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.
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.
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.
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.
Partner, International Tax Services
Washington National Tax Office
T +1 202 861 4104
Manager, International Tax Services
Washington National Tax Office
T +1 202 521 1509
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.