The OECD updated its guidance on country by country (CBC) reporting on 5 November 2019 (see bit.ly/2Knv9va).
These amendments provide answers to a number of questions that taxpayers and tax administrations have faced during the implementation stage.
The OECD provided clarification on the following points:
It was clear from BEPS Action 13 that dividends were excluded from ‘revenue’ for the purpose of CBC reporting, and for the sake of clarity, the OECD has confirmed that for the fiscal year commencing on or after 1 January 2020, these payments are excluded from the profit (loss) before income tax figure.
Certain jurisdictions have been allowing rounding which has resulted in inconsistencies and distortions. The OECD has advised that a certain level of rounding is reasonable but it still needs to be determined by each jurisdiction.
Not all multinational groups prepare consolidated financial statements and therefore could potentially fall outside the scope of Action 13. That is why, a parent company that would be required to prepare a consolidated financial statements if its equity instruments were traded on a securities exchange in the jurisdiction where it is tax resident is also in the scope of the CBC reporting. However, not all jurisdictions have a securities exchange and so to resolve this issue, the OECD has invited jurisdictions to provide more guidance on this point.
It is acknowledged that the reporting period can be longer or shorter than 12 months, so long as it is in line with the consolidated financial statements.
The reporting entity can use different sources of data like entity financial statements, regulatory financial statements, or internal management accounts to produce its CBC report, but must specify any change in relation to the sources of data from one period to the next.
Some tax administrations have expressed some concerns on the quality of CBC reports that have been filed. Common mistakes found include:
This is not the first update to the CBC reporting guidance and is unlikely to be the last. Perhaps the most interesting aspect of these clarifications is the fact the OECD has issued common errors made by multinational groups to ensure they won’t be repeated.
The OECD updated its guidance on country by country (CBC) reporting on 5 November 2019 (see bit.ly/2Knv9va).
These amendments provide answers to a number of questions that taxpayers and tax administrations have faced during the implementation stage.
The OECD provided clarification on the following points:
It was clear from BEPS Action 13 that dividends were excluded from ‘revenue’ for the purpose of CBC reporting, and for the sake of clarity, the OECD has confirmed that for the fiscal year commencing on or after 1 January 2020, these payments are excluded from the profit (loss) before income tax figure.
Certain jurisdictions have been allowing rounding which has resulted in inconsistencies and distortions. The OECD has advised that a certain level of rounding is reasonable but it still needs to be determined by each jurisdiction.
Not all multinational groups prepare consolidated financial statements and therefore could potentially fall outside the scope of Action 13. That is why, a parent company that would be required to prepare a consolidated financial statements if its equity instruments were traded on a securities exchange in the jurisdiction where it is tax resident is also in the scope of the CBC reporting. However, not all jurisdictions have a securities exchange and so to resolve this issue, the OECD has invited jurisdictions to provide more guidance on this point.
It is acknowledged that the reporting period can be longer or shorter than 12 months, so long as it is in line with the consolidated financial statements.
The reporting entity can use different sources of data like entity financial statements, regulatory financial statements, or internal management accounts to produce its CBC report, but must specify any change in relation to the sources of data from one period to the next.
Some tax administrations have expressed some concerns on the quality of CBC reports that have been filed. Common mistakes found include:
This is not the first update to the CBC reporting guidance and is unlikely to be the last. Perhaps the most interesting aspect of these clarifications is the fact the OECD has issued common errors made by multinational groups to ensure they won’t be repeated.