03/02/17

Countries’ Global Tax, Profit Reporting Under Review

The OECD is watching closely to make sure countries comply with new rules requiring country-by-country reporting of multinationals’ tax and profits—the most widely adopted measure of the organization’s sweeping plan to curb tax base erosion and profit shifting by multinational companies, reports Bloomberg.

“Today, the OECD released key documents, approved by the Inclusive Framework on BEPS, which will form the basis of the peer review of Action 13 Country-by-Country Reporting and for the peer review of the Action 5 transparency framework,” the organization said in a Feb. 1 news release.

Country-by-country reporting, the 13th action item of the Organization for Economic Cooperation and Development’s 15-point Action Plan on Base Erosion and Profit Shifting, calls for companies to report to tax authorities on the amount of taxes paid and profits earned in each country of operation, and for countries to automatically exchange that information with other governments while ensuring confidentiality.

Country-by-country reporting is meant to give tax authorities the information needed to understand the activities of multinational companies and to assess transfer pricing risk.

Action 5, a separate action item in the BEPS project, sets out the agreed framework for the transparency initiative. This includes six categories of taxpayer-specific rulings that, in the absence of compulsory spontaneous exchange of information, could give rise to concerns about tax avoidance.

Peer Review

The Action 13 standard on country-by-country reporting and the Action 5 standard for the compulsory spontaneous exchange of information on tax rulings are two of the four BEPS “minimum standards,” required to be adopted by the countries that have signed on to the BEPS project. The other two standards require adopting measures to make cross-border tax dispute resolution more effective and preventing the granting of treaty benefits in inappropriate circumstances.

“Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field” the OECD said Feb. 1.

All countries that are members of the OECD’s “inclusive framework” on BEPS—the organization’s effort to get as many countries as possible to adopt the BEPS measures—have committed to implementing the minimum standards and participating in the peer reviews.

The two peer review documents released by the OECD Feb. 1 include the terms of reference setting forth the criteria for assessing the implementation of the minimum standard and the method setting out the procedural mechanism by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process.

Country-by-Country Reporting

Countries are putting in place legal and administrative frameworks to adopt country-by-country reporting rules. Tax administrators will start exchanging country-by-country reports for the first time by mid-2018. In the Feb. 1 peer review document on Action 13 the OECD said countries will be evaluated on these two issues as well as how they ensure the confidentiality of country-by-country reports and that the reports are used appropriately in any subsequent tax compliance actions.

“A staged review enables the review of aspects of CbC reporting to occur as they are implemented, starting in 2017 and allowing for the early detection of inconsistencies in implementing the minimum standard as well as providing an opportunity for early remedial action to be taken by jurisdictions, if necessary,” the OECD said.

The OECD will submit a consolidated report on the outcomes of the peer reviews on an annual basis, “with more frequent reporting including requests for guidance and decision as and when needed,” the organization said. “The reports will also inform the discussions in 2020 of the effectiveness of the design of the country-by-country reporting standard.”