Country-by-Country Template Won't Require Entity-by-Entity Financial Details, Andrus Says

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

By Kevin A. Bell  

March 31 --A proposed country-by-country reporting template will not require multinational companies to break down financial details by legal entity, an official with the Organization for Economic Cooperation and Development announced March 31.

Joseph Andrus, head of the OECD's transfer pricing unit, said that Working Party No. 6 has tentatively “concluded that the CbC template will only require aggregate countrywide reporting of financial information as opposed to legal-entity-by-legal-entity reporting.”

However, Andrus said, the working party decided to add a second page to the country-by-country template to “require a listing of all group entities by country who are aggregated into the country number.”

“This country-by-country list should include codes reflecting business activities in each entity,” said Andrus, who described the decision as “something of a compromise.”

The for country-by-country reporting, released Jan. 30, is a key initiative under the OECD's Action Plan on Base Erosion and Profit Shifting (BEPS). The template would require companies for the first time to provide tax administrations with exhaustive details of how they allocate their income, taxes, and business activities on a country-by-country basis .

Andrus spoke at a March 31-April 1 transfer pricing conference in Paris sponsored by Bloomberg BNA and Baker & McKenzie.

Andrus said the OECD received 1,400 pages of comments on its January discussion draft. The OECD met with interested stakeholders in late March, and afterwards, the working party had a “good discussion” and reached some tentative decisions on the draft, he said.

Reporting Template

Andrus told the Paris conference that the working party also tentatively decided that companies will report their financial data for each country “including revenue, profit before tax, cash taxes paid, current year tax accrual, the total number of full time employees, tangible assets, and capital and accumulated earnings, for the entities in the relevant country.”

He said the working party also concluded that the country-by-country reporting template will not be part of the master file but will be a separate document. The U.S. and U.K. delegates to the OECD's Committee on Fiscal Affairs recently urged that the new template strike a reasonable balance between the transfer pricing risk assessment needs of tax authorities and the compliance burden that it will impose on companies.

The officials--Mike Williams, H.M. Treasury's director of business and international tax, and Robert Stack, deputy assistant secretary for international tax affairs with the U.S. Treasury--spoke at a Tax Council Policy Institute conference Feb. 20

Final Six Columns

Andrus said the working party also tentatively decided to eliminate “the transactional reporting of related party royalties, interest and service fees required by the last six columns of the discussion draft's CbC template.”

Under the January discussion draft, the final six columns of the proposed template would have required a group's ultimate parent company to list:

• royalties paid to constituent entities,

• royalties received from constituent entities,

• interest paid to constituent entities,

• interest received from constituent entities,

• service fees paid to constituent entities, and

• service fees received from constituent entities.

 

Andrus said that “transactional reporting will be included in the local file for transactions that affect the local entity.”

The country-by-country reporting rules will provide flexibility for businesses regarding their source of financial data, he added.

“Either the use of statutory financial data from the statutory reports, or data from the reporting package for consolidation, will be permitted if applied consistently across all countries from year to year.”

The discussion draft's language relating to the global master file also will be “modified to some extent” to reflect the working party's original intention that the objective of the master file is to provide a high-level overview. “We will have to work on the language there,” he said.

The working party also will delete from the master file the requirement that companies report their 25 highest paid employees, he said.

Andrus said there are some remaining issues for the working party to resolve.

“The working party is still talking about the most effective way to require the filing of the report, and while we had a good conversation about that topic, we did not reach any conclusions. We have another meeting to go before we get there.”

 

To contact the reporter on this story: Kevin A. Bell in Washington at kbell@bna.com

To contact the editor responsible for this story: Dolores W. Gregory at dgregory@bna.com

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