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The OECD has issued guidance explaining which accounting standards apply for determining the entities that are group members, for the purposes of multinational groups filing reports of their global tax and profits for 2016 and subsequent years.
“The Inclusive Framework on BEPS has released additional guidance to provide essential information that will give certainty to tax administrations and multinational groups on how to implement country-by-country reporting under BEPS Action 13,” the OECD said in a press release April 6.
In the guidance, released April 6, the Organization for Economic Cooperation and Development addresses the accounting standards that apply to determining the existence of a “group,” and the membership of the group, under the organization’s model legislation in the Action 13 report. The report doesn’t specify that any particular accounting standard’s consolidation rules are to be used for consolidated financial statement purposes.
If the equity interests of the ultimate parent entity of the group “are traded on a public securities exchange, jurisdictions will require the Group to use the consolidation rules in the accounting standards already used by the Group,” the OECD concluded in the April 6 guidance.
Global tax and profit reporting, or country-by-country reporting, is the most widely adopted measure from the OECD’s comprehensive rewrite of the global tax rules undertaken in 2013. The Action Plan on Base Erosion and Profit Shifting resulted in guidance under 15 “action items,” including country-by-country reporting, recommended under Action 13.
The Action 13 guidance adopted by the U.S. and other countries requires the ultimate parent company of a multinational group to file its country-by-country report in its tax jurisdiction of residence on behalf of the entire group.
The country-by-country reporting plan requires companies to submit a global blueprint of their operations broken down by such factors as income, employees, facilities and taxes paid.
According to the OECD, the April 6 guidance clarifies several interpretation issues related to the data to be included in the country-by-country report, as well as to the application of the model legislation contained in the Action 13 report, to assist jurisdictions with the introduction of consistent domestic rules.
The guidance addresses the:
The April 6 guidance also addresses the situation where the equity interests of the ultimate parent entity aren’t traded on a public securities exchange.
Jurisdictions may allow the group to choose to use either local generally accepted accounting principles (GAAP) of the jurisdiction of the ultimate parent entity—which includes U.S. GAAP if it is permitted under the local rules and regulations of the jurisdiction of the ultimate parent entity—or international financial reporting standards (IFRS) as its governing accounting standard.
The group must apply this choice “consistently across years and for other aspects of the country-by-country report requiring reference to an accounting standard.”
However, if the jurisdiction of residence of the ultimate parent entity mandates the use of a particular accounting standard, or standards, for enterprises with equity traded on a public securities exchange, “this mandatory standard—or one of these mandatory standards—must be used,” the guidance said.
“Exceptionally, if a jurisdiction’s consolidation rules generally require investment entities to be consolidated with investee companies, the jurisdiction may mandate the use of IFRS consolidation rules for the purpose of determining the membership of a Group,” the guidance said. Any such deviation from the accounting standards generally followed for the country-by-country report of a particular multinational group should be noted in Table 3 of the group’s report.
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The OECD's April guidance may be found at http://www.oecd.org/tax/beps/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf.
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