Country-by-Country Reporting: What is your risk profile?

Tax Alert - October 2017

Next year will be the first time tax authorities around the world will receive information on large MNE groups (greater than €750m revenues) with operations in their country, breaking down a group’s revenue, profits, tax and other attributes by tax jurisdiction via Country-by-Country (CbC) Reporting. This information has never before been available to tax authorities in a consistent format and represents new opportunities for tax authorities to analyse a MNE group’s business in ways that have not been possible before.

On 29 September 2017 the OECD released Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment which supports countries in the handling of CbC Reports and provides guidance to tax authorities to make effective and appropriate use of the information they contain for the purposes of tax risk assessment.

The Handbook shows that CbC Reports can be a very important tool for tax authorities to detect and identify transfer pricing risk and other BEPS-related risk, and can be used alongside other information that tax authorities holds as a basis for further enquiries.

In particular, Annex 2 of the Handbook contains a table of the tax risk indicators that may be detected from the information contained in a MNE group’s CbC Report. Examples are:

  • IP is separated from related activities within a group;
  • Jurisdictions with significant activities but low levels of profits (or losses);
  • Information in a group’s CbC Report that does not correspond with information previously provided by a constituent entity.

We note that this is not a comprehensive list of tax risk indicators that can be derived from a MNE Group’s CbC Report, but illustrates the range of risk areas that can be uncovered. For a number of the risk indicators, example ratios have been included to suggest how the level of risk may be assessed.

With nine months to go until the first CbC Reports are exchanged, if your business is subject to CbC Reporting, now is the time to assess the group’s tax risk profile using the indicators in the Handbook and consider what anomalies and potential risk indicators tax authorities may identify.

A copy of the Handbook can be found here.

If you need advice in considering the tax risk indicators that may be detected, or you need assistance in compiling your CbC Report, contact your usual Deloitte advisor.

October 2017 Tax Alert
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