SKP Tax Alert
Volume 9 Issue 26 |
OECD’s Additional Guidance on the implementation of Country-by-Country reporting

A key outcome of the Organisation for Economic Development and Co-operation’s (OECD’s) final Report on Action Plan 13 (Transfer Pricing Documentation and Country-by-Country reporting) is the commitment of OECD and G20 countries to introduce Country-by-Country (CbC) reporting along with the associated master file and local file documentation for large Multinational Enterprises (MNEs), i.e. companies with global revenue exceeding EUR 750 million. The OECD’s final Base Erosion and Profit Shifting (BEPS) report recommends that the first CbC reports should be required to be filed by MNEs for fiscal years starting from 1 January 2016.
As part of the BEPS project and efforts to enable the swift and consistent implementation of CbC reporting, the OECD has recently released ‘Additional guidance on implementation of CbC Reporting’. The guidance addresses the following topics: 
  • Transitional filing options for MNEs referred to as parent-surrogate filing; 
  • CbC reporting notification requirements (if any) during the transitional phase; 
  • Guidance on the application of CbC reporting to investment funds
  • Guidance on application of CbC reporting to partnerships; and 
  • The impact of currency fluctuations on the agreed EUR 750 million threshold for CbC reporting.
Transitional and voluntary filing
While the majority of the countries implementing CbC reporting till date have followed the OECD recommendations and have CbC reporting as a required for fiscal periods commencing on or from 1 January 2016, some jurisdictions are still in process of implementing CbC reporting legislations and will require reporting periods commencing after January 2016. Due to this, there will be a mismatch with respect to the effective dates of implementation between jurisdictions which will give rise to transitional issues.
To address this issue, the OECD issued additional guidance which provides that jurisdictions may accommodate voluntary filing (referred to as parent surrogate filing) of
CbC reports for periods commencing after 1 January 2016 by the ultimate parent entities (UPEs) resident in their jurisdictions, whereby UPEs shall voluntarily file the CbC report for a period commencing from January 2016 to avoid penal exposure in the jurisdictions where their subsidiaries/constituent entities are resident.
The OECD guidance further notes that where the surrogate filing (either by UPE or alternate/surrogate parent entity) has been accepted by the tax administration of the Constituent Entity and the following conditions are met, no local filing should be required in the jurisdiction of the Constituent Entity: 
  • The UPE has made a CbC report available to the tax authority of its tax jurisdiction, by the filing deadline (i.e. within 12 months from the last day of the reporting fiscal year of the MNE group); 
  • By the first filing deadline of the CbC report, the jurisdiction of tax residence of the UPE has a CbC reporting obligation in place (even if the filing of a CbC report for the reporting fiscal year in question is not required under those laws); 
  • By the first filing deadline of the CbC report, a Qualifying Competent Authority Agreement is in effect between the jurisdiction of tax residence of the UPE and the local jurisdiction; 
  • The jurisdiction of tax residence of the UPE has not notified the Local Jurisdiction’s tax administration of a systemic failure; and 
  • Due notification (if and when required) have been provided by the UPE and the constituent entity to the tax authorities in their respective tax jurisdiction.
The guidance states that Hong Kong and China, Japan, Liechtenstein, Nigeria, Russian Federation, Switzerland and the United States of America have confirmed that they will have a parent surrogate filing mechanism in place consistent with the OECD Guidance.
Domestic notification requirements during transition phase
The BEPS Action Plan 13 report includes an option whereby the tax administrations may require a notification to be given by the Constituent Entities to their respective tax administrations about the identity and the tax residence of the reporting entity (i.e the UPE or the surrogate/alternate parent which has the obligation to file the CbC Report).
Accordingly, these domestic notifications would need to be submitted by 31 December 2016 with respect to the fiscal year commencing from 1 January 2016 onwards. This may cause practical issues for a number of MNE groups who are still in the process of identifying their reporting entities and evaluating the option of assigning a surrogate parent entity to fulfil the CbC reporting obligations for the MNE group, depending on the implementation of domestic CbC legal frameworks.
To address this issue, the guidance notes that jurisdictions may provide flexibility to the Constituent Entities with respect to the date of submitting domestic notifications if such legal obligations are applicable.

Investment funds – Application of CbC reporting rules
The additional guidance provides clarifications with respect to the application of CbC reporting requirements to Investment funds i.e. determination of the MNE group subject to CbC reporting.
The guidance states that the governing principle to determine an MNE group is to follow the accounting consolidation rules, and therefore, the treatment of investment funds will closely depend on the accounting rules.
Accordingly, if the accounting rules provide that investment entities should not consolidate investee companies, the investee companies should not form part of a group or be considered as constituent entities of an MNE group, even where the investment entity has a controlling interest in the investee.

Conversely, if the accounting rules provide that the investee company should be consolidated, then the investee should be a part of a group and should be considered as a constituent entity of the MNE group. This analysis shall also apply for determination of consolidated revenue of the group for the EUR 750 million threshold.
Partnerships - Application of CbC Reporting Rules
Similar to investment funds, the guidance states that the governing principle to determine an MNE group is to follow the accounting consolidation rules. If the accounting consolidation rules apply to a partnership, then that partnership may be a constituent entity of an MNE group subject to
CbC reporting.
The guidance points out that for the purpose of determining whether a partnership can be a UPE that is required to file the
CbC report, the jurisdiction under whose laws the partnership is formed shall be considered in the absence of jurisdiction of tax residence.
The guidance states that a permanent establishment of a partnership should be included in the CbC report in the same manner as any other permanent establishment.
Impact of foreign currency fluctuations on
CbC threshold
The additional guidance reiterates the threshold set out in the Action Plan 13 agreed at the EUR 750 million or near equivalent amount in domestic currency. It clarifies that if the jurisdiction of the UPE has implemented a reporting threshold that is a near equivalent in the domestic currency of the said threshold (i.e. EUR 750 million), an MNE group that complies with this local threshold should not be exposed to local filing in any other jurisdiction that is using a threshold denominated in a different currency.
SKP's comments
The new guidance provides greater clarity regarding the treatment of the identified issues with the aim of ensuring that CbC reporting is implemented consistently. According to the guidance, it appears that where questions of interpretation arise, it would be best addressed through common public guidance and the OECD will endeavour to make this available.
As more countries implement
CbC reporting consistent with Action Plan 13, businesses should keep themselves abreast of these new reporting requirements and prepare themselves robustly. 
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