Netherlands First to Implement Country-by-Country ReportingMarch 04, 2016
Multinational Enterprises have been watching – and preemptively planning – for the adoption and implementation of local legislation for country-by-country reporting.
With the issuance of the final OECD BEPS Action 13 Report, Transfer Pricing Documentation and Country-by-Country Reporting, in October of 2015, Multinational Enterprises (“MNEs”) have been watching – and preemptively planning – for the adoption and implementation of local legislation for country-by-country reporting (“CbCR”) requirements in jurisdictions of importance to them. Many countries have announced their intention to implement such legislation and have issued legislation in draft form for public commentary. Some countries have taken a more circumspect approach for the moment, waiting to see what other countries implement.
The new guidelines provided in the final report conform with general expectations, including:
- Maintenance of a “master file” that provides high-level information regarding an MNE’s global business operations and transfer pricing policies;
- Maintenance of a “local file” that is specific to each country and that identifies (i) material related party transactions, (ii) the amounts involved in those transactions, and (iii) the supporting analysis underlying the MNE’s transfer pricing determinations for the transactions; and
- Annual submission by large MNEs of a Country-by-Country Report that provides specified financial and other information to the tax authorities in each relevant jurisdiction in which the MNE does business.
Key elements of the ultimate success of this initiative will be the adoption and consistent implementation of local country legislation and policies by participating countries, as well as effective and efficient information collection and sharing between relevant tax authorities.
An early implementer of CbCR legislation is the Kingdom of the Netherlands. The Dutch Parliament passed legislation to implement CbCR on December 21, 2015. The Dutch legislation is strongly in keeping with OECD guidelines, requiring the maintenance of a master file and local country file, as well as the submission of a Country-by-Country Report by MNEs with a Dutch parent with annual consolidated revenues of at least € 750 million.
MNEs with a Dutch parent, as well as non-Dutch MNEs with a Dutch subsidiary, need to be wary of the application of the new requirements to them, even if annual revenues are well below the € 750 million threshold. The new Dutch legislation requires that any MNE with a Dutch group entity and with consolidated group annual revenues of at least € 50 million maintain a master file and local Dutch file. These do not need to be submitted to the Dutch tax authorities as part of the annual tax return, but must be maintained by the local Dutch entity and made available upon request.
The key takeaway, which is likely to be mirrored by a number of other countries, is that MNEs cannot simply consider themselves to be untouched by CbCR simply because their annual consolidated revenues are below € 750 million. Instead, the lower threshold of € 50 million and related requirements to maintain a master file and local file may catch many MNEs by surprise. Looking to the Netherlands as an example, an MNE with a non-Dutch parent with consolidated annual revenues of only € 50 million, but with a Dutch subsidiary with revenues well below this threshold would be subject to the new Dutch transfer pricing documentation requirements. This is easily a trap for the unwary.
For more information please contact a member of our Global Tax Services Group.