OECD outlines plan for BEPS reporting by country: An Article Authored by Paul Oliveira, CPA from KLR - Accounting Firm Boston, Massachusetts, Providence, Rhode Island

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OECD outlines plan for BEPS reporting by country

posted Jul 31, 2015 by Paul Oliveira, CPA

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The Organisation for Economic Cooperation and Development (OECD) published its proposals for country-by-country (CbC) reporting under Action 13 of its base erosion and profit shifting (BEPS) project.

The BEPS project seeks to ensure that profits are taxed where economic activity generating the profits is performed and where value is created. Among other things, the CbC package contains:

Model legislation that countries may use to require the parent entity of a multinational enterprise (MNE) group to file the CbC report in its jurisdiction of residence, including backup filing requirements when that jurisdiction doesn’t require filing. The model legislation doesn’t take into account the constitutional law and legal system or the structure and wording of the tax legislation of any particular jurisdiction. Jurisdictions may adapt the model legislation to their own legal systems.

The model legislation doesn’t include provisions regarding penalties to be imposed in the event an entity fails to comply with the reporting requirements. Instead it assumes that jurisdictions would wish to extend their existing transfer pricing documentation penalty regime to the requirements to file the CbC report.

Three model Competent Authority Agreements that could be used to facilitate the exchange of CbC reports under:

  • The Multilateral Convention on Administrative Assistance in Tax Matters,
  • Bilateral tax conventions, and
  • Tax Information Exchange Agreements.

The Convention on Mutual Administrative Assistance in Tax Matters requires the competent authorities of the parties to the convention to mutually agree on the scope of the automatic exchange of information and the procedure to be complied with. This requirement has been translated into a Multilateral Competent Authority Agreement (MCAA) that defines the scope, timing, procedures and safeguards under which the exchanges should take place.

Congressional tax leaders in the United States questioned the U.S. Treasury’s authority to implement CbC reporting. In response, a Treasury official reiterated that the agency does have that authority. In addition, it has been suggested that the U.S. may implement an earlier filing deadline for CbC reports than the one provided by the OECD under the BEPS project.

Note: Critics of CbC reporting have expressed concerns about tax administrations proposing transfer pricing adjustments based on information contained in the CbC reports and leaking sensitive information to the public.

Brian Jenn, an attorney advisor in the U.S. Treasury Department’s Office of International Tax Counsel, said the government hasn’t decided whether the CbC reports will be part of U.S. income tax returns or be considered as complete separate filings. As a practical matter, this is a call for the IRS administration.

On the horizon: Under BEPS Action 13, the initial CbC reports would be filed by December 31, 2017. However, the U.S. deadline for filing initial CbC reports could be earlier (e.g., September 17, 2017), if the reports are to be filed with the corporate income tax returns of U.S. MNEs.

An XML Schema and a related User Guide are expected to be developed to accommodate the electronic exchange of CbC reports.