On 20 July 2017 the OECD published updates to the guidance on country by country (CbC) reporting requirements under Action 13 of the project on base erosion and profit shifting (BEPS). This guidance for tax administrations and multinational groups was first issued by the Inclusive Framework on 29 June 2016 and updated on 5 December 2016 and 5 April 2017. It is intended to clarify questions of interpretation arising in the implementation stage.

Aggregate date to be reported per jurisdiction

The updated guidance clarifies the reporting requirement where there is more than one constituent entity in a particular jurisdiction. The CbC reporting rules require reporting on an aggregated basis for all the entities in the jurisdiction that are members of the group. The guidance clarifies that the results should be on an aggregated rather than a consolidated basis. In other words the results of the entities are aggregated without any adjustments for transactions between related parties and regardless of whether transactions were cross border or within the jurisdiction.

If the group considers that further explanation of the data is necessary it can use Table 3 of the CbC report to clarify the presentation of the data in the CbC report.

However if the jurisdiction of the ultimate parent entity permits consolidated reporting for tax purposes, eliminating intragroup transactions from the results, that jurisdiction may give taxpayers the option to use consolidated data at the level of the jurisdiction provided that consolidated data are then used by that group for every jurisdiction when completing Table 1 of the CbC report and that the use of consolidated results is also consistent from one year to the next.

If this option is chosen the taxpayer should then state in Table 3 of the CbC report that “this report uses consolidated data at the jurisdictional level for reporting the data in Table 1”. The explanation should specify the columns of Table 1 for which the consolidated data differs from figures that would appear if data were just aggregated, for example the total revenues column.

The guidance urges the countries in the Inclusive Framework to implement as soon as possible the recommendation on aggregated reporting with an option for consolidated figures in specified circumstances. However as some time may be required for adjustments the guidance recommends that flexibility should be permitted during a short transitional period, for example fiscal years beginning in 2016, during which taxpayers reporting consolidated data can provide any required explanations of their data in Table 3 of the CbC report.

Entity owned by more than one group

New guidance clarifies that if an entity is owned or operated my more than one unrelated multinational group, for example a joint venture, its treatment for CbC reporting should follow the accounting treatment. The entity’s treatment should therefore follow the accounting rules applicable for each of the multinational groups to which it belongs. Where the accounting rules require the entity to be consolidated (under full consolidation or pro rata consolidation) the entity would be considered to be a constituent entity of the group and its financial data would be included in the group’s CbC report. Where the applicable accounting rules do not require the entity to be consolidated (e.g. equity accounting rules apply) its data would not be included in the CbC report.

Where pro-rata consolidation is applied in preparing the consolidated financial statements jurisdictions may allow that pro rata share of the entity’s total revenue to be taken into account for applying the EUR 750 million threshold for CbC reporting. The pro-rata share of the entity’s data may be included in the CbC report instead of the full amount of financial data.

Under the pro rata accounting basis the revenues, expenses, assets, liabilities etc of an entity are allocated to the consolidated accounts of the participant (shareholder) based on its ownership share of the entity. In full consolidated accounting the results of the whole entity are consolidated. Where equity accounting rules apply an entity is treated in the consolidated balance sheet as an investment (based on the share of the entity’s assets), with the income from the investment reported in the consolidated income statement.

Parent surrogate filing

The list of jurisdictions where parent surrogate filing of the CbC report is possible has been updated at 29 June 2017. The list is updated periodically and a link to the list is provided in the guidance.