Many qualifying groups have now filed their first CbC reporting and the reported data will be available for exchange between tax authorities during this year. Now is a good time to start preparing for the second filing.
You have likely gained a lot of experience from the first filing and might be wondering how to improve the filing process for 2018. Palantir has successfully helped qualifying groups to file in a number of jurisdictions across the globe. In this article we will share our experience and knowledge of what to consider when you establish your CbC reporting process, and how to be in control of the figures that will become available for analysis by tax authorities around the world.
Collection of data
The first step in the process, which many groups struggle with, is to efficiently collect all the basic data. Some of the steps in this process include:
- Keeping track of changes within your legal entities and including these in the second CbC reporting. Include entities disposed of during the year
- Manage PEs and in which jurisdiction to include the different CbC figures
- You cannot simply just collect figures per tax jurisdiction. You have to collect figures on a legal entity level, as in certain situations some figures may require that you include comments in table 3 based on what the legal entities have reported, e.g. entities with negative accumulated earnings that have been netted for reporting purposes
- Managing collection of figures from operational entities where you have several operating entities constituting one legal entity, or one operational entity where the figures have to be broken up and included in different legal entities
- Validation of your data against the OECD XML schema to be sure you have all required data
The OECD and the local tax authorities have updated their definitions of the CbC figures to be included in your reporting. Make sure you have read the latest update from both the OECD and the tax jurisdiction where you file your CbC reporting.
» For more information, please read our article Country by Country figures – what are the definitions?
Set up a compliance process to ensure that all entities have notified their tax authority as to which entity will file CbC for the group. You may want to collect documentation in relation to this compliance process.
The OECD has released a handbook to help tax authorities make an effective analysis of the reported CbC figures in order to identify risks. This handbook includes a number of screenings which are important for you to perform on your data in order to identify potential risks before they are identified by the tax authorities. It is important for you to understand why the screenings identify a given risk and be prepared to explain it or include a comment in table 3 in order to mitigate any questions.
It is recommended that you collect CbC data and perform the screenings throughout the year. Then if you identify a real risk you will have time to mitigate it before the filing deadline.
Once you have filed several times, the tax authorities will be able to perform more advanced analysis. It will then be possible for them to look at trends and to identify large swings between years. This analysis should also be part of your own analysis too, and deviations should be explained in table 3.
In some countries you may have to file tables 1-3 locally, either in paper format or in XML format. This could mean that you have to file an XML file in two or more jurisdictions. Hence you might have to meet the XML standards of several jurisdictions. You should check whether there are such requirements in jurisdictions where you operate.
Surrogate parent / Secondary filing
Do you have to file in a country that has not signed an exchange of information agreement? If so, you may have to file your entire CbC reporting in that country too. Check which jurisdictions, if any, have not signed an agreement with the tax jurisdiction in which you file your CbC reporting. If you have entities in any of those jurisdictions you need to check if that jurisdiction requires you to file your entire group CbC reporting there as well.
Control of data
When you have created and filed your XML file it is important that you keep track of it over time. You should be able to easily go back and view exactly what you have filed in overviews to be able to answer any questions that may come up.
Correction of data
It is possible to correct data that has already been filed. The OECD have provided a guide of what information a corrected file should include. Not all tax authorities have adopted this guide yet, and those that haven’t only accept a completely new XML file which replaces the old filing. You should expect this to change going forward and you need to be prepared for how to comply with the OECD correction standard and keep track of corrected data over time.
The Palantir solution will help you achieve these points in one solution that seamlessly solves the aforementioned tasks, often automatically, which will save your group valuable time and increase the quality and control of your data.
Palantir will help you by collecting data via Excel, automatic import, manual input, or a combination of the three. All data will automatically be validated to ensure you have collected the required information in order to make a comprehensive review using the different overviews and reports found in the Palantir solution. Your CbC data will be automatically analysed with the possibility to make optional customized analysis as well. Finally, you will, with the click of a button, be able to create the OECD XML file for any country as the receiver. Multiple country formats are supported. Read more at Beps13.com
In addition to the CbC module, the Palantir solution is scalable, which means you can easily add modules for legal entity management (e.g. automatic creation of the legal entity structure including automatic production of visual charts), document management, Local/master file management, TP transactions management, tax risk management, contract management and more. The solution has been developed to meet the requirements of a modern tax or legal department. Additional modules can easily be switched on should the need arise, which makes Palantir a very powerful and cost-efficient solution for your group.