How to deal with the new obligation to file a country by country report?

By Erwin De Keukeleere, Senior Consultant Sigma Conso
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Country by Country Reporting (CbCR) is part of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13. The action plan is based on 3 key pillars: (i) Reinforce substance requirements in existing international standards; (ii) Increase coherence in domestic rules affecting multinational activities; and (iii) Improve transparency and consistency.

The three-layered OECD approach of the Action Plan 13 consists of a Master File, a Local File and a CbC Report - to be submitted annually.

What and who?

The CbC Report provides aggregated financial and tax data by tax jurisdiction in which the group does business. Groups with a consolidated group revenue (operational, financial and exceptional) that exceeds 750 M EUR in the immediately preceding filing period as expressed in the consolidated annual accounts of that group for the filing period, are obligated to file such report.

The report should be submitted for fiscal years beginning on or after January 1, 2016. However, this recommendation was not mandatory and some countries chose to implement Action 13 at later dates. Most countries however have followed the OECD’s recommended start date.

In some countries, optional filing is allowed. For those companies headquartered in jurisdictions that cannot accommodate optional filing, a surrogate parent can be selected or local filing can be executed.

What is the impact of this obligation on large multinational companies?

They have to gather information that was never requested in tax reports before, namely a country-by-country reconciliation of:

  • Total Revenues
  • Revenues - related parties
  • Revenues - unrelated parties
  • Profit or Loss
  • Tax paid
  • Tax Accrued
  • Capital
  • Earnings
  • Number of Employees
  • Assets

Although Action 13 focuses on gathering information to enhance transparency for tax administration, it seems that the workload is falling down on the Consolidation and Group Controlling departments within a group.

What are the key points of attention to file a CbC report?

  • Source of information: data might be available in different systems and on different levels (statutory or management accounting).
  • Optimization of costs, time and efforts of the organization and systems in use.
  • Definition of the requested indicators, using the group accounts (e.g. definition of earnings).
  • The scope of the consolidation: proportional method, unconsolidated companies, …
  • Planning time frames and schedules to gather the information.
  • Reconciliation between what has been reported in the CbCR and statutory consolidation or management reporting (although not required).

Nevertheless, the success of the Country by Country Reporting depends on how it’s managed in the group. If you need any help, do not hesitate to call upon one of our specialized consultants!

Or ask for a demo now of Sigma Conso Consolidation & Reporting to see how easy this report can be set up in the tool.

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