Businesses are regarding the compliance environment as a prism through which they view demands for greater transparency, that sees increasing numbers of countries implementing new Country by Country (CbC) Reporting documentation requirements and the need to examine the regime in a different light.
The final guidance from the Organisation for Economic Co-operation and Development (OECD) on TP documentation and CbC Reporting represents a significant development for today’s multinational enterprises (MNEs), that will require them to provide information on their global allocation of profit, taxes paid, and certain indicators of economic activity among the countries in which they operate.
To summarise, large MNEs will be required to prepare and, in some cases, file the following documents:
- A CbC report that will provide a range of quantitative information annually and for each tax jurisdiction in which the MNE does business, including the amount of revenue, profit before income tax, income tax paid, number of employees, stated capital, retained earnings and tangible assets in each tax jurisdiction;
- A Master File that provides high-level information regarding the MNE’s global business operations and TP policies; and
- A Local File that provides detailed transactional TP documentation specific to each country.
The underlying intention in requiring the above three documents to be prepared/filed is that they will require MNEs to articulate consistent TP positions, and to provide tax administrations with useful information to perform TP risk assessments.
One of the underlying design features of CbC Reporting is that the CbC report, once filed with the tax administration of the country in which the ultimate parent/reporting entity is located, will be automatically exchanged with tax administrations in other countries in which the MNE operates through mechanisms such as the exchange of information articles in double tax agreements and specifically designed agreements such as the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA).
Noting the significance of the CbC Reporting era BDO have surveyed the following eight countries within the Asia Pacific region to provide a high-level summary of CbC Reporting requirements in their respective country: Australia, China, India, Indonesia, Japan, South Korea, Malaysia and Singapore.
The common theme that emerged from the survey results was the strict imposition of penalties for non-compliance with CbCR reporting requirements, highlighting that despite the fact that historically only few Asia Pacific countries have been members of the OECD, they continue to adopt an increasingly active role with respect to how the taxable profits of MNEs should be determined and countering multinational tax avoidance.