The Organisation for Economic Co-operation and Development (“OECD”) issued updated guidance (“Guidance”) on the implementation of country-by-country (“CbC”) reporting in July 2017.  The Guidance includes the previously issued items and certain new ones.  They are:

  1. Extraordinary income and gain from investment activities. These amounts should be included in revenues in the CbC report.
  2. Definition of related parties. Related parties for purposes of “Related Party Revenues” in Table 1 should be interpreted as the Constituent Entities included in Table 2.
  3. Aggregated or consolidated data by jurisdiction. Data should be reported on an aggregated basis at the jurisdictional level, that is, without eliminating intra-jurisdiction transactions between constituent entities in that jurisdiction.  However, if the jurisdiction of the Ultimate Parent Entity has a system of taxation for corporate groups that includes consolidated reporting for tax purposes, then that jurisdiction may allow taxpayers to complete the CbC report using consolidated data at the jurisdictional level, as long as consolidated data are reported for each jurisdiction in Table 1 of the CbC report and consolidation is used consistently across the years.
  4. Investment funds. As per the Action 13 Report, there is no general exemption for investment funds.  The governing principle to determine a Multinational Enterprise (“MNE”) Group is to follow the accounting consolidation rules.  If the accounting rules instruct investment entities not to consolidate with investee companies, then the investee companies should not form part of a Group or MNE Group or be considered as Constituent Entities of an MNE Group.  But if the accounting rules require an investment entity to consolidate with a subsidiary, then the subsidiary should be part of a Group and should be considered as a Constituent Entity of the MNE Group (if one exists).
  5. Like investment funds, the governing principle to determine a MNE Group is to follow the accounting consolidation rules.  If the accounting consolidation rules apply to a partnership, then that partnership may be a Constituent Entity of an MNE Group subject to CbC reporting.  If a partnership is not tax resident in any jurisdiction, then the partnership’s items, to the extent not attributable to a permanent establishment, should be included in the line in Table 1 for stateless entities.  (A permanent establishment of a partnership would be included in the CbC report in the same manner as any other permanent establishment.)  Any partners that are also Constituent Entities within the MNE Group should include their share of the partnership’s items in Table 1 in their jurisdiction of tax residence.  Table 2 should include a row for stateless entities and a sub-row for each stateless entity including partnerships that do not have a tax residence.
  6. Existence of and membership of a group. The Action 13 Report does not specify that any particular accounting standard’s consolidation rules be used.  If the equity interests of the Ultimate Parent Entity are traded on a public securities exchange, then it is expected that jurisdictions will require the Group to use the consolidation rules in the accounting standards already used by the Group.  If they are not traded on a public securities exchange, then jurisdictions may allow the Group to choose either local generally accepted accounting principles (“GAAP”) or International Financial Reporting Standards (“IFRS”) as its governing accounting standard, as long as the Group applies this choice consistently across years and for other aspects of the CbC report requiring reference to an accounting standard.  However, if the jurisdiction of the residence of the Ultimate Parent Entity mandates the use of a particular accounting standard for enterprises the equity of which is traded on a public securities exchange, this mandatory standard must be used.
  7. Treatment of major shareholdings. If the accounting rules in the jurisdiction of the Ultimate Parent Entity require a Constituent Entity, the minority interests of which are held by unrelated parties, to be fully consolidated, then 100 percent of the entity’s revenue should be included for purposes of applying the EUR 750 million threshold for determining an Excluded MNE Group.  Additionally, in such a case, the entity’s financial data that is included in the CbC report should represent the full 100 percent amount and should not be pro-rated.  On the other hand, if the accounting rules require proportionate consolidation in the presence of minority interests, then the jurisdiction may allow the entity’s revenue to be pro-rated for the purpose of applying the EUR 750 million threshold and may also allow its financial data that is included in the CbC report to be pro-rated.
  8. Joint ventures. In the case of a joint venture, or any other entity owned and/or operated by more than one unrelated MNE Group, the treatment of the entity for CbC purposes should be determined under the accounting rules applicable to each of the unrelated MNE Groups separately.  If the applicable accounting rules require an entity to be consolidated into the consolidated financial statements of an MNE Group, the entity would be considered as a Constituent Entity of that group and the financial data of such entity should be reported in the CbC report of the MNE Group.  This applies to entities included in the MNE Group’s consolidated financial statements using either full consolidation or pro-rata consolidation.  If an entity is not required to be consolidated under applicable accounting rules, the entity would not be considered as a Constituent Entity and, accordingly, the financial data of such an entity would not be reported in the CbC report.  Where pro-rata consolidation is applied to an entity in an MNE Group in preparing the group’s consolidated financial statements, jurisdictions may allow a pro-rata share of the entity’s total revenue to be taken into account for the purpose of applying the EUR 750 million threshold.  Jurisdictions may also allow an MNE Group to include a pro-rata share of the entity’s financial data in its CbC report.
  9. Impact of currency fluctuations on the filing threshold. Action 13 Report set out the agreed filing threshold of EUR 750 million or a near equivalent  Provided that the jurisdiction of the Ultimate Parent Entity has implemented a reporting threshold that is a near equivalent of EUR 750 million in domestic currency as it was at January 2015, an MNE Group that complies with this local threshold should not be exposed to local filing in any other jurisdiction that is using a threshold denominated in a different currency.
  10. Definition of total consolidated group revenue. In determining whether the total consolidated group revenue of an MNE Group is less than EUR 750 million, all of the revenue that is (or would be) reflected in the consolidated financial statements should be used.  A jurisdiction where the Ultimate Parent Entity resides is allowed to require inclusion of extraordinary income and gains from investment activities in total consolidated group revenue if those items are presented in the consolidated financial statements under applicable accounting rules.
  11. Transitional filing options. Jurisdictions that are implementing CbC reporting but are not able to implement it with respect to the fiscal period commencing from January 1, 2016, may be able to accommodate voluntary filing for Ultimate Parent Entities resident in their jurisdiction.  This would allow the Ultimate Parent Entities of an MNE Group resident in those jurisdictions to voluntarily file their CbC report for the fiscal periods commencing on or from January 1, 2016, in their jurisdiction of tax residence.  This process is referred to as “parent surrogate filing.”  Where surrogate filing is available, it will mean that there are no local filing obligations for the particular MNE in any jurisdiction which otherwise would require local filing in which the MNE has a Constituent Entity, subject to the following conditions: (1) the Ultimate Parent Entity has made available a CbC report conforming to the requirements of the Action 13 Report to the tax authority of its jurisdiction of tax residence, by the filing deadline; (2) by the first filing deadline, the jurisdiction of tax residence of the Ultimate Parent Entity must have its laws in place to require CbC reporting (even if filing of a CbC report for the reporting fiscal year in question is not required under those laws); (3) by the first filing deadline, a Qualifying Competent Authority Agreement must be in effect between the jurisdiction of the tax residence of the Ultimate Parent Entity and the local jurisdiction; (4) the jurisdiction of tax residence of the Ultimate Parent Entity has not notified the local jurisdiction of a Systemic Failure; and (5) the following notifications have been provided: the jurisdiction of tax residence of the Ultimate Parent Entity has been notified by the Ultimate Parent Entity, no later than the relevant notification deadline; and the local jurisdiction’s tax administration has been notified by a Constituent Entity of the MNE Group that is resident for tax purposes in the local jurisdiction that is not the Ultimate Parent Entity nor the Surrogate Parent Entity, stating the identity and tax residence of the Reporting Entity, no later than the relevant notification deadline.
  12. Reporting notification requirements during transitional phase. Because some MNE Groups might not know the identity of the appropriate reporting entity at the time of a local notification deadline, jurisdictions may provide some flexibility regarding the date for the notification requirement, such as delaying until the date for filing a CbC report.  Jurisdictions may also provide administrative guidance to allow transitional relief, such as authorizing Constituent Entities to provide a notification based on a preliminary assessment and provide an updated notification by the date for filing the CbC report.

 

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By |2018-11-02T20:19:52+00:00August 31st, 2017|