BEPS related compliance

Pakistan: Proposes documentation and CbC reporting requirements

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On June 5, 2017, Pakistan’s Federal Board of Revenue has presented a notification (Notification SRO 421 (I) / 2017) regarding Documentation and country-by-country reporting requirements in respect of transfer pricing. The proposed requirements are generally in line with the three-tiered approach set out in the BEPS Action 13 guidelines.

The CbC report form, the details of the reporting and certification authority, and the three standard CbC report tables included in the notification 421 (I) / 2017.

US: Government sign an arrangement with New Zealand to exchange CbC reports

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The competent authorities of New Zealand and the U.S. have concluded an arrangement on the exchange of Country-by-Country Reports. On May 31, 2017, the U.S. Internal Revenue Service (IRS) updated its listing of competent authority arrangements (CAAs) between the U.S. and its treaty partners. The listing includes a CAA between the U.S. and New Zealand on the exchange of country-by-country (CbC) reports.

Under the arrangement, both countries desire to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which multinational enterprise groups (“MNE Groups”) operate through the automatic exchange of annual country-by-country reports (“CbC Reports”), with a view to assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.

The first fiscal year for which the U.S. and New Zealand intend to exchange CbC Reports is for the fiscal years of MNE Groups commencing on or after January 1, 2016. Such CbC Report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates. CbC Reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML). The Competent Authorities intend to work toward and decide on one or more methods for electronic data transmission including encryption standards.

Turkey signs CRS Multilateral Competent Authority Agreement

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Turkey has signed Common Reporting Multilateral Competent Authority Agreement (CRS MCAA) for the implementation of automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) to launch exchanges in 2018. This country is the 88th jurisdiction to sign this treaty. This convention aims to prevent tax evasion. This treaty also contains provisions that would make it easier to implement automatic exchange of country-by-country reports on the tax affairs of multinational corporations with other countries’ tax administrations according to action 13 of the OECD/G20 base erosion and profit shifting (BEPS) project. Also, it helps in the implementation of exchange of private tax rulings involving multinational firms in accordance with action 5 of the BEPS project.

Netherlands: Bill on country-by-country reporting gazetted

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The lower house of the Dutch parliament adopted a bill implementing EU directive 2016/881, mandating the automatic exchange of country-by-country reporting information among EU member states on 26th April 2017. On 2nd June 2017, EU directive 2016/881bill is published in official Gazette No.215. The Bill takes effect from 5th June 2017, with retroactive effect as of 1st January 2016. In addition, on 7th June 2017, Netherlands signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS).

South Africa and U.S. sign an agreement on the exchange of country-by-country reports

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The competent authorities of South Africa and the U.S. have concluded an arrangement on the exchange of Country-by-Country Reports. On June 5, 2017 the South African Revenue Service (SARS) released the text of the arrangement. According to SARS the agreement was signed on May 8, 2017 in Pretoria and May 26, 2017 in Washington D.C.

Both countries desire to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which multinational enterprise groups (“MNE Groups”) operate through the automatic exchange of annual country-by-country reports (“CbC Reports”), with a view to assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.

The first fiscal year for which the U.S. and South Africa intend to exchange CbC Reports is for the fiscal years of MNE Groups commencing on or after January 1, 2016. Such CbC Report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates. CbC Reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML). The Competent Authorities intend to work toward and decide on one or more methods for electronic data transmission including encryption standards.

Turkey: Council of Minister proposes transfer pricing provisions

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A draft Communique regarding transfer pricing has been published in Turkey. It generally represents measures of the OECD’s base erosion and profit shifting (BEPS) Action 13 on country-by-country reporting and transfer pricing documentation. The amendments related to transfer pricing would be regulated by a draft Council of Minister decision (2017/01), and it is expected to be effective before the end of 2017. The draft Council of Minister decision announced the definition of group, multinational organizations, ultimate parent, reporting entity, alternate entity, and systemic failure under the country-by-country (CbC) reporting rules.

The Decision of the draft Council of Minister declares changes to the Turkish transfer pricing provisions. These rules follow OECD transfer pricing guidelines. The proposed decision provides a 10% threshold that applies in accordance with the definition of related party, the Transitional Net Margin Method (TNMM) and Profit Split Method recognition, a 50% penalty relief offers in case of timely preparation of proper transfer pricing documentation and changes to the related party definition, real persons are to be considered as related parties, no preferential transfer pricing methods are mentioned, Validity period of APA needs to be extended from three years to five years, renewal applications for APA must be filled at least 6 months prior to the APA expiration, APA roll-backs was defined, so in this way, APA would correct prior years’ tax returns , any excess taxes paid in prior years would not be refundable. In accordance with the draft Communique, certain taxpayers need to prepare and maintain a Master File, a Local File and a Country-by-Country report.

Master File

According to this draft “transfer pricing communique”, the multinational taxpayers who have net sales and assets more than 250 million TRY would be need to prepare a master file. The first file would relate to the tax period 2017 and would need to be ready within 2 months after the corporate income tax returns submission.

Local File

The requirement is similar to the previous annual transfer pricing report. All taxpayers with cross-border transactions (for large-scale taxpayers both domestic and cross-border intra-group transactions) would need to prepare the local file. Additionally, companies working in free trade zones are required to get ready transfer pricing report for their domestic intercompany transactions.

CbC Report

The CbC reporting would be applicable for taxpayers who belong to a multinational enterprise group and having a combined revenue of approximately €750 million. This report would present the profit or loss before tax, back year losses, principal amount, paid/increased tax, headcount, tangible products (not including cash and cash equivalents). These all of which are generally consistent with the OECD measures. The first CbC report would be submitted by 31st of December 2017.

Cyprus: Finance Ministry issues revised decree on country-by-country reporting

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On 26 May 2017 the Ministry issued a revised decree on Country-by-Country (CbC) Reporting, under the powers conferred by Section 6(16) of the Assessment and Collection of Taxes Law.

The obligation of a Cyprus tax resident Constituent Entity of a Multinational Enterprise (MNE) Group, which is not the Ultimate Parent Entity (UPE) or the Surrogate Parent Entity (SPE), to file locally a CbC Report under the secondary mechanism, will not apply for fiscal years commencing before 1 January 2017. Therefore, a Cyprus tax resident Constituent Entity subject to CbC as per the above, will be obliged to start reporting for fiscal years commencing on or after 1 January 2017.

The concept of Equivalent CbC Report has been introduced which requires a Cyprus tax resident Constituent Entity of an MNE Group to file a partial CbC Report under the secondary mechanism (e.g. where there is no UPE or SPE filing), in cases where the UPE has refused to provide all required information to the Cyprus tax resident Constituent Entity. Since the Equivalent CbC Report filing falls under the secondary mechanism, it also applies with respect to Fiscal Years beginning on or after 1 January 2017. A requirement to maintain books and records supporting the information disclosed in the CbC Report is introduced.

MNE Groups should be taking steps to assess whether they are in scope of CbC Reporting based on the €750m consolidated group revenue threshold. MNE should ensure that they have the necessary systems in place to collect the information required to be included in the CbC Report. Determine which entity of the group will be the Reporting Entity. MNE should consider any implications related to the information to be reported such as those concerning Transfer Pricing.

Currently, no specific penalties have been introduced in Cyprus with respect to non-compliance with CbCR. In this respect, the general fines provided for in the Assessment and Collection of Taxes Law will apply (e.g., administrative penalties of €100). But specific penalties are likely to be introduced in the near future of a higher amount to provide a more effective disincentive for non-compliance.