Updated OECD CBCR guidance

Tue 26 Sep 2017

The OECD has issued a September 2017 update to their guidance on country by country reporting (CBCR).  In broad summary it contains further guidance on the following:

• Revenue – all revenue, gains income or other inflows included in the financial statements under applicable accounting rules that relate to profit & loss, should be aggregated and shown as revenue.  This does not include such items reflected in comprehensive income/earnings [we assume what is meant is ‘other comprehensive income’ in FRS102 and IFRS terminology],revaluations, and/or unrealized gains reflected in net assets and the equity section of the balance sheet.
• Income tax accrued and cash tax payments for the accounting period should be the amounts reflected in the profit & loss account and the amount actually paid respectively in that period.
• Income tax refunds should generally be reported in the ‘tax paid’ figure.  An exception to this may be permitted where the refund is treated as revenue of the MNE group under the applicable accounting standard. Where this is the casethe CBCR report should contain an explanatory note to that effect using the following wording “Tax refunds are reported in Revenues and not in Income Tax Paid (on Cash Basis)”.
• Jurisdictions should permit a transitional rule for entities with short accounting periods starting on or after 1 January 2016 and ending before 31 December 2016, so that their reporting deadlines are the same as those with reporting years ending on 31 December 2016.

The OECD has also issued guidance on the appropriate use of CBCR by the jurisdictions in receipt of this information.  In broad summary, any CBCR information should only be used for:

• High level transfer pricing risk assessment;
• Assessment of other base erosion and profit shifting risks;
• Economic and statistical analysis, where appropriate.

The guidance contains further information on the consequences of non-compliance with the appropriate use principle.

Importantly, the guidance makes clear that the information in the CBCR should not be used by jurisdictions as a substitute for a detailed transfer pricing analysis. Thus whilst the information may prompt the tax authority to make enquiries into the MNE’s transfer pricing arrangements, the CBCR by itself should not be used to adjust the taxpayer’s reported income through global formulary apportionment.

To discuss your group’s compliance with country by country reporting in the jurisdictions it operates, please get in touch with a member of the Mazars International Tax team.