We have made a submission to the consultation by the OECD on behalf of the Inclusive Framework for BEPS, for its review of the system of Country by Country Reporting (CbCR).

Summary

We commend the establishment of the system of country-by-country reporting (CbCR), which has the potential to transform the taxation of multinational enterprises (MNEs) and help make it fit for the 21st century. However, we are concerned that the OECD is losing sight of its objective as a transparency measure. The complex and cumbersome system for delivery of CbCRs to home countries, and tight control of dissemination, means that few developing countries have had access to CbCRs, exacerbating the information asymmetries in international taxation. Despite being confidential to tax authorities, the system aims to control the use made of the reports. This has turned what was intended to be a transparency measure into a means for disciplining how tax authorities allocate MNE income.

Hence, it is now time to require publication of CbCRs. This would give easy and immediate access to this important information for all tax authorities, as well as researchers and interested members of the public. Such transparency is essential to provide accountability that MNEs pay tax where their economic activities occur and value is created, restoring public trust in international tax rules. There is widespread and increasing pressure from the investment community and the wider public in the EU, the UK and the US for public reporting. The OECD should be a leader in making this happen in a manner that would bring consistency and efficiency to this inevitable result.

CbCRs do not contain information that should be considered commercially confidential, and the improvements resulting from this review should not change this. More detailed information needed by tax authorities to apply their rules, e.g. on intra-group payments, employee costs, deferred tax provisions and uncertain tax positions, could be provided in the Master File, and the template for this should also be reviewed to ensure consistency.

We support revision of the definition of MNE Group, and in addition suggest reconsideration of the definition of a Constituent Entity to ensure that information is supplied on all activities that could amount to a permanent establishment, especially by provision of services. The threshold of €750m excludes many MNEs of interest, especially for small and developing countries, and now that the system is established scaling up should be relatively easy, so we urge expansion to exclude only small and medium enterprises (e.g. below €50m). This would ensure the same level of transparency for MNEs as domestic companies, and also mean that issues such as currency conversion and rebasing would be less significant. We support presentation of data at jurisdictional level on a consolidated basis and recommend also that guidance be provided to require reconciliation to audited financial accounts. We also urge that the guidance on the reporting of tax paid should be amended to ensure that withholding tax is reported as paid to the jurisdiction that actually receives the tax.