This article is kindly contributed by Otico Software, which provides user-friendly technology solutions for Transfer Pricing compliance.
"Not Waving but Drowning" is a famous poem by the British poet Stevie Smith, which gives an account of a drowned man whose distressed thrashing in the water was mistaken for waving. With the clock now ticking down towards the first Country-by-Country Report (“CbCR”) submissions, we devote this article to Otico Software’s 8-point survival guide to ensure you're waving (hopefully with a sparkler or glass of champagne) on 31st December 2017.
To ensure your CbCR submission process goes swimmingly, break down the task into the following 8 manageable tasks.
- Decide where to file - whilst it may seem obvious for most MNCs to file in their HQ tax jurisdiction, the delayed roll-out of CbCR legislation & delayed conclusion of exchange agreements raises the prospect of surrogate parent entity filings (e.g. in the absence of final CAAs many US resident MNCs may not be able to rely on the IRS to share their CbCRs with relevant foreign tax authorities, creating direct local filing obligations). It is never too late to consider your filing strategy and discuss options available.
- Check local legislation - too many tax professionals are not explaining to clients that whilst CbCR is a global initiative (BEPS Action 13), the "rubber meets the road" under local legislation. MNCs need to comply with local CbCR legislation in the countries in which they operate. For submission, this means local guidance, local forms/formats, and local deadlines. In an ideal world, a single HQ submission should be shared seamlessly with all relevant tax jurisdictions globally in the approved OECD XML format. However, for even the best tax authority exchange networks, some local filing may be necessary.
- Catch up with your notifications - the deadlines for informing certain tax authorities where you intend to file your CbCR and provide additional taxpayer ID details have long passed in most countries. However, if you missed the various deadlines, don't panic. Many tax authorities are taking a flexible approach to late notifications or updates to existing notifications. Better later than never!
- Check your local submission Format - Please note that the OECD XML Schema is the format under which tax authorities have agreed to exchange CbCR files amongst themselves. Unfortunately, whilst many tax authorities have adopted this same format for local taxpayer submissions, some have not (think US Form 8975, Canada RC4649, etc.). Taxpayers therefore need to check whether their HQ filing (or surrogate filing) gives them full compliance coverage in all the jurisdictions in which they operate – if not, they may need to file locally in different XML Schema formats.
- Check data sources & definitions - the OECD guidance (largely adopted in local tax authority legislation) gives considerable latitude in data sources used and some definitions, however, this is something taxpayers need to check based on HQ or surrogate tax authority published guidance (e.g. we already see some differences in approach for Table 1 in terms of jurisdictions that will accept country consolidated data and those that mandate it should always be aggregated and never consolidated).
- Validate data - we recommend all MNCs run some basic data validation and data consistency checks prior to submission of the CbCR to avoid filings errors. This is particularly important given the aggregated or consolidated nature of the country data submitted in Table 1.
- Check analytics & ratios - again, we recommend running a series of basic analytics and ratios to identify any "outliers" or unusual results that might require confirmation or perhaps explanation in Table 3 (contact Otico Software at firstname.lastname@example.org for a list of useful ratios if in doubt).
- Decide your Table 3 strategy - many MNCs have not focused enough attention on their strategy for Table 3 submissions. In general, certain information is mandated in Table 3 (e.g. FOREX rates, sources of data and any changes from prior years, and specification of "other" activity anytime this label is used in Table 2). Taxpayers also have an opportunity to explain any other points that may help to head off tax authority questions and careful consideration should be given at a strategic level to your best disclosure strategy.
Within the context of CbCR preparation and any survival guide for the coming 3 months, software solutions such as TP Controller may be considered in the absence of strong in-house IT support. TP Controller offers a unique "one-click" CbCR reporting module in .pdf, .xlsx, XML formats with proprietary Table 3 design and comprehensive automatic Data Validation & Data Analytics Reports. For further information on TP Controller or to arrange a demo see Otico Software’s website.
Over the past 4-8 weeks it has become apparent that many MNCs have undertaken their full CbCR preparation “in-house” and are now looking for a simple Excel to XML conversion tool to assist them with their tax authority submission process in-line with the approved OECD XML Schema. Otico has tailored a 6-month TP Controller for CbCR License for those corporates who are primarily interested in XML conversions functionality. Further details are available by emailing email@example.com.