Country-by-country reporting: challenges and considerations.

• Author: Felt, Shawn

Over the past several years, the global regulatory environment has become more demanding for multinational enterprises (MNEs). In an effort to create greater transparency, many tax authorities now require MNEs to report more detailed information with respect to income taxes paid. The result has been a substantial increase in the costs of tax compliance for businesses and information overload for tax authorities.

Seeking to standardize information reporting on the global allocation of profits and taxes paid, the Organisation for Economic Co-operation and Development (OECD), at the request of the G20, has developed a common draft template for country-by-country reporting as part of its overall base erosion and profit-shifting (BEPS) action plan. Released as part of the OECD's Discussion Draft on Transfer Pricing Documentation and CbC Reporting (available at tinyurl.com/kjn4lps), the proposed country-by-country reporting template is a 19-column worksheet for MNEs to report income, taxes, and business activities on country-by-country and entity-by-entity levels. Recent commentary suggests that the final template may require less data than originally proposed, thus reducing the size of the current 19-column worksheet.

The primary purpose of the country-by-country reporting template, according to the OECD, would be to provide tax authorities with information deemed necessary to conduct a high-level risk assessment while balancing compliance costs for MNEs. However, the proposed country-by-country reporting template requests a broad range of information covering financial metrics such as revenue and earnings before income tax, along with other economic data such as the number of employees.

The OECD discussion draft generated extensive commentary from the business community, as evidenced by the more than 1,100 pages of comments the OECD received during a 24-day comment period in February The comment letters generally expressed common concerns among the multinational business community that the country-by-country reporting template, as proposed, is far too exhaustive and would continue, rather than reverse, the trend toward increased compliance costs for MNEs and information overload for tax authorities.

Various comment letters from businesses expressed support for greater transparency but stated that such initiatives must be balanced by removing costly compliance burdens that no longer are providing tax authorities with useful information. While...