On 3 October, the OECD published a memorandum covering certain issues relating to transfer pricing documentation and country-by-country reporting (the subject of Action 13 of the BEPS Action Plan) that will be discussed at the public consultation on transfer pricing issues to be held on 12-13 November (see below). The aim is that the memorandum will assist business in preparing for the public consultation and to encourage them to contribute to that consultation.
The OECD memorandum looks both at what information should be required to be disclosed and what mechanisms should be developed for reporting and sharing country-by-country data. Particular issues considered in the memorandum include:
• What approach should be adopted for reporting income earned in a country?
• Should tax be reported on a cash tax or accruals basis and should it include income taxes paid to other levels of government eg states, cantons etc?
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• Is there a reason to require the reporting of tax other than income taxes?
• Which of the following should be reported on a per entity or per country basis and are there other matters that should be so reported?:
> Revenues by location of customers
> Tangible assets by location
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> Employment, either by number of employees, total payroll or both
> Research expenditures by company and/or country
> Marketing expenditures by company and/or country
> Location of intangibles by country
> Location of senior management (eg the geographic location of the 25 or 50 most highly compensated employees of the multinational group)
In respect of the reporting mechanisms, the OECD is seeking input from business on what information can be obtained, with particular input sought from those responsible for the reporting systems currently used by multinational groups.
There is now real momentum behind these proposals, with the implication being that some form of country-by-country reporting will be introduced. There are other requirements or proposals (such as that in Capital Requirements Directive IV, the Extractives Industries Transparency Initiative and that which is being considered by the European Commission in respect of large companies – see below) that involve country-by-country disclosure, albeit to the public rather than tax authorities.
In designing the reporting under Action 13, it will be important to avoid a proliferation of similar but different requirements which add to the compliance burden and confusion in terms of reconciling the different outputs.
The public consultation in November will be followed by further consultation in spring 2014 with a final report expected in September 2014. Multinational groups may wish to consider what information is currently available to them through their existing systems and start to assess what changes might be necessary to access the information suggested in the OECD memorandum.
