Country-by-Country Reporting (CbCR)
1. What is Country-by-Country Reporting (CbCR)?
Country-by-Country Reporting (CbCR) is a regulatory requirement under the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan 13. It mandates that large multinational enterprises (MNEs) report financial and tax-related information on a country-by-country basis to tax authorities. The goal is to prevent profit shifting and ensure that MNEs pay taxes where they generate value.
2. Who is required to file a CbCR?
CbCR applies to multinational enterprises (MNEs) with consolidated group revenue exceeding €750 million (or equivalent in local currency) in the previous fiscal year. These companies must file a CbC Report with their home country tax authority, which may then share it with tax authorities in other jurisdictions.
3. What information is included in a CbC Report?
A CbC Report contains key financial and tax data for each jurisdiction in which an MNE operates. This includes:
- Revenue (related-party and third-party)
- Profit before tax
- Income tax paid and accrued
- Stated capital and accumulated earnings
- Number of employees
- Tangible assets (excluding cash & equivalents)
- Principal business activities of each entity
This data helps tax authorities assess potential risks related to profit shifting and tax avoidance.
4. Why was CbCR introduced?
CbCR was introduced as part of the OECD’s BEPS project to tackle aggressive tax avoidance strategies used by some MNEs. By requiring detailed reporting on a country-by-country basis, tax authorities can identify discrepancies in profit allocation, ensuring companies pay fair taxes in the jurisdictions where they conduct business.
5. How is a CbC Report submitted?
A CbC Report is submitted to the ultimate parent entity’s tax authority in its country of residence. That authority then exchanges the report with tax authorities in other countries where the MNE has operations, provided that exchange agreements exist between jurisdictions.
6. What is the deadline for CbCR compliance?
The standard deadline for filing a CbC Report is 12 months after the end of the reporting fiscal year. However, specific deadlines may vary depending on the country’s regulations, so MNEs should verify local requirements.
7. What are the penalties for non-compliance with CbCR?
Penalties for failing to comply with CbCR vary by country but can include:
- Financial fines (ranging from thousands to millions of dollars)
- Reputational damage due to increased scrutiny
- Legal consequences, including audits and tax adjustments
Non-compliance may also trigger disputes between tax authorities, leading to double taxation risks for MNEs.
8. How does CbCR impact transfer pricing policies?
CbCR increases transparency in transfer pricing arrangements, allowing tax authorities to identify potential profit shifting risks. MNEs must ensure their transfer pricing policies align with economic substance, as discrepancies between reported profits and business activities can lead to tax audits and adjustments.
9. Does CbCR replace transfer pricing documentation?
No, CbCR does not replace transfer pricing documentation. Under the OECD’s three-tiered approach, MNEs must prepare:
- Master File – An overview of the MNE’s global business, policies, and transfer pricing strategies.
- Local File – Detailed information on intercompany transactions within each jurisdiction.
- CbC Report – Aggregate financial and tax data for each country of operation.
CbCR complements these documents by providing tax authorities with high-level financial data to assess potential risks.
10. Is CbCR information made public?
CbC Reports are not publicly disclosed. They are exchanged between tax authorities through automatic exchange of information agreements. However, some jurisdictions, such as the European Union, have introduced public CbCR requirements for certain large companies, increasing transparency.
11. Are there any exemptions from CbCR?
Yes, exemptions may apply based on:
- Revenue Threshold – MNE groups below the €750 million threshold are not required to file.
- Local Filing Exceptions – Some jurisdictions exempt local subsidiaries from filing if the ultimate parent company submits the report in a recognized jurisdiction with an exchange agreement.
MNEs should check local regulations to confirm specific exemptions.
12. How does CbCR affect tax audits and risk assessments?
Tax authorities use CbCR data to perform risk assessments and identify:
- Profit misalignments (e.g., high profits in low-tax jurisdictions)
- Inconsistent tax payments relative to revenue
- Artificially shifted income
If a jurisdiction flags an MNE for potential tax avoidance, it may trigger a transfer pricing audit or lead to further investigations.
13. Can an MNE voluntarily submit a CbC Report?
While CbCR is mandatory for MNEs meeting the revenue threshold, some companies may voluntarily submit a report to demonstrate transparency and compliance. However, voluntary submissions are not required unless local laws mandate them.
14. What is the role of the OECD in CbCR?
The OECD (Organisation for Economic Co-operation and Development) developed CbCR as part of its BEPS Action Plan 13. It sets international standards for:
- CbCR framework
- Data reporting format
- Exchange of information agreements
The OECD regularly updates CbCR guidelines to ensure consistency across jurisdictions.
15. How can companies prepare for CbCR compliance?
To comply with CbCR requirements, companies should:
- Assess group-wide financial data to ensure accuracy and consistency.
- Implement robust transfer pricing policies that align with economic substance.
- Maintain proper documentation (Master File, Local File, CbC Report).
- Monitor regulatory changes in all jurisdictions of operation.
- Use tax technology tools to streamline data collection and reporting.
Working with tax professionals and legal advisors can help MNEs navigate complex CbCR requirements effectively.
Final Thoughts
CbCR is a critical tool for tax authorities in combating tax avoidance and ensuring fair taxation. Multinational enterprises must stay proactive in compliance, documentation, and reporting to mitigate risks. By understanding the essentials of CbCR, businesses can enhance transparency and reduce potential audit exposure.