Section II Issues relating to the definition of items reported in the template for the CbC report
Q 7.1: Does the profit (loss) before income tax in Table 1 include payments received from other Constituent Entities that are treated as dividends in the payer’s tax jurisdiction?
A: The guidance clarifies that, consistent with revenue, profit (loss) before income tax excludes payments received from other Constituent Entities that are treated as dividends in the payer’s tax jurisdiction. This guidance applies to all reporting fiscal years commencing on or after 1 January 2020.
If the accounting rules of a jurisdiction require or permit that an amount representing all or part of the profit of another Constituent Entity is included in profit before tax, this amount should be treated in the same way as dividends from another Constituent Entity and excluded from revenue and profit (loss) before tax.
Inclusive Framework members are encouraged to require resident entities to indicate in Table 3 if payments received from other Constituent Entities that are treated as dividends are included in profit (loss) before income tax and, if so, the amounts included and in which jurisdictions.
Q 8.2: Is it acceptable for an MNE to report rounded amounts in Table 1 of its CbC report?
A: Each jurisdiction may determine the level of rounding that is reasonable, however, it cannot include any rounding that could materially distort the data contained in Table 1. As a guideline, the OECD proposes rounding to the nearest EUR 1.000, USD 1.000 or JPY 1.000.000. In all cases, amounts should be reported in full number, including all zeroes.
Section III Issues relating to the entities to be reported in the CbC report
Q 6.2 How does the ‘deemed listing provision’ set out in Article 1, paragraph 6 of the CbC reporting model legislation operate where the parent entity of an MNE group is tax resident in a jurisdiction that does not have a securities exchange?
A: An entity will be the ultimate parent entity (UPE) of an MNE group if it would be required to prepare consolidated financial statements if its equity instruments were traded on a securities exchange upon which equity instruments of tax resident in the same jurisdiction are commonly traded. Jurisdiction that do not have a securities exchange are encouraged to specify one or more jurisdictions with a securities exchange that would be considered acceptable.
Section IV Issues relating to the filing obligation for the CbC report.
Q 3.3 Can a reporting fiscal year be for a period of other than 12 months?
A: There may be cases where consolidated financial statements are prepared for a period that is shorter than 12 months or longer than 12 months, e.g. the first accounting period of a newly incorporated entity. In these cases, a CbC report should be prepared by the MNE group for the period covered by the consolidated financial statements.
Q 4.1 What information should an MNE group include in Table 3 with respect to the sources of data used in preparing its CbC report?
A: A reporting MNE should consistently use the same sources of data from year to year in completing the CbC report template. If a change is made to the source of data used from year to year, the reporting MNE should explain the reason for the change and its consequences. MNEs are required to provide a brief description of the sources of data used.
Q 5.1 What common errors have been made by MNE groups in preparing CbC reports?
A: The most common mistakes are described on the OECD website: (see attachment) https://www.oecd.org/tax/beps/common-errors-mnes-cbc-reports.pdf
Section V Issues relating to the sharing mechanism for the CbC report (EOI, surrogate filing and local filing)
Q 4.1: Can a jurisdiction apply local filing where the UPE of an MNE is not required to file a CbC report in circumstances where a CbC report would be required in the local jurisdiction?
A: The BEPS Action 13 report clarifies that a local filing is accepted if one of the following conditions applies:
- The UPE of the MNE is not obliged to file a country-by-country report in its jurisdiction of tax residence.
- The jurisdiction on which the UPE is resident for tax purposes has a current international agreement to which the local jurisdiction is a party but does not have a qualifying competent authority agreement in effect to which the local jurisdiction is a party by the deadline for filing a country-by-country report.
- There has been a systemic failure of the jurisdiction of tax residence of the UPE that has been notified by the tax administration.
The first condition applies if the tax jurisdiction where the UPE is resident has not introduced a requirement for a CbC report to be filed. It also applies if the jurisdiction has introduced a requirement for a CbC report to be filed, but this is not in accordance with the BEPS Action 13 minimum standard. As a result, the UPE is not obliged to file a CbC report in that jurisdiction.
If the tax residence jurisdiction of the UPE does not require a Cbc report to be filed, and this in accordance with the BEPS Action 13 minimum standard, the first condition is not met. In this case, local filing is not accepted and jurisdiction cannot under the minimum standard require Constituent Entities to file a CbC report under local filing rules.
Q 4.2: In applying local filing, should a jurisdiction accept a CbC report containing information prepared for filing in the UPE jurisdiction?
A: When the UPE files a CbC report, and constituent entities of the MNE are also subject to local filing, jurisdictions applying local filing are encouraged to consider flexibility in allowing the MNE to file a CbC report containing the information included in the CbC report filed in the UPE jurisdiction.
Q 4.3: Should local filing be required no earlier than 12 months after the end of the MNE group’s reporting fiscal year?
A: Jurisdictions with local filing requirements are encouraged to apply a filing deadline for these CbC reports no earlier than 12 months after the end of the reporting fiscal year.
Q 5.1 Should jurisdiction consider lodging a unilateral declaration to bring forward the effective date of the multilateral convention on mutual administrative assistance in tax matters, for the purposes of exchanging CbC reports?
A: There can be a period of over three years between the Convention being ratified by a jurisdiction, and the jurisdiction beginning to receive CbC reports under exchange of information, as described below (Article 28):
- 1 September 2019 – instrument ratification of the Convention deposited
- 1 January 2020 – Convention enters into force
- 1 January 2021 – Convention in effect
- 31 December 2021 – end of reporting fiscal year 2021
- 31 December 2022 – Typical CbC reporting filing deadline for reporting fiscal year 2021
- 31 March 2023 (or 30 June 2023) – the first exchanges of CbC reports under the Convention, for reporting fiscal year 2021.
This period can be significantly reduced between jurisdiction that have lodged a unilateral declaration stating that they intend the Convention to have effect for earlier periods with respect to the exchange of CbC reports:
- 1 September 2019 – instrument of ratification of the Convention deposited and unilateral declaration lodged
- 1 January 2020 – Convention enters into force and immediately comes into effect for all exchanges contemplated by the jurisdiction in the CbC MCAA.
- 31 March 2020 (or 30 June 2020) – the first exchanges of CbC reports under the Convention by jurisdictions that have submitted a unilateral declaration and which have the CbC MCAA in effect for reporting fiscal year 2018.
All jurisdiction that have not yet ratified the Convention are encouraged to consider lodging a unilateral declaration at the same time as they deposit the instrument of ratification.
Read the full OECD interpretative guidance
If you have any questions regarding this topic or if you require assistance from our transfer pricing experts, please do not hesitate to contact the BDO Transfer Pricing team:
- Tine Slaedts, Partner, [email protected]
- Philippe Dedobbeleer, Partner, [email protected]
- Charlotte Broekaert, Senior Manager, [email protected]
- Kim Van Woensel, Manager, [email protected]
- Gaëlle Pirenne, Supervisor, [email protected]