OECD recommends extension of time to comply with country-by-country notification requirements

On Dec. 5, 2016, the Organisation for Economic Co-operation and Development (OECD) released guidance recommending that countries provide “flexibility” and “transitional relief” for multinationals facing practical difficulties when complying with various jurisdictional country-by-country reporting (CbCR) notification requirements.   

The guidance came on the heels of the Netherlands’ recent announcement to delay its notification requirement by eight months from the original deadline of Jan. 1, 2017.

Background The OECD and G20 countries have committed to implementing CbCR, as set out in the Action 13 report, “Transfer Pricing Documentation and Country-by-Country Reporting.”

The Action 13 report is part of a comprehensive package of measures known as the base erosion and profit shifting (BEPS) package.

Action 13 requires large multinationals to annually report various quantitative and qualitative information pertaining to the group’s operations. This report is filed in the jurisdiction of tax residence of the ultimate parent entity and is shared between the relevant jurisdictions through automatic exchange of information agreements (i.e., treaty networks). Read Grant Thornton LLP’s previous coverage on the U.S.’s implementation of CbCR here.

Under Article 3 of the Action 13 model legislation for CbCR, the OECD included an option for jurisdictions to require that notification be sent to the country’s tax administration identifying the entity that will be submitting the report on behalf of the multinational enterprise (e.g., the ultimate parent entity). In certain circumstances, this notification may be needed to avoid a “secondary mechanism” requiring a local filing, as well as failure-to-file penalties under local law.

This notification generally must be provided by the last day of the reporting period. For example, for calendar-year taxpayers the due date would be Dec. 31, 2016.

It is important to note that Action 13 is not law, but rather minimum standards recommended by the OECD and agreed to by the G20 countries. Such standards require domestic law implementation, and as a result the specifics of CbCR implementation may vary by jurisdiction.  Numerous countries have already drafted and implemented laws requiring notification by Dec. 31 for calendar-year taxpayers (or the last day of the fiscal year for fiscal-year taxpayers).

However, because many countries are still in the process of implementing CbCR, taxpayers may face numerous practical issues when attempting to comply with these notification requirements. For example, the identity of the appropriate reporting entity may not be known by the time the notification is required.

OECD guidance on CbCR and country-specific information on implementation, among other things, recommended transitional relief in circumstances that would not frustrate the policy intention of the CbCR initiative. The guidance included, for example, suggested relief such as a mechanism to accept preliminary notifications, as well as an updated notification based on new information, or choosing a later day for the notification deadline.

Preliminary observations Although the OECD’s recommendation to delay the requirements is welcome news to many multinational enterprises, it is not binding on local jurisdictions, as noted previously. Countries may forgo the recommended relief and require all multinationals to comply with requirements, irrespective of whether the ultimate parent has fully implemented CbCR or is in a position to transmit the required report through its treaty network.

Thus, multinational enterprises will still need to carefully evaluate all relevant notification deadlines and monitor any changes or extensions. Grant Thornton can assist multinationals undertaking this exercise by helping to provide implementation assistance and real-time updates, keeping companies a step ahead of the complicated web created by the BEPS initiative.

Contact David Sites
Partner, International Tax Services
Washington National Tax Office
T +1 202 861 4104

Cory Perry
Manager, International Tax Services
Washington National Tax Office
T +1 202 521 1509

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