The new BEPS regime is tripping up tax executives globally – which could cost enterprises hundreds of thousands in penalty fees.
Country-by-country reporting is a core element of the Base Erosion and Profit Shifting (BEPS) measures now being implemented for Australian multinationals. The first BEPS reports are due on 15 February 2018, and most Australian multinationals will need to report by 30 June 2018.
Our recent global survey of companies confirms that country-by-country reporting presents many challenges for tax teams, and with the first deadline looming, there is little time to address these.
The CbC obstacles
Country-by-country reporting requires a multinational’s ultimate parent entity to summarise the activity of its entities in each of the countries in which it operates. It must then submit the report to its home tax authority and share it with other tax authorities. The report must list in a precise format – for each national entity – the functions performed, assets owned, personnel employed, revenue generated, profits earned, taxes paid, capital structure and retained earnings.
The first obstacle to overcome in country-by-country reporting, then, is the sheer quantity of information required. Printed out, this information can fill more than 100 pages, plus attached agreements.
In addition to this, much of the information may be hard to gather and analyse. Analysts from various firms have noted that tasks such as splitting headcount and intangible assets between entities are challenging many tax teams.
Then, there is the IT challenge. As you extract and analyse the data, you ideally need a system that can store all this information and then output it in the formats needed for BEPS compliance. You may also need to make changes to existing systems.
All of this work consumes time and resources – and if you can’t get the work done to deadline, the fine is up to $525,000.
The global survey results
We’ve heard about these obstacles in our discussions with Australian tax teams and senior executives. But we’ve also seen it on a global level, thanks to Thomson Reuters’ third annual Global BEPS Survey. The 2017 Survey received responses from 135 corporate executives and tax and transfer pricing executives across dozens of countries and industries.
When we asked the survey respondents to name the obstacles to their completion of country-by-country reporting, their responses fell into eight broad categories.
The biggest issue was with gathering information within the group, which troubled more than a quarter of respondents, while one in five reported struggling with the time needed.
Analysing and reporting data, and understanding requirements were also frequently mentioned.
The numbers confirm that the tasks of gathering, analysing and reporting data are proving particularly tough.
Indeed, in the 2017 Global BEPS Survey, two-thirds of respondents appear to be facing challenges in implementing their BEPS response. Few multinationals are highly confident in their ability to respond to the most frequently-cited BEPS challenges, including country-by-country reporting. (You can find out more about the survey in our white paper, launching next week: Making BEPS a Reality.)
There is at least one way to simplify much of the work involved in country-by-country reporting and at the same time give tax teams back a sense of control. That’s to use software which steps you through the data collection and analysis process.
For this task, Thomson Reuters provides our BEPS Action Manager. This lets the team in charge of country-by-country reporting for a multinational easily reach out to tax teams all over the world, have the whole group consistently apply the definitions needed for country-by-country reporting, and prepare a draft that can be accessed by the entities to check for accuracy.
As a multinational itself, Thomson Reuters has been using this technology for our own BEPS compliance needs. Our own tax director Simon Haddad describes it as “indispensable to deal with the volume and complexity of information generated in country-by country reporting”. It effectively manages the complex challenges of country-by-country reporting, as well as the compilation of master and local files. And it interfaces directly with the ATO.
It’s clear that country-by-country reporting presents many tax teams with substantial challenges. Thomson Reuters provides a practical solution which can help overcome the obstacles.