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Cbc Reporting: Handbook on Effective Tax Risk Assessment

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Cbc Reporting: Handbook on Effective Tax Risk Assessment • • • • • • Country-by-Country Reporting Handbook on Effective Tax Risk Assessment September 2017 This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2017), Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment, OECD, Paris. www.oecd.org/tax/beps/country-by-country-reporting-handbook-on-effective-tax-risk-assessment.pdf Photo credits: Cover © Olivier Le Moal – Shutterstock.com © OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of the source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d'exploitation du droit de copie (CFC) at [email protected]. PREFACE – 3 Preface Next year will be the first time that tax authorities around the world will receive information on large MNE groups with operations in their country, breaking down a group's revenue, profits, tax and other attributes by tax jurisdiction. This information has never previously been available to tax authorities and represents a great opportunity for tax authorities to understand the structure of a group's business in a way that has not been possible before. Country-by-Country Reporting (CbC Reporting) is one of the four minimum standards of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to which over 100 countries have committed, covering the tax residence jurisdictions of nearly all large MNE groups. And the pace of implementation of CbC Reporting is impressive. As of today, more than 55 jurisdictions have already implemented an obligation for relevant MNEs to file CbC Reports. Jurisdictions have also moved quickly to ensure that CbCRs can be exchanged between tax administrations. To date, 65 jurisdictions have signed the Multilateral Competent Authority Agreement and some jurisdictions have entered into bilateral Competent Authority Agreements to operationalise the exchange of CbCRs with specific jurisdictions. With nine months to go until the first CbC Reports are exchanged, over 1 000 exchange relationships between pairs of jurisdictions have already been created. The onus is now put on tax authorities to develop and implement solutions for the collection and handling of CbC Reports and to make effective and appropriate use of the information they contain. The Canada Revenue Agency, in the context of the OECD Forum on Tax Administration, has sponsored work on two new handbooks, to support countries in the effective implementation of CbC Reporting and on the use of the information contained in CbC Reports for the purposes of tax risk assessment. The Country-by-Country Reporting: Handbook on Effective Implementation is a practical guide to the key elements that countries need to keep in mind when introducing CbC Reporting, including technical issues related to the filing, exchange and use of CbC Reports, as well as practical matters that tax authorities will need to deal with. Following implementation of CbC Reporting, a tax authority will then need to start using the information they receive, either from a group directly or from a foreign tax authority. The Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment explores how this can be done, taking into account the different approaches to tax risk assessment applied in different countries, the types of tax risk indicator that may be identified using information contained in CbC Reports, and the challenges that may be faced by tax authorities and that they need to be aware of. It shows that CbC Reports can be a very important tool for the detection and identification of transfer pricing risk and other BEPS-related risk in the hands of a tax administration, used alongside other information that it holds and as a basis for further enquiries, but also raises cautions about COUNTRY-BY-COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT © OECD 2017 4 – PREFACE the risk that simplistic and misleading conclusions may be drawn if CbC Reports are used in isolation. These two handbooks will provide valuable support to countries introducing CbC Reporting and using the information they receive, but we do not see these handbooks as permanent, static tools. As time passes, tax authorities will gain in experience in collecting, handling and using CbC Reports and each of the handbooks will be updated periodically, to ensure that tax authorities in all countries can benefit from this experience. Bob Hamilton Commissioner of the Canada Revenue Agency COUNTRY-BY-COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT © OECD 2017 TABLE OF CONTENTS – 5 Table of contents Abbreviations and Acronyms ....................................................................................................................... 7 Chapter 1 Introduction and Background ................................................................................................... 9 Chapter 2 The Role of Tax Risk Assessment in Tax Administration .................................................... 15 Current developments in tax risk assessment processes ............................................................................ 16 Chapter 3 Overview of CbC Reporting .................................................................................................... 25 The information contained in an MNE group's CbC Report ..................................................................... 25 The advantages CbC Reports offer over other data sources ...................................................................... 27 Other standards for disclosure of country-by-country information ........................................................... 29 Chapter 4 Incorporating CbC Reports Into a Tax Authority's Tax Risk Assessment Framework .. 31 Using CbC Reports within different approaches to tax risk assessment .................................................... 31 Ways in which CbC Reports can be used to detect indicators of possible tax risk .................................... 33 Tax risk indicators that may be detected using information contained in CbC Reports ............................ 35 Chapter 5 Challenges to the Effective Use of CbC Reports for Tax Risk Assessment ......................... 45 Chapter 6 Using CbC Reports alongside data from other sources ........................................................ 55 Chapter 7 Using the Results of a Tax Risk Assessment Based on CbCR Information ........................ 59 Annex 1 Model template for a Country-by-Country Report ................................................................. 61 Annex 2 Tax risk indicators that may be detected using a CbC Report ............................................... 64 Annex 3 Example Use of a CbC Report for Tax Risk Assessment ........................................................ 66 COUNTRY-BY-COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT © OECD 2017 ABBREVIATIONS AND ACRONYMS – 7 Abbreviations and Acronyms AEOI Automatic Exchange of Information AIR Annual Information Return ALBC Approach to Large Business Compliance ANZSIC Australian and New Zealand Standard Industrial Classification ATO Australian Taxation Office BEPS Base Erosion and Profit Shifting CAA Competent Authority Agreement CASS Computer Assisted Scrutiny Selection CbC Country-by-Country CbCR Country-by-Country Reporting CFC Controlled Foreign Company CIB Centralised Information Branch CGTP Transfer Pricing Coordination Group CMCPC Compliance Management Centralized Processing Centre CRA Canada Revenue Agency CRD Capital Requirements Directive CRS Common Reporting Standard CTS Common Transmission System DTCA Dutch Tax and Customs Administration COUNTRY-BY-COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT © OECD 2017 8 – ABBREVIATIONS AND ACRONYMS EITI Extractive Industries Transparency Initiative ETR Effective Tax Rate EU European Union FATCA IGA Foreign Account Tax Compliance Act Inter Governmental Agreement GDP Gross Domestic Product INTRAC Income Tax Transaction Analysis Centre IP Intellectual Property IRAS Integrated Risk Assessment System ISO International Organisation for Standardisation ITD Income Tax Department MNE Multinational Enterprise NACE Statistical Classification of Economic Activities in the European Community NAICS North American Industry Classification System NMS Non-filers Monitoring System OECD Organisation for Economic Co-operation and Development PAN Permanent Account Number R&D Research & Development SII Servicio de Impuestos Internos TDS/TCS Tax Deduction/Collection at Source XML Extensible Markup Language COUNTRY-BY-COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT © OECD 2017 CHAPTER 1- INTRODUCTION AND BACKGROUND – 9 Chapter 1 Introduction and Background 1. Action 13 is one of four minimum standards within the Base Erosion and Profit Shifting (BEPS) Action Plan. It requires the ultimate parent entities of large MNE groups to file a Country-by-Country
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