The first item on country-by-country BEPS reporting is on R&D
Are Your Research Tax Credit Studies and Transfer Pricing Documentation BEPS Compliant?
On the same day that the OECD (Organization for Economic Cooperation and Development) released its standardized electronic format for the exchange of BEPS (Base Erosion and Profit Sharing) Country-by-Country Reports (CbC Reports), the Government of Canada was among the first countries to officially announce the implementation of these BEPS reporting measures into their federal budget. The Leaders of the G20, which has 20 member states (19 countries including the United States plus the European Union), formally endorsed these OECD/G20 BEPS actions in November 2015.
In line with the OECD/G20 guidelines, the Canadian budget proposes to implement country-by-country reporting for multinational enterprises with total annual consolidated group revenue of €750 million or more. In Canada, the country-by-country reporting will be required for taxation years that begin after 2015.
The OECD/G20 BEPS Project sets out 15 key actions to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created. The BEPS Project is aiming to offer governments a common platform to simultaneously close the gaps in existing international rules that allow corporate profits to be shifted to low or no tax jurisdictions, where companies have little or no economic activity.
Spontaneous exchange of tax rulings and CbC Reports
CbC Reports will be electronically transmitted between Competent Authorities in accordance with the CbC XML Schema. For example, the Canada Revenue Agency will commence exchanging tax rulings in 2016 with other jurisdictions, while the OECD/G20 first exchanges of CbC Reports will start in 2018, with information on year 2016. This will allow tax authorities to better understand the way Multinational Enterprises (MNEs) structure their operations by annually obtaining information on the global allocation of income and taxes paid, together with other key indicators on the location of their major economic activities, namely R&D.
The first item on country-by-country reporting is on R&D
Since R&D is a prime generator of intangible assets, which have been identified as a means for profit shifting, not surprisingly the first item of the CbC Reports is on Research and Development. These R&D activities are routinely extensively documented in “R&D Tax Credit Studies,” prepared to support Research Tax Credits claimed and for which countries are expecting, among other things, wealth creation in the form of intangible assets. Therefore, it is advisable that information contained in this documentation is not contradictory. That means ensuring that your CbC Report on R&D, Transfer Pricing policy and the Research Tax Credit Study are together globally coherent. Now that major OECD/G20 countries have started implementing the BEPS reporting it is imperative toensure consistency on all tax related R&D reporting.
For three years now, BGI Incentives has been developing a methodology to prepare Research Tax Credit studies in a globally coherent manner and make them “BEPS compliant.” This new methodology should be released in May 2016.