What is CbCR?
CbCR is a compliance obligation placed on multinational enterprises (“MNE”) whereby they annually report the key elements of their financial statements. The figures are broken down by the jurisdictions in which they do business.
CbC reports provide tax authorities with information to help them assess transfer pricing risk. In turn, they should be able to allocate their tax audit resources more efficiently.
It is hoped that the above will help the OECD move towards a tax landscape where business activity is geographically aligned with profits generated from such activities.
Who files the CbC report?
CbC reports are filed primarily with the tax authorities in the jurisdiction where the MNE ‘parent’ entity is located. However, in some instances the parent is located in a jurisdiction where CbCR has not yet been implemented. In such an instance, the MNE must appoint a ‘surrogate parent’, located in a jurisdiction where CbCR has been implemented to file the report on behalf of the MNE.
A ‘notification’ must also be filed by the ‘local’ entities in each jurisdiction where the MNE does business. This is done prior to the CbC report being filed and contains details in relation to the entity responsible for filing the CbC report (i.e the parent/surrogate parents name, tax reference no. etc.).
Where do we currently stand?
61 jurisdictions have implemented CbCR and an additional 19 jurisdictions have draft bills in place or intend to implement CbCR in the near future.
For the 61 countries that have implemented CbCR, the methods of doing so have varied greatly. There has been a vast contrast in implementation dates, filing deadlines, filing methods and non-compliance penalties.
An additional layer of complexity comes into play when the sharing of the reports is considered. It appears that the OECD’s intention was for the reports to be shared easily between the jurisdiction of filing and those where notifications have been filed. However, this is far from the case.
In order for a report to be exchanged both jurisdictions must have entered into what is known as an ‘Automatic Exchange Agreement’ (“AEA”). If such an agreement has not been entered into, the CbC report itself has to be filed, in most cases, with both jurisdictions.
To put the above in context, we recently worked on an MNE with activities in 23 jurisdictions, 14 of which had implemented CbCR. Notifications had to be filed in each of the 14 jurisdictions. CbC reports also had to be filed in 8 of the jurisdictions due to the shortfall in AEA’s in place. Differences in filing dates, language requirements, filing methods and the future implementation of CbCR in the remaining 9 jurisdictions also had to be considered.
In summary, it appears that the OECD would have benefitted from taking a more harmonised approach in their implementation of CbCR rather than each country having a unique stance. With that said, interest now lies with the tax authorities and ascertaining whether the reports will lead to a stream of tax audits and disputes.
Should you have any queries in respect of your companies CbCR compliance obligations, please contact Jason Martin, or your usual contact at RSM Ireland.