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Exchange of country-by-country reports

Country-by-country reporting refers to an annual report by MNEs to the authorities in the jurisdiction where they are headquartered, showing a range of financial and other relevant data for the MNEs activities in each tax jurisdiction in which they do business.

The legal basis for the Multilateral Competent Authority Agreement to Exchange Country by Country Reports (CBCR Agreement) also lies in Article 6 of the MCMAATM Convention. Article 6 of the Convention requires the Competent Authorities of the Parties to the Convention to mutually agree on the scope of the automatic exchange of information and the procedure to be complied with. This new reporting standard, which was developed following the conclusion of BEPS Action 13, is set to enter into effect in most of the jurisdictions that have agreed to it in 2017. 57 jurisdictions have signed the CBCR Agreement to date.

The purpose of the CbCR Agreement is to set forth rules and procedures as may be necessary for Competent Authorities of jurisdictions implementing BEPS Action 13 to automatically exchange CbC Reports prepared by the Reporting Entity of an MNE Group and filed on an annual basis with the tax authorities of the jurisdiction of tax residence of that entity with the tax authorities of all jurisdictions in which the MNE Group operates.

The Addis Agenda encouraged policies that require MNEs to provide country-by-country reports to tax authorities, with the intent to discourage profit shifting and enable stronger enforcement action by tax administrations.

The G20 and OECD agreed to a template for country-by-country reporting in 2015 as one of the BEPS Action Plan items, and in 2016 the OECD released a standard for the electronic exchange of such reports between jurisdictions. More than 90 countries have signed up to implement such reporting. The standard requires multinational groups with income above 750 million euros (or the equivalent amount under domestic legislation), to produce 3 distinct reports, under the country by country obligation:

  1. a CbC report, which would be exchanged automatically between tax administrations, should the country enter into the Multilateral Competent Authority Agreement (MCAA) to exchange country-by-country reports;
  2. a Master file, containing information regarding the group’s activities, and
  3. a local file, which is a yearly report on the revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees employed by the MNE locally.

The master file and the local file have to be produced by all MNE groups, as there is no minimum income threshold to produce those files (although some countries have imposed domestic minimum thresholds, to release the burden from SMEs). The local file is to be delivered only to the local tax administration where the multinational entity is a resident, whereas the master file is to be delivered to every jurisdiction where the MNE group has a presence. These files are not subject to automatic exchange of information, and can be used for audit purposes. The CbC report, on the other hand, is subject to exchange of information if the country is a signatory to the MCAA or to a bilateral exchange of information agreement which is permissive of such exchange. The CbC report can only be used for risk assessment purposes, to inform tax authorities of the activities of the multinational group, and not for audit purposes. All reports are confidential, and are not to be disclosed to the general public.

The purpose of the CbC MCAA is to set forth the rules and procedures which are necessary for the jurisdictions implementing BEPS Action 13, to exchange CbC reports automatically. In March 2016, the OECD released the standardised electronic format for exchange of CbC reports, and its corresponding user guide.

At regional level, the European Union has proposed a Directive for automatic exchange of information of CbC reports. The Directive was one of the elements of the January 2016 package of Commission proposals to strengthen rules against corporate tax avoidance, and came into force on the first semester of 2016.