The demand for greater transparency is changing the tax landscape for international business. After the global financial crisis, media, lobby groups and non-government organizations began to question how much tax multinational companies are paying in countries they operated in. As a result, new mandatory legislative requirements for Country-by-Country reports of financial tax data are being introduced. The OECD Base Erosion and Profit Shifting (BEPS) agenda and resulting Country-by-Country (CbC) Reporting is fast becoming a reality. 

Country by Country Reporting under Action 13 of the OECD BEPS Action Plan

As part of Action 13 of the BEPS Action Plan, the OECD is introducing a CbC Report template for multi-nationals to complete. It will be available to all tax authorities where the multi-national company operates. The template's contents were finalized and published in September 2014. The latest guidance issued on 8 June 2015 confirms points that were cited in the February 2015 report including; reporting will commence for accounting periods starting on or after 1 January 2016; filing will be to the parent country tax authority; and this should be within 12 months of the fiscal year in scope, so the first filings will be due by 31 December 2017. The report provides additional clarification in regards to the secondary filing mechanism, introduces a requirement to notify tax authorities of which company/country will be filing the report, the relevance of consolidated financial statements for determining the scope, the definition of a multinational enterprise, penalty regime and filing format. 

There will be an exemption for multinationals with consolidated group revenue of less than €750m (or equivalent in local currency) in the prior financial year.  

Coverage is broad and includes all types of entities, such as partnerships, branches and trusts. The OECD has issued general definitions and guidance (OECD September 2014 Guidance on CbC Report) leaving it up to individual groups to determine how this will apply to their groups. Companies will therefore need to determine the most appropriate sources of data and how to apply definitions, such as definitions of corporate income tax in each and every country they operate in. Our KPMG specialists have the knowledge necessary to help companies interpret these definitions.

Once scope is determined, companies need to gather required data and assess whether reporting systems and compliance processes can adapt to meet the requirements. 

Our Tax Management Consulting (TMC) team has extensive experience designing and implementing data collection processes, including developing internal guidance manuals, designing the process, building controls, project managing and using technology solutions for both mandatory regimes and voluntary reporting. This includes implementing KPMG’s proprietary technology, KPMG LINK Country by Country Reporting, which can be used for gathering, aggregating, analysing and reporting CbC data. We have also been involved in the consultations with the OECD and national tax authorities and as a result have a deep understanding of the requirements. 

Action 13 also introduces revised requirements for transfer pricing documentation, built around a Master File and Local File approach. When thinking about the data collection process, analysis should assess the data's risks, and companies should consider the narrative for the Master File. The February 2015 guidance recommends that the Master File and Local File should be filed directly with each tax administration in each relevant jurisdiction as required. Our TMC team works alongside our Global Transfer Pricing Services network to ensure the data in the CbC Report template and Master File narrative and processes are aligned. 

 

Other mandatory reporting regimes 

Extractives sector

Legislation is currently being introduced across the EU which will require companies operating in the extractive sector to publish country-by-country data. Disclosure is required on a project-by-project, government-by-government and country-by-country basis. Requirements will include data on the following:

• Income taxes paid
• Dividends
• Royalties
• License fees 
• Bonus entitlements
• Payments for infrastructure improvements 
• Signature, discovery and production bonuses

The EU Accounting Directive (Chapter 10) will apply to public interest entities in the EU and large private extractives. It is currently being implemented across the EU, with a July 2015 deadline. The U.K. rules will apply to financial years commencing on or after 1 January 2015. The U.S. Dodd Frank Act (section 1504), will apply to SEC listed extractives and requires similar information, though it's currently being redrafted, following a successful challenge to the SEC. It will likely be revised in the near future, with the possibility of governments issuing exemptions to certain companies under equivalence regimes. This is still under review, so watch this space for more details. 

Companies in the extractive sector should consider how these rules will impact them and how to best align their data-gathering process to maximize efficiency. Companies should also evaluate their strategy for public disclosure. It's important to determine the potential benefits of disclosing additional information, as well as a narrative that fully articulates their economic contribution. 

Financial Services sector

Post-financial crisis regulation in the sector has included the EU Capital Requirements Directive IV (CRD IV) which impacts credit institutions and investment firms operating in the EU. Article 89 of this directive requires disclosure of the following information:

• Name(s), nature of activities and geographical location
• Turnover
• Number of employees
• Profit or loss before tax
• Tax on profit or loss
• Public subsidies received

Implementation across the EU has been inconsistent. Determining which entities are impacted and the scope of the required disclosure can be a complex task. Groups publishing under CRD IV need to consider how they should align this directive with their OECD BEPS reporting. They need to ensure data consistency and should seek to create a single, efficient process to gather the necessary information. 

 

Voluntary reporting

In recent years, we have seen an increase in voluntary reporting of taxes paid by multi-nationals headquartered in certain countries. Increasingly, companies prepare statements on their tax position and Q&A, to ensure their tax position can consistently and accurately articulated.  

Our TMC team has experience helping companies collate and evaluate data to prepare voluntary transparency reports.