The OECD has provided definitions for the figures that should be included in the country by country reporting. A number of questions has arisen in relation to the definitions and thus the OECD has clarified some of these in a guideline, the latest update released in September 2017.
It is important for qualifying groups to read these definitions carefully in order to file correct figures with your tax authority and to avoid questions related to your reported figures.
You may also benefit from explaining some of your figures in table 3 and for some situations you are required to include information in table 3.
Please find below an overview of the OECD definitions provided by the Guidance documentation. We have included some clarifications from local tax authorities as well which might be of interest to read. Please, do check with your local tax authority what local definitions apply in your jurisdiction.
|OECD||(i) the sum of revenues of all the Constituent Entities of the MNE group in the relevant tax jurisdiction generated from transactions with associated enterprises;
(ii) the sum of revenues of all the Constituent Entities of the MNE group in the relevant tax jurisdiction generated from transactions with independent parties; and
(iii) the total of (i) and (ii).
Revenues should include revenues from sales of inventory and properties, services, royalties, interest, premiums and any other amounts.
From the OECD guidance – September
All revenue, gains, income, or other inflows shown in the financial statement prepared in accordance with the applicable accounting rules relating to profit and loss, such as the income statement or profit and loss statement, should be reported as Revenues in Table 1. For example, if the income statement prepared in accordance with the applicable accounting rules shows sales revenue, net capital gains from sales of assets, unrealized gains, interest received, and extraordinary income, the amount of those items reported in the income statement should be aggregated and reported as Revenues in Table 1.
Comprehensive income/earnings, revaluations, and/or unrealized gains reflected in net assets and the equity section of the balance sheet should not be reported as Revenues in Table 1. The amount of any income items shown on the income statement need not be adjusted from a net amount.
For the third column of Table 1 of the CbC report, the related parties, which are defined as “associated enterprises” in the Action 13 report, should be interpreted as the Constituent Entities listed in Table 2 of the CbC report.
The Action 13 Report and the model legislation contemplate that reporting will occur on an aggregate basis at a jurisdictional level [i.e. not consolidated data]. Accordingly, data should be reported on an aggregated basis, regardless of whether the transactions occurred cross-border or within the jurisdiction, or between related parties or unrelated parties. This guidance will be particularly relevant for the columns on related party revenues and total revenues. An MNE Group may use the notes section in Table 3 to explain the data if it wishes to do so.
|Local||Note, some jurisdictions have issued further clearance on revenue, e.g.: Whether revenue is to be reported net or gross would depend on the industry practice. For example, the practice in the banking industry may be to include net (i.e. as opposed to gross) interest income as a revenue item in the accounts.|
Profit (loss) before income tax
|OECD||The sum of the profit (loss) before income tax for all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. The profit (loss) before income tax should include all extraordinary income and expense items.|
Income Tax Paid (on Cash Basis)
|OECD||The total amount of income tax actually paid during the relevant fiscal year by all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. Taxes paid should include cash taxes paid by the Constituent Entity to the residence tax jurisdiction and to all other tax jurisdictions. Taxes paid should include withholding taxes paid by other entities (associated enterprises and independent enterprises) with respect to payments to the Constituent Entity. Thus, if company A resident in tax jurisdiction A earns interest in tax jurisdiction B, the tax withheld in tax jurisdiction B should be reported by company A.
From the OECD guidance – September
In general, a refund of income tax should be reported in Income Tax Paid (on Cash Basis) in the reporting fiscal year in which the refund is received. An exception to this may be permitted where the refund is treated as revenue of the MNE group under the applicable accounting standard or in the source of data used to complete Table 1. Where this is the case, taxpayers should provide the following statement in Table 3: “Tax refunds are reported in Revenues and not in Income Tax Paid (on Cash Basis)”.
Income Tax Accrued (Current Year)
|OECD||The sum of the accrued current tax expense recorded on taxable profits or losses of the year of reporting of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. The current tax expense should reflect only operations in the current year and should not include deferred taxes or provisions for uncertain tax liabilities.
From the OECD guidance – September
|OECD||The sum of the stated capital of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. With regard to permanent establishments, the stated capital should be reported by the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes.|
|Local||Note, in some jurisdictions stated capital has been defined as paid in capital where applicable.
Other jurisdictions give further guidance: ‘Stated Capital’ refers to capital as reflected in the financial statements. It would usually be the ordinary share capital but can also include preference share capital and perpetual securities.
|OECD||The sum of the total accumulated earnings of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction as of the end of the year. With regard to permanent establishments, accumulated earnings should be reported by the legal entity of which it is a permanent establishment.|
Number of Employees
|OECD||The total number of employees on a full-time equivalent (FTE) basis of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. The number of employees may be reported as of the year-end, on the basis of average employment levels for the year, or on any other basis consistently applied across tax jurisdictions and from year to year. For this purpose, independent contractors participating in the ordinary operating activities of the Constituent Entity may be reported as employees. Reasonable rounding or approximation of the number of employees is permissible, providing that such rounding or approximation does not materially distort the relative distribution of employees across the various tax jurisdictions. Consistent approaches should be applied from year to year and across entities.|
|Local||Some jurisdictions have issued local clarifications: Non-executive directors would not qualify as employees since non-executive directors do not participate actively in the running of the business operations. Executive directors on the other hand would qualify as employees.
With regard to employees that have been seconded within an MNE Group, from one group entity to another group entity, the reporting entity/ domestic constituent entity is best placed to decide in which entity’s headcount seconded employees should be included for the purposes of the CbC Report.
Tangible Assets other than Cash and Cash Equivalents
|OECD||The sum of the net book values of tangible assets of all the Constituent Entities resident for tax purposes in the relevant tax jurisdiction. With regard to permanent establishments, assets should be reported by reference to the tax jurisdiction in which the permanent establishment is situated. Tangible assets for this purpose do not include cash or cash equivalents, intangibles, or financial assets.|
Further guidance can be found at:
» Find out more about BEPS 13 and Country by Country analysis at BEPS13.com.