On May 4, 2017, the Organisation for Economic Co-operation and Development (OECD) provided updated guidance
on the circumstances under which a jurisdiction may require the filing of a Country-by-Country (CbC) report by a resident constituent entity that is not the ultimate parent entity of its group (referred to as local filing). Local filing is not a minimum standard required as part of CbC reporting, but was included in the action reports issued as part of the comprehensive package of recommended measures known as the base erosion and profit shifting project.
The updated guidance provides specific situations when a jurisdiction should consider mandating a local filing. The OECD clarified that local filings should be applied only in exceptional circumstances when either (1) the ultimate parent entity (UPE) of an multinational enterprise group is not obligated to file a CbC report in its residence jurisdiction; (2) the residence jurisdiction of the UPE has a current international agreement (multilateral or bilateral tax convention or tax information exchange agreement providing for the automatic exchange of tax information) with the residence jurisdiction of a constituent entity, but there is no qualifying competent authority agreement in place between the two jurisdictions by the end of 12 months following the end of the fiscal reporting year of the multinational enterprise group; or (3) there has been a systemic failure to exchange CbC reports by the residence jurisdiction of the UPE, which has been noted to the constituent entity by the tax authority in its residence jurisdiction.
In the guidance provided, the OECD also addressed a transitional issue arising when a jurisdiction requires the filing of CbC reports by resident UPEs before Dec. 31, 2017, and has the capacity to impose a local filing obligation on resident constituent entities that are not UPEs. The OECD noted that it is working to ensure UPEs are not affected by these earlier local filing obligations during the transition period, and also provided specific guidance on this issue related to constituent entities in Brazil and China.
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