Winter 2016 | Partnering Perspectives
corporation has operations. The US regulations require CbCRs
to begin for periods after June 30, 2016, although a voluntary
procedure for the period beginning January 1, 2016, is provided
to make the US reporting period consistent with other countries.
There are multiple obligations under the CbCRs. First, the
Primary Filing Obligation is imposed on the ultimate parent of a
Multinational Group, which is required to be filed in the parent’s
tax jurisdiction of residence on behalf of the Multinational Group.
The Secondary Filing Obligation is imposed on each subsidiary of
the Multinational Group. Each subsidiary is required to file in its
tax jurisdiction of residence, but only if the ultimate parent entity
is not required to file in its tax jurisdiction of residence; if the
parent’s tax jurisdiction has no Qualifying Competent Authority
Agreement in place; or if there is a systemic failure in the parent’s
tax jurisdiction of residence.
To facilitate the automatic exchange of the CbCRs, the OECD
has developed a Multilateral Competent Authority Agreement.
The automatic exchange of information is to occur in accordance
with the Standard for Automatic Exchange of Financial
Information in Tax Matters. Approximately 87 countries have
signed this agreement, including Switzerland. The United States
did not sign the agreement, but will implement the automatic
exchange through bilateral agreements under income tax treaties
or tax information exchange agreements.
There are restrictions on how the CbCR information may be
used by a country’s tax authorities. The CbCR is designed to be
a risk assessment tool and not an audit tool. The United States
Treasury Department has made clear that it will discontinue
exchange with any country that violates the agreed upon
limitations on the use of the CbCR.
Although the OECD countries agreed that the CbCR information
would be confidential and not publicly disclosed, the European
Union has proposed that public disclosure of similar information
by each corporation on its website be required. If this proposal is
adopted, the requirement will apply to subsidiaries of US
companies with operations in a European Union country.
Other disclosure requirements are imposed by the United
Kingdom, which requires certain corporations to post their tax
strategy “on their websites.” Essentially, a tax strategy will explain
a company’s tax arrangements but does not require the
reporting of amounts of tax paid or commercially sensitive
information. A tax strategy also should include a description of
how the company manages tax risks, what tax risks are linked
to the business’s size and complexity, and any changes to the
“The United States Treasury Department
has made clear that it will discontinue
exchange with any country that violates
the agreed upon limitations on the use
of the CbCR.”