Country-by-country reporting (“CbC”) requires certain information and in forms that might not be immediately apparent.  Multinational enterprise (“MNE”) groups subject to CbC reporting should be aware of those requirements.  They include:

  • Revenues;
  • Aggregation;
  • Withholding taxes; and
  • Income tax paid.

REVENUES.  For purposes of CbC reporting, revenues include more than just net sales.  The Internal Revenue Service (“IRS”) instructions for Form 8975 and Schedule A (Form 8975) define revenue to include “all amounts of revenue, including revenue from sales of inventory and property, services, royalties, interest, and premiums.”[1]  Therefore, revenues in the CbC report may include items listed below operating profit, such as interest income.

The OECD’s Guidance on the Implementation of Country-by-Country Reporting provides perhaps the most complete definition:

All revenue, gains, income, or other inflows shown in the financial statement prepared in accordance with the applicable accounting rules relating to profit and loss, such as the income statement or profit and loss statement, should be reported as Revenues in Table 1.[2]

For example, and also per the OECD Guidance, extraordinary income and gains from investment activities are to be included in Revenues.  Income items that are reported on the income statement on a net basis, however, do not need to be adjusted to a gross basis.  Revenues do not include: (1) payments received from other constituent entities in the MNE group that are treated as dividends in the payor’s tax jurisdiction of residence; (2) distributions and remittances from constituent entities that are partnerships, other fiscally transparent entities, or permanent establishments; and (3) imputed earnings or deemed dividends from other constituent entities that are taken into account solely for tax purposes and that otherwise would be included as revenue by a constituent entity.[3]

AGGREGATION.  Where an MNE group has multiple constituent entities within a particular jurisdiction, data should be reported on an aggregated rather than a consolidated basis.  That is, amounts are summed across all constituent entities within the jurisdiction without intercompany eliminations.  The OECD Guidance indicates that where the jurisdiction of the ultimate parent entity has a system of taxation for corporate groups that includes consolidated reporting for tax purposes, that jurisdiction may allow taxpayers to complete the CbC report using consolidated data at the jurisdictional level.  The IRS instructions, however, state that “for each tax jurisdiction in which one or more constituent entities of your group is tax resident, you must provide financial amounts and numbers of employees as an aggregate of the information for the constituent entities resident in that tax jurisdiction.”[4]

WITHHOLDING TAXES.  Taxes paid should include withholding taxes paid by other entities (whether related or unrelated) with respect to payments to the constituent entities.  As an example, for a constituent entity (Company X) operating in tax jurisdiction X that earns interest income from a company in tax jurisdiction Y that is subject to withholding tax in tax jurisdiction Y, the tax withheld on the interest and paid to tax jurisdiction Y should be reported as part of the income taxes paid by Company X for tax jurisdiction X.

INCOME TAX PAID.   Income tax paid (on cash basis) includes the amount of the taxes actually paid during the reporting fiscal year, regardless of whether the payments are for the relevant fiscal year’s tax obligation or for prior years.  Income tax refunds are included in the reporting fiscal year in which the refund is received.

[1] IRS, Instructions for Form 8975 and Schedule A (Form 8975), p. 4.
[2] OECD, Guidance on the Implementation of Country-by-Country Reporting, September 2017, p. 5.
[3] IRS, Instructions, p. 4.
[4] IRS, Instructions, p. 4.