The increasing demand for greater transparency is changing the tax landscape for international business. The media, lobby groups and non-government organizations continue to question how much tax multinational companies are paying in countries they operated in and whether this is 'fair'. With this backdrop we are seeing new mandatory legislative requirements for Country-by-Country reports of financial tax data, including corporation tax, being introduced. The Country-by-Country (CbC) Reporting requirements proposed as part of the OECD Base Erosion and Profit Shifting (BEPS) project is now a reality and legislation is being introduced across the globe.

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 introduced a CbC Reporting template for multi-nationals to complete and share with tax authorities in countries where they have a taxable presence. Following a consultation process the template was published in September 2014 and was finalized on 5 October 2015 when the OECD published final implementation guidance (PDF 992 KB).

The final OECD report recommends that CbC reporting commence for accounting periods starting on or after 1 January 2016. There will be an exemption for multinationals with consolidated group revenue of less than €750 million (or equivalent in local currency) in the prior financial year. Filing to the parent country tax authority will be due within 12 months of the group’s financial year end.

The members of the OECD and G20 have committed to bring the rules into local legislation and to develop a network of competent authority agreements to facilitate automatic sharing of the CbC Reports amongst relevant tax authorities. Countries are now introducing legislation to bring these requirements into local law and whilst the broad principles of the OECD model legislation are being followed there are differences in local implementation. On 27 January 2016, 31 countries signed a Multilateral Competent Authority
Agreement to share CbC reports with others expected to join them over the coming months.

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) with some countries expanding on this and others not, and it is for individual groups to determine if they are in scope of the CbC requirements, if so which parts of the group are in scope, what are the most appropriate sources of data and how the definitions should be applied to their facts. In our experience, companies will then need to design the data gathering process, consider technology options and undertake a dry run.

Our Tax Transformation 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 or other tools, 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. Contact Julie Hughff or your usual KPMG contact to discuss how these requirements impact your group.

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 October 2015 guidance recommends that the Master File and Local File should be filed directly with each tax administration in each relevant jurisdiction as required and groups will need to monitor the local requirements in the countries they operate in. Our TMC team works alongside our Global Transfer Pricing Services network to ensure the data in the CbC Report with the data and narrative in the Master File and Local Files.

Other mandatory reporting regimes

Extractives sector

Legislation has been introduced across the EU requiring 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. When it is finally passed into legislation the US Dodd Frank Act (section 1504), will apply to SEC listed extractives requiring similar information though there is a possibility of governments issuing exemptions to certain companies under equivalence regimes.

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 Action 13 reporting to ensure consistency of data and efficient data gathering process to gather the necessary information for both requirements.

Voluntary reporting of taxes paid

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.