Tax administration: implementation, transparency, inconsistent interpretations, and minimum standards could pose significant challenges for tax administrators in the United States - and all across the globe.

• Author: Corwin, Manal
• Position: The Organisation for Economic Co-operation and Development's Base Erosion and Profit Shifting Final Report, part 3

Despite widespread political support for the work of the Organisation for Economic Co-operation and Development (OECD) with respect to base erosion and profit shifting (BEPS), implementation of the recommendations emerging from the project1 could pose significant challenges for every tax administration in the world. While the extent and nature of these challenges will vary across tax administrations, most tax administrations implementing even some of the BEPS recommendations will be impacted in significant ways. We discuss here the various facets of the BEPS recommendations that are likely to be most challenging for tax administrations.

Action 13: Transfer Pricing Documentation and Country-by-Country Reporting

Pursuant to the recommendations under Action 13, multinational companies will be required to provide in a single report (country-by-country, or CbC, report) detailed information about their operations in every jurisdiction in which they operate.2 The reports would relate to fiscal years beginning on or after January 1, 2016, with the report due one year later. Thus, the first report for multinationals with fiscal years ending December 31, 2016, would be due by December 31, 2017.

In general, the head company of a multinational group would be expected to prepare the CbC report for the entire group and file it with their residence jurisdiction. The residence jurisdiction would then share the report with other countries through automatic exchange of information, pursuant to government-to-overnment mechanisms such as the multilateral Convention on Mutual Administrative Assistance in Tax Matters, bilateral tax treaties or tax information exchange agreements. Countries that do not receive the report in this way may request the report from local subsidiaries. The final report on Action 13 recommends that (1) the first CbC reports should be with respect to tax years beginning after January 1, 2016, and (2) the first reports should be filed one year after the end of the tax year with respect to which the report relates.

Implementing these recommendations in some jurisdictions may require amendments to domestic legislation in addition to administrative guidance, which can be a difficult and lengthy process. Even if the recommendations can be implemented without legislative change, most jurisdictions will need to provide written administrative guidance on the preparation and timing for submission of the CbC report in sufficient time for the effective dates proposed in the OECD recommendations, which will entail a significant amount of work for tax administrations. Mechanisms for exchanging the report, as well as procedures for reviewing reports received from other countries, also must be established.

To help tax administrations with implementation of the CbC report, the OECD has developed an implementation package containing model legislation and model competent authority agreements. In addition, the OECD plans to develop an XML schema and a related user guide to accommodate the electronic exchange of CbC reports.

In certain jurisdictions, multinationals will also be called on to file a "master file" providing additional information about their global transfer pricing, tax rulings, value chains, and operating structures, and a "local file" containing the transfer pricing documentation that a company would typically provide to individual tax authorities, but including additional information regarding a company's management structure, business strategies, rulings, and reconciliation of financial data used in the transfer...