CbCR will increase transparency of businesses' value chainsDuring a meeting of the GB20 Leaders they expressed their concern about cross-border tax evasion and avoidance undermining public finances and trust in the fairness of the tax system. Plans to address these problems were endorsed at the meeting. © server – 123RF.com The goals of Action 13 of base erosion and profit shifting (BEPS) which address Transfer Pricing Documentation and Country by Country Reporting (CbCR) are:
CbCR is one of the main consequences of this work - the Organisation for Economic Co-operation and Development (OECD) is of the view that the big picture of an organisation's global value chain is key for tax administrators. "CbCR will greatly increase the transparency of businesses' value chains and the robustness and effectiveness of associated transfer pricing policies," says Roxanna Nyiri, head of Transfer Pricing at BDO South Africa. "A similar expectation is an increase in risks associated with this greater visibility." The effect of this new visibility will be:
"To safeguard against these increased risks, businesses need to take action now by testing the efficacy of their transfer pricing policies and data gathering processes," says Nyiri. "Businesses will need to ensure their transfer pricing policies are both current and effective, and that relevant financial metrics can be provided with confidence." CbCR requires the annual submission of information in a standard template for each territory where the group has a taxable presence. This covers:
The OECD acknowledges that some emerging market territories may wish to add detail to this list. All taxable entities in each territory must be listed on a second schedule together with their tax jurisdiction if different from their jurisdiction of tax residence. The main activity of each entity must be flagged. "There are three key questions for multinationals that need to be answered for CbCR," says Nyiri.
The adoption of CbCR could affect all MNEs, regardless of size. There is no exemption for any MNEs in each jurisdiction. The formal requirement to prepare CbCR will follow obligations for transfer pricing documentation as the OECD includes CbCR in the three-tier documentation package. Start dateA formal start date is yet to be announced - the OECD will report back early in 2015. Full implementation may depend on formal local adoption, although the global nature of CbCR information means that having just one compliant territory in a group will require preparation of the form. Best practice filing arrangements will also be announced in early 2015. Sensitivity to the disclosure of data within a business is acknowledged. Central filing and tax authority access of CbCR is a consideration of the OECD. However, direct local filing on tax authority request is likely to be the practice. |