In February 2015, the OECD released its guidance on the form and content of the updated guidelines on transfer pricing documentation and country-by-country reporting (CbCR). Action 13: Guidance on the implementation of transfer pricing documentation and country-by-country reporting provides implementation details for the CbCR regime outlined in the October 2014 edition of Business Edge.

The highlights of the OECD's recommendations in base erosion and profit shifting (BEPS) Action 13 are:

Timing

The OECD recommends that the first CbCR be required for fiscal years beginning on or after 1 January 2016 with the due date for filing being one year from the end of the fiscal year to which the CbCR relates. The first CbCRs will, therefore, need to be filed by 31 December 2017.

Size exemption

Groups with total revenue of less than €750 million will be exempt - although it is anticipated that some countries may implement lower thresholds. Furthermore, we believe the thresholds will decrease in future, once the authorities gain experience with this new tool. Regardless of the exemption, given that the information within the CbCR provides a framework for tax authorities to assess high-level risk in the context of larger groups, we believe it can also be useful for smaller groups' internal risk management purposes to prepare an internal CbCR to identify and address potential issues.

Filing

CbCRs will be filed annually, directly with the jurisdiction of the multi-national enterprise's (MNE's) ultimate parent entity. If the ultimate parent's home jurisdiction does not require a CbCR or there is no adequate mechanism for timely exchange of CbCRs (or a failure to do so in practice), the parent may have to file the CbCR with the tax authority to which its subsidiary reports.

Use of the CbCR template

To ensure consistency, the OECD is emphasising that jurisdictions should accept filings that use the CbCR template the OECD created included in the September 2014 guidance.

Appropriate use of the CbCR

Individual tax authorities are directed to use the CbCR to assess high-level transfer pricing risk and for assessing other BEPS-related risks but should not use the information from the CbCR as a formulaic test of the appropriateness of the business' tax and transfer pricing policy. However, they may use the CbCR data as a basis for further enquiries into the MNE's transfer pricing arrangements or other tax matters in the course of a tax review.

Confidentiality

Information provided in the CbCR can only be exchanged between tax authorities through existing mechanisms under double tax conventions or other agreements - for example, tax information exchange agreements (potentially modified by the multinational instrument envisaged in Action 15 of the BEPS initiative). A mechanism will be developed under which jurisdictions that receive a CbCR report by a parent entity can automatically exchange the information with jurisdictions in which the MNE group operates.

The OECD says that the information should not be available to the public although, in the UK, the Labour Party election manifesto promises unilateral action on publishing CbCR data if this cannot be agreed with other OECD member states.

Next steps

Enterprises should take action now to understand, address, and manage their reporting process so there are no surprises. Though doing so might be burdensome, enterprises should keep in mind that money and effort spent complying with the OECD's guidance will pay off in the event of a transfer pricing dispute.

The earlier you assess your specific situation, the more time you have to address any risks or weaknesses that may exist. BDO has developed a methodology that allows us to create a profile of the status of your enterprise's transfer pricing mechanisms and policies. We can then help you assess and mitigate any risks you may face with the new documentation and reporting requirements.

Originally published 8 May 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.