Delays To Country-by-country Reports
4 January 2018
Despite the vast majority of multinationals being ready to file their country-by-country reports by the end of the year, several countries chose to defer the filing deadline for a variety of reasons, including difficulties with the XML format.
In more than 40 countries, multinationals with income greater than around €750 million ($904.5 million) had to file a country-by-country report (CbCR) at the end of December 2017.
However, several jurisdictions including Cyprus, Belgium, Italy, Portugal, Jersey and South Africa, decided to defer the deadline for various reasons. Most multinationals have long been working on their CbC reports to be ready for the deadline, but last-minute technical difficulties meant the extensions were still very welcome.
Belgium’s finance ministry announced on November 28 that it would extend the filing deadline to March 31 2018.
One of the main reasons were issues related to the XML format, according to Géry Bombeke, partner at Baker McKenzie in Brussels.
“Countries and tax administrations have in my view underestimated the IT and administrative side of CbCR filings,” Bombeke told TP Week. “In Belgium, issues are encountered with the required XML format of the forms to be introduced as a result of, for example and by administrative tolerance, the CbCR notification form, and also that the local file for the assessment year 2017 could still be filed as a PDF and per email.”
Although a lot of the initial questions from multinationals and their advisers have now been answered by much-needed additional guidance from tax authorities and the OECD, some questions remain unanswered. For some multinationals, recent OECD guidance changed whether they would even be required to file a CbC report, according to advisers.
There is still discomfort around whether countries will accept voluntary CbCR filing by the ultimate parent company, for example for US companies where CbCR is only mandatory for tax years beginning on or after June 30 2016, and on what to do if the financial year of the reporting entity does not coincide with the financial year of the local subsidiary, Bombeke said.
He also pointed out that certain types of joint ventures could still pose challenges for filing CbCR.
Local differences between CbCR requirements have added complexity for the compliance burden of multinationals. Isabel Verlinden, global head of transfer pricing at PwC in Brussels, said this meant the extension was welcome.
“[But] one may ask whether the OECD would have expected all of these differences and whether these aren’t leading to undesired additional red tape rather than helping tax authorities to digest ‘good documentation’, and taxpayers to avoid unnecessary costs without compromising on the quality of documentation submitted,” Verlinden told TP Week.
“I appreciate that the public servants working in each country on the actual translation of Action 13 put forward their own wish lists in the absence of more practical guidance on a pan-OECD basis towards a harmonised approach. Some may indeed be overwhelmed, some may have started too late in reflecting on efficient ways to process the avalanche of data that will be received and some may underestimate the efforts required from large taxpayers and assume they have the tools available without too much hassle,” she said.
An anonymous tax and TP manager at a multinational company told TP Week they had seen a lot of different interpretations when working with CbCR and dealing with the tax authority. “There’s no doubt it is new for them as well. We have a good relationship with the tax authority, but it’s quite clear that they are very uncertain too.”
South Africa gave multinationals a bit more breathing room by extending the filing deadline to February 28 2018.
Michael Hewson, director at Graphene Economics in Johannesburg, said some companies in South Africa had been invited to access the system early to be able to file their CbCR, as part of a test exercise, but most companies with a December year end were only going to have access to the system by mid-December.
“By the time that the extension was announced, many, but not all, companies had performed most of the work required for the CbCR, master file and local file and could have been ready to submit. The difficulty in South Africa is that many people go on leave from December 15 so the timing whereby the system was going to be available from mid-December was unfortunate. As a result, the extension was welcomed,” he said.
It was also not clear whether there would be an extension for the notification in situations where the ultimate parent company is in another jurisdiction.
“This created uncertainty for companies in South Africa that had ultimate parent companies in a jurisdiction, like Switzerland, where we had been informed that they would be listed on the qualifying competent authority agreement, QCAA, but had not yet been listed by mid-December. The updated QCAA list was finalised at the end of December and so companies could then rely on it. However, the lack of clarity relating to this aspect and the late release of this information created uncertainty,” Hewson said.
Italian companies were also granted an extension. “The technical regulations for filing the CbC report was issued only on November 28 2017, so that one month was really not enough to duly file the report. In the last regulation issued December 11 2017 it is clearly stated that the extension was requested by the companies,” Paolo Ruggiero and Alfredo Fossati of LED Taxand Italy, told TP Week.
More cooperation needed
Tax authorities will have a lot learn from each other’s experiences with CbCR. Andy Neuteleers, Brussels-based partner at T/A economics, told TP Week that tax administrations should begin cooperating better from a technical point of view. His firm operates in Belgium and also in the Netherlands, which did not issue an extension. However, Dutch companies managed the process of converting the CbC report to XML and filing the XML file with the tax authority well, Neuteleers said.
“The Dutch tax authority was, in our experience, responsive and fairly easy to contact with questions concerning the content of the CbC reports. With respect to any technical issues with CbCR, we know that the Dutch tax authorities experienced an error during the final week in which the CbC reports could be filed. Because of this error companies did not receive a response as to whether or not the CbC report had been successfully filed. This error was however fixed within one day, after which the respective companies received the receipt for filing their CbC report,” Neuteleers said.
The next step will now be to see what the competent authorities decide to do with the information from the CbC reports, and whether this could lead to an influx of audits and disputes.
The above article was published on www.tpweek.com on January 4 2018 and has been republished with the approval of the Publisher.