Your Taxes: OECD pushes world tax transparency

This second annual peer review considers implementation of the CbC reporting minimum standard by jurisdictions as of April 2019.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)
Until a few years ago, the tax authorities of the world had little or no idea what multinational enterprises (MNEs) were doing outside their borders. Consequently, they could not know if they were collecting their fair share of tax. Now, larger MNEs with annual revenues over 750 million euros have to file detailed global reports known as country by country (CbC) reports, thanks to an OECD recommendation in Action 13 of its initiative addressing BEPS (base erosion and profit shifting) published in 2015. And it seems BEPS is starting to bite.
On September 3, the OECD released the outcomes of the second phase of peer reviews of the BEPS Action 13 CbC reporting initiative. A peer review is where a tax authority is reviewed by tax officials of other tax authorities under OECD auspices
CbC reporting requires tax administrations to collect and share detailed information on all large MNEs doing business in their countries. Information collected includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees and tangible assets broken down by jurisdiction.
The OECD says CbC reporting provides an unprecedented level of transparency to tax administrations worldwide. As a result, tax administrations, often for the first time, will have received detailed information on large MNEs doing business in their countries. And peer reviews help to ensure a timely and consistent implementation across the world, which is key to the success of CbC reporting.
“The peer review outcomes and the launch of the global exchange of CbC reports in June 2018 show that the BEPS measures are being implemented rapidly, consistently and globally,” said OECD Center for Tax Policy and Administration director Pascal Saint-Amans.
This second annual peer review considers implementation of the CbC reporting minimum standard by jurisdictions as of April 2019.
Highlights include:
• Coverage increased to 116 jurisdictions. The peer review includes a comprehensive examination of 116 countries committed to the BEPS “Inclusive Framework” of measures – including Israel.
• Practically all large MNEs are now covered. More than 80 jurisdictions have already introduced legislation to impose a filing obligation on MNE groups, covering almost all MNE groups with consolidated group revenue at or above the threshold of 750 million euros.
• Implementation is largely consistent with BEPS Action 13. The implementation of CbC reporting by countries is largely consistent with the BEPS Action 13 recommendations.
• Jurisdictions are acting on prior recommendations. There were 62 recommendations made in the first peer review that have been addressed by the countries concerned.
• More than 2,200 exchange-of-information deals are now in place. This is partly due to a new OECD super-tax treaty known as the multilateral instrument (MLI). By signing up to the MLI, countries may modify their tax treaties in one go with other countries that sign up to the same changes. Exchanges of CbC reports began in June 2018, and more than 2,200 bilateral relationships for CbC exchanges are now in place.
All this may sound technical, but it means countries are now presenting multinational enterprises with much bigger tax bills, thanks to the CbC information. What will they do with these extra tax revenues? MNEs are the way international trade is done. Consequently, the finance departments of MNEs must now assemble CbC information and check that profits are not overtaxed in more than one country by showing where profits and value are really generated. Many billions of tax dollars are at stake.
As always, consult experienced tax advisers in each country at an early stage in specific cases.