branches must file a report with their own tax jurisdictions. If the UPU files, it must also publish the report on its own website. Filing SUs or branches must also publish the report on their own website or that of a group member. As an alternative to having all EU SUs or branches file reports in each of their respective jurisdictions, the group can appoint a single EU SU or branch to file in its local register, provided that the UPU also publishes the report on its website. There are reporting carve-outs for ‘small’ undertakings as well as for EU parented financial sector undertakings that report on all their activities under the existing EU public CBCR rules (‘CRD IV’).

  6. How is an Ultimate Parent Undertaking (UPU) defined?
    The draft Directive defines an UPU as an undertaking which prepares the consolidated financial statements (i.e., they are presented as those of a single economic entity) of the largest body of undertakings.

  7. How is a Subsidiary Undertaking (SU) defined?
    Member States are required to categorize undertakings as micro, small, medium-sized or large, by reference to certain defined thresholds. An SU for public CBCR purposes is defined as a medium-sized or large subsidiary undertaking (of a group with consolidated net turnover of EUR 750 million). In practice this means that a medium-sized undertaking should meet at least two of the following three limits: a net turnover of EUR 8-12 million (depending on the Member State), balance sheet of EUR 4-6 million (depending on the Member State), and 50 employees on average. There may, therefore, be different reporting thresholds across the Member States. There is also a similar threshold for branches, but in this case turnover is the sole size criterion.

  8. Is there a threshold to determine which branches are caught?
    Branches which exceed the net turnover requirements for small undertakings as defined in the national laws of the relevant Member State pursuant to EU Directive 2013/34 (as explained in question A7) are not required to publish the report. For branches, the only threshold used is that of net turnover of the branch, i.e. EUR 8-12 million. The turnover of the undertaking to which the branch belongs is not therefore relevant in this regard.

  9. What should be reported?
    The report should cover specified data for the whole group but should separate out the data for each EU Member State individually as well as for each ‘black list’ jurisdiction, and then aggregate data the rest of the world. The EU black list (which is currently under development and is expected to be finalized by the end of 2017) will cover jurisdictions that do not comply with internationally accepted transparency and related criteria.

    The data to be provided should consist of:
    — net turnover (sales and service income net of taxes)
    — profit/loss before income tax
    — income tax paid
    — income tax accrued
    — accumulated earnings
    — number of employees

    There is no explicit requirement to identify each member of the reporting group but the activities of each SU or branch within each reporting jurisdiction (or jurisdictions) should be briefly described. Discrepancies between accrued and paid taxes should be accompanied by an explanatory narrative.

  10. What is the filing deadline?
    The report should be drawn up annually for the financial year of the group and filed in the same way as other corporate documents. No general time limits are prescribed, but non-EU UPUs must publish the online version within 12 months of the balance sheet date if a single EU SU or branch files. However, auditors will be required to report on compliance with the Directive in the annual audit report (see below at question A12). Therefore, there will be an effective deadline of the date of the auditors’ work to ensure that the final audit report can confirm that the relevant undertaking is in compliance with the Directive. Online versions of the public CBCR report should remain accessible for at least 5 years.

  11. What format should the CBCR report be in?
    No specific formats are prescribed but reports should be drawn up in at least one official EU language. The report should be drawn up in the same currency as the consolidated financial statements.

  12. Who checks for compliance and bears responsibility?
    The statutory auditor will be required to check whether the public CBCR report has been prepared, submitted and published in line with the Directive by each affected UPU, SU and branch where applicable. In cases of non-compliance, the auditor will then be required to report this in the audit report. While there is no explicitly stated requirement to audit the content, it may be that in practice auditors or companies themselves will set a higher standard. The members of the administrative, management and supervisory bodies of the UPU (or EU SU or branch in the case of a non-EU UPU) will have collective responsibility, as specified in the Directive.

B. Non-public CBCR Q&As – based on the EU rules as contained in Directive 2016/881, which amends Directive 2011/16/EU

  1. What is the current status of the non-public CBCR rules?
    The non-public CBCR rules were approved by EU Member States on 8 March 2016 and formally adopted on 25 May 2016. Member States have until 4 June 2017 to implement these rules into their domestic legislation.

  2. What is the interaction of the EU’s rules with the OECD’s CBCR initiative?
    The EU rules closely follow the OECD’s 2015 final report on CBCR to tax authorities (BEPS Action 13). Differences largely reflect the different context of the EU as opposed to individual tax jurisdictions. Member States are supposed to use the OECD’s final report as a source of illustration or interpretation for the Directive and in order to ensure consistency of application across Member States. Member States are not expected to enact separate sets of rules for the EU and OECD rules on CBCR to tax authorities. Some Member States already have legislation in place in order to implement BEPS Action 13.

  3. What is the first reporting year?
    The new rules will apply to periods beginning on or after 1 January 2016, but Member States can defer this date for one year in the case of non-EU parented groups.

  4. What triggers a reporting obligation?
    A reporting obligation will arise when there is a multinational group with a consolidated revenue of at least EUR 750 million, and either the Ultimate Parent Entity (UPE) or a Constituent Entity (CE) is resident for tax purposes in a Member State. Unlike the public CBCR proposals, the mere presence of a branch in a Member State is not sufficient to trigger a reporting liability for the group.

  5. Who has to report?
    The obligation to file will rest with one of the following:
    a) The Ultimate Parent Entity (UPE) of the MNE Group, which is resident for tax purposes in a Member State;
    b) The Surrogate Parent Entity (SPE) of the MNE Group, which can in principle be resident in any tax jurisdiction, (if appointed); or
    c) Any Constituent Entity (CE), which is not the UPE, of an MNE Group, which is resident for tax purposes in a Member State and whose UPE or SPE did not have an obligation to file a CBCR in its tax jurisdiction of residence or the UPE’s or SPE’s tax jurisdiction does not have a Qualifying Competent Authority Agreement (QCAA) by the filing deadline, or the relevant CE’s Member State has informed it that there has been a Systemic Failure by the tax jurisdiction of the UPE or SPE (e.g., the UPE’s or SPE’s jurisdiction of tax residence has persistently failed to automatically exchange CBCR reports with the Member State where the CE is resident). In general, a CE resident in a Member State will not be required to file where the UPE or SPE is also resident in a Member State.

  6. How is an MNE Group defined?
    An MNE Group is defined as a group (i.e., a collection of related enterprises required to prepare consolidated financial statements or that would be so required if equity interests in any of the enterprises were publicly traded) that includes enterprises that are tax resident or subject to tax via a permanent establishment in at least two different jurisdictions and the total consolidated group revenue is at least EUR 750 million (or the equivalent amount set in the local currency).

  7. What is a Constituent Entity (CE)?
    A CE is any separate business unit of an MNE Group that is (or would be if it were a publicly traded entity) included in the consolidated financial statements of the MNE Group, or would be so included if it were not excluded on the grounds of size/materiality, and permanent establishments for which separate financial statements are prepared.

  8. How is the Ultimate Parent Entity (UPE) defined?
    The UPE of a group is a CE of an MNE Group that directly or indirectly owns a ‘sufficient interest’ in one or more other CEs of that same MNE Group such that it is (or would be if it were a publicly traded entity) required to prepare consolidated financial statements and there is no other CE of that MNE Group which directly or indirectly owns a ‘sufficient interest’ in the UPE.

  9. How is the Surrogate Parent Entity (SPE) defined?
    The SPE is a CE of the MNE Group which has been appointed as sole substitute for the UPE for CBCR purposes (either because the UPE has no obligation to file, the UPE’s tax jurisdiction does not have a QCAA by the filing deadline or the UPE’s tax jurisdiction is in Systemic Failure (as described in question B5(c))).

  10. How are permanent establishments dealt with under CBCR?
    Permanent establishments can be CEs, but cannot be resident for tax purposes. As such, their data must be reported but they do not themselves have a reporting requirement. Their data must be reported by reference to the tax jurisdiction where they are situated and not by reference to the tax jurisdiction of residence of the CE of which they form a part. Although the reporting template (table 2) requires CEs to be listed by reference to their tax jurisdiction of residence, it is assumed that in the case of PEs this would be the tax jurisdiction in which they are situated.

  11. Is there any exemption for Sovereign Wealth and Pension funds?
    The OECD’s BEPS Action 13 2015 Final Report (at paragraph 55) specifies that no special industry exemptions should be provided when countries implement CBCR, and it specifically states that “no general exemption for investment funds should be provided, and no exemption for non-corporate entities or non-public corporate entities should be provided”. It may be expected that a similar approach could be taken by Member States. In answering this question it will be important to look at whether a particular fund has a separate identity in order to qualify as a CE/UPE. This is a particular issue for government owned funds. 

    Of particular relevance is whether the investor and investee companies constitute an MNE Group, which depends on the requirement regarding consolidated accounts and how this is interpreted in each potential reporting jurisdiction. In some cases it may be that the consolidation requirement could be satisfied at a lower level so that if that part exceeded the threshold, reporting could be required for that part. Finally, although the OECD specifies that no exemptions should be provided, individual countries may nevertheless choose to provide these, in particular where the view is taken that a particular type of fund represents a low risk profile.

  12. How are transparent/stateless partnerships treated?
    The OECD published guidance in June 2016 on the application of CBCR to partnerships. It may be expected that Member States would follow this. The governing principle is to follow the accounting consolidation rules when determining an MNE Group for CBCR purposes.

    The data for a partnership not tax resident anywhere and whose data is not attributable to a permanent establishment (PE), should be attributed in the CBCR report to the partners if they are also CEs. The partnership should be reported in a separate line as a stateless entity and instead of its tax jurisdiction of residence, the report should show the jurisdiction under whose laws the partnership was formed.

  13. What is the filing deadline?
    The filing deadline is 12 months from the last day of the relevant reporting fiscal year of the MNE Group.

  14. Where should the report be filed and what happens to it?
    Reports are filed with the tax authorities of the Member State where the reporting entity is resident (or local tax authorities in the case of a non-EU UPE or SPE). Those tax authorities then exchange the report with the Member States in which the group has resident CEs or taxable permanent establishments. The reports may be used, in particular, for assessing high-level transfer pricing risks but not as such to base transfer pricing adjustments. EU tax authorities are required to apply their domestic confidentiality rules.

  15. What should be reported?
    Data should be provided for the whole MNE Group on an aggregated basis for each jurisdiction in which it operates. The report should also identify each CE and indicate its tax residence (and, if different, its country of organization) as well as its main business activity. Permanent establishments that are CEs should also be identified and their data reported. Although the reporting template (table 2) requires CEs to be listed by reference to their tax jurisdiction of residence, it is assumed that in the case of PEs this would be the tax jurisdiction in which they are situated. The data for the MNE Group should consist of:
    — revenue (related and unrelated party to be shown separately).
    — profit/loss before income tax
    — income tax paid
    — income tax accrued
    — stated capital
    — accumulated earnings
    — number of employees
    — tangible assets other than cash or cash equivalents.
    For these purposes, revenues should include revenues from sales of inventory and properties, services, royalties, interest, premiums and any other amounts. Revenues should exclude payments received from other CEs that are treated as dividends in the payor’s tax jurisdiction.

  16. What if the required information is not available?
    An EU CE to which a reporting requirement applies but which cannot obtain all the required information should file a report containing the information that it has, stating that the UPE has refused to make the information available. The CE concerned cannot file on behalf of other EU CEs. Penalties may apply.

  17. What format should the report be in?
    The report should be in the format of the model template annexed to the Directive (this is identical to that contained in the OECD’s BEPS Action 13 report). The language is not specified but will likely be required to be at least in an official or working language of a Member State. The report should specify the currency used in the report.

  18. Period covered by the annual template
    The annual template should cover the UPE’s fiscal year for which it prepares financial statements. For CEs, the MNE can choose either to report for their fiscal year if it ends on the same date as that of the UPE or within the preceding 12 months, or to report their information reported for the UPE’s fiscal year.

  19. Consistency of source of data?
    The MNE Group should be consistent year-on-year in the sources of data used to compile the CBCR report, whether it be from consolidation reporting packages, the statutory or regulatory financial statements for each CE, or internal management accounts, translated to the functional currency of the UPE at the average exchange rate for the relevant period. It is not necessary to reconcile the revenue, profit and tax reporting in the CBCR report to the consolidated financial statements or to make adjustments for differences in accounting principles. This may lead to inconsistencies if the CBCR report figures do not fully tally with other local regulatory, statutory or tax filings, or total CBCR figures which do not add up to 100%.

  20. How should the number of employees of each CE be computed?
    Employees should be reported on the basis of the total number of full-time equivalent (FTE) employees of all CEs resident in a particular tax jurisdiction. This may be on a year-end or average or some other consistent basis. Independent contractors may generally be reported as employees. The IRS published approach is explicitly to compute employees on the basis of the tax residency of the CE for which they work, rather than the country in which they have physically performed their duties. It seems likely that this is also the intended approach under the OECD and EU CBCR rules.

  21. What if the UPE jurisdiction does not yet have CBCR rules in place but does allow voluntary filing?
    The Directive allows Member States to defer application of the reporting requirements for CEs where the UPE is not resident in a Member State so that reporting is only required for fiscal years commencing on or after 1 January 2017. This provision was introduced with a view to dealing with the situation that certain non-EU jurisdictions may not have their CBCR rules fully operative to enable UPEs resident in those jurisdictions to start reporting for fiscal years commencing on 1 January 2016. To cover the cases where local jurisdictions do not introduce such transitional relief, certain countries are introducing the possibility for their UPEs to file voluntarily prior to their rules becoming fully operative. The OECD’s June 2016 guidance on this ‘parent surrogate filing’ sets out conditions under which local jurisdictions should accept such voluntary filing. It may be expected that Member States will follow this guidance.

Glossary of terms

  • BEPS – the OECD’s Base Erosion and Profit Shifting project
  • CBCR – Country-by-country reporting
  • CE – Constituent Entity (non-public CBCR)
  • Member State – a Member State of the European Union
  • MNE Group – Multinational Entity group (non-public CBCR)
  • OECD – Organisation for Economic Co-operation and Development
  • PE – Permanent Establishment
  • SU – Subsidiary Undertaking (public CBCR)
  • UPE – Ultimate Parent Entity (non-public CBCR)
  • UPU – Ultimate Parent Undertaking (public CBCR)

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