Overview of country-by-country reporting requirements in Inclusive Framework member countries In this article, we will review local file and transfer pricing requirements, and explore how local transfer pricing models can vary from jurisdiction to jurisdiction. Overview of country-by-country reporting requirements As with the master file, the BEPS project contains guidelines for the information that must be contained in local files. The requirements for local BEPS files include the following details: Each year, a compilation of peer reviews is published, which includes a review of the implementation and functioning of the country-by-country reports by the members of the Integrated Framework. An exception applies to jurisdictions that joined the Integrated Framework after a certain date and to jurisdictions that requested an exemption from peer review because they do not have resident companies required to file a country-by-country report and do not wish to receive country-by-country reports as part of the exchange of information or local filing. Although the BEPS guidelines dictate what information is required, there is some flexibility in how companies can present or format the information. For example, the company`s OECD master file can be presented by industry, provided that key functions and transactions are carefully documented. Although the master file must be available to local tax authorities, it does not necessarily have to be created by each business unit, but only by the parent company. Although the OECD`s BEPS requirements have introduced a more complex documentation system, firms can more easily assess arm`s length compliance in their transfer pricing plan and reduce their audit risk by complying with all requirements. However, companies with complex international trading structures that handle large volumes of intra-group transfers should seek advice from external transfer pricing specialists – such as the Valentiam team – to ensure that all BEPS requirements are met. The master file provides a global overview of the company`s transfer pricing. It contains high-level information on the company`s global operations and transfer pricing policy. The OECD has developed an overview of the information to be included in the master file.

In most countries, all countries have adopted the OECD Guidelines on Master Files: To achieve these objectives, the BEPS Guidelines set out a three-step approach to documenting intercompany transactions, requiring companies to produce a master file, a local file and a country-by-country report. This tiered documentation is designed to provide tax authorities in all jurisdictions with the necessary context to verify compliance. This provides an overview of the members of the Inclusive Framework who have introduced requirements for each company in multinational groups to inform the tax administration of the jurisdiction if a country-by-country report will be filed. This includes basic information such as who is the subject of the request, the deadline for notifications, and the format to be used. In addition to the necessary documentation, the most important thing when creating the master file is risk prevention. Discrepancies or inconsistencies between the information contained in the master file and the local file increase the risk of monitoring, so it is important to ensure that the descriptions provided in the files are consistent. The master book offers the opportunity to explain transfer pricing policy to tax authorities. While compliance requires some taxpayers to provide significantly more information than before, the transfer pricing master data requirements have introduced a level of certainty for businesses that carefully apply the arm`s length principle in their intra-group transactions. Tax administrations have encountered a number of concerns about the data contained in the country-by-country reports filed so far, and descriptions of the most common of these have been compiled into a table that can be consulted. Multinationals in CBC reporting should review these descriptions and ensure that these errors are not repeated in the CBC reports they produce.

If a tax authority finds that a CBC report submitted to it contains errors (including, but not limited to, those described in the table), it should require that these errors be corrected by the reporting multinational. The objective of the AMCA on a country-by-country basis is to establish the necessary rules and procedures for the competent authorities of countries implementing BEPS Action 13 to automatically exchange CBC returns prepared by the reporting entity of a multinational group and filed annually with the tax authorities of that company`s tax jurisdiction, with the tax authorities of all jurisdictions, in which the multinational group operates. A special bilateral relationship under the MCMA on a country-by-country basis will only take effect if the two jurisdictions have entered into force the Convention, submitted the necessary notifications under Section 8 and registered each other. 58 jurisdictions required or permitted country-by-country reporting for 2016, and currently 90 jurisdictions have laws introducing country-by-country reporting requirements. In addition, there are more than 2500 relationships for the exchange of country-by-country reports between jurisdictions. This means that virtually all multinationals with a consolidated group turnover of at least €750 million must already submit a country-by-country report and that the remaining gaps will be filled. The preparation of local records is country-specific in order to document the activities of business units operating in that specific jurisdiction. The local file contains detailed information about the intra-company transactions of the local company. Local files are submitted to the tax administration of the jurisdiction. The master file is compiled at the enterprise level, usually at the parent company level.

The BEPS guidelines suggest that the master file be made available to the tax authorities of the countries where the company operates, and many tax authorities have included the master file as a requirement in their own legislation. This report includes revised transfer pricing documentation standards, including a master file, a local file and a country-by-country reporting template on income, profits, taxes paid and specific measures of economic activity. The revised Standardised Approach will require taxpayers to define consistent transfer pricing positions and provide tax administrations with useful information for assessing transfer pricing and other base erosion and profit shifting risks, making decisions on where audit resources can be most effectively used, and, in the case of audits, provide information to initiate and align audit investigations. Country reports are disseminated through an automatic government-to-government exchange mechanism. The implementation package contained in this report provides guidance to ensure that reports are submitted in a timely manner, confidentiality is maintained and information is used appropriately by including model rules and arrangements for competent authorities that form the basis for the exchange of reports between Governments. The country-by-country reports, which include the other level of BEPS documentation, essentially summarize the activities of all of the company`s affiliates operating in the jurisdiction. These can be compiled from information already compiled for master and local files, but require a specific person or team to ensure that the required documents are collected, compiled and filed in a timely manner. For more information, see the OECD Guidelines on the Implementation of Country Reports. While many countries have adopted the OECD local transfer pricing model, some have adapted it by requiring additional information or a specific format to order information. In these jurisdictions, the information specified for OECD requirements will be the same; The difference is that the specific jurisdiction may request additional information or have clear rules on how the information is presented. To facilitate the implementation of the country-by-country reporting standard, the BEPS 13 Action Report includes a set of country-by-country measures including (i) model laws that could be used by countries to require the ultimate parent company of a multinational group to file the country-by-country report in its country of residence, including backup deposit requirements, and (ii) three model agreements for competent authorities that could be used to facilitate the implementation of CBC exchange.

One of the biggest changes to transfer pricing documentation and reporting in recent years has been the maintenance of master and local files in accordance with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Sharing (BEPS) Core Action Points. As mentioned earlier, it is essential to ensure that the information in the local file matches the information in the master file. Discrepancies can lead to audit risks. are addressed as part of the third annual peer review process Due to the increasing complexity of the three-step approach introduced by the BEPS project, a detailed work plan is essential to meet key deadlines and successfully manage the compliance process. Developing this plan is a challenge in itself, which is why Valentiam has designed a scalable work plan with calendars and to-do lists that serves as a workplan template. You can learn more about the artboard or download the free template. doi.org/10.1787/9789264241480-en 9789264241480 (PDF) One of the conditions for obtaining and using country-by-country reports is that a country must have the necessary framework and infrastructure in place to ensure the appropriate use of country-by-country information.