Country by Country Reporting Though Leadership FAQs

Transcript

1 Country-by-Country Reporting The FAQs September 2016

2 The reset landscape There is a Global Tax Reset underway. The confluence of the OECD’s actions relating to Base Erosion & Profit Shifting (BEPS) combined with unilateral country legislation, increased sharing of information between tax authorities in different countries, and the pressure on governments to address high levels of sovereign debt are culminating in sweeping changes to tax laws and treaties. This is triggering a widespread Global Tax Reset for businesses with worldwide operations. The scope of the OECD’s activities is broad and sweeping. It includes 15 actions and seeks to cover nearly every aspect of global business. One of the cornerstones of the new global tax paradigm is a Country by Country Reporting (CbCR) requirement that is detailed in Action 13 of the OECD’s guidelines. This perspective paper aggregates frequently asked questions by business leaders about CbCR and is intended to help companies understand what CbCR is, what information is needed, who CbCR applies to, and how businesses can prepare. 02

3 The basics Where is a CbC report filed? Who will be subject to CbCR? CbC reports are primarily to be filed where CbCR applies to multinational companies the parent company is headquartered (HQ). (MNCs) with a combined revenue of euros If the HQ country has not implemented 750 million or more. CbCR, MNCs should appoint a surrogate parent entity who will take care of the filing. What is CbCR and what is a CbC report? Country-by-Country Reporting (CbCR) is part of the OECD’s Base Erosion and Profit Why are CbC reports needed? CbCR provides tax authorities information Shifting (BEPS) Action Plan 13. In essence, to help them assess transfer pricing risks large multinationals have to provide and make determinations on how they an annual return, the CbC report, that allocate tax audit resources. breaks down key elements of the financial statements by jurisdiction. A CbC report Are there other trends emerging? provides local tax authorities visibility to Additional reporting obligations are revenue, income, tax paid and accrued, employment, capital, retained earnings, being implemented in both the banking and extractive industries sectors. Other tangible assets and activities. sectors may follow. In addition, some jurisdictions have had initial discussions When will CbCR be implemented? It depends on when countries implement to consider obligatory public disclosure of CbCR requirements for MNCs (such as the CbCR within their individual legal systems. proposal for EU CbCR). Some countries have already implemented the CbC report for the fiscal years starting on or after the 1 January 2016. In these instances, CbCR should be filed within 12 months of the relevant year end. When will CbC reports need to be filed? CbC reports will need to be filed 12 months after the fiscal year has ended, starting with the first financial year starting after 1 January 2016. 03

4 Brochure / report title goes here | Section title goes here When should businesses begin taking action? As soon as possible, businesses should gauge readiness to collecting and aggregating the data needed under new CbCR requirements. 04

5 The approach What can businesses do to prepare for How should businesses approach CbCR? CbCR? Businesses should assess how they will There is no one best way to approach CbCR. Business models, operating gather required data from disparate strategies and the geographic spread of sources and what technology is best suited to help their organization input the data multinational businesses varies widely from and create the required reports. Many organization to organization. Businesses companies are starting with simulations on will need to develop a plan that makes sense based on your individual fact pattern their 2013, 2014, and 2015 data to assess their ability to comply and to gain and and circumstances. The approach below highlights four key steps in the process understanding of how their reports might and may be helpful as you begin internal be viewed by different stakeholders. Tools discussions with stakeholders. like Deloitte CbC Digital Exchange (CDX) are designed to help with these types of activities. How should data be gathered? There is no specific requirement on how data is collected but bear in mind that the combined group information needs to be consolidated into one report so to the extent data collection can be standardized this will assist efficiency. Collecting the data can be achieved via various methods, including consolidation systems, MS Office software (Excel, SharePoint), etc. 05

6 4. Filing 3. Impact assessment 1. Strategy 2. Data Collection • Assess practicalities • Ascertain key ratios and • Identification and • Single year vs. annual other indicators for risk compliance process around filing CbCR files finalization of data sources to be used with tax authorities tracking and comparison Outsourcing options • • • Use of technology • GAAP selection and Consider local with relevant benchmarks Confirmation of the • Determine if adjustments • specifications expected extent of reconciliation to be considered definitions, scoping, and are required (not only in to be released by tax Automation of data authorities • technical interpretations CbCR filing but regarding overall business model • collection process Assignment of roles and • Final review and filing Key control points and strategy) responsibilities • Alignment with Local TP • selection files 06

7 How much time will it take to implement a data solution? Setting up a system and well-planned data aggregation process takes time. In our experience it can typically take companies between 6-9 months to implement a centralized data collection process if one did not previously exist.

8 Data aggregation How difficult will data aggregation be? CbCR relies heavily on data. The step that is likely to consume the most time will be data aggregation. Data collection requires a standard, centralized method in which all stakeholders have the same understanding of their role in the process and of the definition and parameters governing the data being requested. Currently there are varying interpretations of the definitions for some of the CbCR information being requested. This could lead to data integrity concerns and uncertainty if you do not clarify definitions upfront with all stakeholders before beginning the data aggregation process. Do not allow this type of uncertainty to dissuade you from getting started. Where ambiguity exists most companies are opting to rely upon their own existing, internal definitions. You can successfully implement a centralized data aggregation model as long as all parties Data within your organization adopt the same definitions consistently. Additional challenges that businesses often aggregation confront are data quality and risk exposure of the information reported to tax authorities. Data collection may be more challenging for organizations that operate decentralized business models and those that have grown by mergers and acquisitions over the years and who have not fully integrated their technology systems as they grew. 08

9 What are the steps for data aggregation? There are essentially two stages: assessing the current state and developing and implementing the plan. Develop & implement Assess Validate Design Design data collection process/schedules Generate an overview of current systems, tooling, data, processes, and people. and select system solution. Resolve missing data elements where necessary. Based on the fit/gap analysis, develop a project plan Define requirements Identify and formulate data requirements. and define specifications for new systems, Determine internal and external users and tooling, training, and processes. stakeholders. Perform fit/gap analysis on an as-is situation and to-be situation. Build Develop new systems, tooling, materials, and process documentation. Roll-out Implement completed systems, tooling, materials, and processes (including training, communications, documentation, etc.) 09

10 Can businesses automate the CbCR process? A well planned, technology-enabled approach can help businesses to automate an end-to-end CbCR reporting process as well as enhance organizational efficiencies. 10 10

11 Automation What is the preferred approach to data aggregation? Sourcing and generating data A preferred approach is Record-to-Report which relies on automated processes and integrated technology solutions. • Determine what information is needed Companies are frequently able to pull Locate requisite data across corporate • systems data that already resides in existing financial systems. Software is available to • Find data concerning intragroup transactions help businesses with the data collection • process. Enhance data quality via cleansing • Select an organizational approach to help In developing an efficient protocol that manage the volume of data Standardize figure definitions across • utilizes automated data extraction to the greatest extent possible, companies should jurisdictions begin by identifying what data is already • Obtain tax figures from systems available in their IT environment and then containing commercial figures • Establish routine processes to efficiently perform a gap analysis to determine what information is missing. collect data on a regular basis • Plan around closing periods to help avoid capacity issues and added time pressures A framework to help Data collection, calculation, and identify key challenges in consolidation CbCR automation from • Aggregate relevant data from identified input, to processing, to sources output. Adjust or enrich the collected data • Identify requisite additional calculations • • Consolidate figures (where applicable) • Apply analytics to manage and assess tax positions • Manage the connected workflows and processes Reporting Identify requirements for CbC reports • Identify data needed for tax management purposes Calculate and report the relevant ratios • • Validate that the level of detail meets regulatory requirements Establish requisite disclosures to the tax • authorities 11

12 What strategic opportunities stem from CbCR compliance requirements? Using tax data analytics, business leaders can extract new organizational insights and correlations from CbCR data which can be leveraged in strategic planning purposes. 12

13 Ta k ing a c t i o n Start planning and run simulations on 2013, 2014, and 2015 data now. It is only when you have gathered the required data and created the reports that you can truly analyze what impact CbCR is going to have on your organization and how this might reflect on the effective tax rate (ETR). Taking these steps will help your business understand the new challenges CbCR may bring and will provide you time to adequately plan how to manage the new demands CbCR may place on your organization. The goal is to keep your business tax compliant and manage your ETR. Since CbCR will likely have a cascading impact on your organization’s strategic choices and possibly your business model additional information and perspective will be a valuable driver of future decisions. Can your company produce a CbC report today? Do you have the information you need to comply with CbCR? Are the data aggregation processes you need in place? Country by Country Reporting is here—are you ready? 13

14 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms. Deloitte provides audit, consulting, financial advisory, risk advisory , tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 245,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2016. For information, contact Deloitte Touche Tohmatsu Limited

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