William Morris Chair, BIAC Tax Committee 13/15, Chaussée de la Muette, Paris. France

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1 Achim Prss Head f Internatinal Cperatin and Tax Administratin Divisin Organisatin fr Ecnmic Cperatin and Develpment 2 rue André-Pascal 75775, Paris, Cedex 16 France Mark Jhnsn Head f Tax Risk Assessment Unit Organisatin fr Ecnmic Cperatin and Develpment 2 rue André-Pascal 75775, Paris, Cedex 16 France William Mrris Chair, BIAC Tax Cmmittee 13/15, Chaussée de la Muette, Paris France 17 December 2018 BUSINESS AT OECD FEEDBACK ON LOCAL COUNTRY DIVERGENCES FROM FINAL ACTION 13 REPORT Dear Achim and Mark, Business at OECD (BIAC) thanks the OECD fr the pprtunity t prvide cmments n ur experience with lcal cuntry implementatin f the transfer pricing (TP) dcumentatin guidelines utlined in the final Base Ersin and Prfit Shifting (BEPS) Actin 13 Reprt, including glbal Cuntry-by-Cuntry Reprt (CbCR) requirements. While it may be t early t assess the usefulness and accuracy f the CbCR as a high level risk assessment tl, ur member feedback attached fcuses n the implementatin challenges ntably diverse requirements, deadlines, and frmats. We have fcused n issues bserved t enable further discussin. We have nt fcused in this letter (althugh we did write earlier this year) n the many psitive aspects f implementatin r general cnsistency in executin t date, and fr which the OECD cntinues t deserve much credit fr its detailed and helpful guidance. As the CbCR 2020 review is launched, we welcme ur engagement as an imprtant stakehlder in this prcess t prvide fr effective use f Tax Authrity and business resurces t ensure the bjectives f the Actin 13 reprt are achieved. Sincerely, Will Mrris Chair BIAC Tax Cmmittee Chair BIAC Tax Cmmittee 1

2 Business at OECD Cmments General 1. In general, even if there are lcal differences, the infrmatin exchange mechanics apply such that the ultimate parent entity (UPE) filing takes precedence ver any lcal requirements. This fact highlights the imprtance f cuntries signing the Multilateral Cmpetent Authrity Agreement n the Exchange f CbCR (MCAA) and is discussed in mre detail fr thse wh have nt signed up fr the MCAA. As explained belw, cmmn differences fall int tw main categries: ntificatin requirements and divergences in definitins, timing and details. Ntificatin Requirements 2. The CbCR ntificatin requirement is smething that was recmmended in the OECD s Mdel Legislatin (see Annex IV t Chapter V f the OECD Transfer Pricing Guidelines fr Multinatinal Enterprises and Tax Administratins ( OECD Guidelines ) and serves as a ntificatin t the Tax Authrity in a given jurisdictin as t which legal entity will be filing the CbCR fr the multinatinal entity ( MNE ) and the reprting perid it will cver. At this time, apprximately 50 jurisdictins have ntificatin requirements in place r will in the next year. Fr many f ur members, this means ptentially hundreds f ntificatin requirements (cnsidering the number f legal entities and cuntries perated in). While the OECD Guidelines ffered a three-table CbCR frmat that has been adpted by mst jurisdictins as presented, the mdel legislatin did nt prvide similar guidance fr the ntificatin prcess. 3. Cnsequently, ur members face a myriad f frmats and languages in which this infrmatin must be filed as well as deadlines that vary by jurisdictin. As such, what shuld be a rutine administrative prcess is unnecessarily cmplicated by each jurisdictin s unique way f implementing the ntificatin prcess. 4. Per cmprehensive member feedback, here is a shrt summary f these divergences: The frm f ntificatin submissin varies by jurisdictin: Ntificatin is submitted as part f the crprate tax return (e.g., France, Italy, Rmania, Germany, Brazil); Ntificatin must be cmpleted in a letter frmat as there is currently n prtal r frm (e.g., Cratia, Suth Africa). Ntificatin is submitted thrugh a frm t be cmpleted and sent t the tax authrity via r pstal service (e.g., Kazakhstan, Cratia, Lithuania, Suth Africa, U.K., Clmbia). Ntificatin is filed thrugh an internet prtal that requires a special tken r identificatin f the tax preparer r anther certified persn (e.g., Finland, Luxemburg). Ntificatin is required thrugh a separate tax frm (e.g., Clmbia, Australia, China). 2

3 Mst cuntries require separate ntificatins fr each entity. Hwever sme cuntries d allw a grup ntificatin, which is administratively much easier and less cstly (e.g., Denmark, Argentina, Spain, U.K., Russia, Suth Africa, Argentina, Peru). Nte in sme cases the due date fr the ntificatin is t early and the taxpayer may nt have sufficient infrmatin t prperly cmply (e.g., in the U.K. the due date fr the ntificatin is the end f the year which is t be reprted n and hence the taxpayer may nt knw at this time which entities will ultimately be included in the grup). Sme cuntries require a tw-stage ntificatin (e.g., Argentina, U.K.); Sme cuntries require n ntificatin at all (e.g., New Zealand) r ntificatins nly if the entity is an UPE r surrgate parent entity (e.g., Switzerland); Others require submissin by specific legal representatives listed n tax authrity websites (e.g., Peru) while thers prvide the ability t nminate smene within tax t cmplete the ntificatin (e.g., Cayman Islands). Sme ntificatin due dates are based n the fiscal year end f the legal entity rather than that f the UPE, which results in multiple deadlines within jurisdictins where there are legal entities with different fiscal year ends (e.g., Republic f Krea, Taiwan). Ntificatins have als been delayed due t the frm r prtal nt being ready by the initial due date (e.g., Prtugal, Turkey). Ntificatins are ften nly published in the riginal language, which means taxpayers may need t rely n a third party t prvide a translatin r t file the frm. This further aggravates the ability t centralise these functins, as quite ften sme kind f electrnic registratin r lcal legal rights t submit are required. Mst jurisdictins require the ntificatin t be submitted annually; even thugh the infrmatin is likely t stay the same year ver year. Alternatively, we appreciate the apprach f the Czech Republic and Slvakia, which request a subsequent ntificatin t be filed nly in the case f a change in the UPE r reprting perid. Many jurisdictins had a special year ne due date, which required each cmpany t reassess the requirements frm scratch again the fllwing year. Sme cuntries are applying penalties fr failing t meet the ntificatin deadline, which is effectively an administrative filing versus a substantive tax filing. 5. These diverse ntificatin prcesses result in a cnsiderable administrative burden fr crprate tax teams f MNEs, bth in terms f mnitring jurisdictinal requirements and the sheer number f separate frms required t be prepared and filed. As this requirement is meant t prvide the same infrmatin t all Tax Authrities, this prcess culd be imprved in the fllwing ways: The ntificatin culd be made part f the crprate incme tax return. Under this apprach, the ntificatin prcess wuld be integrated int the return preparatin, the deadline is established, and the Tax Authrity can then get this infrmatin directly frm the tax return. 3

4 We als recmmend the creatin f a single frm that an MNE can file with its UPE filing and simultaneusly with the relevant tax jurisdictins f in scpe subsidiaries, if needed. This is rutine infrmatin, s using a cmmn reprting frm shuld be straightfrward and will save taxpayers time and resurces that are currently spent in mnitring and cmplying with these requirements. Als, the current ntificatin prcess is annual but the infrmatin prvided ften changes little year ver year. We questin the need fr an annual prcess and alternatively suggest cnsideratin f wider adptin f the Czech Republic / Slvakia apprach. In the meantime and until a mre cnsistent and practical apprach is agreed, we wuld appreciate a dedicated summary f the requirements t be placed n the OECD website (by jurisdictin) t reduce MNEs effrts searching by jurisdictin. Further, the acknwledgement by cuntries that taxpayers may rely n such list wuld als be greatly appreciated fr nt nly reductin in resurces spent, but als tax certainty in the apprach taken and avidance f ptential penalties as nted abve. Timing and Filing Issues 6. While mst jurisdictins allw 12 mnths fllwing the fiscal year f the UPE fr filing the CbCR, sme jurisdictins have earlier filing requirements. Bsnia and Herzegvina s deadline is March 31 regardless f the fiscal year end, and Indnesia and Vietnam s deadlines are three and fur mnths fllwing the fiscal year end, respectively, which is a significant challenge fr taxpayers t cmply with (especially when this may be a shrter perid than is required t prepare cnslidated financial statements). 7. There is als n clear guidance n alignment f fiscal years where a cnstituent entity s fiscal year differs frm that f the UPE (assuming the UPE is nt-calendar year). As a cnsequence, sme taxpayers are taking the psitin that the effective date in any tax jurisdictin is relative t the UPE s fiscal year. Hwever, this analysis required significant exchanges arund the issue with lcal advisrs in several jurisdictins with 1 January 2016 effective dates and calendar year cnstituent entities. This is als prblematic with respect t the MF and LF, as the MF wuld lag the LF by the difference in the fiscal year end t 12/ Several cuntries have nt adpted OECD standard XML fr filing resulting in multiple cnversins required t allw cmpliant lcal filing e.g., U.S., India, Peru, Bulgaria, Russia. Als lcal language requirements plus additinal infrmatin requests cause issues. 9. Many cuntries are late adpters f CbC rules, and the resulting guidance is nt always clear and timely an example is Gabn, which has issued rules, but has still nt cnfirmed if lcal filing is required 10. In sme cases, diverging jurisdictin CbCR definitins may limit the usefulness f crssbrder sharing and surrgate appraches, ptentially increase administratin fr MNEs, and 4

5 prvide the risk f mre than ne versin f CbCR existing fr the same MNE and perid. Sme examples f such divergence examples include: Emplyee definitins (e.g., Canada includes cntractrs, Spain requires average emplyee numbers, etc.); Table 1 additinal measures (e.g., Russia requires a mre granular breakdwn f the emplyee and capital data); Stateless definitin differences acrss markets; Mst jurisdictins require a frmat in line with the OECD, and accept the UPE s GAAP and functinal currency. Hwever, thugh the cntent is exactly the same, the OECD frmat (10 r s page fr mst taxpayers) differs significantly frm the US frmat 8975 (requiring 2 pages f initial infrmatin as well as a separate 2 page schedule fr each tax jurisdictin the taxpayer has a cnstituent entity in); Mst require translatin f the reprt submitted t the parent jurisdictin int lcal language; Mechanics vary, mstly thrugh lcal systems sme via a pdf cpy (e.g., Rmania), thers via ntarised cpy (e.g. Kazakhstan), thers via re-entering each data pint int a lcal XML system (e.g. Bulgaria). 11. T reduce MNE burden, and t maintain ne CbCR versin glbally, clarity wuld be welcmed by suggesting that where direct secndary filing is required, cuntries shuld accept the UPE hme cuntry frmat. 12. India has implemented several MF requirements that divert frm the final Actin 13 Reprt. Please review ur prir cmments submitted fr a detailed summary f such divergences. 13. In additin, acrss ther jurisdictins, there are variatins fr MF deadlines between three mnths and twelve mnths fllwing year end. Indnesia, fr example, requires the MF t be translated t lcal language within fur mnths fllwing the fiscal year end. In rder t develp a cnsistent MF fr all cuntries, this, in practice, requires cuntry MFs be cmpleted at apprximately 3 mnths. This is a challenge due t availability f data/infrmatin in such a shrt windw. 14. In additin t the MF, there are several variatins f lcal cuntry LF requirements when cmpared with OECD LF guidance. Members have reprted that there are 23 cuntries with lcal file requirements that differ frm OECD lcal file guidance, including unique additinal disclsures in cuntries such as China and India. Sme f such differences are nted belw: There is incnsistent applicatin f LF rules (in the absence f an exchange arrangement) e.g., mst d require an active filing, sme d nt require it (e.g., New Zealand, Malaysia), r sme require it n demand (e.g., Kazakhstan, China) Many jurisdictins have different requirements regarding cmparables (e.g., number f years (1 vs 3 vs 5); lcal vs reginal; varying definitins f independence; varying acceptability f wrking capital adjustments, etc.), all f which adds additinal cmplexity. 5

6 The Belgian LF requires significantly mre infrmatin n the lcal entity, cntaining general infrmatin regarding the activities in Belgium and detailed infrmatin f crss brder transactins per business unit f the Belgian entity that are nt required in ther cuntries: transactins n gds, assets, services, ryalties, fees, R&D, financial transactins, interests, lans, brrwings, cash pl, ther cntrlled crss-brder transactins, intra-grup trade receivables and trade payables, TP methdlgy and studies, prfit allcatin t PE, cst cntributin arrangements and APAs. Denmark, Finland and Nrway all require annual filing f a significant amunt f infrmatin regarding the intercmpany transactins as a part f the tax return. The infrmatin is mainly related t the lcal figures. In Finland the intercmpany transactins tax frm has been updated fr FY18 and the authrities requires even mre detailed infrmatin abut the intercmpany transactins. Suth Africa has an bligatin n certain Suth African subsidiaries t submit the MF and LF t SARS even thugh CbC MCAA has been activated between Suth Africa and certain respective cuntries. Australia requires that the LF set ut all internatinal related party dealings that the AU entities enter int. This results in a quite nerus reprting prcess and is required t be ldged in XML Schema frmat The Peruvian rules require 2 files that include additinal infrmatin nt required as part f the OECD standard (e.g., currency f accunts, cnslidated grup incme, tax identificatin number f each grup entity etc.). 15. Sme cuntries are making additinal CbC-like data requests in lcal file requirements r as additinal requests e.g., China, where extensive CbC-like data requests have been made. These requests are duplicative t the MF/LF & CbCR. They have been requested in excel in rder t feed int the tax authrity database, which raised cmplexity and issues f its wn. Alternatively, we wuld prefer the ability t pint tax authrities t such infrmatin where already disclsed and reprted. 16. The general effrt required fr the LF is quite substantial. Fr larger MNEs perating in hundreds f jurisdictins, this requires ver 100 LF reprts t be filed, mst averaging hundreds f pages each. Cnsidering the significant burden n taxpayers, we encurage the OECD and member cuntries t review what data is mst relevant and imprtant (in line with the Actin 13 bjectives), while eliminating data that is nt helpful, yet very burdensme fr taxpayers. Nn-MCAA Jurisdictins (e.g., the U.S.) 17. Many cuntries have yet t sign up t the MCAA. As a result, MNEs with parent cmpanies in these jurisdictins are currently in a difficult situatin. Fr example, the U.S. Internatinal Revenue Service ( IRS ) adpted the CbCR but did nt agree t participate in the MCAA framewrk. Instead, the IRS is enacting bilateral agreements t exchange CbCRs with each tax jurisdictin, which is a time cnsuming prcess. At this pint, the IRS has nly signed 6

7 agreements with 42 jurisdictins and is in negtiatins with 7 thers, leaving several jurisdictins with n exchange agreements with the U.S. This lack f exchange agreements culd result in multiple lcal filings in additin t the U.S. filing. 18. In reality, up t this pint, many f ur members have nt had t file lcally since jurisdictins with appraching deadlines have put extensins r ther measures in place that delayed the CbCR requirement until an agreement with the IRS has been reached (e.g., India, Indnesia, Japan). Hwever, this is nt a sustainable lng term slutin. 19. In cases where the lcal cmpetent authrity des nt have a bilateral agreement t exchange CbCRs with jurisdictins that have CbCR requirements, there is sme uncertainty arund lcal filing bligatins. The secndary mechanism as described in Article 2.2 f the Mdel Legislatin states that lcal filing shuld be required nly when (a) the UPE f the MNE grup is nt required t file a CbCR in its tax jurisdictin; (ii) the UPE s jurisdictin has a current Internatinal agreement (tax treaty r tax infrmatin exchange agreement) but n qualifying cmpetent authrity agreement t exchange CbCRs; r (iii) there has been a systemic failure f the UPE s tax jurisdictin. Therefre, if a freign tax jurisdictin des have a secndary mechanism in place, but the Cuntry A cmpetent authrity has n Internatinal Agreement, based n the Mdel Legislatin guidance, a Cuntry A MNE shuld nt be bligated t file lcally even if the freign tax jurisdictin has adpted CbCR requirements. 20. Tax advisers in several jurisdictins withut Internatinal Agreements have advised ur members that they legally d nt have a lcal filing bligatin since there is n bilateral CbCR exchange agreement in place. Hwever, this analysis has cnsumed ur members crprate tax teams with hurs f crrespndence with tax advisrs t get clarity arund true lcal bligatins. 21. Our general view is that it was nt the intent f the OECD t require a taxpayer t file in multiple jurisdictins as a matter f principle. Hwever, there is still uncertainty arund implementatin under the OECD apprach. 7