The jury is out as to what the BEPS crackdown on international tax avoidance has actually achieved. One issue on which there has been unprecedented enthusiasm amongst countries is the need for greater transparency into the affairs of international groups. In other words, tax officials want tools to enable them to understand if their country is enjoying a large enough slice of a group’s global tax cake.
Until now tax officials have struggled to obtain sufficient information about the international activities of a group in order to understand whether they should mount a challenge. That is all set to change as groups will now be obligated to provide detailed information about their business and tax activities which will then be shared between countries in which they operate. This will take the form of commercial, tax and transfer pricing information, plus additional financial data for larger businesses. Tax officials are understood to be rubbing their hands at the prospect of vast new swathes of information being made available as a result of this Country by Country (CbC) reporting.
Scary? Potentially, yes.
Concerns have been raised about confidentiality of information, a surge in the number of tax authority audits and increased double taxation. Businesses that are not currently large enough to need to submit documentation may now find that they are required to do so. Those who have compiled transfer pricing reports in the past will now need to change them to comply with new requirements that demand group master files and individual country local files. Compliance costs are also set to increase as businesses will need to amend and add to existing documentation. Countries are being encouraged to adopt CbC as a minimum standard, and many have already signalled that they will be implementing new rules from 1 January 2016. The OECD has helpfully provided draft legislation and implementation guidelines to assist them.
CbC is one outcome from BEPS that is being trumpeted by the G20 as a significant advance in tackling tax avoidance. Tax officials around the world will soon be able to see at a glance the business and tax affairs of a company. Businesses will have to ensure their activities stand up to an unprecedented level of scrutiny, and prepare for an increase in countries squabbling over their global tax cake the same slice in some circumstances.