Country-by-country reporting (CbCR) is annual reporting of multinational enterprises groups (MNE Groups) with annual consolidated group revenue equal or exceeding EUR 750 milion. This is one of actions of the Organisation for Economic Cooperation and Development (OECD), with the aim of taxing profits where they are created.
Businesses have traditionally viewed tax planning as legitimate on the grounds that they use legal arrangements to reduce their tax liabilities. However, tax planning has become more elaborate in recent years, developing across jurisdictions and shifting taxable profits towards states with beneficial tax regimes. This "aggressive" form of tax planning can take a multitude of forms, such as taking advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing or avoiding tax liabilities.
In this respect the OECD in 2013 adopted its Action Plan on Base Erosion and Profit Shifting (‘BEPS Action Plan’) with 15 actions for tackling the BEPS problem. As a result of the joint work of the G20, the OECD countries, the broad involvement of developing countries and with the cooperation of international economic integrations, including the European Union, in October 2015 the final reports against BEPS were presented and adopted. All 15 final reports against BEPS are published on the OECD internet site.
As Action 13 of the BEPS Action Plan concerns, a three-tiered standardised approach to transfer pricing documentation has been developed with the aim of country’s’ tax authorities provide comprehensive and relevant information on MNE Groups regarding their structure, transfer-pricing policy and internal transactions in and outside the Union:
- Master file – general documentation of high-level information regarding global business and transfer pricing policies of MNE Group;
- Local file – special documentation (detailed information about individual transactions among group members and formation of their prices);
- Country-by-Country Report – certain information to the global allocation of the MNE’s income and taxes paid together with certain indicators of the location of economic activity within the MNE group.
Action 13 of the BEPS Action Plan requires that MNE Groups provide annually and for each tax jurisdiction in which they do business certain information including the amount of revenue, the profit (loss) before income tax, the income tax paid and accrued, the number of employees, the stated capital, the retained earnings and the tangible assets, and also the information regarding the constituent entities of the MNE Group with its main business activities. This information will enable the tax authorities to react to harmful tax practices through changes in the legislation or adequate risk assessments and tax audits.
On 27 January 2016 in Paris Slovenia was also among first 31 countries to sign tax co-operation agreement enabling automatic sharing of country-by-country information (the Multilateral Competent Authority Agreement on the Exchange of CbC Reports, CbC MCAA). The complete list of CbC MCAA signatories is available on the OECD internet site.
Actions of the European Union are also in line with the above mentioned adopted international solutions in this field with the Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation ('the Council Directive 2016/881) which is expected to be implemented into Slovenian law with the amended Tax Procedure Act by the end of 2016. The Council Directive 2016/881 requires that Holding Parent Entity of an MNE Group that is a resident for tax purposes in its territory, shall file CbC report with respect to its Reporting Fiscal Year within 12 months after expiry of the business year last day of the Reporting Fiscal Year of the MNE Group, where the state within the defined time limit automatically exchanges this report with states, in which one or several entities in the group (of the company or business unit) of the international enterprises group is a resident for tax purposes. CbC report will be first communicated to other Member States in the year 2018 for 2016 fiscal year.