TaxMatters@EY - November 2013

OECD seeks input on country-by-country reporting

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On 19 July 2013, the OECD released its Base Erosion and Profit Shifting (BEPS) Action Plan. The Action Plan was fully endorsed by the G20 finance ministers and central bank governors at the conclusion of their 19–20 July meeting in Moscow. The Action Plan contains 15 actions, including the re-examination of transfer pricing documentation.

Action 13 proposes to develop rules on transfer pricing documentation to enhance transparency for tax administrations, taking into consideration the compliance costs for business. Such rules may include a requirement that multinational corporations provide “all relevant governments with needed information on the global allocation of income, economic activity and taxes paid among countries according to a common template.”

On 3 October 2013, the Organisation for Economic Cooperation and Development (OECD) published a memorandum seeking input on the development of an approach for country-by-country reporting of income, taxes paid and economic activity.

The main purpose of the memorandum is to facilitate the public consultation the OECD will hold on 12 and 13 November 2013 in Paris relating to transfer pricing issues. The OECD acknowledges that a balance needs to be sought between the need of tax administrations for useful data for risk assessment and other purposes on the one hand, and the compliance burden placed on taxpayers on the other hand. In this regard, the memorandum notes that the burden would be mitigated if the required information were limited to data that is readily available to companies.

The two main questions raised in the memorandum are what information should be required from taxpayers in the country-by-country reporting and what mechanisms should be developed to make this information available to tax authorities in relevant countries.

Information to be required from taxpayers

This section addresses three categories of data that may be required to be reported in the template:

  • Income earned in a country
  • Taxes paid in a country
  • Various other data on measures of economic activity in a country other than income and taxes

The memorandum poses questions and identifies considerations with respect to each of these categories and requests further input from the business community. These questions and considerations are noted briefly below.

Income earned in a country

The memorandum identifies several different approaches to reporting data on income earned in a country and notes some pros and cons with respect to each:

  • Reporting of net income before tax for each legal entity, to be derived from individual entity statutory financial statements.
  • Reporting of taxable income as reflected on tax returns filed in a jurisdiction.
  • Reporting of consolidated group income as segregated among countries by reference to accounting segment reporting rules.
  • Reporting of data from the company’s internal consolidating income statements relating to each entity’s contribution.

Taxes paid in a country

The memorandum also identifies various questions with regard to the reporting of taxes paid:

  • Should taxes be reported on a cash or accrual basis?
  • Should only national-level income taxes be required to be reported or should reporting of income taxes levied by other levels of government also be required?
  • Is there any reason to require reporting of taxes other than income taxes, such as property taxes, employment taxes and VAT collections?

Various other data

The memorandum indicates that consideration will have to be given to whether other data on measures of economic activity should be included in the reporting template. Examples given in the memorandum include:

  • Revenues by location of customers
  • Tangible assets by location
  • Employment in each country
  • Research and marketing expenditures
  • Location of intangible assets
  • Location of senior management

Mechanisms to report and share information

The memorandum also raises questions relating to how the information reported in the country-by-country template should be made available to relevant countries:


While the precise scope and format have not yet been determined, taxpayers need to expect that the OECD will introduce and advocate a country-by-country reporting of key financial metrics by the September 2014 due date. Moreover, the concept of high-level country-by-country reporting has been endorsed by the G8 and the G20, and therefore it is expected that many countries will act on the OECD recommendations in this area.

Companies should begin to consider how to prepare for this kind of reporting. EY is actively engaging with the OECD on these matters with a view toward the importance of achieving balance between the interests of tax administrations in obtaining adequate and focused information for risk assessment purposes and the interests of companies in preventing excessive additional administrative burdens.