Country by Country Reporting Handbook on effective tax risk assessment

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2 Country by - Country - Reporting Handbook on Effective Tax Risk Assessment September 2017

3 This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: ), Country -by -Country Reporting: Handbook on Effective Tax Risk Assessment , OECD, Paris. OECD (2017 -by -reporting -handbook -on -effective -tax -risk -assessment.pdf -country www.oecd.org/tax/beps/country Photo credits: Cover © Olivier Le Moal – Shutterstock.com © OECD 2017 and You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable ackno wledgment of the source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected] . Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d'exploitation du droit de copie (CFC) at [email protected] .

4 PREFACE – 3 Preface Next year will be the first time that tax authorities around the world will receive information on large MNE groups with operations in their country, breaking down a group's revenue, profits, tax and other attributes by tax jurisdiction. This information has never previously been available to tax authorities and represents a great opportunity for tax authorities to understand the structure of a group's business in a way that has not been possible before. -by Country -Country Reporting (CbC Reporting) is one of the four minimum standards of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to which over 100 countries have committed, covering the tax residence jurisdicti ons of nearly all large MNE groups. And the pace of implementation of CbC Reporting is impressive. As of today, m ore than 55 jurisdictions have already implemented an obligation for relevant CbC MNEs to file Report s. Jur isdictions have also moved quickly to ensure that CbCRs can be exchanged between tax administrations. To date, 65 jurisdictions have signed the Agreement ome jurisdictions have entered into and s Multilateral Competent Authority bilateral exchange of CbCRs with Competent Authority Agreements to operationalise the specific jurisdictions. to go until the first CbC Reports are exchanged, With nine months over 1 000 exchange relationships between pairs of jurisdictions have already been created . The onus is now put on tax authorities to develop a nd implement solutions for the collection and handling of CbC Reports and to make effective and appropriate use of the information they contain. The Canada Revenue Agency, in the context of the OECD Forum on Tax Administration, has sponsored work on two ne w handbooks, to support countries in the effective implementation of CbC Reporting and on the use of the information contained in CbC Reports for the purposes of tax risk assessment. Handbook on Effective Implementation Country is a The -by-Country Reporting: practical guide to the key elements that countries need to keep in mind when introducing CbC Reporting, including technical issues related to the filing, exchange and use of CbC Reports, as well as practical matters that tax authorities will need to deal with. Following implementation of CbC Reporting, a tax authority will then need to start using the information they receive, either from a group directly or from a foreign tax Handbook on Effective Tax Risk authority. The Country -by-Country Reporting: Assessment explores how this can be done, taking into account the different approaches to tax risk assessment applied in different countries, the types of tax risk indicator that may be identified using information contained in CbC Reports, and the challenges that may be faced by tax authorities and that they need to be aware of. It shows that CbC Reports can be a very important tool for the detection and identification of transfer pricing risk and n, used alongside other related risk in the hands of a tax administratio other BEPS- information that it holds and as a basis for further enquiries, but also raises cautions about T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

5 4 – PREFACE the risk that simplistic and misleading conclusions may be drawn if CbC Reports are used in isolation. These two handbooks will provide valuable support to countries introducing CbC Reporting and using the information they receive, but we do not see these handbooks as permanent, static tools. As time passes, tax authorities will gain in experience in collecting, handling and using CbC Reports and each of the handbooks will be updated periodically, to ensure that tax authorities in all countries can benefit from this experience. Bob Hamilton Commissioner of the Canada Revenue Agency T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

6 TABLE OF CONTENTS – 5 Table of contents Abbreviations and Acronyms ... 7 Chapter 1 Introduction and Background ... 9 15 Chapter 2 The Role of Tax Risk Assessment in Tax Administration ... ... 16 Current developments in tax risk assessment processes 25 Chapter 3 Overview of CbC Reporting ... The information contained in an MNE group's CbC Report ... 25 The advantages CbC Reports offer over other data sources ... 27 29 Other standards for disclosure of country- by- country information ... Chapter 4 .. 31 Incorporating CbC Reports Into a Tax Authority's Tax Risk Assessment Framework 31 ... Using CbC Reports within different approaches to tax risk assessment Ways in which CbC Reports can be used to detect indicators of possib le tax risk ... 33 Tax risk indicators that may be detected using information contained in CbC Reports ... 35 Chapter 5 Challenges to the Effective Use of CbC Reports for Tax Risk Assessment ... 45 55 Chapter 6 Using CbC Reports alongside data from other sources ... 59 ... Using the Results of a Tax Risk Assessment Based on CbCR Information Chapter 7 61 Annex 1 Model template for a Country -by -Country Report ... Annex 2 ... 64 Tax risk indicators that may be detected using a CbC Report 66 Annex 3 Example Use of a CbC Report for Tax Risk Assessment ... T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

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8 – ABBREVIATIONS AND ACRONYMS 7 and Acronyms Abbreviations Automatic Exchange of Information AEOI Annual Information Return AIR Approach to Large Business Compliance ALBC Australian and New Zealand Standard Industrial ANZSIC Classification Australian Taxation Office ATO Base E rosion and Profit S hifting BEPS Competent A greement uthority A CAA Computer Assisted Scrutiny Selection CASS -by Country -Country CbC Country -by -Country Reporting CbCR Controlled Foreign Company CFC Centralised Information Branch CIB Transfer Pricing C oordination Group CGTP Compliance Management Centralized Processing CMCPC Centre Canada Revenue Agency CRA Capital Requirements Directive CRD Common Reporting Standard CRS Common Transmission System CTS Dutch Tax and Customs Administration DTCA T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

9 8 – ABBREVIATIONS AND ACRONYMS Extractive Industries Transparency Initiative EITI Effective Tax Rate ETR European Union EU Foreign Account Tax Compliance Act Inter FATCA IGA Governmental Agreement Gross Domestic Product GDP Income Tax Transaction Analysis Centre INTRAC Intellectual Property IP Integrated Risk Assessment System IRAS International Organisation for Standardisation ISO Income Tax Department ITD Multinational E nterprise MNE Statistical Classification of Economic Activities NACE in the European Community North American Industry Classification System NAICS Non -filers Monitoring System NMS Organisation for Economic Co -operation and OECD Development Permanent Account Number PAN Research & Development R&D Servicio de Impuestos Internos SII Tax Deduction/Collection at Source TDS/TCS Extensible Markup Language XML T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

10 - INTRODUCTION AND BACKGROUND 9 – CHAPTER 1 Chapter 1 Introduction and B ackground 1. Action 13 is one of four minimum standards within the Base Erosion and Profit Shifting (BEPS) Action Plan. It requires the ultimate parent entities of large MNE groups t) with the tax authority in their Country Report (CbC Repor by- to file a Country- residence jurisdiction, containing information (CbCR information) relating to the global allocation of the group's income and taxes, together with indicators of the location of economic activity within the group. This tax authority shares the CbC Report with tax authorities in other jurisdictions where the MNE group has activities, subject to conditions including that CbCR information may only be used for the purposes of high -related risks and, where ng other BEPS level transfer pricing risk assessment, assessi appropriate, for statistical and economic analysis and that the jurisdiction has in force with the other jurisdiction both an international agreement that permits automatic exchange of information and a competent authority agreement for the exchange of CbC Reports. The timeline for the filing and exchange of CbC Reports is shown below, as it would apply to an MNE group that prepares its consolidated financial statements on a calendar year basis. 2016 2017 2019 2018 6m 3 m 31/12/2017 31/12/2018 1/1/2016 31/12//2016 Deadline for filing Deadline for filing Start of first fiscal End of first fiscal CbC 2017 eport R CbC R eport 2016 CbC year for CbC year for (12m after end of Reporting Reporting fiscal year) (assuming fiscal 31/3/2019 30/6/2018 year = calendar year) Deadline for Deadline for exchanging exchanging CbC 2016 Report 2017 Report CbC (15m after end of (18 months after end of – fiscal year fiscal year – subsequent years) first year only) -by 2. Country -Country Reporting (CbC Reporting) entails a significant investment on the part of groups, to extract key information from their financial, regulatory or MNE management accounts on a globally consistent basis, which has never been required previously. This means that tax authorities in all jurisdictions that are members of the OECD Inclusive Framework on BEPS and which satisfy the requirements for obtaining and using CbC Reports should in the future have access to valuable in formation on the regional and global activities of MNE groups with operations in their jurisdiction, which T © OECD 2017 HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN -COUNTRY REPORTING - BY COUNTRY-

11 10 – CHAPTER 1 - INTRODUCTION AND BACKGROUND was not available before. This will allow tax officials, including those in developing and emerging jurisdictions, to better understand how local ent ities fit within the activities of in order risk assessments large and complex MNE groups, and to conduct more effective may pose a higher tax risk . Where these arrangements that to identify taxpayers and thority's resources may be directed taxpayers and arrangements are identified, a tax au towards conducting further review or more extensive compliance interventions ( possibly . Equally important, CbC Reports should also be including, but not limited to, tax audits) er used to identify taxpayers risk , requiring fewer or more targeted which pose a low tax interventions , and correspondingly fewer resources. 3. Estimates of the scale of BEPS and the impact on jurisdictions differ, as shown in S Action 11 Report Measuring and Monitoring the table below. The OECD/G20 BEP (the Action 11 Report BEPS , OECD, 2015) in 2015 estimated that BEPS activity resulted in a loss of between 4% and 10% of global corporate income tax revenue. Scope Range USD (billions) Year (level) Fiscal estimate approach Global 100- OECD aggregate tax rate differential 10% of CIT) 2014 240 (4- Other Estimates IMF CIT efficiency 2014 Global 5% of CIT 200 (8% of CIT)* Global UNCTAD offshore investment matrix 2015 2012 Developing countries 13% of CIT IMF CIT efficiency 2014 66- UNCTAD offshore investment matrix 2015 Developing countries 120 (7.5- 14% of CIT)* 2012 * Only includes investment -related BEPS: not trade mispricing. 4. The Action 11 Report (OECD, 2015) also described six key indicators of BEPS activity at a macro level, which were updated for the first report of the OECD Inclusive Framework on BEPS (the IF Report), released in July 2017: Concentration of foreign direct investment relative to GDP Indicator 1: Indicator 2: High profit rates of low -taxed affiliates of top global MNEs Indicator 3: -tax locations High profit rates of MNE affiliates in lower Indicator 4: Effective tax rates of large MNE affiliates relative to non -MNE entities with similar charac teristics Indicator 5: Concentration of royalty receipts relative to R&D spending Interest expense to income ratios of MNE affiliates in countries with Indicator 6: above average statutory tax rates 5. A number of the se indicators use similar information to that contained in CbC Reports , either alone or in combination with other data, and so can also be incorporated a risk assessment framework to identify possible indicators of BEPS in particular into xample, indicator 2 suggests that , where BEPS is present . For e , it may be MNE groups expected that the profit rate (e.g. profit before tax/total assets or profit before tax/total employees) will be higher in jurisdictions where an MNE group has a lower effective tax T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

12 CHAPTER 1 – 11 - INTRODUCTION AND BACKGROUND rate c ompared with juri sdictions where the MNE group has a higher effective tax rate. Support for this at a macro level can be seen in the table below , which was calculated using data from 250 of the largest global MNE groups. However, CbC Reports also allow tax groups which have these characteristics, which MNE authorities to identify particular may be flagged for further review. Higher ETR / higher profits TR / lower profits Higher E 26% of total income 12% of total income 0 17% of total income of total income 45% Effective tax rate differential TR / higher profits Lower E TR / lower profits Lower E Negative Positive Negative 0 Positive Profit rate differential 6. and CbCR information is a powerful tool in the hands of a tax administration provides a key opportunity for tax authorities to take a global perspective of MNE groups CbC Reports have been designed with tax administrations in mind, as in their jurisdiction. tiered approach to transfer pricing documentation alongside a master file part of a three- containing standardised information relevant for all members of an MNE group and a local file referring specifically to material transactions of members of a group in a particular jurisdiction. It is important that tax authorities use t his information actively for high level risk assessment and as the basis for making enquiries in the course of a tax group is engaged n MNE audit. CbC Reports do not by themselves provide evidence that a in BEPS but, read alongside the master file, local fi le and other information available to tax authorities, and interpreted in light of a tax authority's knowledge and experience of group's activities an MNE and attitude to tax risk , they can reveal important indicators of where tax risk may exist. 7. Each tax authority must determine how to make the best use of CbC Reports in conducting tax risk assessments, taking into account its existing risk assessment termination of the framework, its resources and its priorities. This includes a de appropriate action to be taken following the completion of a risk assessment, and the level or nature of potential tax risk needed to trigger a tax audit or other compliance activity. Country -by-Country Reporting: Handbook on Effective Tax Risk Assessment This has been prepared by the OECD Forum on Tax Administration, under the (OECD, 2017) sponsorship of Canada, to provide tax authorities with guidance on ways to incorporate sessment processes, the information obtained under CbC Reporting into their tax risk as types of tax risk indicators that may be identified using CbC Reports, and the challenges that may arise in the process . It contains the following elements. -COUNTRY REPORTING - BY HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017 COUNTRY-

13 12 – CHAPTER 1 - INTRODUCTION AND BACKGROUND • Chapter 1 contains a high level introduction to CbC Reporting, which is de signed for use by a tax authority alongside other information, as well as its knowledge and experience of an MNE group and its attitude to tax risk, for the purposes of high level risk assessment. • Chapter 2 considers the role of tax risk assessment in tax administration and the core characteristics of an effective risk assessment system, including examples of the approaches used in different countries. • Chapter 3 includes a description of the information that will be contained in the CbC Report of an MNE gr oup, the primary process for how these are filed by groups and exchanged by tax authorities, and the advantages that CbC Reports have over other sources of information available to tax authorities. This chapter also looks at other standards for disclosure of country -by -country information, which apply to specific sectors. • Chapter 4 explores the ways in which CbCR information can be incorporated into a tax authority's tax risk assessment framework, with the decision as to how this will be done left to each jurisdiction. This begins with a description of how CbC ent approaches to risk Reports can be used where tax authorities apply differ filing vs post assessment (e.g. pre- - -based vs arrangement -filing, or taxpayer based), before looking at how CbCR information can be used to detect potential tax risk (e.g. by comparing an MNE group's results in a particular tax jurisdiction with those of the group as a whole, with those of a "typical" MNE group in its sector, or with those in the same jurisdiction in earlier periods). This chapter concludes by describing some of the main specific potential tax risk indicators that may be identified using CbC Reports, recognising that these may also be explained by non- BEPS factors. • Chapter 5 concerns the challenges that may be faced by a tax authority in using CbC Reports for tax risk assessment, which among other things concern the quantity of information that some tax authorities will need to deal with, the comparability of data provided by different MNE groups, and transitional issues following the introduction of CbC Reporting. Chapter 6 sets out some of the other data sources that tax authorities should • consider alongside CbC Reports, including the master file and local file, other information held by the tax authority, information available from other government sources, publicly available information and commercial sources of . data • Chapter 7 describes how the results of a tax risk assessment using CbC Reports should be used. CbCR information is a powerful tool for high level risk assessment, but it can never by itself represent conclusive proof that transfer r that an MNE group is engaged in BEPS. Where a risk prices are incorrect o assessment using CbC Reports identifies potential tax risks, this should trigger further reviews or requests for additional information and, if necessary, compliance action including possibly a tax audit . • Annexes to the handbook include the model template for a CbC Report, a summary of the tax risk indicators described in Chapter 4, and an example illustrating how the CbC Report of a fictional MNE group may be used for high level tax risk assessment. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

14 - INTRODUCTION AND BACKGROUND 13 – CHAPTER 1 8. Tax authorities are encouraged to provide training on the effective use of CbCR information to all staff involved in conducting tax risk assessments for entities in large MNE groups, as well as competent authorities that will be involved in the exchange of CbC Reports, and will be supported in providing this by the OECD. Training should also be considered for tax compliance staff, including tax auditors, which may not be involved in conducting risk assessments but may come into contact with a CbC Report or may be CbC Report. At all approached by an entity to discuss information contained in its group's times, tax authorities should ensure the confidentiality and appropriate use of information contained in CbC Report s, in accordance with their commitments under the Action 13 minimum standard. 9. This handbook is part of a suite of guidance prepared by the OECD and available to jurisdictions to assist in the implementation and operation of CbC Reporting. Other publications include guidance on the interpretation of elements of the Action 13 2 1 minimum standard , on the appropriate use of CbC Reports , on use of the OECD CbC 3 4 XML schema and on the effective implementation of CbC Report ing. 10. This handbook will be revised and updated periodically to reflect changes in the tax risk landscape and the findings of countries as they gain experience in using CbC -specific aspects of tax Reports. Future editions of the handbook may also consider sector risk assessment (e.g. tax risk indicators that may be more relevant or less relevant to particular sectors, such as the banking and insurance sectors), which are not discussed further in this first edition. 1 OECD (2017a), Guidance on the Implementation of Country -by-Country Reporting . This guidance is updated from time to time and the latest version may be found at -beps -reporting -country -13.htm -action www.oecd.org/tax/beps/guidance -on -country- by 2 OECD (2017b), Country -by-Country Reporting: Guidance on the A ppropriate Use of -13- -action www.oecd.org/tax/beps/beps -by-Country , ountry Contained in C Information Reports on-cou ntry- -country -reporting -appropriate -use -of-information -in-CbC -reports.pdf by 3 7), -by-Country Reporting XML Schema: User Guide for Tax Country OECD (201 www.oecd.org/tax/country -by -country - . This may be found at: Administrations and Taxpayers -user reporting -xml -schema -tax -guide -for -administrations.htm . 4 OECD, Country -by-Country Reporting: Handbook on Effective Implementation - -on- effective reporting www.oecd.org/tax/beps/country -by -country- -handbook ( implementation.pdf ) T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

15 14 – CHAPTER 1 - INTRODUCTION AND BACKGROUND Bibliography Guidance on the Implementation of Country -by-Country Reporting, OECD (2017a ), -of-tax -on -country- by- country- www.oecd.org/ctp/exchange -information/guidance beps -action reporting- . -13.htm OECD (2017b), -by-Country Reporting: Guidance on the A ppropriate Use of Country Information contained in C -by -Country Reports , ountry www.oecd.org/tax/beps/beps - -use appropriate -reporting- action - in-CbC -of-information- -13 -on -country -by -country reports.pdf OECD (201 7), Country -by-Country Reporting XML Schema: User Guide for Tax Administrations and Taxpayers , -by reporting - -xml -country- www.oecd.org/tax/country -guide schema- user -for -tax -administrations.htm . 2015 Final Report , OECD OECD (2015), Me asuring and Monitoring BEPS, Action 11 - Publishing, Paris, http://dx.doi.org/10.1787/9789264241343- en . T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

16 CHAPTER 2 - – 15 THE ROLE OF TAX RISK ASSESSMENT IN TAX AD MINISTRATION Chapter 2 The Role of Tax Risk Assessment in Tax Administration 11. Tax risk assessment is a key element of modern tax administration. Risk assessment tools allow tax authorities to identify indicators that suggest particular taxpayers or risk arrangements may pose an increased where further compliance to their jurisdiction, activity may be required, or a reduced risk, which may mean less compliance activity, or ments in the more targeted compliance activity, is possible. This should facil itate improve allocation of limited resources to the areas of greatest risk , while at the same time giving a where economic activity has been taxed correctly, reducing tax authority an indication of the burden on lower -risk taxpayers. 12. Although in general in advanced tax administrations there is a trend towards greater use of automated methods for tax risk assessment, most risk assessment systems still include a manual element and some are primarily or wholly manual. Tax authorities also vary in terms of whether tax risk assessment is conducted centrally by a specialist risk assessment team incorporating input from the compliance function, or locally by the compliance team (or tax inspector). Risk assessment tools may be used to identify higher risk taxpayers, which are then subject to greater review of all of their business or of a specific area of their business (e.g. international issues), or to identify higher risk arrangements which are then flagged for further review irrespective of whether the relevant taxpayer is seen to be higher risk as a whole. 13. In identifying higher risk taxpayers, some tax authorities use a points -based system, which ranks groups base d on the number of risk indicators present (with some indicators or combinations of indicators being worth more points). Alternatively, other tax authorities use size or complexity as a key indicator of potential risk, and then use risk assessment tools to identify areas to focus on within these groups. In order to give taxpayers greater certainty, some tax authorities are conducting more of their risk assessment in "real time" (i.e. before a tax return is filed), while others continue to risk assess taxpay ers and In all cases, tax risk assessment can be a -filing. s mainly or entirely post arrangement dynamic process, which is flexible to the level of tax risk identified. Where it appears clear at an early stage that the level of potential tax risk posed by a taxpayer is low, a decision may be made at that time that no further assessment or compliance action is required. Where such a decision cannot be reached, further analysis and enquiries may be conducted s. in order to determine the most appropriate next step 14. While the frameworks used by tax authorities vary, for risk assessment to operate effectively certain core characteristics should be present. nd other risk should operate objectively. Algorithms a Tax risk assessment tools • in certain sectors or to target assessment tools may be designed to detect risk cific arrangements, but they should identify potential tax risks based on an spe objective assessment of available intelligence. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

17 16 – CHAPTER 2 - THE ROLE OF TAX RISK ASSESSMENT IN TAX ADMINISTRATION • Officials involved in risk assessment should be adequately trained and experienced in key areas. These may vary from jurisdiction depending upon the jurisdiction to system in place, but are likely to include specialists in tax law, transfer pricing, risk management, accounting, economics , statistics and information technology , as well as sector specialists with an understanding of particular business models or industries that will assist the interpretation of data with respect to certain groups . This does not mean that jurisdictions which lack these specialists cannot conduct risk assessments, but they should take steps to improve the knowledge and experience of their experts over time. -select taxpayers for further • Risk assessment tools should be used to select and to de investigation, pos hey should . T sibly including tax audit or other compliance activity not be used as a substitute for such activity , for the purposes of making tax adjustments or for directly assessing taxes. Risk assessment p from rocesses should be dynamic and responsive to feedback • to ensure continuous improvement. Methods used should within the tax authority, be revised and updated to reduce the risk of flags being raised for taxpayers and which are not in fact high risk (otherwise known as false positives) or arrangements expanded to deal with emerging risks which have not previously been identified. • A risk assessment strategy should combine different tools and take into account different elements of a group's risk profile, to minimise the risk that a higher risk taxpaye r is able avoid detection by putting in place elements to disguise a particular risk flag. For example, a group may hire low -cost employees or consultants in a jurisdiction to avoid a high profit before tax / number of employees ratio, but this would not disguise the fact that the group may also have a high proportion of related party revenues, a low cost -base and a low effective tax rate in that jurisdiction. Risk assessment tools should also evolve over time to reduce opportunities for higher risk taxpaye rs to develop strategies to avoid detection. • Governance processes should be in place to ensure adequate monitoring of the risk assessment function. This should ensure that risk assessments are subject to appropriate levels of review and sign -off, and are fully documented so that a complete audit trail is available in the event of future enquiries. • Tax risk assessment processes should form part of a tax authority's overall risk 5 management framework. Principles and guidelines for risk management and risk assessment have been established by the International Organisation for Standardisation (ISO), containing guidance on the design of a risk management framework, the monitoring and review of the framework and the continual improvement of the framework. Specif ic to risk assessment, sections are included on the identification, analysis and evaluation of risk. A tax authority should consider the extent to which its existing or proposed risk management and tax risk assessment processes are aligned with this volunt ary standard, and any improvements which may be made based on the ISO's recommendations. Current developments in tax risk assessment processes 15. Many jurisdictions are in the process of implementing changes to thei r tax risk assessment processes. Some of these changes are directly connected to the introduction of 5 ; www.iso.org/standard/43170.html Management Risk ISO 31000:2009 – T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

18 CHAPTER 2 - MINISTRATION – 17 THE ROLE OF TAX RISK ASSESSMENT IN TAX AD CbC Reporting, to incorporate CbC Reports information into the tax risk assessment of ate use of CbCR large MNE groups while ensuring that the confidentiality and appropri information is protected. Other changes concern improvements to the tax risk assessment of groups unrelated to CbC Reporting. A number of tax authorities have provided outlines of current developments in tax risk assessment in their jurisdi ction, which are set out below. , for release in The OECD is also developing a Transfer Pricing Risk Assessment Toolkit 2018, to assist jurisdictions, in particular developing countries, in the design and implementation of tools for the assessment of transf er pricing risks posed by MNE groups. Australia The Australian Taxation Office (ATO) has a centralised risk management function that uses a variety of manual and automated risk detection techniques that focus on public and oss- multinational businesses with cr -group dealings and structures. Intelligence on border intra the manifestations of base erosion and profit shifting risk within this population is gathered through the ATO's extensive data modelling and analytics programs, and via the observations and contributions of specialists and other stakeholders. The ATO uses a risk clusters management approach to address profit shifting risk among public and multinational businesses. Under this approach, risks that exhibit common factors, characteristics or behav iours within a population are treated and managed in a consistent manner. Each risk cluster has a strategy that outlines how we detect, deter and prevent these risks in the system, including strategic litigation, law reform, external and internal communica tion and capability building strategies. With the implementation of CbC Reporting, the ATO will incorporate new datasets from the master file, local file, CbC Reports and exchanges of information with other jurisdictions. The ATO's approach to risk detecti on is an iterative one, and these new sources will support the refinement of existing strategies, risk detection techniques and in the development of new risk algorithms, risk clusters and risk typologies. or arrangements that have been identified Risk typologies are used to represent transactions or observed in successful audit cases where the risk has been proven to exist and to erode the tax base. Typologies are developed to assist auditors in identifying comparable arrangements in other cases. has over 100 international risk typologies and is reviewing these to see how many The ATO can be applied to CbCR information. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

19 18 – CHAPTER 2 - THE ROLE OF TAX RISK ASSESSMENT IN TAX ADMINISTRATION Brazil In general, the annual Brazilian tax risk assessment process occurs in three stages: Stage I – definition of priority actions, taxes and special operations. Final product: Regional Risk Assessment Strategic Plan Stage II – definition and consolidation of risk assessment criteria; data crossing. Final product: preliminary list of selected taxpayers Stage III f – individual analysis o taxpayers; confirmation (or not) of the risk indicators and further data crossing. Final product: final list of selected taxpayers and the relevant risk assessment reports A decentralised approach Brazil adopts a decentralised approach ment, which is currently to tax risk assess undertaken on a regional basis (Brazilian tax administration’s structure comprises 10 unities, so called “tax regions”, composed by one or more States). Automated tools In general, automated tax risk assessment tools are used. Ho wever, the individual analysis in Stage III also includes some manual risk assessment processes alongside the relevant automated systems. Classification of taxpayers The Brazilian tax risk assessment approach identifies tax risk indicators across three egories of taxpayer: large taxpayers; medium cat -size taxpayers; and other taxpayers. Use of CbC Reports It is expected that CbC Reports will be used as an additional tool for crossing data, in particular during the individual analysis stage (Stage III). T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

20 CHAPTER 2 - – 19 THE ROLE OF TAX RISK ASSESSMENT IN TAX AD MINISTRATION Canada The C anada Revenue Agency (CRA) uses an integrated team approach to tax large business compliance referred to as the Approach to Large Business Compliance (ALBC). The ALBC takes into account the taxpayer's and tax intermediary's compliance risks and promotes responsible corporate tax management behaviour. The CRA has implemented the Integrated Risk Assessment System (IRAS) which allows the Agency to consider risks in the large business population both at the economic entity level and at the legal ent ity level. This system links information from CRA databases and various forms and returns. It then applies risk algorithms to the data to risk score and rank the entire large business population. IRAS uses approximately 200 algorithms in total for large bu siness – domestic, international and abusive tax avoidance. It risk scores and ranks groups by each of these three program areas -friendly taxpayer viewer and as well as on an overall basis. These results are displayed in a user for further analysis. The highest risk legal entities identified by IRAS can be selected and transferred to the , Integras. CRA’s audit case system Those taxpayers considered to be high to medium risk by IRAS (Tier I risk assessment), are then further analysed by Integrated Large Business Audit Teams using local knowledge to determine an overall risk profile of each particular taxpayer (Tier II risk assessment). The risk profile will determine the audit approach taken for a particular taxpayer. Those considered to be high risk at this stage will be included in the national workplan and subject to a full compliance audit. Once the Tier II risk assessment process is complete, high to medium risk cases are assigned to Integrated Large Business Audit Teams compris ing domestic, international and abusive tax avoidance auditors who conduct a Tier III risk assessment and validation at the early stage of the audit. This involves contacting the taxpayer, obtaining electronic records, conducting audit planning, and reviewing various sources of taxpayer information. The Tier III stage provides an opportunity to validate the risk indicators and/or audit issues identified in the Tier I and II risk assessment stages. The Tier III risk assessment and validation process is mandatory in determining whether to proceed with a full compliance audit, limited scope audit, or to close the case. Business intelligence gathered at the Tier II and Tier III stages, and during the audit, will be used to improve the Agency’s large business risk as sessment processes and systems as part of the feedback loop. In addition, the CRA will incorporate other sources of data including the Country - isk algorithms and systems. by-Country Reports into its r The risk profile will determine the audit approach taken for a particular taxpayer. Those considered to be high risk will be subject to a full compliance audit. Taxpayers in the medium risk category may be subject to a full compliance or limited scope audit, and taxpayers who are ect to a compliance assurance review to further validate the considered low risk may be subj taxpayer’s low risk ranking. The approach allows the CRA to focus its audit resources on the compliance within the large business population, and reduce the - highest -risk cases of non urden for businesses that are considered low risk. compliance b T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

21 20 – CHAPTER 2 - THE ROLE OF TAX RISK ASSESSMENT IN TAX ADMINISTRATION Chile In 2014, the Servicio de Impuestos Internos (SII) amended its compliance control model to one based on risk assessment , which emphasi ses that the selection of cases for review must be done taking risk. into account a taxpayer 's particular characteristics and associated as a multi -factor phenomenon , where a This new model is centred on the concept of tax risk activities, as well as taxpayer's conduct is influenced by its industry , business and economic, s and their sociological and psychological factors s an impro ved knowledge of taxpayer . This promote environment, with the objective of designing and implementing processes and procedures that aim to address the causes of non -compliance. This model also distinguishes between the general tax risk (or global risk) posed by a particular taxpayer, and the specific risk posed by particular transactions. Global tax risk s four dimensions of a taxpayer's tax obligations model define Chile's current : An obligation to register. • • An obligation to report information. An obligation to file taxes. • An obligation to pay taxes. • Tax compliance management requires the comprehensive measurement of the attitude of a taxpayer towards the . In combination, and taken together with other fulfil ment of each category of tax obligation information, evaluation of more than 170 attributes. The tax authority then groups this allows the compliance and the consequences taxpayers into four categories depending upon the likelihood of non- compliance (shown below) that require different treatment strategies, prioritising the allocation of non- of resources. KEY TAXPAYERS HIGH RISK TAXPAYERS LOW RISK TAXPAYERS MEDIUM RISK TAXPAYERS Consequences of occurrence Likelihood of occurrence Specific tax risk Specific tax risk, or transactional tax risk, is related to non -compliance with . a particular regulation As with global tax risk, the assessment of this risk is based on a combination of the probability of non- occurring -compliance when it does occur non compliance . Specific tax and the consequence of this risks are categorised into five levels: low, moderate, significant, high and s evere. COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017

22 CHAPTE R 2 - ASSESSMENT IN TAX AD MINISTRATION – 21 THE ROLE OF TAX RISK SEVERE EXTREME HIGH SEVERE SEVERE HIGH VERY HIGH SEVERE HIGH SEVERE HIGH HIGH SIGNIFICANT HIGH HIGH HIGH HIGH HIGH MEDIUM SIGNIFICANT MODERATE MODERATE SIGNIFICANT SIGNIFICANT MODERATE LOW LOW LOW SIGNIFICANT MODERATE Consequences of occurrence HIGHLY P RO B A B LY MODERATE IMPROBABLE RARE PROBABLE Likelihood of occurrence Implications of the new model tax risk and specific tax Assessment of both g risk give s the Chilean tax authority a s trategic lobal management tool which allows it to make a decision based on the specific characteristics of each taxpayer. This model seeks to strengthen the analysis of taxpayers in the fol lowing ways: • to make decisions relat ed to the selection of taxpayer segments (characteris ation) e certain segments of taxpayer (to focus resource) • to prioritis to support the design of strategies to tackle the specific risks • ructural, preventive and corrective) to assign treatment actions (st • • to dictate the level of intervention required for taxpayer. Implementation of this new model of tax compliance control has had deep implications for the modif ications to existing methodologies work of the SII. Importantly, it has been necessary to introduce for: the analysis of the fulfilment of tax obligations; the identification and analysis of taxpayer segments; the classification of the attitude of taxpayers towards compliance; the management and quality of informat ion held -up on compliance gaps, the identification of risks of ; approaches to follow non -compliance; and the analysis of the causes of non- compliance. In addition, changes have needed to as the communications and be introduced to the model for working with regional offices, as well technological tools used. T © OECD 2017 HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN -COUNTRY REPORTING - BY COUNTRY-

23 22 THE ROLE OF TAX RISK ASSESSMENT IN TAX ADMINISTRATION – CHAPTER 2 - India In the last decade , India’s Income Tax Department (ITD) embarked on an ambitious computerisation plan which developed voluminous databases relating to Permanent Account Number (PAN), IT return, IT form, Tax Deduction/Collection at Source (TDS/TCS) statements, Annual Information Return (AIR), Centralised Information Branch (CIB) etc. ITD has been leveraging data analytics and risk assessment for promoting voluntary compliance and deterring tax eva sion. Some key initiatives/projects are as under: Computer Assisted Scrutiny Selection (CASS): The Department has been i. implementing a centralized, rule- based mechanism for selecting cases for scrutiny (audit). The suggestions received from field formations and the outcome in cases selected in prior years are reviewed by a cross functional committee (including representatives from assessment, investigation, intelligence, international taxation, transfer pricing, risk assessment, systems) to refine the scenar ios and parameters. New scenarios are also introduced on the basis of analysis of information sources and environmental scanning. filers Monitoring System (NMS) has been implemented since 2013 to The Non- (NMS): ii. -filers with potentia l tax liabilities. Data analysis is carried out to prioritize action on non filers about whom specific information is available in the - identify potential non TDS/TCS, AIR and CIB database. The cases are classified with P1, P2, P3, P4 and P5 priority ratings (P1 being the highest p riority) for graded monitoring. iii. The scope of Project Insight was conceptualized to enable ITD in Project Insight: meeting the three goals namely (i) to promote voluntary compliance and deter noncompliance; (ii) to impart confidence that all eligible person s pay appropriate tax; and (iii) to promote fair and judicious tax administration. Under this project an integrated data warehousing and business intelligence platform is being rolled out in a phased manner from May 2017. ization of Income Tax Transaction Analysis Centre (INTRAC) The Project envisages operational for data integration, data processing, data quality monitoring, data warehousing, master data management, data analytics, web/text mining, alert generation, compliance management, enterprise ing and research support. The new technical infrastructure will also be leveraged for report implementation of requirements under the Foreign Account Tax Compliance Act Inter Governmental Agreement (FATCA IGA) and Common Reporting Standard (CRS)/Automatic Exchang e of Information (AEOI). The platform is also being configured for a wide range of thematic risk assessments relating to transfer pricing, international taxation, operational risk etc. lso being set up Processing Centre (CMCPC) is a A new Compliance Management Centralized , SMS, reminders, under this project to use campaign management approach (consisting of emails outbound calls, letters) to support voluntary compliance and resolution of compliance issues. A ure response on compliance issues in a structured dedicated compliance portal would be used to capt manner for effective compliance monitoring and evaluation. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

24 CHAPTE MINISTRATION – 23 R 2 - THE ROLE OF TAX RISK ASSESSMENT IN TAX AD The Netherlands Transfer pricing risk assessment Bottom up approach - For large businesses the local tax inspector performs a general assessment of of that business. Taxpayers can also proactively address transfer pricing issues the transfer pricing risk with the local tax inspector. In both situations tax inspectors must involve a member of the specialis t the Dutch Tax and Customs Administration transfer pricing coordination group (CGTP) which is part of ). (DTCA Top down approach - The CGTP operates on a national level, to ensure consistency and quality and to pro- actively define transfer pricing topics requiring extra action by tax inspectors when conducting their transfer pricing risk assessment (actions include desk audits, field audits, preliminary consultations). Taxpayers must provide information on business restructur ings and intangibles in their tax return. -reporting team. The CbC Part of the CGTP is the new CbC -reporting team is dedicate d to CbCR Tax Risk Assessment and d ata analytics are an essential part of this risk assessment process. The process described below provides opportunities for a better selection of transfer pricing cases . The CbCR Tax Risk Assessment process also provides opportunities to include data from other (public or internal) data sources. CbCR Tax Risk Assessment process reports using data analytics to assess transfer pricing and other BEPS risks of 1. Automated selection of erosion of the Dutch corporate income tax base. Table 1, Table 2 and Table 3 are all in scope. Relevant factors for selecting CbC -reports are: a) Footprint of the MNE in the Netherlands. Amount of corporate income tax at risk. b) Chances of success. c) 2. Capacity (FTE and availability, access, quality, complexity and volume of required additional data). Review of selected reports by CbCR -team. Four focus points: a) Income (compare key figures and ratios). b) Expenses (compare key figures and ratios). Other BEPS risks (e.g., data inconsistency, hybrid PE’s, etc., combine data with other c) information available). d) Information already available of the tax payer includi ng the participation in the cooperative compliance program 3. Discuss findings in CbCR -team, with other transfer pricing experts of the CGTP and the local tax inspector and decide on next steps. 4. The local tax inspector and transfer pricing experts (which can be the CbCR - experts) of the CGTP discuss findings with the taxpayer. During these discussions, the tax inspector can ask for the master file and local file and/or other relevant (transfer pricing) documentation. From 2019, the DTCA will extend the data analysis on the CbC - reports to longitudinal data regression analysis (trends at king Dutch constituent entities and analysis (e.g., continuously loss -ma rt level, industry level, etc.) CbC repo . T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

25 24 – CHAPTER 2 - THE ROLE OF TAX RISK ASSESSMENT IN TAX ADMINISTRATION Spain Spain uses a mainly de -centralised model of risk assessment which is carried out locally by the regional audit offices. However, the Spanish tax authority intends to make a centralised use of the CBCR data, which will be exploited by the Large Taxpayer Office. This is expected to be dealing with over 800 reports both from MNEs with domestic and foreign located headquarters. This figure dictates that a two -step approach will be required, i.e. an automated analysis followed by a manual review of CbC Reports in combination with other sources of data. The first step will be undertaken by the tax authority's IT system, and will follow two issue approach volve . This stage will in taxpayer approach and a complementary approaches: an running algorithms and queries applying both selection lines and specific analysis. The issue approach calls for a general analysis of the whole census searching for specific issues, patterns and typologies. Additionally it will look for inconsistenc ies both within a taxpayer’s data and also across the whole population. On the other hand, the taxpayer approach will focus on the MNE that has submitted the CbC Report, searching for items which relate only to that taxpayer or a group of taxpayers. manual he automated analysis has been conducted, a selection team will conduct a Once t analysis using data obtained in the first stage, their own expertise, and other data available to the tax authority. The first step will indeed help to make possible for the tax authority's small selection team to deal with all the cases but the main decision will be made at this stage analyzing the rough data of that first step re and looking for false positives. If there are issues that require further inquiry, several options a available: the tax authority can request further data from the taxpayer or representative in Spain (for instance by requesting the local and master files) or the case can be forwarded to an audit team to carry out a full or partial tax audit. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

26 CHAPTER 3 – RTING 25 – OVERVIEW OF CBC REPO 3 Chapter Overview of CbC Reporting Report The information contained in an MNE group's CbC CbC Reports contain information on the location of revenue, profits, taxes and 16. economic activity within large MNE groups, based on a standard template comprising three tables. A copy of this template is in cluded in Annex 1. To assist MNE groups in preparing CbC Reports, the -by Country Reporting, Transfer Pricing Documentation and Country Action 13 – (Action 13 Report , OECD 2015) includes a number of 2015 Final Report definitions and instructions on how the template should be completed and the data that should be included. In order to improve consistency, s ubsequent to the release of the Action 6 (OECD, 2015) 13 Report , further guidance has been prepared by the OECD on elements of the template and how these de finitions and instructions should be interpreted. In conducting a tax risk assessment, a tax authority should read the contents of an MNE group's CbC Report in light of the contents of the Action 13 Report (OECD, 2015) and interpretive guidance. To the extent possible, this should take into account how the Action 13 Report (OECD, 2015) and interpretative guidance has been interpreted and implemented in the jurisdiction where the CbC Report was submitted. 17. group's economic n MNE fields of numeric information on a Table 1 contains ten activity, aggregated by jurisdiction. This data may be based on a group's n MNE consolidated financial statements, entity statutory financial statements, regulatory financial tements, or internal management accounts. The fields included in Table 1 are: sta • unrelated party revenues • related party revenues • total revenues • profit/(loss) before income tax • income tax paid (on cash basis) income tax accrued – current year • stated capital • • accumulated earnings number of employees . • 6 Guidance on the Implementation of Country This guidance (OECD, 2017). -by-Country Reporting is updated from time to time and the latest version may be found at -country- www.oecd.org/tax/beps/guidance -on by -country -reporting -beps -action -13.htm HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017 BY COUNTRY- -COUNTRY REPORTING -

27 26 RTING – CHAPTER 3 – OVERVIEW OF CBC REPO tangible assets other than cash and cash equivalents. • 18. Table 2 contains further information on each constituent entity in the MNE group. the entity is tax resident (or, in the case of a permanent This includes the jurisdiction where establishment, where it is situated), as well as the jurisdiction in which it is organised or incorporated (if different). Table 2 also contains a description of each entity's main business ties. For convenience and consistency, the table contains a list of 12 common activi activities, including "dormant", as well as "other". A group may complete the table by placing a tick against the relevant activity or activities for each constituent entity or, if a particular activity is not included on the list, may place a tick against "other" and provide a description of the entity's activities. 19. he content Table 3 allows MNE groups to provide additional information to clarify t of the CbC Report. In order to ensure that its CbC Report can be interpreted as accurately as possible, a group should provide a brief description of the sources of data used in completing Table 1 as well as anything else that it thinks will be useful to assist a tax authority in correctly interpreting the first two tables. The content of Table 3, and the potential benefits that may be achieved from standardised disclosures by groups, are considered in Chapter 4. An MNE group's ultimate parent entity is typically required to file a CbC Report on 20. where it is resident within behalf of its group with the tax authority in the jurisdiction 12 months of the end of the group's reporting fiscal year (i.e. the an nual accounting period with respect to which the group prepares its consolidated financial statements), although some jurisdictions may require earlier filing (e.g. together with the ultimate parent entity's group will exchange Report from the MNE tax return) . The tax authority receiving the CbC it with tax authorities in other jurisdictions where the group has activities (subject to conditions) within 18 months of the end of the fiscal year for the first year of exchanges, and within 15 months of the end of the fiscal year in subsequent years. This is illustrated in the diagram below. Action 13 provides for other forms of filing in limited circumstances (e.g. if the jurisdiction where the ultimate parent entity is resident has not implemented rules for CbC Reporting), but these are beyond the scope of this handbook. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

28 CHAPTER 3 – 27 OVERVIEW OF CBC REPO – RTING xtensible mark -up language (an XML schema) has 21. An electronic template using e been developed to facilitate the electronic preparation, filing and exchange of CbC Reports. This should further ensure that CbC Reports are prepared consistently and support the automated analysis of CbCR information, for example by requiring that jurisdictions be rd two -digit ISO country codes which will avoid challenges that identified using standa could arise if groups included the names of jurisdictions in different languages or using different spellings. The advantages CbC Reports offer over other data sources 22. This guidance has been prepared in advance of the first filing and exchange of CbC Reports. It will be expanded and revised as jurisdictions grow in their experience of using its it brings. However, it is CbCR information and have a better understanding of the benef already clear that there are a number of ways in which the information in CbC Reports could improve the effectiveness of risk assessment processes, as well as challenges to the onsidered later in this handbook. In use of CbC Reports in risk assessment which are c general, these benefits may be further enhanced where a CbC Report is used alongside other information on an MNE group's structure and activities, such as the master file and local file. 23. Firstly, and perhaps most simply, CbC Reports are typically prepared and filed by the ultimate parent entity in an MNE group. This means that CbCR information has been he global compiled by the entity which is usually in the best position to understand t structure, activities and footprint of that group. CbC Reports provide an overview of what is happening throughout the whole of an 24. MNE group that may not be available, or not easily available, from exis ting data sources, including tax information. This will be valuable to all tax authorities, as it is highly unlikely T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

29 28 – CHAPTER 3 – OVERVIEW OF CBC REPO RTING that any tax authority will currently receive the level of analysis by jurisdiction and entity some cases, the tax authority in the residence that is provided in a group's CbC Report. In jurisdiction of an MNE group's ultimate parent entity, or of its key operating subsidiaries, may already have access to some information on the group as a whole, if they have a good nship with the group's head office functions (e.g. finance, financial direct or indirect relatio reporting and tax). In contrast, it may be more difficult for tax authorities in other jurisdictions to obtain robust information on the activities and financial position of entities in other parts of a worldwide group (e.g. if a resident subsidiary is unable to obtain this information internally). Other sources of information on an MNE group's activities, such as the consolidated financial statements, may contain some analysis of the fin ancial data for different parts of a group, but this often focuses on the group's key markets or on broad geographical regions. Where the activities in a particular jurisdiction are not significant in proportion to the rest of the MNE group, it may be diff icult to use this region -level data for -level risk assessment. CbC Reports address this issue for the categories of jurisdiction information they cover, by analysing data at the level of each jurisdiction. As CbC Reports are received on an annual basis, th is will also allow tax authorities to improve their understanding of the MNE group's overall structure and activities and how this changes over time. ose MNE groups This information should help tax authorities in identifying th 25. whose structure and activities give them greater opportunities to engage in BEPS, as well as those who may have fewer BEPS opportunities. It should also help to improve the quality tax officials will be in a better of conversations between tax authorities and MNE groups, as position to understand how activities in their jurisdiction fit into the overall group. They will therefore be able to ask better questions, informed by changes occurring throughout the global group, to understand how thes e might impact domestic entities. This may be particularly important where historically an MNE group has not been willing to engage collaboratively with the tax authority, and has not voluntarily provided information on a group's worldwide activities. 26. The fact that CbC Reports contain substantially consistent information on different MNE groups over time, broken down by tax jurisdiction, means they may be used in a variety of ways to detect potential tax risks (e. g. to compare an MNE group's profile in one jurisdiction with that in another jurisdiction or with the group as a whole, to benchmark MNE groups against their sector, and to identify changes within a group over time). These approaches to using CbC Reports are considered in more detail in the next chapter. Differences between the structure, accounting policies and business models of MNE groups, and flexibility in how CbC Reports may be completed mean that, in general, CbC ly compare specific groups. However, where the same Reports should not be used to direct risk is identified across different MNE groups, CbCR information may make it easier for a tax authority to determine the materiality of that risk posed by each group, and direct further compliance actions towards those groups where the tax at risk is higher. In addition, because the information contained in CbC Reports is presented in a standardised format using (with the exception of Table 3) numerical data, tick boxes and country codes, this the use of automated risk assessment tools which are currently used or being facilitates introduced in many jurisdictions. 27. Tax risk assessment is generally a process conducted unilaterally by a tax authority using available information, which may include information obtained during a consultation between the tax authority and members of an MNE group in that jurisdiction. However, the fact that an MNE group's CbC Report will be available to the tax authority in each jurisdiction where the group has activities could facilitate the development of multilateral components to the risk assessment of certain MNE groups, involving the tax authority from T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

30 CHAPTER 3 – 29 OVERVIEW OF CBC REPO RTING – more than one jurisdiction. This could include, for example, joint meetings with st aff from a group's central finance function, co- ordinated requests for information that may be relevant to the group's tax risk in more than one jurisdiction, or consultation between tax authorities concerning the interpretation of information contained in a group's CbC Report. Such an approach may not be necessary or appropriate for all MNE groups and, similarly, there may be tax authorities which for policy or operational reasons may not wish to, or may not be able to, participate in multilateral risk ass essments. Therefore it is likely that a unilateral risk assessment will continue to be conducted in the majority of cases. However, for MNE groups where a multilateral element is possible and appropriate, benefits could arise in terms of improving the effe ctiveness of a tax authority's risk assessment while providing greater certainty for groups. The possibility of multilateral consultations between an MNE group and tax authorities in different countries is also considered in Chapter 7. 28. As well as using information in CbC Reports to identify potential risks posed by specific MNE groups, tax authorities may use aggregated data taken from the CbC Reports of multiple groups to provide information on the profile of lar ge MNE groups in general, or of those within a particular population (e.g. by sector or region). This could be used to identify potential tax risks in the economy, which may then be investigated in particular licy. groups, as well as in the development of tax po -country information -by Other standards for disclosure of country information that will be made available to tax This guidance focuses on CbCR 29. authorities by MNE groups in accordance with the Action 13 minimum standard. CbC Reports contain important information that should be used by tax authorities for risk assessment purposes only, alongside other available data. This other data might include -by -country reporting standards information made available by groups under other country which apply in specific sectors, such as requirements on certain financial institutions in the European Union under the E U Capital Requirements Directive ( 2013/36/EU ) (CRD IV), or requirements on governments and extractive industry companies under the Extractive Industries Transparency Initiative (EITI) and the EU Accounting Directive (2013/34/EU). these standards is prepared on an annual basis and is publicly Information required under available. 30. , the requirements under CRD IV are the most similar to those standards Of these under Action 13. CRD IV requires credit institutions and investment firms to disclose, by EU Member State and by third country , the following information for a financial year: the name, the nature of activities and geographical location; turnover; number of employees in a full time equivalent basis; profit or lo ss before tax; tax on profit or loss; and public subsidies received. With the exception of public subsidies received, each of these categories of information will also be included in a group's CbC Report. However, differences in how information must be cal culated under a jurisdiction's domestic law to implement CRD IV, and its law to implement the Action 13 minimum standard, may mean that information provided under the two regimes may not always be determined in precisely the same way eported on a consolidated basis under CRD IV but on an aggregated (e.g. if turnover is r basis under Action 13, or if a group includes contractors in the calculation of employees under Action 13, but not under CRD IV). In some cases, identifying the cause of differences in numbe rs reported for different purposes may improve a tax authority's understanding of both sets of information, improving the effectiveness of their use in risk assessment. However, under the Action 13 minimum standard, MNE groups are not required to reconcile the revenue, profits and tax reporting in a CbC Report to its consolidated financial statements. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

31 30 – CHAPTER 3 – RTING OVERVIEW OF CBC REPO 31. Where a tax authority has experience of using information provided by groups under different country porting standards, this may help in identifying the best -by -country re ways in which CbCR information under Action 13 may be incorporated into its tax risk assessment processes. Where a tax authority does not currently take this information into x risk assessments, it should consider incorporating it into these account in conducting ta processes. Bibliography OECD (2017), Guidance on the Implementation of Country -by-Country Reporting , org/tax/beps/country -country- www.oecd. reporting.htm -by OECD (2015), OECD/G20 Base Erosion and Profit Shifting Project - Transfer Pricing – Action 13: 2015 Final Report, Documentation and Country -by Country Reporting en OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264241480- . T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

32 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 31 Chapter 4 uthority's Incorporating CbC Reports Into a Tax A ramework Tax Risk Assessment F This chapter considers how CbC Reports may be incorporated into a jurisdiction's 32. tax risk assessment framework, looking at three levels of detail, considering: at a high level, different approaches to tax risk assessment that may be applied • • at a middle level, different ways in which CbCR information can be used to detect indicators of tax risk within these approaches at a detailed level , different tax risk indicators that may be detected. • Using CbC Reports within different approaches to tax risk assessment Tax authorities currently adopt a variety of approaches to tax risk assessment and 33. may loo k to make changes to these approaches following the introduction of CbC Reporting (e.g. some tax authorities have introduced centralised processes for risk assessment using CbC Reports in order to ensure the appropriate use of CbCR information). For jurisd ictions with mature transfer pricing risk assessment and audit procedures, CbCR information will play a useful role in enhancing and corroborating those processes. For other jurisdictions, CbC Reports together with the master file and local file will provi de a strong basis for developing such procedures. Irrespective of the overall framework for tax risk assessment applied, CbCR information can be incorporated into it and has the potential R information is used to add important value in each case. This is in particular where CbC alongside and in combination with data from other sources, as considered later in this guidance. 34. The ways in which CbC Reports can be incorporated into a tax authority's risk assessment processes will depend upon the overall framework in place, but examples of how this may be done include the following. The tax authority in the jurisdiction where the ultimate parent entity of an MNE • group is resident will typically receive the group's CbC Re port within 12 months of the end of the group's reporting fiscal year, with the exact timing depending upon the filing deadline under domestic rules. This tax authority then exchanges the CbC Report with other jurisdictions where the group has activity (subject to conditions) within 15 months of the end of the group's reporting fiscal year (or within 18 months in the first year of reporting). Where a tax authority conducts a risk l not assessment before a taxpayer's tax return is filed, the group's CbC Report wil yet have been received for the year under consideration. However, once the CbC Report is received, it may be used by the tax authority to test the assumptions used and conclusions reached in the pre -filing risk assessment. The CbC Report could T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

33 32 – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK orm part of the tax authority's underlying information on the group's structure also f and activities, to improve the pre -filing risk assessment of later periods. • Where a tax authority conducts a tax risk assessment of taxpayers following the ns, CbC Reports may be used as part of an initial screening of filing of tax retur MNE groups to determine those which have a limited footprint in the jurisdiction and which, taking into account other relevant information, may be filtered from further assessment. CbCR informa tion may then be used in more comprehensive automated and manual risk assessment processes to identify indicators of possible tax risk in a jurisdiction. Once higher risk taxpayers have been identified, CbCR information may be used to plan tax audits or ot her interventions, and may be the basis for further enquiries. • Where a tax authority does not require all MNE groups to file a master file and local file in each period, the information contained in Tables 1 and 2 may be used together with other information as the basis for performing a high level initial functional analysis of a group. The information in Tables 1 and 2 may only be used for risk assessment purposes, but it could identify cases where the location of revenues and profits in an MNE group may not be appropriately aligned with the location of the group's activities, which could indicate possible BEPS risk, and so further transfer pricing documentation (such as the master file and local file) should be requested in order to conduct a more detaile d analysis. • Tax authorities in jurisdictions where an MNE group's holding companies are resident may use the information in Table 1 to calculate effective tax rates for each jurisdiction in which the group has operations. This may form the basis for an initial controlled foreign company (CFC) risk assessment to identify jurisdictions where the group may be paying a lower level of tax, although this assessment will be limited as the information on entities in a particular jurisdiction is presented on an aggregated basis (i.e. the results of entities with a low effective tax rate will be aggregated with the results of entities with a higher effective tax rate in the same jurisdiction) and does not include profit calculations based on tax numbers. • A number of jurisdictions do not currently use detailed tax risk assessment tools to select taxpayers for audit, but may, for example, audit all taxpayers, or all taxpayers above a certain size threshold. In this case, CbCR information may be used to identify indicators of particular risks or arrangements in MNE groups that may require greater attention during an audit, as well as areas that may pose less concern. • Where a tax authority has identified specific arrangements which pose a BEPS risk, file" or "typology" of features which are characteristic of it may develop a "pro groups engaged in those arrangements, based on those features identified or observed in successful audits. These typologies, which may include structure diagrams, descriptions of typical arrangements and other indicators, may then be used to assist auditors in identifying comparable arrangements in other cases. They may also be used to scan CbC Reports (together with data from other sources) across a population of taxpayers, to identify those which meet the identified profile, for further consideration. Jurisdictions may also use CbCR information to identify trends in BEPS activity • across different sectors. For example, key ratios may be calculated for different o for MNE industries by taking an average rati groups in each sector. Where these ratios show that differences exist across different sectors, this may indicate either of T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

34 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 33 two things. First, patterns in ratios may be used to identify sectors where particular types of BEPS activity are more com mon, which may be taken into account when risk assessing other groups in these sectors. Second, where a particular pattern in ratios does not derive from BEPS activity, this knowledge may be used by a tax authority to identify possible false risk indicator s and de -select certain groups from further compliance interventions. Whether a particular pattern indicates an increased BEPS risk or a reduced BEPS risk in a particular sector may be determined using other available data, including the knowledge held by experienced tax officials within the compliance function. 35. Annex 3 includes an example of how a CbC Report may be used by a tax authority to identify possible tax risks within an MNE group. Ways in which CbC Reports can be used to detect indicators of possible tax risk 36. Transfer pricing risk arises in three broad scenarios. First, where entities engage in recurring transactions with related parties which have the potential to erode a jurisdiction's tax base over time. This risk can involve any tax deductible related party payments, including large volume sales or purchases of products or services, but there is a particular risk where intragroup payments are of a type wh can be hard to value. These might ich include payments of interest, insurance premiums, service fees, management fees and royalties. Second, transfer pricing risk can arise from large or complex one- off transactions, including business restructurings and t ransfers of key income producing assets. These transactions can have a significant effect on the tax position of entities in the year the transaction occurs, but also on an ongoing basis as new related party payments are put in place which need to be priced. Third, transfer pricing risk may be greater where a group does not have effective tax governance processes in place to control, document and review the pricing of related party transactions on an ongoing basis. Out of these three scenarios, CbC Reports contain data that can assist tax authorities in detecting risk indicators arising off transactions. Risk indicators deriving from a from recurring transactions and one- group's tax controls and governance processes may be detected using information containe d the master file , local file and other transfer pricing documentation where available in transfer pricing returns and questionnaires), as well as the tax authority's knowledge (e.g. . and experience of the group, including its attitude to tax risk 37. The next section of t his chapter does not include a comprehensive list of tax risk range of indicators that can be derived from a n MNE group's CbC Report , but illustrates the r of the risk indicators, example ratios have risk areas that can be uncovered . For a numbe been included to suggest how the level of risk may be assessed, but in practice it is anticipated that tax authorities may develop more complex algorithms taking into account contained in a CbC Report may different attributes. In a number of instances, information be taken into account directly for risk assessment purposes (e.g. where an MNE group has activities in a particular jurisdiction). However, in most cases it will be necessary to compare two or more pie ces of data in order to identify patterns that may suggest a higher , and ways in which this might be done are set out below or lower level of tax risk . The jurisdiction falls outside of an identification of patterns (and cases where a n entity or attern) may be made easier where data analysis tools are used to present expected p information visually. • An MNE group's profile in a particular jurisdiction may be compared with that in h the other jurisdictions, with part of the group (e.g. a geographical region) or wit group as a whole. This may allow a tax authority to identify jurisdictions which appear to be out of line with other parts of the group, although a risk assessment T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

35 34 – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK should also take into account that differences between jurisdictions could be d by purely economic or other non- explaine tax considerations (e.g. differences in the scale of the business, in the market or in the types of activity carried out between jurisdictions). • An MNE group's profile in a jurisdiction may be compared with that of a "typical" MNE group in the same sector (i.e. based on the profiles of all MNE groups operating in a particular sector). This could allow a tax authority to identify groups where the profile in a jurisdiction differs from what would be expected in the sector. This would involve greater resources on the part of the tax authority if it needs to compile a set of appropriate benchmark data on a specific sector for comparison, which would also need to take into account the fact that groups may use different sources f or data contained in CbC Reports (e.g. financial statements vs management accounts), or may apply different policies in calculating the amounts to be included in certain fields ( e.g. including or excluding contractors in determining the number of employees ), which could impact the comparability of data. Alternatively, benchmarking data may be available from third party sources but, again, the data underlying the analysis may not be prepared on a consistent basis. It should also be recognised that, even wher e data is produced consistently, within a sector there can be wholly commercial factors that lead to significant differences between the profiles of entities in different MNE groups, including differences in strategy or ld therefore be required to take account of business model. Further analysis wou these. It is currently anticipated that all of these potential differences mean that no two MNE groups are likely to be directly comparable, and so individual groups enchmarked against each other. should generally not be b • An MNE group's profile in a jurisdiction can be compared with CbCR information for the same jurisdiction in earlier periods. This would allow a tax authority to identify changes in the nature or level of activity in a jurisdiction over time, as well as one- off events which might trigger a temporary increase or reduction in revenues or profits. In comparing data in Table 1 from different periods, it may be necessary to take into account factors that may vary from period to period. For example, dif ferences in exchange rates or high levels of inflation could explain some changes over time (e.g. where information on constituent entities in a group has been translated into the functional currency of the group in completing the CbC Report). A key feature of using CbC Reports for risk assessment in the first years following 38. introduction of CbC Reporting will be the need to be flexible in terms of the approaches used and in the design of algorithms, which may need to be revisited and revised as tax authorities gain experience. This may be particularly important with respect to tax authorities' ability to use "text mining" of data in Table 3 (as well as the "other " column for ituent entities in Table 2) to search for specific words or phrases business activities of const that may be indicators of an increased or reduced level of tax risk. The free text contained in Table 3 is likely to be extremely important in interpreting the contents of the CbC Report as a whole for many MNE groups, and may be helpful in allowing groups to explain apparent anomalies and potential risk indicators, but tax authorities will need to develop tools. processes for how to incorporate this into standardised and automated risk assessment These may depend on how Table 3 is used by MNE groups, the types of additional information included and the way this information is presented. This will only be seen once MNE groups begin to prepare and file their CbC Reports, but greater consistency in how likely to facilitate its use in risk assessment. One option could be for Table 3 is used is guidance to be given to MNE groups in the use of Table 3, including the development of T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

36 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 35 standardised disclosures to identify known common false positives, which could be incorporated into automated risk assessment processes. This may be particularly beneficial for tax authorities which lack the resources required for a detailed consultation with m to better understand the members of an MNE group in their jurisdiction, in order for the content of the group's CbC Report. Although tax risk assessment tools may flag a number of potential tax risks across 39. an MNE group, a tax authority should determine which of these pose a possible risk to its jurisdiction before concluding that further action should be taken. In particular, a tax authority should seek to identify activities or arrangements in its jurisdiction or connected to its jurisdiction that may be impacted by the potential risk indicators that have been flagged. In broad terms, a tax authority is likely to take an interest in all risks arising in its own jurisdiction or those of foreign subsidiaries of entities in the jurisdiction (i.e. potential tax risks lower down the group structure), but may only be concerned by those in other parts of the group where there is a link to entities in that jurisdiction. For example, the tax authority in the jurisdiction of an MNE group's ultimate parent entity is likely to consider all potential risks flagged throughout the group (e.g. to ensure that its controlled foreign company rules are being applied correctly). However, the fact that an MNE group has a significant level of profit before tax in a foreign jurisdiction where it appears to have few activities and no or low accrued income tax may not be viewed as a relevant risk to the tax authority in the jurisdiction of a subsidiary in the group, unless the subsidiary has dealings with an entity in that foreign jurisdiction or there is other evidence that profits are being diverted from that tax authority's jurisdiction. Tax risk indicators that may be detected using information contained in CbC Reports 40. The list below includes a number of potential tax risk indicators that could be derived group's CbC Report. None of these n MNE from the information contained in a indicators should be taken by themselves to suggest that a group poses an potential increased tax risk in a jurisdiction, but they may be combined in different ways to build an overall picture of the level of tax risk posed by a group. Methods for interpreting combinations of indicators, including the weight that should be given to each indicator within a particular combination, will vary depending on the approach to risk assessment used and is something which may change over time. Where ratios are referred to as "high" or "low" this means that the relevant ratio is materially higher or lower than that of the le ( e.g . other jurisdictions in the group, the group as a whole, chosen potential comparab sector averages, or earlier periods ). A summary of these potential tax risk indicators is included in Annex 2. 1. The footprint of a group in a particular jurisdiction jurisdiction are limited to those that pose less risk 2. A group's activities in a There is a high value or high proportion of related party revenues in a particular 3. jurisdiction 4. The results in a jurisdiction deviate from potential comparables 5. The results in a jurisdiction do not ref lect market trends 6. There are j urisdictions with significant profits but little substantial activity There are jurisdictions with significant profits but low levels of tax accrued 7. 8. There are jurisdictions with significant activities but low levels of profit (or losses) T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

37 36 – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK 9. A group has activities in jurisdictions which pose a BEPS risk A group has mobile activities located in jurisdictions where the group pays a lower 10. rate or level of tax 11. There have been changes in a group's structure, including the location of as sets 12. Intellectual property (IP) is separated from related activities within a group A group has marketing entities located in jurisdictions outside its key markets 13. 14. A group has procurement entities located in jurisdictions outside its key manufacturing locations 15. Income tax paid is consistently lower than income tax accrued 16. A group includes dual resident entities A group includes entities with no tax residence 17. tateless revenues in Table 1 A group discloses s 18. Information in a group's CbC Report does not 19. correspond with information previously provided by a constituent entity The footprint of a group in a particular jurisdiction Although the size of an MNE group's operations in a jurisdiction is not by itself a 41. good indicator of whether entities in the group pose a high level of tax risk, many tax authorities use size as an initial filter to identify which groups have the potentia l to pose more risk. For example, where a CbC Report indicates that a group has total revenues in the jurisdiction above a set threshold, this may flag the group for further risk assessment. In es in th e jurisdiction , and this appears contrast, where a group has a very low level of revenu jurisdiction identified in Table 2 and the tax to be appropriate given the activities in the authority's knowledge and experience of the group, including its attitude to tax risk, this may suggest that the potential risk in the jurisdiction is low. tax at 42. Where CbCR information suggests that a group's footprint in a jurisdiction is low, this should be corroborated using other information sources, such as the information ocal file, where available, which include a high level contained i n the master file and l functional analysis for the entire group by entity, as well as a detailed description of the business and strategy of entities in the jurisdiction. isdiction are limited to those that pose less risk A group's activities in a jur 43. A tax authority may also use a CbC Report to filter MNE groups where the nature of activities in the jurisdiction suggest the tax at risk is likely to be low. Fo r example, where jurisdiction a group only has a holding company in a particular (or has only limited other activities), the tax authority may see this as an indicator of low risk, if a participation taxable income in the jurisdiction exemption or other domestic rules mean that the level of is likely to be low. 44. The fact that an entity's main activities in a jurisdiction are limited to those that typically pose a low er level of tax risk, does not necessarily mean the entity is not engaged , for example, w here other available information suggests that an entity should in BEPS from these activities. recognise a higher level of taxable income T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

38 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 37 There is a high value or high proportion of related party revenues in a particular jurisdiction 45. The fact that an entity receives revenue from related parties does not by itself mean that the entity poses a high tax risk to other jurisdictions where the MNE group has activities. However, where an entity receives a significant amount of related party revenue, this increases the potential that an error in the transfer prices applied could give rise to a nts also increase the potential that other BEPS significant tax difference. Intragroup payme risks could be present, such as intragroup hybrid financial instruments or excessive interest payments on related party debt. 46. In determining whether a risk flag is raised, a tax authority may take into account both the amount of intragroup revenues in a foreign jurisdiction and the proportion of total revenues that are generated from related parties. Where one or both of these is high, the tax authority may look at other factors, such as whether there are substantial activities in the foreign jurisdiction, the nature of those activities, and the effective tax rate, before deciding y whether the group could pose a higher tax risk in its own jurisdiction. The tax authorit should then use other information on the group to determine the extent and nature of transactions and payments between domestic entities and related parties in the foreign jurisdiction, to determine whether any of these could give rise to BEPS. 47. The fact that a particular jurisdiction has a high value or proportion of related party revenues is not by itself an indicator of increased tax risk. Groups often include entities involved in activities such as manufacturing, providing services, group finance or holding, that transact largely or wholly with related parties for commercial investment purposes. esults in a jurisdiction deviate from potential comparables The r ancial ratios for a jurisdiction where an MNE group has activities may be Key fin 48. compared with those of other jurisdictions within the group; with the group as a whole; with potentially comparable entities outside the group; or with industry averages. on other parts of the group may be taken from the CbC Report, while Information information on other groups and industry ratios may be obtained from commercial databases or built up using a tax authority's own data. Ratios for comparison could include: • profit margin e.g. profit before tax / total revenues − effective tax rate • − e.g. income tax accrued / profit before tax • revenue or profits per unit of economic activity − e.g. total revenues or profit be fore tax / number of employees − e.g. total revenues or profit before t ax / tangible assets • pre -tax r eturn on equity e.g. profit before tax / (stated capital + accumulated earnings) − -tax return on equity post • T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

39 38 – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK income tax accrued) / (stated capital + accumulated e.g. (profit before tax - − earnings) . 49. Where these comparisons show significant differences, this could be an indicator of -tax reasons why the results of a particular possible tax risk. However, there are many non jurisdiction are better or worse than others (e.g. the size o f the market in a particular jurisdiction, the level of competition, the market penetration of the group, its bargaining power, the cost of labour and other inputs, etc.). Therefore, other indicators of tax risk should be considered before a decision is re ached to conduct compliance interventions. The results in a jurisdiction do not reflect market trends tax reasons why an MNE group's performance in a 50. There are many tax and non- jurisdiction may be better or worse than that in other jurisdictions or in other groups. However, in broad terms, changes in that performance would typically be expected to reflect market trends. Where this is not the case, it might suggest that the group's performance in a particular jurisdiction is being driven by BEPS rather than simply by the business activities undertaken in the jurisdiction. For example, if the market for a group's products is expanding, and the level of sales by the group is growing, it would be expected that the profitability of entities contributing to those sales would increase. If the group's dicate a possible transfer results are not consistent with these expectations, this could in pricing or other BEPS -related risk which might warrant further investigation. Before reaching a decision on any further compliance activity, a tax authority 51. easons for any variance from market trends, for example should consider commercial r where a group has made significant investment in a jurisdiction with a growing market, which has reduced profits in the current period but should give rise to greater returns in the future. There are jurisdictions with significant profits but little substantial activity 52. CbC Reports contain useful information on the level of revenues, profits and s have entities in certain activity, which can be used as initial indicators that MNE group jurisdictions with earnings that appear to be disproportionate to their level of economic activity. This may pose a particular tax risk if these earnings are largely derived from related party revenues, which could indicate that profit has been diverted from other parts of the group. For example, flags may be raised where a group has operations in a jurisdiction with some or all of the following characteristics. • High proportion of related party revenues e.g. related party revenue s / total revenues = high − Low substantial activities in proportion to revenues or profit before tax • − e.g. total revenues or profit before tax / total employees = high − e.g. total revenues or profit before tax / tangible assets = high • High return on equity e.g. profit before tax / (stated capital + retained earnings) = high − income tax accrued) / (stated capital + retained − e.g. (profit before tax – earnings) = high T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

40 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 39 • Low cost base − e.g. profit before tax / total revenues = high • Profitability exceeds that of the gr oup as a whole − e.g. (profit before tax / total revenues) > (sum of profit before tax / sum of total revenues) Low effective tax rate • − e.g. income taxes accrued / profit before tax = low Where these characteristics are present, a tax authority may consider other sources 53. of information to establish whether this can be reasonably explained (e.g. if total revenue or profit before tax / tangible assets is high because the accounting carrying value of tangible assets is l ow following substantial depreciation, or the group also holds intangible assets in the jurisdiction, the value of which is not disclosed in the CbC Report). There are jurisdictions with significant profits but low levels of tax accrued 54. A potential tax risk may be highlighted where an MNE group has substantial profits in a particular jurisdiction, but has no tax or only a low level of tax accrued for the period, the headline rate of corporate tax in that in particular where this is substantially lower than jurisdiction. This may be indicated where the following characteristics are present. • Substantial profits in a jurisdiction − e.g. a tax authority may apply a de minimis threshold to avoid raising a potential risk f lag where the level of profit before tax in a jurisdiction is low and this appears appropriate based on the level of total revenues, number of employees, tangible assets, etc. • Low effective tax rate − e.g. income taxes accrued / profit before tax = low 55. Where these characteristics are present, the tax authority in that jurisdiction and in other jurisdictions where the group has activities, may consider other sources of information to establish whether this can be reasonably explained (e.g. if the group had incurred significant capital expenditure in the jurisdiction which qualifies for accelerated tax depreciation, reducing profit for tax purposes but not for accounting purposes) or if further enquiries are needed . There are jurisdictions with significant activities but low levels of profit (or losses) Where an established entity has a persistently low (or negative) profit before tax 56. which cannot be readily explained, the tax authority in that jurisdiction may flag this for further enquiry to ensure there is no BEPS reason. This may be determined where a jurisdiction has a number of the following characteristics. • The jurisdiction includes entities engaged in profit -generati ng activities e.g. manufacturing or production; sales, marketing or distribution; − provision of services to unrelated parties; regulated financial services • High proportion of unrelated party revenues T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

41 40 – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK − e.g. unrelated party revenues / total revenues = high • Hig h cost base − e.g. profit before tax / total revenues = low or negative The effective tax rate is not low • − e.g. accrued income tax / profit before tax is typically high or average up losses or recent expansion within the juri sdiction • This is not the result of start- − e.g. the above characteristics persist for several years, not including the first three years after activities are established or expanded in the jurisdiction. In performing a risk analysis, a tax author ity should recognise that some entities 57. may appear to perform poorly relative to others in a group based on certain measures for wholly business or commercial reasons. For example, a particular entity may be involved nt number of employees but which typically earn low in activities which require a significa profit margins (e.g. IT support or administrative centres). A group has activities in jurisdictions which pose a BEPS risk Where, in a tax authority's view, MNE groups are able to use certain foreign 58. jurisdictions for BEPS purposes, CbC Reports could be an important tool to help the tax authority identify groups with activities in these jurisdictions. This may include, for example, foreign jurisdictions with a low or zero level of corporate tax, or those with tax rules and treaty policies which facilitate the use of entities as conduits to pass through payments within a group. 59. Where a group includes entities with activities in these "jurisdictions of interest", other information contained in a CbC Report, such as the nature of the group's activities and the level of economic activity in the jurisdiction, may be used to assess whether in practice the group poses a BEPS risk. A group has mobile activities located in jurisdictions where the group pays a lower rate or level of tax A tax authority may view an MNE group's tax risk as increased where the group has 60. located globally mobile activities in a foreign jurisdiction where it pays a low level of tax. This would be assessed taking into account the group's effective tax rate in the jurisdiction using data from Table 1, and the activities in that jurisdiction described in Table 2. The low level of taxation could be because the headline rate of corporate tax in the foreign jurisdiction is low (or zero), because a particular type of income or activity benefits from a reduced tax rate, as a resu lt of planning by the group, or for some other reason. Low effective tax rate • − e.g. income taxes accrued / profit before tax = low • Mobile activities − Table 2 lists activities in the jurisdiction as including holding or IP; purchasing or procurement; sales, marketing or managing distribution; inte rnal group finance or insurance T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

42 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 41 The simple fact that a group has a low effective tax rate in a particular jurisdiction 61. BEPS. There is significant variance in the does not mean that the group is engaged in headline tax rate in different jurisdictions, and a number of jurisdictions have tax regimes which provide for a lower rate of tax on certain forms of income but which are not harmful. If a foreign jurisdiction w ith a low effective tax rate has sufficient activity to support the level of revenue and profit, transfer prices with the jurisdiction appear to be at arm's length, and there are no other indicators that profit has been shifted, then a tax authority may co nclude that the level of tax risk posed is low. , including the location of assets There have been changes in a group's structure 62. Table 2 contains a comprehensive list of entities in an MNE group and changes in this list from year to year would indicate changes in the group's structure, such as acquisitions or incorporations (where new entities are added to Table 2), disposals or liquidations (where entities are removed from the table) or migrations (where the resi dence jurisdiction of an entity changes). In particular, potential risks may be identified where there are frequent changes in the number of entities in a jurisdiction (which may indicate that entities are being established for the purposes of specific transactions) or where a temporary increase in the number of entities in a jurisdiction is mirrored by a temporary increase in revenues in that jurisdiction. Changes on Table 2 may also indicate changes to the activ ities carried on in 63. IP moves to a different different parts of the group, such as where ownership of the group's jurisdiction (or a new IP holding entity is established). This may have implications for other parts of the group, either because it indicates that assets may have moved into or out of a jurisdiction , or because intragroup payments for use of the group's IP may now be made to an entity in a different jurisdiction than before. For example, this may have an impact on the application of transfer pri cing rules or on the level of withholding tax which may be applied to a payment, which may depend on the terms of the applicable tax treaty. A tax authority may therefore wish to ask for further information as part of its risk assessment. 64. Changes in a group's structure do not necessarily indicate an increase in tax risk, but a tax authority may use this as an indicator that further information is required (e.g. where the changes involve entities resident or with a ctivities in the jurisdiction; entities that are subsidiaries of entities resident in the jurisdiction; or entities which are or were party to transactions with entities resident in the jurisdiction). Even where a re -structuring a particular jurisdiction, this does not mean the group is involved results in less tax paid in in BEPS and may be explained by other factors. Additional information on important business restructurings, including acquisitions, disposals and transfers of interests in IP within a gro up should be contained in a group's m aster f ile, where available. IP is separated from related activities within a group 65. In many cases, an MNE group's IP will be among the group's most valuable assets, which can generate significant value for the entity holding an asset, as a result of its use by other members of the group. However, the valuation of IP is extremely challengi ng. Therefore, this has been used by some groups for the purposes of shifting profits away from the jurisdictions where a group has underlying economic activity. Table 2 of a CbC Report o quickly identify which entities can help tax authorities t 66. hold IP within a group, the jurisdiction where these entities are resident, and the level of The table also shows whether the ownership and related party revenues in the jurisdiction. management of IP is in a different jur isdiction to the group's activities that give rise to the T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

43 42 – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK IP or use it to create value, including research and development, manufacturing or production, sales, marketing or distribution, and the provision of services to unrelated parties. tax reasons to hold IP 67. In a complex multinational group, it may be efficient for non- in a single entity or jurisdiction. Although BEPS risk may be indicated where this fact that a domestic entity is jurisdiction has no or limited other business activities, the making payments to an IP holding entity in another jurisdiction may not be a BEPS concern, so long as these payments are at arm's length and there are no other indicators of BEPS. A group has marketing entities located in j urisdictions outside its key markets 68. MNE groups may use centralised marketing companies for commercial or operational reasons. However, there is also a risk that marketing companies are used to income subject to tax in the jurisdiction where sales occur. Therefore, reduce the level of where a CbC Report shows that a group includes entities engaged in marketing located in jurisdictions where the group does not have a significant level of sales, this may indicate a possible tax risk in the jurisdictions where sales take place, for consideration by those tax authorities. Before concluding that a transfer pricing risk exists, a tax authority should use its 69. knowledge of a group and its business to determine if there are any historic or other business reasons for the use of a marketing entity in a particular jurisdiction, despite the fact that this jurisdiction is not a significant market for the group's sales. A group has procu rement entities located in jurisdictions outside its key manufacturing locations 70. A possible tax risk may also arise where a CbC Report shows that an MNE group includes procurement entities in jurisdictions where t he group does not have significant manufacturing operations. Again, there can be good business reasons for the use of centralised procurement entities, but there is also a risk that this can be used to reduce the s where manufacturing occurs. level of taxable income in the jurisdiction 71. As with the potential risk posed by marketing entities, before concluding that a transfer pricing risk is posed by a procurement entity, a tax authority should consider if any busine ss reasons exist for the use by a group of a procurement entity in a particular jurisdiction. Income tax paid is consistently lower than income tax accrued 72. An MNE group's CbC Report includes two income tax fields . The first, income tax paid (on a cash basis) includes the actual amount of cash tax paid by the group in a financial reporting year, by jurisdiction. This is not necessarily directly related to the profit before tax reported in a jurisdiction, and takes into account payments (and repayments) of tax with respect to profits earned in earlier periods, as well as advance payments made in the current year and withholding tax incurred on payments to a jurisdiction. On the other hand, income tax accrued for the current year is more directly related to the amount of profit before tax reported in a specific period. There are a number of reasons why the figures for income tax paid and income tax 73. accrued will differ for a p articular fiscal year. However, in most cases and over time, it T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

44 CHAPTER 4 – INCORPORATING CBC REPORTS INTO A TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – 43 should be expected that the level of a group's tax accrued in a jurisdiction, and the level of tax paid in that jurisdiction, should broadly align. Where this does not happen, and in r where the level of tax paid in a jurisdiction is materially and persistently lower particula than the level of tax accrued, this may be an indicator of possible tax risk, for example where a group is making significant provisions against uncertain tax provisions w hich it expects to be challenged, or where there are ongoing tax disputes which have not been settled for a number of years. Although, in general, a group's accrued tax and tax paid may be expected to align 74. over time, there are non -BEPS reasons why this may not be the case. For example, where there are tax losses in an earlier period, this would not typically impact tax accrued in a later period but could reduce tax paid. Alternatively, where there is legitimate uncertainty in the level of income tax payable in a jurisdiction, a group may take a conservative position and recognise a current year tax charge in its financial statem ents for a particular period, which is higher than the actual tax liability that is ultimately paid (or which results in a tax refund in a later period). Once the final tax position is agreed, any reduction in the eflected in the current year accrued tax figure in tax charge for a prior period may not be r a group's CbC Report, but is likely to be taken into account in calculating the cash tax paid. A group includes dual resident entities 75. f all constituent entities in an MNE group, listed against Table 2 includes a list o their tax residence (or, in the case of permanent establishments, where they are situated). In some cases, an entity would be treated as tax resident under the laws of two jurisdictions (e.g. where a company is resident in one jurisdiction buts its effective management is in another jurisdiction). In most cases, the tax treaty between the two jurisdictions will include a "tie -breaker clause" which determines the tax residence. Where there is no tax treaty in place, the entity remains resident in both jurisdictions, and this fact has been used for tax planning purposes by a number of groups. For the purposes of a CbC Report, an entity that Table 2 under the jurisdiction is resident in more than one jurisdiction should be listed in where its effective management is conducted. In most cases, where an entity is "dual resident" this will be different from the incorporation jurisdiction, and so Table 2 will also was incorporated. disclose the jurisdiction in which the entity 76. Typically it is difficult for a tax authority to identify dual resident entities, unless there are other indicators that suggest the entity is engaged in BEPS. The information contained in Table 2 may make this easier, in particular for the tax authority in the incorporation jurisdiction, which would otherwise expect to see the entity listed as resident in its jurisdiction. Tax authorities in other jurisdictions may also use Table 2 to identify d a specific BEPS risk possible dual resident entities (e.g. where they have identifie involving dual resident entities and are seeking to identify groups that may be party to such arrangements), but this should be done with caution. 77. In practice, in the majority of cases, a t ax treaty will be in place to determine the residence of the entity and so, even though an entity reports both a residence jurisdiction and an incorporation jurisdiction, it would not be dual resident. A group includes entities with no tax residence In a small number of cases, an MNE group may include an entity which is not tax 78. resident in any jurisdiction. This arises because of differences in jurisdictions' rules for determining residence, and opportunities for entities to avoid being tax resident anywhere have reduced as jurisdictions introduce more comprehensive rules. Where a group does T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

45 44 TAX AUTHORITY’S TAX RISK ASSESSMENT FRAMEWORK – CHAPTER 4 – INCORPORATING CBC REPORTS INTO A include an entity with no tax residence, this should be apparent from Table 2 of the group's CbC Report, which should also li st the jurisdiction in which the entity is incorporated or established. Tax authorities in jurisdictions where the group has operations should then consider whether the entity poses a tax risk for their jurisdiction. 79. Although the presence of entities in a group that have no tax residence poses a potential tax risk, it is expected that in most cases this will be explained in Table 3 (e.g. o tax on other where an entity is transparent for tax purposes and its profits are subject t entities within the group). A group discloses s tateless revenues in Table 1 Table 1 includes a summary of the revenues, profits, assets and other attributes of 80. constituent entities in an MNE group, listed by the jurisdiction in which an entity is tax resident. Where an entity in the group is not resident in any jurisdiction, its attributes are categorised in Table 1 as "stateless". Any material level of stateless revenues on Table 1 is likely to be f lagged as a potential risk by all tax authorities in jurisdictions where the group has operations, which would then need to consider whether this is a risk to their particular jurisdiction. 81. As with respect to ent ities with no tax residence it is expected that, in most cases, the presence of stateless income in a group may be explained in Table 3 (e.g. where the revenues are earned by an entity that is transparent for tax purposes, and are subject to tax ntities within the group). in other e Information in a group's CbC Report does not correspond with information previously provided by a constituent entity 82. There may be cases where information contained in an MNE group's CbC Report either differs from information previously provided by constituent entities resident in a jurisdiction, or does not appear to be consistent with that information. For example, an entity may have previously indicated in the master file, local file or in other documentation, that the group has substantial activities in a particular jurisdiction, but this might not be ity in the group's CbC supported by information provided by the group's ultimate parent ent Report. It may be difficult to identify potentially conflicting information provided by a 83. group using automated risk assessment tools. However, where a possible conflict becomes apparent during the manual phase of a risk assessment when the experience of tax compliance staff may be taken into account, this would be a clear indicator that further enquiries are necessary in order to understand the correct position of the group. In many an apparent inconsistency may be explained, for example as the result of a change in cases, the group's structure or activities over time. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

46 CHAPTER ORTS FOR TAX RISK ASSESSMENT – 45 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REP Chapter 5 Reports for Tax Risk Assessment Challenges to the Effective Use of CbC CbC Reports contain valuable information to assist tax authorities in assessing 84. transfer pricing and other BEPS -related risks to their jurisdiction . However, a number of features of the framework for Cb C Reporting, the design of CbC Reports and the they information contain, pose challenges for tax authorities. In using CbCR information for the purposes of risk assessment, a tax authority will need to consider ways to minimise these challenges or take them into account when interpreting the outcomes of risk assessment processes. Future versions of this handbook will include approaches that may be adopted to address these challenges, based on the experience of tax authorities. The volume of CbCR information to be processed 1. 2. The need for systems and training to be developed or revised following the introduction of CbC Reporting 3. Issues concerning consistency in CbCR information consolidated entities 4. Inclusion of profits of non- 5. Constituent entities joining or leaving a group during a reporting fiscal year 6. Issues concerning the use of stated equity as a measure of a group's level of activity in a jurisdiction 7. The risk that CbCR information may be used inappropriately 8. Lack of infor mation concerning a group's sector 9. Organisation of Table 1 by jurisdiction rather than by sector or activity 10. Information on specific entities may be concealed within jurisdiction- level information in Table 1 11. Lack of information on specific transactions undertaken by a group 12. Issues concerning disclosure of an entity's main business activity or activities 13. Challenges concerning the use of Table 3 in risk assessments 14. Differences between a jurisdiction's tax risk assessment cycle and the timing of CbC Reports 15. Differences in tax risk assessment processes depending on the size of taxpayers in a jurisdiction 16. Differences between the constituent entities in a jurisdiction and those included in the local tax group 17. Reporting Transitional issues following the introduction of CbC T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

47 46 – CHAPTER 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REPORTS FOR TAX RISK ASSESSMENT The volume of CbCR information to be processed 85. One of the most basic challenges faced by tax authorities will be the sheer volume of information provided. CbC Reports are prepared by the largest MNE grou ps, many of which include hundreds or even thousands of entities, across a large number of jurisdictions . In addition, jurisdictions will vary in terms of the number of CbC Reports large are expecting to receive several thousand jurisdictions they will receive, but some reports (including those received from foreign tax authorities). This quantity of information will pose a particular problem for tax authorities that rely on manual processes, but even those which currently use automated systems may find it challenging to determine information relevant to their jurisdiction, to apply risk assessment tools and to identify risk flags among such a large volume of data. The need for systems and training to be developed or revised following the introduction of Cb C Reporting 86. Following the introduction of CbC Reporting, existing risk assessment processes may need to be revised, or new processes developed, to take into account the CbCR Similarly, staff involved in risk assessment in a tax information that will become available. authority will need to be trained in how to use CbCR information within their work. Both of these will take time and will require an investment on the part of a tax authority, important benefit to a jurisdiction from this investment. The although there will be an OECD is taking steps to assist countries in this regard (e.g. through this guidance; through Toolkit on Transfer Pricing Risk Assessment the development of a ; and through the -by-Country Reporting: Handbook on Effective Implementation (OECD, 2017a ), Country which is supported by a CBC Clearspace site which may be used by jurisdictions to share resources relevant to the implementation and operation of CbC Reporting). Issues concerning consistency in CbCR information 87. A number of tax risk assessment tools involve the comparison of key characteristics between entities or groups. These allow taxpayers to be benchmarked against other entities MNE group as well as against those in other groups, to identify discrepancies in the same which may be indicators of increased risk in a particular jurisdiction . One of the benefits of CbCR information for use in risk assessment is that groups are required to provide the same categories of information in a consistent format, which should facilitate such benchmarking within a group. However, there may be cases where similar groups provide information that n or the method used the source of the informatio is not directly comparable, either because to calculate the information differs. • CbC Reporting information may be based on information taken from a n MNE group's consolidated reporting packages, from separate entity statutory financial statements, from regulatory financial statements or from internal management accounts, so long as this is consistent from year to year. A brief description of the sources of information used should be included in Table 3. Action 13 provides flexibility to groups for how the information under certain fields • may be calculated. For example , groups may use different bases for the calculation of the number of employees in a jurisdiction, including deciding whether to treat independent contractors as employees, so long as this is done consistently. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

48 CHAPTER 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REP ORTS FOR TAX RISK ASSESSMENT – 47 , "consistency" is one of the three conditions (OECD, 2015) • In the Action 13 Report underpinning the obtaining and use of CbC Reports. CbC Reports must contain all of the information required in the standardised template, and a jurisdiction may not require that any additional information is included. However, there may still be some differences between the CbC Reports filed in different jurisdictions. For example, the language and currency of a CbC Report may vary, depending upon the requirements in the jur isdiction where it is submitted. There may also be differences in how jurisdictions interpret some of the information to be included. For example, jurisdictions may take different views as to whether a permanent establishment exists given a particular fact pattern, and this may influence how information is presented in a group's CbC Report. The OECD continues to develop guidance on the interpretation of Action 13, • including the information to be included within certain fields of a group's CbC Report. It is anticipated that areas where there is currently a lack of clarity will be resolved before groups are required to file their first CbC Reports. However, there remains a risk that groups may interpret elements of Action 13 differently, resulting tencies in how CbC Reports are prepared. As any inconsistencies are in inconsis identified, further guidance will be developed if needed. • Action 13 generally requires groups to use aggregated data on a group's position in a particular jurisdiction. For some types of information, such as taxes paid and accrued, and tangible assets, this does not pose any particular challenge. However, if a group's CbC Report includes intragroup revenue in a particular jurisdiction, it may not be clear to what extent this revenue includ es payments from other parts of the group or is the result of payments within the jurisdiction (i.e. between group entities resident in the same jurisdiction). This could significantly inflate the level of total revenues in a jurisdiction, if there are int ra-group payments between constituent entities in that jurisdiction. Guidance released by the OECD subsequent to the Action 13 Report (OECD, 2015) • sets out a possible derogation from the general rule that aggregated data must be eport, which may apply where the jurisdiction of a used in completing a CbC R group's ultimate parent entity allows consolidated reporting for tax purposes, and this includes consolidation at the level of individual line items. Where this applies, the jurisdiction may allow the ultimate parent entity to complete Table 1 using data which is consolidated at jurisdictional level, so long as this is done consistently for all jurisdictions and from year to year. In this case, Table 3 must include a disclosure of which fields in Table 1 ha ve been completed using consolidated data. This could address the concerns posed by the use of aggregated data in analysing the CbC Report of a particular group. However, as this means that some groups will complete Table 1 using aggregated data, and other s using consolidated data (depending on the rules applied in the jurisdiction of the ultimate parent entity), this introduces an additional challenge in comparing information on different groups. -consolidated entities Inclusion of profits of non Under financial accounting rules, the ultimate parent of a group will typically 88. consolidate all entities over which it has direct or indirect control. Where the parent is able to exercise significant influence over an enti ty, but this is not sufficient to establish control, the entity may not be consolidated into the group's financial statements, but the group's T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

49 48 – CHAPTER 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REPORTS FOR TAX RISK ASSESSMENT share of the entity's net profit or loss may be included in a single line of the group's ement. This may arise where the group jointly controls an entity consolidated income stat with another investor (a joint venture entity) or where a group controls between 20% and 50% of an entity's voting stock and there is no joint control (an associate or affiliate). 89. If the group uses its consolidated financial statements as the source of data for the group's share of the net profit or loss of a joint venture completing its CbC Report, may be included in the group's profit before tax in the entity or an associate/affiliate relevant jurisdiction when completing Table 1, aggregated with other profit before tax the group has in that jurisdiction. However, the group's CbC Report will not include details of the entity's revenues, tax, stated capital, employees or tangible assets, and the entity will not be included as a constituent entity in Table 2. This will have an impact on any ratios that compare a jurisdiction's profit before tax with any other data contained in the CbC Report. 90. There is no obligation on an MNE group to disclose the existence of joint venture entities or associates/affiliates in its CbC Report. However, this information will typically be disclosed in the group's consolidated financial statements where material. Constituent entities joining or leaving a group during a reporting fiscal year There may be cases where the constituent entities in an MNE group change during a 91. reporting fiscal year, with one or more constituent entities joining a group (e.g. on acquisition or incorporation) or leaving a group (e.g. on disposal or liquidation). • Where a constituent entity joins an MNE group during the year, the group's CbC will include the entity's revenues, profit before tax, tax accrued and tax paid Report to the extent this relates to the period where the entity is a constituent entity, but will include all of the entity's stated capital, accrued earnings, employees and fixed assets. • Where a constituent entity leaves an MNE group during the year, the group's CbC Report will include the entity's revenues, profit before tax, tax accrued and tax paid to the extent this relates to the period where the entity is a constituent entity, as well as gains or losses arising on the disposal or liquidation, but will not include any of the entity's stated capital, accrued earnings, employees and fixed assets. ng this information. The fact that a 92. This will impact any ratios calculated usi constituent entity has joined or left the group will be visible to a tax authority by comparing the entities included in Table 2 in different periods, and this should be taken into account when using this data. Issues concerning the use of stated equity as a measure of a group's level of activity in a jurisdiction 93. Chapter 4 includes a number of risk indicators which involve comparing the level of an MNE group's revenue or profi t before tax in a jurisdiction, with its level of stated capital, equity (including retained earnings), total employees or tangible assets. Each of these measures of economic activity (capital, equity, employees and assets) may be subject to there are particular concerns over the use of stated capital and equity (which criticism, but includes stated capital) for the purposes of tax risk assessment. Table 1 includes information on the level of stated capital in a jurisdiction, but it • does not include inform ation on dividends received from constituent entities. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

50 CHAPTER 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REP ORTS FOR TAX RISK ASSESSMENT – 49 Therefore, the stated capital of a holding entity will be included against the relevant jurisdiction in a group's CbC Report, but a key source of the holding entity's income a jurisdiction includes both holding entities and will not be included. Where operating entities, it will be difficult for a tax authority to determine how much of this stated capital is funding holding activity and how much is funding operating activity. through permanent establishments in some Where an MNE group operates • jurisdictions, stated capital and retained earnings are included against the residence jurisdiction of the relevant legal entity in the group, whereas all other items are included against the jurisdiction of the le gal entity or the permanent establishment, as appropriate. This will impact the return on stated capital and return on equity of the group in both of these jurisdictions. Tax authorities have raised concerns that MNE groups may inject additional capital • into certain jurisdictions for BEPS -related purposes (e.g. to reduce the impact of thin capitalisation rules based on a fixed debt/equity ratio). This would also impact the calculation of other ratios which used stated capital or equity. 94. Stated capital and equity can be useful indicators of the scale of an MNE group's footprint in a jurisdiction, but there are several concerns that these may be unreliable measures in some cases. In conducting a tax risk assessment, a tax authority should therefore take into account the level of different measures of activity in a jurisdiction (such as capital, equity, employees, assets and revenues), with the weight given to each varying depending on factors including the group's sec tor, its activities in a jurisdiction, its structure, its business model, its accounting policies and the tax authority's knowledge and experience of the group, including its attitude to tax risk. The risk that CbCR information may be used inappropriately 95. Under the Action 13 minimum standard, CbC Reports may be used by tax authorities for the purposes of high level transfer pricing risk assessment, the assessment of related risks, and economic and stati stical analysis, where appropriate. CbCR other BEPS- information should not be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional analysis and a full comparability analysis. It should also not be used by tax administrations to propose transfer pricing adjustments based on a global formulary apportionment of income. The requirement that CbCR information is used appropriately is a condition that must be met in order for a tax authority to obtain and use CbC Reports. 96. The commitment by jurisdictions to the appropriate use of CbC Reports is clear and is set out in the competent authority agreements used by tax authorities to operationalise the automatic exc hange of CbC Reports. However, there is a risk that, in practice, tax authority staff may use CbCR information in ways that do not comply with this condition, for example to propose adjustments to an entity's income on the basis of an income allocation 7 for mula based on the data from the CbC Report. The OECD has released guidance to tax 7 OECD, 2017b, Country -by-Country Reporting: Guidance on the Appropriate Use of Information - by country- www.oecd.org/tax/beps/beps -action -13- on- s, -by-Country Report contained in Country -of-information- -use . reports.pdf appropriate in-CbC- country- reporting- T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

51 50 – CHAPTER 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REPORTS FOR TAX RISK ASSESSMENT authorities which describes approaches which may be used to ensure the appropriate use of CbCR information, as well as the consequences of non -compliance. Lack of information concerning a group's sector 97. Another challenge to effective benchmarking may be that CbC Reports do not contain information on a n MNE group's sector, although to an extent this may be discerned from information contained in Table 2. Some jurisdictions are in part addressing this issue 's tax return, by linking CbC Reports filed in a jurisdiction to the ultimate parent entity which may include industry codes (such as a North American Industry Classification (NAICS) code , a Statistical Classification of Economic Activities in the European System and (NACE) code or an Australian New Zealand Community Standard Industrial Classification (ANZSI C) code ). However, only information contained in an MNE group's CbC Report will be automatically exchanged under a jurisdiction's commitment to the , they will Action 13 minimum standard. A s these codes do not form part of the CbC Report where the group jurisdictions y exchanged with tax authorities in other automaticall not be has operations. Issues concerning disclosure of an entity's main business activity or activities 98. Where an entity in an MNE group is engaged in multiple activities, its group will need to make a subjective assessment as to which of these should be included as the entity's main business activity or activities when completing Table 2. This choice could impact the selection of potential comparables for the entity and influence how a tax authority interprets potential risk indicators. 99. A related risk arises where entities in an MNE group are engaged in different activities, and a tax authority relies on the industry code included in an entity's tax return as part of its risk assessment processes. In this scenario, there is a risk that a particular entity may report in its tax return the industry code of its group (e.g. manufacturing, retail, etc.) or that re levant to its specific activity within the group (e.g. holding company, business support services, etc.). Again, this could impact how the outcomes of a tax risk assessment are interpreted. Organisation of Table 1 by jurisdiction rather than by sector or activity 100. Many large MNE groups are organised for operational reasons by region and/or by sector is particularly common in MNE groups which are diversified sector. Organisation or have clearly separable activities. The information contained in Table 1 is arranged by tax jurisdiction, making it possible to analyse this data separately for each geographical regio n. However, where a group has entities engaged in different sectors within a jurisdiction, information on these entities in Table 1 will be aggregated. This makes analysis of the group by sector using CbCR information more difficult. Information on specif ic entities may be concealed within jurisdiction -level information in Table 1 101. Other issues connected to the use of CbCR information relate to how the information is presented. One example is that, although the ac tivities of each constituent entity are provided in Table 2, the data contained in Table 1 is compiled at a jurisdictional risk indicator would be triggered by a particular level. Therefore, where a potential ow number of employees or high proportion of entity (such as a l certain characteristic in a T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

52 CHAPTER 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REP ORTS FOR TAX RISK ASSESSMENT – 51 related party revenue), this may not be evident if there are also other constituent entities in the same jurisdiction. For example, a jurisdiction may include an entity with a very high profit before tax but onl y a small number of employees, but this may not be apparent from the aggregated data in the MNE group's CbC Report if there are other entities in the group in the same jurisdiction with a large number of employees . Lack of information on specific transact ions undertaken by a group Table 1 and Table 2 contain information on an MNE group analysed at the level of 102. a jurisdiction and at the level of an entity respectively, but do not contain any information c transactions. Although Table 1 includes details of the level of aggregated related on specifi party revenues in a jurisdiction, the source and precise nature of these revenues is not disclosed. Therefore, although CbC Reports contain useful information for the purposes of conducting a high level risk assessment, this is not sufficient by itself to understand particular transactions within a group. In order to fully understand the risk profile of a group, CbCR information should be read alongside other information he ld by the tax authority or available from other sources, such as the master file and local file (which contain details of important service arrangements within a group and information on all material categories of controlled transactions involving entities in the jurisdiction). Where a tax authority's analysis of an MNE group's CbC Report indicates a possible tax risk within the group, it is important that the tax authority then identifies transactions in, or connected with, the local jurisdiction that may be impacted by this risk, in order for follow -up questions and further analysis to be properly directed. Challenges concerning the use of Table 3 in risk assessments 103. groups to provide additional information to MNE Table 3 of the Template allows supplement data contained in Table 1 and Table 2. It is anticipated that many groups will use this Table, which is completed as free text, to explain potential risk flags that may be raised by information in other parts of a return. However, Table 3 poses a number of using CbCR information for risk assessment. particular issues for jurisdictions 104. Many jurisdictions are moving towards increasingly automated systems, which can be de signed to incorporate numeric or other defined data fields (e.g. check boxes, country names) into risk assessment tools. However, incorporating free text descriptions into this mpleted in analysis is significantly more challenging, especially as CbC Reports may be co different languages. Tools incorporating "text mining" may be used to search for combinations of key words, but identifying the different combinations that may be used for d as more risks are any given risk is likely to be difficult and this difficulty is multiplie investigated. This will also depend on the extent to which Table 3 is used by groups, the types of additional information included and how this information is presented. Greater consistency in how information is presented in Table 3 would facilitate its use in risk groups in the use of Table 3, assessment. This could be helped through guidance to MNE such as the development of standardised disclosures to identify known common false positives, which may be incorporated into automated risk management processes. 105. Where a tax authority uses automated tools to conduct an initial risk assessment, followed by a manual review before compliance activities are undertaken. this is usually -select taxpayers which orporated into this manual review in order to de Table 3 may be inc have been flagged by the automated stage for further analysis. However, it is less likely that information in this Table could be used to identify possible high risk taxpayers or gements. In other words, if the automated stage does not flag a risk for further arran T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

53 52 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REPORTS FOR TAX RISK ASSESSMENT – CHAPTER analysis, it is unlikely that the taxpayer will be considered during the manual review phase when Table 3 information may be taken into account. However, jurisdictions may pla n to wait until they see how groups use Table 3 in practice before investing in sophisticated text mining technology. This risk may be mitigated where tax authorities incorporate a broad including Table range of different data sources into their risk assessment processes, 1 and Table 2, as well as the master file and local f ile and other sources referred to in this guidance. Differences between a jurisdiction's tax risk assessment cycle and the timing of CbC Reports 106. Some challenges with the use of CbCR information for risk assessment are specific to particular jurisdictions assess all corporate taxpayers based on . A number of jurisdictions the same tax year, and aim to conduct their annual risk assessment process and select taxpayers for audit in line with this cycle. Where a tax authority receives a CbC Report of a group, it can time the filing of this report in line directly from the ultimate parent entity with its risk assessment cycle (e.g. by requiring that the CbC Report is filed together with the ultimate parent entity's tax return). However, where a constituent entity in a jurisdiction is not t he ultimate parent entity of its group, the group's CbC Report will be filed in accordance with rules in the jurisdiction of the ultimate parent entity, which may permit . These reports will 12 months after the group's fiscal year end filing up to be exchan ged with other tax authorities up to 18 months after the group's fiscal year end in the first year of filing, and 15 Any tax authority in subsequent years. after the fiscal year end months may d to find a way to therefore receive CbC Reports throughout the year, and will nee incorporate these reports into its annual risk assessment, getting maximum value from the reports without disrupting the timing of its ability to select the right number of taxpayers for audit. Differences in tax risk assessment processes depending on the size of taxpayers in a jurisdiction 107. Many tax authorities limit detailed risk assessment to the largest taxpayers in a jurisdiction , with smaller taxpayers subject to less comprehensive reviews. In these jurisdictions, it is likely that the tax authority will focus on incorporating CbCR information into its risk assessment processes for large taxpayers. However, there may be entities which jurisdiction do not meet the threshold to be considered a large taxpa yer in a , but which are group which files a CbC Report part of a very large MNE nevertheless in the jurisdiction of its ultimate parent entity . In these cases, a tax authority may need to find a way to incorporate these entities into the risk assessment process for large taxpayers, either in their entirety or to the extent taking into account assessment in order to conduct a risk needed information contained in a group's CbC Report. Differences between the constituent entities in a jurisdictio n and those included in the local tax group The constituent entities included in an MNE group's CbC Report are those entities 108. which are consolidated into the group's financial accounts under the relevant accounti ng standards. Under most accounting standards this is likely to be any entity which is more than 50% directly or indirectly controlled by the group's ultimate parent entity. This could include entities which are not treated as part of the tax group in a pa rticular jurisdiction (e.g. because the threshold for forming a tax group is higher than 50%, or because two T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

54 CHAPTER ORTS FOR TAX RISK ASSESSMENT – 53 5 – CHALLENGES TO THE EFFECTIVE USE OF CBC REP entities in the jurisdiction are not directly related and the jurisdiction does not allow tax .). Similarly, there may be cases where groups to be formed via an indirect relationship, etc an entity is part of the tax group in a jurisdiction but is not consolidated into the group's financial accounts (e.g. because the relevant account standards have exemptions from uch as special purpose entities). Any differences in the consolidation for certain entities, s definition of a group for CbC Reporting purposes and for tax purposes would need to be taken into account when comparing information on the activities in a jurisdiction contained in Table 1 with info rmation on the position of the tax group in that jurisdiction held by the tax authority. Transitional issues following the introduction of CbC Reporting 109. , in particular challenges to using CbC Reports in risk assessment Some of the around data integrity and consistency , will be a particular issue in the early years of CbC Reporting, as systems are introduced by jurisdictions and groups. For these years, groups may make errors in the preparation of CbCR infor mation which could be difficult for jurisdictions to detect , as they will not have received comparable information previously. This could distort the outcome of a risk assessment for the groups concerned, as well as for those of other groups as the benchma rking for all groups becomes less accurate. Another do not have automated filing systems in place for the jurisdictions issue could be if some first round of CbC Reporting at the end of 2017. This could require some groups to provide reports in a different , which would impact the ability of tax administrations to use format automated systems for risk assessment. Bibliography OECD (2017a), Country -by-Country Reporting: Handbook on Effective Implementation, -country- -by -on reporting -handbook www.oecd.org/tax/beps/country -effective- implementation.pdf Use of OECD (2017b), Country -by-Country Reporting: Guidance on the A ppropriate ountry , -by-Country Information contained in C Reports - www.oecd.org/tax/beps/beps -reporting- -13 -on -country -by -country appropriate action -use -of-information- in-CbC - reports.pdf - OECD (2015), OECD/G20 Base Erosion and Profit Shifting Project Transfer Pricing Documentation and Country – Action 13: 2015 Final Report, -by Country Reporting en OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264241480- . T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

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56 CHAPTER 6 – USING CBC REPORTS ALONGSIDE DATA FROM OTHER SOURCES – 55 Chapter 6 Using CbC Reports alongside data from other sources 110. CbC Reports contain important high level information that can be used to identify scenarios which may indicate that an MNE group poses a higher level of tax risk or a lower t to using level of tax risk to a jurisdiction. However, a number of important challenges exis this information effectively for the tax risk assessment of groups and arrangements, in particular if it is considered in isolation. Tax authorities currently differ in the extent to which they are able to, or plan to, link the information in CbC Reports to data from other sources. If this can be done, a more effective risk assessment may be conducted by using CbCR information together with other available information on an entity and its group. A -select tax authority may use CbCR information on its own as an initial filter (e.g. to de groups which only have a small presence in the jurisdiction), but other data should also be considered before drawing conclusions that a group poses a material tax risk in a jurisdiction. Information from a variety of sources may be available to assist a tax authority in conducting this analysis. Additional guidance on the content and use of this data in tax risk assessment alongside CbCR information will be included in future editions of this handbook, drawing on ta x authority experience. Information held by the tax authority • • Information available from other government sources • Publicly available information • Commercially available information . Information held by the tax authority 111. Tax authorities may already hold additional information that may be used alongside a group's CbC Report for risk assessment. The types of information held will vary between tax authorities, but could include the following. Tax returns • Other domesti c tax r eporting requirements (e.g. disclosures related to CFCs; • dealings with related parties; high value transactions; details of interest, dividends ) and royalties paid; etc. • Transfer pricing documentation − Master file Local file − − Transfer pricing returns and questionnaires T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

57 56 – CHAPTER 6 – USING CBC REPORTS ALONGSIDE DATA FROM OTHER SOURCES − Other transfer pricing documentation required under domestic law • Information provided by the taxpayer for the purposes of obtaining domestic rulings, APAs , etc. • Information provided by the taxpayer under a cooperative compliance program me , etc. granted by foreign tax authorities Information on tax rulings • Information received under the Common Reporting Standard / FATCA • • Information received under mandatory disclosure regimes Indirect tax information • files from prior years Taxpayer file and historic tax records, including tax audit • • Other relevant information received from foreign tax authorities under automatic exchange of information or spontaneous exchange of information • rience with Knowledge held by compliance staff based on their knowledge and expe the taxpayer . , including its attitude to tax risk Information available from other government sources Reports of large financial transactions held by the Financial Intelligence Unit • • Information held by registers of companies Customs information. • Public ly available information • Financial reports for listed groups (and non- listed groups in some jurisdictions) • Stock exchange and other public filings Annual reports • Information made available under other country -by -country reporting standards, • 8 includi ng CRD IV and EITI, and the EU Accounting Directive as it applies to extractive and logging companies. • Information on the group's website , including published statements on tax policy • Statistics published by public bodies and trade magazines. Press reports, the financial and business press • 8 Directive 2013/34/EU. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

58 CHAPTER 57 6 – USING CBC REPORTS ALONGSIDE DATA FROM OTHER SOURCES – Commercial sources of information • Ratings agencies information Commercial databases. • HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN COUNTRY- BY T © OECD 2017 -COUNTRY REPORTING -

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60 CHAPTER 7 - RMATION – 59 T BASED ON CBCR INFO USING THE RESULTS OF A TAX RISK ASSESSMEN Chapter 7 Tax Risk Assessment Based on CbCR Information esults of a Using the R 112. Risk assessment processes are used to determine the level of risk posed by a particular taxpayer or arrangement to a specific jurisdiction , which can result in a range of dentified potential outcomes. Where no material risk indicators are identified, or indicators i are , the outcome could be in that jurisdiction not enough to suggest a sufficient level of risk that no further action is required. This should also include that no further information is requested. The mere fact that an MNE group's CbC Report does not provide a clear picture of all of a group's activities and transactions should not be used as the basis for requesting this information, unless the information the CbC Report does contain (together with other available data) suggests that a potential tax risk exists. Where risk indicators are identified, this should trigger an additional manual 113. incorrect or can be explained taking into s are review, to establish whether the risk flag information. This review should also focus on whether a potential account other available risk within a group involves entities which are resident or have activities in the jurisdiction undertaking the risk assessment (e.g. where entities in the jurisdiction are making intragroup payments where the transfer pricing may be incorrect). Where transactions involving entities in a jurisdiction appear to be at arm's length, a tax authority should not seek a transfer pricing adjustment simply because CbCR information suggests there may be an unexplained profit elsewhere in the group, although it may initiate a functional and comparability analysis if indicators are present that profit may have been diverted from the tax authority's jurisdiction. Where a tax authority has identified a pot ential tax risk to a different jurisdiction, it may flag this risk to the tax authority in that jurisdiction using spontaneous exchange of information powers in an applicable tax convention or tax a tax adjustment in its own information exchange agreement, but should not seek to make jurisdiction. 114. The ultimate decision as to whether any compliance intervention is required, and the form this should take, should be made collaboratively between the risk assessment team, the compliance function and other relevant stakeholders within the tax administration. This ensures that the decision takes into account the views of specialists with an iness and understanding of the risks flagged and with experience of the taxpayer , their bus their attitude to tax risk . For example, it may be the case that information held by the tax compliance function can be used to clarify that a potential risk may in fact be explained by wholly commercial considerations. Where the information cont ained in a CbC Report flags a risk which is inconsistent with the tax compliance function's understanding of the risk profile of the group, this should be thoroughly analysed before subjecting a group to ranted significant compliance activity which may not be war , for example, to ensure that any potential risk within the group concerns transactions with or connected to entities which are resident or which have activities in the jurisdiction . Other factors relevant in the decision as to whether further action is required may be the potential amount of tax at stake; the likelihood of success; and the resources that may be required in order to achieve a successful outcome. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

61 60 T BASED ON CBCR INFO RMATION – CHAPTER 7 - USING THE RESULTS OF A TAX RISK ASSESSMEN While recognising that a tax authority's resources are limited, tax authorities are 115. encouraged, to the extent possible, to include as part of t his review stage consultation with entities within a group, to clarify the information contained in a CbC Report and to understand the possible business reasons underlying factors that appear to pose a potential tax risk. In the majority of cases it will be most practical for these consultations to be uni laterally between a particula r tax authority and the local entities in a group. conducted group's CbC Report may be available to tax authorities in all However, given a n MNE jurisdictions where the group has operations, and a number of these tax authorities are likely to identify the same or si milar potential tax risks, there may also be benefits from a multilateral consultation involving the group and tax authorities from several jurisdictions. This could take different forms, such as joint meetings with the group, co -ordinated information requ ests, or consultations between tax authorities to discuss issues of would have an added Th interpretation concerning a group's CbC Report. approaches ese could allow tax authorities in different jurisdictions to discuss advantage in that they es directly with the ultimate parent entity of a group, which may have a better potential issu They could also understanding of the information contained in the group's CbC Report. allow tax authorities to consult with each other, to ensure a consistent interpretation of the information contained in a CbC Report (or subsequently provided by the group) or an improved understanding of where differences in interpretation exist. However, any multilateral consultation would require some level of resource commitment and co-ordi nation between the tax authorities involved, and is unlikely to be suitable for all jurisdictions or for use with respect to the assessment of all groups in a jurisdiction. 116. Where it is agreed that the risk asses sment process has resulted in incorrect or , this should be fed back into the risk misleading tax risk indicators being flagged assessment process to enable risk assessment tools to be updated and improved. Where the ct, but a decision is made tax risk indicators identified are corre that no further action should be taken, this decision should be recorded to ensure that a full audit trail is maintained. hich may include but 117. If a risk assessment does trigger further compliance action, w is not limited to a tax audit, this should be documented and any tax adjustment should be supported by sufficient evidence which is not derived from the CbC Report of the taxpayer's group. The CbC Report is a risk assessment tool which may direct compliance activities but is not a substitute for such activities. jurisdiction 118. should ensure that governance processes are in place to cover all of A the above steps, to ensure that the correct procedures are followed and each decision is fully documented. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

62 MODEL TEMPLATE FOR A CBC REPORT - 61 ANNEX 1 - Annex 1 Model template for a Country -by -Country Report 1. Overview of allocation of income, taxes and business activities by tax jurisdiction Table Name of the MNE group: Fiscal year concerned: Currency used: Tangible Assets Revenues Income Tax Profit (Loss) Income Tax Accumulated Number of Cash other than Stated Accrued – Tax Jurisdiction Before Paid (on cash earnings capital Employees and Cash Total Unrelated Party Related Party Income Tax basis) Current Year Equivalents EPORTING: HANDBOOK ON EFFECTIVE TAX RISK © OECD 2017 ASSESSMENT COUNTRY BY COUNTRY R

63 62 – ANNEX 1 - MODEL TEMPLATE FOR A CBC REPORT 2. List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction Table Name of the MNE group: Fiscal year concerned: Main business activity(ies) Tax Jurisdiction of Constituent Entities organisation or incorporation if different Tax Jurisdiction resident in the Tax 9 from Tax Jurisdiction of Jurisdiction Other parties Residence property Dormant Insurance instruments Support Services Internal Group Finance Purchasing or Procurement Research and Development Manufacturing or Production Regulated Financial Services Holding shares or other equity Administrative, Management or Sales, Marketing or Distribution Holding or Managing intellectual Provision of Services to unrelated 1. 2. 3. 1. 2. 3. 9 e “Additional Information” section. Please specify the nature of the activity of the Constituent Entity in th COUNTRY- T © OECD 2017 HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN -COUNTRY REPORTING - BY

64 ANNEX 1 - MODEL TEMPLATE FOR A CBC REPORT - 63 3. Additional Information Table Name of the MNE group: Fiscal year concerned: compulsory information provided in the country country report. by Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the - - © OECD 2017 COUNTRY BY COUNTRY R EPORTING: HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT

65 64 – ANNEX 2 - TAX RISK INDICATORS THAT MAY BE DETECTED USING A CBC REPORT Annex 2 Tax risk indicators that may be detected using a CbC Report How else it might be explained What this could mean Potential tax risk indicator A low footprint on a CbC Report could be misleading if the activities A group with a small footprint may have less potential to pose in a jurisdiction are more significant. This should be corroborated The footprint of a group in a jurisdiction against other information and the experience of the tax compliance significant tax risk team. An entity whose main activity would typically pose lower tax risk A group's activities in a jurisdiction may be of a type that are subject A group's activities in a jurisdiction are limited to those that pose hould be may still engage in BEPS. Other available information s to a lower level of tax (e.g. where dividends and gains earned by a less risk considered for indicators that taxable income in the jurisdiction holding entity benefit from a participation exemption) should be higher. A high value or proportion of related party revenues might mean Groups may include entities that deal wholly or mainly with related There is a high value or high proportion of related party revenues in that even a small transfer pricing error could have a significant tax a particular jurisdiction parties for commercial reasons impact. Differences b The chosen comparable may be unreliable, or there may be etween a jurisdiction and the chosen comparable The results in a jurisdiction deviate from potential comparables commercial factors to explain any difference could be driven by BEPS Results may be being impacted by commercial considerations The results in a jurisdiction do not reflect market trends Results may be being distorted by BEPS activity There may be commercial reasons why results in a jurisdiction may Profits may have been shifted away from the jurisdiction where the There are jurisdictions with significant profits but little substantial seem high relative to the activity measures in a CbC Report (e.g. underlying economic activity is occurring activity due to tangible assets being heavily depreciated, or intangible assets that are not disclosed) There BEPS reasons may explain low levels of tax accrued (e.g. are jurisdictions with significant profits but low levels of tax Non- A low effective tax rate to indicate that a group is using BEPS to accelerated tax depreciation) accrued shelter taxable income Some activities within a group may be more asset -intensive or staff - There are jurisdictions with significant activities but low levels of Profits that are attributable to a jurisdiction may be being shifted to a intensive than others (e.g. administrative functions may have a low profit (or losses) jurisdiction where they are taxed more favourably profit per employee compared to the group) There may be non -BEPS reasons to explain why a group has -related activity A group has activities in jurisdictions which pose a BEPS risk A group may be engaged in a known BEPS activities in a particular jurisdiction T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

66 ANNEX 2 - TAX RISK INDICATORS THAT MAY BE DETECTED USING A CBC REPORT - 65 Potential tax risk indicator What this could mean How else it might be explained Profit from mobile activities may be correctly attributable to the low A group has mobile activities located in jurisdictions where the diction to benefit A group may have shifted mobile activities to a juris tax jurisdiction so long as there is sufficient activity, transfer prices from a favourable tax regime group pays a lower rate or level of tax are at arm's length and there is no other indicator of BEPS Changes in a group's structure may be an opportunity for a group to Changes in a group's structure may be driven wholly by commercial ere have been changes in a group's structure, including the Th engage in BEPS and could mean a need to revisit existing transfer considerations, even where the result is less tax paid in a particular pricing policies and methodologies , and re- consider the location of assets jurisdiction. identification and pricing of related party transactions IP may be held in a particular jurisdiction for non -BEPS purposes. Valuable IP may be used to strip taxable profit from other So long as the royalties paid for use of IP are arm's length and IP is separated from related activities within a group jurisdictions there are no other indicators of BEPS, the tax risk to a jurisdiction may be low. A group has marketing entities located in jurisdictions outside its toric or commercial factors may explain the use of marketing His Marketing entities could be earning profits that are not attributable key markets to the jurisdictions where they are resident entities in particular jurisdictions A group has procurement entities located in jurisdictions outside its Procurement entities could be earning profits that are not Historic or commercial factors may explain the use of procurement key manufacturing locations entities in particular jurisdictions attributable to the jurisdictions where they are resident Non- BEPS factors such as tax losses carried forward or legitimate A group may be making high tax accruals for uncertain tax Income tax paid is consistently lower than income tax accrued uncertainty in a tax position could explain differences between -related behaviour positions, which could indicate BEPS current year tax accrued and tax paid Most entities that list different jurisdictions of residence and incorporation in Table 2 will not be dual resident (due to the A group includes dual resident entities Dual resident entities can be used for a number of BEPS purposes operation of a tie -breaker in the applicable tax treaty) In many cases, an entity that is not tax resident anywhere will be transparent for tax purposes, and its profit m A group includes entities with no tax residence No residence entities can be used for a number of BEPS purposes ay be taxable on a constituent entity elsewhere in the group Stateless revenue may indicate a BEPS risk if the revenue is not In many cases, the revenue may be taxable on a constituent entity A group discloses stateless revenues in Table 1 taken into account for tax purposes in any jurisdiction elsewhere in the group Other reasons may be identified to explain a potential difference, This could question the accuracy of both the CbC Report and the Information in a group's CbC Report does not correspond with such as changes in a group's structure or activities since information previously provided by a constituent entity information previously provided by a constituent entity information was previously provided to a tax authority © OECD 2017 COUNTRY BY COUNTRY R EPORTING: HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT

67 EXAMPLE USE OF A CBC 66 ASSESSMENT REPORT FOR TAX RISK – ANNEX 3 - Annex 3 10 Example Use of a CbC Report for Tax Risk Assessment 119. MNE SA is the ultimate parent entity in a fictional multinational group involved in the manufacture and sale of consumer goods. MNE SA is resident in Country A, and the group has entities based in 26 jurisdictions across Europe, the Americas and Asia- Pacific. The group has a fiscal year end of 31 December. At the time of this Example, MNE SA has submitted two CbC Reports (for the year ended 31 December 2016 and 31 December 2017), which were filed with the Country A tax authority and exchanged with tax authorities in other jurisdictions where the group has operations. This Example illustrates how these tax authorities could use the information contained in Table 1 and Table 2 of the CbC Reports within an initial ass essment to identify potential tax risks, or areas where additional information is required. It is anticipated that, in many jurisdictions, the initial tax assessment will look at many of the same potential risk indicators, although the specific algorithms used will vary. However, once the potential risks indicators have been identified, tax authorities will vary in terms of which they see as posing a possible tax risk in their jurisdiction. For example, as the residence jurisdiction of the ultimate parent e ntity, the Country A tax authority may request further information on many or all of the potential issues flagged in the initial assessment. However, tax authorities in other jurisdictions should limit their enquiries to risks that concern resident entitie s, or which concern transactions that a resident entity may be party to. Tax risk assessment processes used This example illustrates how an initial tax risk assessment could be conducted using 120. Report. For these purposes it is assumed that the initial risk assessment does a group's CbC not take into account any other information available to a tax authority. The risk assessment his guidance. uses simple tools to test the group for the various risk indicators described in t This assessment may be conducted manually, but there are benefits to a more automated approach in terms of the ability to process large quantities of data quickly, as well as the ability to detect possible patterns taking into account multiple indicators, which may then be considered during a manual second stage. To reflect the fact that in many jurisdictions the initial stage will be automated, and the difficulties currently anticipated in incorporating an automated process, this Example relies solely on the free text contained in Table 3 into information contained in Table 1 and Table 2. It is expected that other data available to the tax authority, such as additional information provided in Table 3, will be taken into account by tax official s in the relevant jurisdiction in deciding whether potential risk indicators can be explained or if further review is needed in order to determine if any compliance action is required and the nature of that action. The initial risk assessment comprises the following steps: 121. 10 Further examples will be included in future editions of this handbook, based on the experience of jurisdictions in using CbC Reports in tax risk assessment. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

68 EXAMPLE USE OF A CBC ANNEX 3 - 67 REPORT FOR TAX RISK ASSESSMENT – • The information contained in Table 1 and Table 2 of the group's CbC Reports for 2016 and 2017 is reviewed in its raw form. ify any Changes in these tables between 2016 and 2017 are considered, to ident • changes that may be material to the tax risk assessment. • Key ratios are calculated using information contained in Table 1 for 2016 and 2017. These ratios are based on those identified as potentially useful in this guidance. • Changes in the ratios be tween 2016 and 2017 are calculated and considered. • The outcomes of the above steps are interpreted to identify possible tax risks posed by the MNE SA group, as well as alternative explanations for the various risk iries that may be required. indicators and further information or enqu Outcomes of the initial review 122. This summary highlights issues identified during the initial risk assessment of the MNE SA group, which may suggest that the group could pose a higher t ax risk in certain areas. A tax authority in a jurisdiction where an entity which is resident or has activities in the jurisdiction may be impacted by the potential risk indicators identified should consider additional information available from other sour ces to determine whether these issues are material, or if they can be explained in other ways, before determining whether additional compliance activity is appropriate. 123. Copies of the group's CbC Report (Table 1 and Table 2 only), numerical analyses of these reports and charts illustrating a number of key ratios and are included at the end of this Annex. High level overview of the MNE SA group in 2017 124. At the end of 2017, the MNE SA group comprised 43 entities in 26 jurisdictions. Twenty nine of these entities are engaged in sales or manufacturing activity. The group also includes holding companies (in Countries A, I, N and T), group finance companies (in N and T), group service companies (in Countries A, C, and T), a procurement Countries C, company (in Country U), a research and development company (in Country D), an IP holding company (in Country K) and a captive insurance company (in Country N). The ictions by region is shown below. split of jurisd © OECD 2017 COUNTRY BY COUNTRY R EPORTING: HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT

69 68 REPORT FOR TAX RISK ASSESSMENT – ANNEX 3 - EXAMPLE USE OF A CBC Americas Asia- Pacific Europe R L A S M B T N C U O D V P E W Q F X G Y H Z I J K In 2017, all jurisdictions where the group has activities were profitable. In Europe, 125. group's performance was largely stable, possibly reflecting the fact that this may be a the mature market for the group. In the Americas, all key jurisdictions experienced growth in dictions Pacific, all juris revenues and a small improvement in profit margins. In Asia- experienced growth in revenues but a number of these also saw a fall in profit margins. The exceptions to this are Countries T, U and Z which increased in profitability. 126. Between 2016 and 2017 there were two changes to the group structure. First, an IP holding company in Country Q is included in Table 2 in 2016 but not in 2017. Following this change, Country K is the only IP holding jurisdiction in the group. Second, there is a new manufacturing entity in Country H. It is not known whether this was established by the group or acquired from outside. Sales and manufacturing activity in Asia -Pacific earns lower returns than that in other regions 127. The group has operat ing entities (i.e. those engaged in sales, manufacturing and related activities) in 21 jurisdictions across Europe, the Americas and Asia- Pacific. In 2017, most of these entities earned total revenues per employee ratio of between EUR 92 000 and EUR 172 000 and within this range there is no noticeable difference between entities in the three regions. However, although sales and manufacturing entities earn similar levels of revenue 128. per employee across the group, t here is a marked difference between the profit margins earned by entities in different regions. , most jurisdictions with sales o • In Europe r manufacturing activities earn a profit margin of between 10% and 14%. The exception is Country H (with a profit mar gin of 2%), but this is a new member of the group in 2017 and is discussed below . earn activities a profit In the Americas, all jurisdictions with sales or manufacturing • margin of between 9% and 11%. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

70 ANNEX 3 - 69 EXAMPLE USE OF A CBC REPORT FOR TAX RISK ASSESSMENT – • In Asia -Pacific, all jurisdictions with sales or manuf acturing entities (other than Countries U and Z) earn a profit margin of between 3% and 5%. Country U earns a ). of 29% earns a profit margin profit margin of 58% and Country Z 129. There are a number of reasons why e ntities engaged in similar activities may earn different margins in different regions (e.g. differences in production costs or market penetration). However, the fact that the two entities in Countries U and Z have significantly higher profit margins than other entities in the region could flag a possible tax risk. This is supported by a number of other factors: • Both of these entities earn substantially all of their revenues from related parties (95% in Country U and 98% in Country Z). The Country U entity i s engaged in procurement. The Country Z entity is described as involved in "sales, marketing and distribution" in Table 2, but the fact that it earns its income from related parties tribution on suggests that its activities are more likely to be either marketing or dis behalf of other group entities, rather than sales. Assuming the Country Z entity is engaged in marketing or distribution, the group • has no sales or manufacturing activity in either Country U or Country Z. This raises a question as to why the group would place its procurement and marketing/distribution centres in these jurisdictions. Activities in Countries U and Z have a significantly lower effective tax rate that • those in other jurisdictions in the region. of sales and manufacturing entities in the • Between 2016 and 2017, the revenues Asia -Pacific region increased by between 15% and 55%, while profit before tax increased by between 2% and 9%. On the other hand, in Country U revenues increased by 23% and profits increased by 29%, while in Count ry Z revenues increased by 9% and profits by 15%. Therefore while revenues increased in all entities, profit margins increased in Countries U and Z but fell in all of the other jurisdictions. 130. Tax authorities in jurisdictions where the group has sale or manufacturing activities -Pacific region may request further information on the activities of the entities in in the Asia ies. Countries U and Z and on the pricing of intragroup payments to these entit Disposal or liquidation of MNE IP Holdings (Q) Co and possible transfer of IP from Country Q to Country K In 2016, Table 2 includes both a Country K resident entity and a Country Q resident 131. entity, whose activities include the holding or management of IP. In 2017, the Country Q resident entity is not included in the CbC Report. This could be explained in a num ber of ways, including • The Country Q entity, together with the IP it was holding, may have been disposed of outside the group. The Country Q entity could have been liquidated, and the IP it held transferred to • . Country K © OECD 2017 COUNTRY BY COUNTRY R EPORTING: HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT

71 REPORT FOR TAX RISK 70 ASSESSMENT – ANNEX 3 - EXAMPLE USE OF A CBC • A combination of the above (i.e. part of the IP held by Country Q could have been transferred to the Country K, followed by the disposal of the Country Q entity and any remaining IP). ure that any intragroup 132. Tax authorities in Countries K and Q will be interested to ens transfer of IP has been priced correctly. The Country Q tax authority will want to ensure that any gains or losses on the disposal of the Country Q entity and/or the sale or transfer of IP have been correctly taxed. Tax authorities in Country K and in other jurisdictions where the IP is used will need to ensure that any royalties paid to Country K are correctly priced in 2017 and future years. Substantial differences between the increase in revenues, profits and accrued income tax i n Country K between 2016 and 2017 133. In Country K, between 2016 and 2017 total revenues increased by 44%, profit before tax increased by 106% and accrued income tax for the current year increased by 52%. This means that the profit margin for the Country K sub- group has increased from 10% to 14%, while the effective tax rate has fallen from 21% to 16%. Country K tax authority would require more information to understand The the 134. these changes. One possible explanation for the increase in profit margin behind drivers could be if valuable IP has been transferred from Country Q to Country K. As the margins for managing and holding IP are typically higher than those from sales and manufacturing (the other activities in Country K), this could explain why profit before tax has increased more rapidly than revenues over this period. This would be supported by the fact that most of the increase in revenues is from related parties. 135. The fall in effective tax rate may also be explained if the income generated by IP benefits from the Country K IP box (which reduces the tax rate applied to income from certain IP assets). If this is the case then, as it appears the IP may have been transferred from outside Country K, the authority may wish to make enquiries to confirm that the IP qualifies for the reduced tax rate. Newly acquired Country H entity with very low profit margin 136. Table 2 for 2017 includes a Country H resident entity which was not included in the table in 2016. This could be a newly incorporated entity, or one acquired from outside the group. For 2017, the entity has total revenues of EUR 47 842 000, and profit before tax of EUR 836 000. This gives the Country H operations a profit margin of 2%, significantly lower than the average profit margin for the European region, which is approximately 11%. 137. The C ountry H tax authority may require further information to understand this very low level of margin compared to the rest of the region. It may be connected to high start -up costs, or legitimate business costs incurred in assimilating an acquired entity into the group. However, it may also be due to tax planning, such as an excessive debt pushdown (beyond that needed to align net interest expense with taxable economic activity) or an intragroup hybrid financial instrument. profit margins fall significantly In Country I, revenues increase but 138. Table 1 shows that the Country I holding company increased its revenues by 313% between 2016 and 2017, while its profit before tax increased by 44%. This means that the profit margin in Country I fell from 11% to 4%. The reason for this is not clear, and group's T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

72 ANNEX 3 - 71 EXAMPLE USE OF A CBC REPORT FOR TAX RISK ASSESSMENT – the Country I tax authority may require additional information to ensure the group's revenue in the jurisdiction is being taxed correctly. Tax authorities in other jurisdictions may also be concerned if this suggests that 139. Country I is being used as a conduit (i.e. if the holding company is party to an arrangement whereby it receives payments from a related party and has already committed to make corresponding payments to another related party). For example, the Country H tax authority may request information as to whether the Country H entity has lower profits as a result of payments made to Country I under an imported mismatch ar rangement. In Country T, revenues and profits increase, but the effective tax rate falls In Country T, the group includes three entities: a holding company, a group finance 140. company and a group services company. In 2016, activities in Country T earned a strong margin of 16% and had one of the lowest effective tax rates in the group, at 13%. How ever, in 2017, profit margins in the jurisdiction had increased to 33%, while the effective tax rate had dropped to 5%. This reflects the fact that there had been a significant increase in revenues and profits during the year, but only a modest increase in the amount of tax accrued. The tax authority in Country T should consider requesting further information to 141. understand why the increase in accounting profits do not appear to have resulted in an increased tax charge. Tax authorities in other jurisdictions may also request additional information to understand whether this could be a result of arrangements involving another entity in the group in their jurisdiction, in particular given that related party revenues are such a large proportion of Country T's total revenues. For example, this pattern could be consistent with an intragroup hybrid financial instrument involving Country H and Country I, whereby • The Country H entity makes a payment to Country I , which reduces income subject to tax in Country H. • The Country I entity receives income from Country H and makes a corresponding payment to Country T, which results in increased revenues but has little impact on I. profits or taxes in Country The Country T entity rec eives a payment which is not subject to tax, which results • in increased revenues and profits, but no additional tax liability. High profits generated by related party revenues in jurisdictions with low effective tax rates 142. The group includes operations in five jurisdictions that raise possible concerns of lack of substantial activities relative to their economic performance. The group's activities in Countries C, N, T, U and Z: • have the highest total revenues by employee and by tangible assets • have the highest profit before tax by employee and by tangible assets -tax return on equity (with the exception of -tax and post have the highest pre • Country C) © OECD 2017 COUNTRY BY COUNTRY R EPORTING: HANDBOOK ON EFFECTIVE TAX RISK ASSESSMENT

73 72 REPORT FOR TAX RISK ASSESSMENT – ANNEX 3 - EXAMPLE USE OF A CBC y K, which holds have the highest profit margins (with the exception of the Countr • the group's IP in 2017) have the lowest effective tax rates (with the exception of Country G) • • receive most of their revenues from related parties. Countries C, N, and T include entities engaged i 143. n group finance, providing administrative, management or support services and/or holding companies. Country N also includes an entity providing insurance services to other members of the group. These s, and typically require a small activities naturally involve dealing with related partie number of employees (compared with the manufacturing and sales activities in other parts of the group). However, tax authorities in all jurisdictions where the group has operations sh whether resident group members make may request further information to establi payments to these entities. Where payments to these entities are made, further information may be required to better understand the extent of the activities in these three jurisdictions, oup payments. and the pricing of the intragr Country Z 144. The entity in Country U provides procurement services and the entity in -Pacific region. Potential tax provides marketing and/or distribution to entities in the Asia risks posed by these en tities are discussed elsewhere. Next steps 145. The information contained in a group's CbC Report may be used for high level -related risks. Where the transfer pricing risk assessment and the assessment of other BEPS potential tax risks raised in this initial assessment concern a particular jurisdiction, the tax authority in that jurisdiction may make further enquiries in order to establish whether a material risk does exist and, if so, what further compliance actions are required. The results of this assessment using CbCR information cannot be taken as conclusive evidence that the submitted tax position is incorrect and cannot be used as a basis for the global formulary apportionment of income. Therefore no tax adjustm ents should be proposed on the basis of this initial analysis. T © OECD 2017 COUNTRY- BY -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

74 ANNEX 3 - EXAMPLE USE OF A CBC REPORT FOR TAX R 73 ISK ASSESSMENT - CbC Reports and Analyses MNE SA Group – CbC Report for Year Ended 31 December 20 17 Table 1. Overview of allocation of income, taxes and business activities by tax jurisdiction Name of the MNE Group: MNE SA Fiscal year concerned: 31 12 2017 EUR Currency used: Tax jurisdiction Income Tax Income Tax Number of Profit (Loss) Tangible Assets other Revenues Accumulated Stated Capital Earnings Accrued - before than Cash and Cash Employees Paid (on Cash Unrelated party Related Party Total Income Tax Current Year Equivalents Basis) 874385000 450000000 8965 87500000 515510000 38870000 114565000 41300000 1125825000 610315000 A 5973000 15629000 260 29683000 3678000 1344000 1231000 4000000 B 29271000 412000 1023000 15 12111000 619000 25366000 3293000 3500000 508000 C 19053000 6313000 8266000 22000000 273981000 29040000 2074 8510000 80380000 188351000 81851000 D 270202000 2645000 2000000 150 8570000 378000 1728000 486000 17123000 15667000 E 1456000 109317000 46161000 949 10500000 3320000 3424000 13502000 65224000 52533000 117757000 F 2531000 231000 1000000 1659000 15644000 7669000 96 185000 G 1622000 14022000 248000 7000000 526000 520 82512000 836000 296000 H 1450000 46392000 47842000 500000 775000 10 1536000 34000 56000 I 89000 5527000 5616000 216000 2000000 3062000 131 10852000 15546000 J 318000 281000 1320000 14226000 1727000 129300000 4182000 3700000 15000000 64200000 987 111743000 K 57694000 169437000 23394000 241 5016000 3725000 4000000 2351000 512000 850000 934000 24297000 L 23785000 36199000 129902000 5543000 5898000 20000000 163795000 98833000 64962000 1520 15951000 M 13 544000 0 1750000 3498000 N 7373000 39803000 47176000 22288000 0 8163000 615 63115000 12851000 12000000 1421000 1583000 5629000 5823000 O 57292000 389000 134 2634000 2500000 2265000 376000 13981000 128000 14109000 1582000 P 1840 60414000 279533000 236491000 24415000 9142000 8466000 30000000 125595000 Q 110896000 712000 502000 6000000 3084000 313 3645000 34811000 247000 R 1841000 35058000 11202000 1296 14794000 144379000 6943000 1970000 1741000 20000000 87390000 56989000 S T 2201000 4000000 321000 1274000 6338000 28 19482000 17537000 1945000 475000 812000 4189000 198000 165000 1000000 505000 7 7191000 6812000 379000 U 14000000 79505000 1530000 8641000 939 V 101419000 5343000 1720000 31299000 70120000 4593000 W 75998000 4012000 80010000 2598000 837000 799000 3000000 8099000 565 446000 31 3871000 841000 4712000 212000 89000 49000 500000 X 461000 63 698000 1200000 107000 154000 8474000 806000 327000 7562000 Y 912000 3372000 5576000 814000 34379000 35193000 10274000 1295000 1217000 Z 16 383000 T © OECD 2017 - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN EPORTING COUNTRY BY COUNTRY R

75 74 ISK ASSESSMENT – ANNEX 3 - EXAMPLE USE OF A CBC REPORT FOR TAX R Table 2: List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction Name of the MNE group: MNE SA 31 12 2017 Fiscal year concerned: Main Business Activity(ies) Tax Jurisdiction of Organisation or Constituent Entities Resident in the Tax Tax jurisdiction Incorporation if Different Jurisdiction from Tax Jurisdiction of Residence Provision of Services to Regulated Financial Services Insurance Holding Shares or Other Research and Devlopment Dormant Other Holding or Managing Intellectual Property Unrelated Parties Internal Group Finance Services Management or Support Administrative, Distribution Sales, Marketing or Manufacturing or Production Purchasing or Procurement Equity Instruments X A MNE Manufacturing (A) Co X MNE Sales (A) Co MNE Services (A) Co X X MNE Holdings (A) Co B X MNE Sales (B) Co C X MNE Services (C) Co MNE Finance (C) Co X D X MNE Research & Development (D) Co MNE Manufacturing (D) Co X X MNE Sales (D) Co E X MNE Sales (E) Co F MNE Manufacturing (F) Co X MNE Sales (F) Co X G X MNE Sales (G) Co MNE Manufacturing (H) Co H X I MNE Holdings (I) Co X MNE Sales (J) Co X J K X MNE IP Holdings (K) Co X MNE Manufacturing (K) Co MNE Sales (K) Co X MNE Sales (L) Co X L M MNE Sales (M) Co X MNE Manufacturing (M) Co X N MNE Finance (N) Co X MNE Insurance (N) Co X MNE Holdings (N) Co X O MNE Sales (O) Co X P X MNE Sales (P) Co Q X X MNE Manufacturing (Q) Co MNE Sales (Q) Co R MNE Sales (R) Co X S MNE Manufacturing (S) Co X MNE Sales (S) Co X T MNE Services (T) Co X X MNE Finance (T) Co MNE Holdings (T) Co X MNE Procurement (U) Co X U V X MNE Manufacturing (V) Co X MNE Sales (V) Co MNE Sales (W ) Co W X X MNE Sales (X) Co X MNE Sales (Y) Co Y X MNE Sales (Z) Co X Z HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN -COUNTRY REPORTING - T © OECD 2017 BY COUNTRY-

76 ANNEX 3 - EXAMPLE USE OF A CBC REPORT FOR TAX R 75 ISK ASSESSMENT - CbC Report for year ended 31 December 2016 Table 1. Overview of allocation of income, taxes and business activities by tax jurisdiction MNE SA Name of the MNE Group: Fiscal year concerned: 31 12 2016 Currency used: EUR Number of Income Tax Profit (Loss) Tax jurisdiction Accumulated Stated Capital Tangible Assets other Income Tax Revenues Earnings before Employees Paid (on Cash than Cash and Cash Accrued - Unrelated party Related Party Total Income Tax Basis) Equivalents Current Year A 601745000 111920000 1111205000 509460000 41995000 36920000 87500000 405660000 8260 822825000 B 28955000 465000 14337000 29420000 3678000 1276000 241 1189000 4000000 5738000 C 5866000 19258000 3166000 25124000 537000 472000 3500000 14 11162000 998000 80782000 186283000 D 267065000 30390000 8135000 22000000 8336000 72787000 1940 253666000 E 16411000 1250000 17661000 475000 2000000 1893000 420000 7872000 140 2896000 53053000 3275000 11983000 117104000 F 64051000 879 3029000 10500000 41893000 99670000 13909000 1429000 G 1522000 15431000 91 192000 172000 1000000 7588000 2387000 1265000 96000 I 500000 1361000 150000 57000 34000 1394000 8 721000 J 13772000 1550000 15322000 1850000 288000 275000 2000000 9884000 120 2859000 117475000 K 56374000 61101000 11352000 2651000 2429000 8000000 52730000 905 121536000 721000 L 21760000 540000 22300000 1964000 4000000 700000 4572000 228 3535000 M 58886000 89944000 148830000 4784000 1420 13404000 5283000 20000000 34031000 126110000 40914000 N 5956000 34958000 512000 0 18452000 1750000 2989000 12 0 1322000 O 52809000 5411000 58220000 5045000 1543000 11748000 576 7633000 12000000 126 P 150000 11652000 1025000 299000 280000 2500000 2359000 11502000 1643000 Q 162955000 264026000 101071000 29271000 259366000 10136000 34000000 58839000 1717 10736000 28750000 R 260000 29010000 1802000 498000 469000 6000000 2710000 295 3164000 46137000 S 10421000 79344000 125481000 6752000 1779000 1574000 20000000 13480000 1217 1994000 2155000 T 304000 421000 2253000 14014000 11859000 4000000 1217000 30 340000 5500000 5840000 U 160000 1000000 462000 190000 3250000 738000 6 87211000 61140000 26071000 V 1622000 1767000 5024000 14000000 7865000 869 72071000 70882000 4301000 66581000 W 2389000 845000 4275000 521 7330000 765000 3000000 56000 X 3420000 752000 4172000 205000 76000 500000 421000 27 412000 1200000 5474000 Y 4599000 875000 310000 102000 94000 645000 59 631000 1000000 16 Z 982000 31165000 32147000 8963000 1847000 5043000 383000 3169000 T © OECD 2017 - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN EPORTING COUNTRY BY COUNTRY R

77 76 ISK ASSESSMENT EXAMPLE USE OF A CBC REPORT FOR TAX R – ANNEX 3 - Table 2: List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction MNE SA Name of the MNE group: Fiscal year concerned: 31 12 2016 Main Business Activity(ies) Tax Jurisdiction of Organisation or Constituent Entities Resident in the Tax Tax jurisdiction Incorporation if Different Jurisdiction from Tax Jurisdiction of Residence Management or Support Provision of Services to Internal Group Finance Regulated Financial Services Insurance Holding Shares or Other Equity Instruments Dormant Other Unrelated Parties Administrative, Distribution Sales, Marketing or Manufacturing or Production Purchasing or Procurement Intellectual Property Holding or Managing Research and Devlopment Services A MNE Manufacturing (A) Co X MNE Sales (A) Co X MNE Services (A) Co X MNE Holdings (A) Co X MNE Sales (B) Co B X C MNE Services (C) Co X X MNE Finance (C) Co D MNE Research & Development (D) Co X MNE Manufacturing (D) Co X MNE Sales (D) Co X E MNE Sales (E) Co X F MNE Manufacturing (F) Co X MNE Sales (F) Co X G MNE Sales (G) Co X X MNE Holdings (I) Co I MNE Sales (J) Co J X K MNE IP Holdings (K) Co X MNE Manufacturing (K) Co X MNE Sales (K) Co X L MNE Sales (L) Co X M X MNE Sales (M) Co MNE Manufacturing (M) Co X N MNE Finance (N) Co X MNE Insurance (N) Co X MNE Holdings (N) Co X MNE Sales (O) Co O X P MNE Sales (P) Co X Q X MNE Manufacturing (Q) Co MNE Sales (Q) Co X MNE IP Holdings (Q) Co X R MNE Sales (R) Co X S MNE Manufacturing (S) Co X MNE Sales (S) Co X T MNE Services (T) Co X X MNE Finance (T) Co MNE Holdings (T) Co X U MNE Procurement (U) Co X V X MNE Manufacturing (V) Co X MNE Sales (V) Co MNE Sales (W ) Co X W X MNE Sales (X) Co X X MNE Sales (Y) Co Y Z X MNE Sales (Z) Co HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN BY T © OECD 2017 COUNTRY- -COUNTRY REPORTING -

78 ANNEX 3 - ISK ASSESSMENT - 77 EXAMPLE USE OF A CBC REPORT FOR TAX R Key rat ios for year en ded 31 December 2017 Key ratios by tax jurisdiction Name of the MNE Group: MNE SA 31 12 2017 Fiscal year concerned: EUR Currency used: Proporation Revenues Pre -ta x profit Proportion of Pre -ta x profit Post-ta x Revenues generated per of revenues generated per Pre-tax return Effe ctive ta x revenues Profit ma rgin generated per generated per return on from EUR of EUR of ra te on equity from related employee equity employee tangible unrelated tangible parties parties a sse ts a sse ts Tax jurisdiction (Profit before Profit before Total revenues Profit before Income tax Profit before Total revenues tax - Income Unrelated party Profit before Related party tax / (Stated / Number of tax / Tangible accrued / tax / Number / Tangible tax accrued) / revenues / tax / Total revenues / capital + Profit before assets employees assets of employees (Stated capital Total revenues revenues Total revenues retained '000 '000 tax '000 '000 + accumulated earnings) earnings) A 54% 46% 126 13 1.29 0.13 21% 14% 10% 34% 114 33% 19% 0.62 4.97 14 12% 1% 99% B 12% C 25% 75% 1 691 220 24.80 3.22 21% 18% 13% 15% 14 20% 11% 30% 70% 130 D 0.99 0.11 28% 28% 22% 10% 13% E 91% 9% 114 12 6.47 0.65 16% F 24% 18% 11% 25% 45% 124 14 1.08 0.12 55% 0.66 17% 11% 11% 19% 6.18 17 163 10% G 90% 8% H 3% 97% 92 2 0.58 0.01 11% 30% 2% 4% 98% 11% 562 22 9% I 16% 2% 0.28 7.25 13 5.08 0.56 13% 11% 11% 16% J 92% 8% 119 172 30% 0.18 1.31 24 25% 66% 34% 16% K 14% 10 6.52 0.63 26% 17% 10% 36% L 98% 2% 101 35% M 40% 60% 108 10 1.26 0.12 28% 19% 10% 1 714 47% 16% 84% 3 629 N 86.72 40.97 425% 425% 0% 9 103 23% 17% 9% 25% 9% 91% O 7.73 0.69 6.23 24% 11% 31% 0.70 23% P 99% 1% 105 12 47% 27% 10% 35% 0.85 Q 18% 53% 129 13 0.09 27% R 1% 9.62 112 6 15% 20% 0.51 5% 99% 25% 15% 20% 0.62 12.89 5% 5 111 61% 39% S 5% T 10% 90% 696 226 15.29 4.97 102% 97% 33% 598 4% 5% 95% 1 027 U 8.86 5.16 278% 267% 58% 0.07 6 31% 69% 108 1.28 V 24% 17% 5% 29% W 95% 5% 142 5 17.42 0.57 23% 16% 3% 31% 23% 7 10.57 0.48 152 18% 82% X 22% 17% 4% 10.51 11% 135 33% 5 Y 0.41 17% 12% 4% 89% 152% 172% 3.05 10.44 642 2 200 98% 2% 29% Z 12% COUNTRY BY COUNTRY R EPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017

79 78 – ANNEX 3 - ISK ASSESSMENT EXAMPLE USE OF A CBC REPORT FOR TAX R Key ratios for year ended 31 December 2016 Key ratios by tax jurisdiction MNE SA Name of the MNE Group: 21 12 2016 Fiscal year concerned: EUR Currency used: Proporation Pre -ta x profit Revenues Proportion of of revenues Pre -ta x profit generated per Post-ta x Revenues generated per revenues Pre-tax return Effe ctive ta x from EUR of Profit ma rgin EUR of generated per generated per return on from related ra te on equity tangible unrelated employee equity employee tangible parties parties a sse ts a sse ts Tax jurisdiction (Profit before Profit before Profit before Total revenues tax - Income Income tax Profit before Total revenues tax / (Stated Profit before Unrelated party Related party / Tangible tax / Tangible tax accrued) / accrued / / Number of tax / Number capital + revenues / tax / Total revenues / Profit before employees assets (Stated capital assets of employees Total revenues retained Total revenues revenues '000 '000 '000 '000 tax + accumulated earnings) earnings) 33% 15% 10% 1.35 23% 0.14 135 14 A 54% 46% 32% 14% 13% 15 5.13 0.64 122 20% 98% 2% B 13% 15% 18% 3.17 22% 25.17 226 C 23% 1 795 77% 27% 11% 23% 0.12 32% 1.05 138 70% 30% 16 D 22% 11% 15% 19% 126 14 0.65 6.10 7% 93% E 25% 23% 17% 10% 14 133 0.12 1.17 45% F 55% 9% 12% 16 6.46 0.60 17% 15% G 10% 90% 170 23% 6% 8% 11% 170 19 1.89 0.21 93% I 7% 15% 12% 15 5.36 16% 13% 0.65 10% J 128 90% 10% 15% 21% 19% 13 52% 0.09 0.97 130 48% K 23% 15% 9% 36% 2% 98% 9 6.31 0.56 98 L 0.11 25% 16% 9% 36% 60% 105 9 1.18 40% M 0% 1 538 79.91 36.04 389% 389% 45% 15% 85% 3 410 N 26% 7.63 0.66 21% 16% 9% 9 9% 91% O 101 27% 9% 0.62 21% 15% 7.09 8 1% 99% P 92 35% 11% 1.02 0.11 32% 21% 17 38% 62% 154 Q 26% 21% 15% 6% 1% 6 9.17 99% 0.57 98 R 5% 23% 6 12.04 0.65 20% 15% 103 37% 63% S 13% 1.85 38% 33% 16% 75 11.52 85% 15% T 467 56% 5% 973 7.91 4.40 222% 211% 542 U 6% 94% 16% 0.07 23% 6% 32% 70% 100 1.21 V 30% 6 16% 16.58 0.56 23% 5 3% 32% 6% 94% W 136 18% 155 8 10.13 0.50 22% 16% 5% 27% X 82% 12% 6% 30% 93 5 8.49 16% 17% 0.48 Y 84% 147% 28% 11% 97% 2.83 165% 560 2 009 10.14 3% Z T © OECD 2017 HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN -COUNTRY REPORTING - BY COUNTRY-

80 ANNEX 3 - EXAMPLE USE OF A CBC REPORT FOR TAX R 79 ISK ASSESSMENT - Changes between 2016 and 2017 Changes in allocation of income, taxes and business activities by tax jurisdiction (nominal) MNE SA Name of the MNE Group: Fiscal years concerned: comparing 31 12 2016 and 31 12 2017 Currency used: EUR Tax jurisdiction Stated Capital Income Tax Income Tax Profit (Loss) Tangible Assets other Number of Accumulated Revenues Employees than Cash and Cash Earnings before Paid (on Cash Accrued - Unrelated party Total Related Party Income Tax Current Year Basis) Equivalents 0 -695 000 2 645 000 44 340 000 6 050 000 8 570 000 A 51 560 000 14 620 000 1 950 000 705 68 000 B 19 1 292 000 0 42 000 235 000 0 263 000 -53 000 316 000 25 000 36 000 82 000 127 000 242 000 -205 000 447 000 C 949 000 0 1 131 000 D 3 137 000 -1 350 000 174 000 2 068 000 0 7 593 000 134 20 315 000 1 069 000 -251 000 10 698 000 0 -42 000 11 000 -165 000 -538 000 206 000 -744 000 E 1 173 000 -520 000 653 000 1 519 000 149 000 291 000 0 4 268 000 70 9 647 000 F 39 000 144 000 81 000 0 13 000 5 230 000 213 000 100 000 113 000 G 82 512 000 H 1 450 000 46 392 000 47 842 000 836 000 296 000 248 000 7 000 000 526 000 520 66 000 54 000 -7 000 4 262 000 4 255 000 I -1 000 0 0 142 000 2 203 000 J 454 000 -230 000 224 000 -123 000 30 000 6 000 0 968 000 11 1 531 000 7 764 000 50 642 000 51 962 000 K 12 042 000 1 320 000 1 271 000 7 000 000 11 470 000 82 213 000 13 444 000 0 150 000 190 000 387 000 1 997 000 -28 000 2 025 000 L 759 000 M 100 2 168 000 0 3 792 000 615 000 14 965 000 8 889 000 6 076 000 2 547 000 1 32 000 N 1 417 000 4 845 000 6 262 000 3 836 000 0 0 0 509 000 584 000 40 000 4 483 000 412 000 4 895 000 O 99 000 0 1 103 000 39 530 000 8 P 2 479 000 -22 000 2 457 000 557 000 90 000 96 000 0 275 000 622 000 -1 594 000 Q 123 1 575 000 -4 000 000 -1 670 000 20 167 000 -4 856 000 -27 535 000 -37 360 000 9 825 000 18 39 000 6 048 000 -13 000 6 061 000 R 0 33 000 481 000 214 000 374 000 191 000 781 000 8 046 000 18 898 000 191 000 10 852 000 167 000 0 1 314 000 79 S 57 000 -2 207 000 0 17 000 54 000 4 085 000 5 468 000 5 678 000 -210 000 T U 39 000 1 312 000 1 351 000 939 000 8 000 5 000 0 43 000 1 74 000 319 000 70 0 -92 000 -47 000 776 000 14 208 000 8 980 000 5 228 000 V 7 434 000 44 318 000 W 9 417 000 -289 000 9 128 000 209 000 -8 000 34 000 0 769 000 13 000 451 000 89 000 540 000 7 000 X -7 000 0 40 000 4 34 000 4 Y 67 000 0 13 000 52 000 17 000 3 000 000 161 000 2 963 000 37 000 203 000 533 000 0 217 000 Z -168 000 3 214 000 3 046 000 0 1 311 000 -552 000 EPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017 COUNTRY BY COUNTRY R

81 80 – ANNEX 3 - ISK ASSESSMENT EXAMPLE USE OF A CBC REPORT FOR TAX R Changes in allocation of income, taxes and business activities by tax jurisdiction (relative) MNE SA Name of the MNE Group: comparing 31 12 2016 and 31 12 2017 Fiscal year concerned: EUR Currency used: Income Tax Profit (Loss) Revenues Tax jurisdiction Stated Capital Tangible Assets other Number of Accumulated Income Tax Employees than Cash and Cash Earnings before Paid (on Cash Accrued - Unrelated party Total Related Party Income Tax Current Year Basis) Equivalents 2% 1% 1% 0% A 11% 9% -2% 6% 1% 5% 5% B 8% 9% 0% 4% 4% 0% 1% -11% 1% 0% -1% 8% C 15% 3% 4% 9% 1% 8% 7% -4% 10% 1% 1% 1% D 2% 2% 0% 7% 8% -9% 0% 9% E -5% 16% 7% -3% -9% 0% 0% 0% 10% 8% 10% 5% 10% 2% F 13% 1% -1% 5% 1% 1% 6% 0% 8% 20% 16% 1% G 7% H Newly acquired or incorporated entity, so a relative comparison is not possible 10% 25% 7% I -7% 337% 313% 44% -2% 0% 0% 10% 3% -15% 1% -7% J 2% 0% 10% 9% 7% 22% 6% K 2% 83% 44% 106% 58% 52% 88% 9% 30% 6% 10% 0% 21% 5% 20% 9% -5% 9% L 7% 3% 16% 12% 19% 10% 10% 10% M 0% 6% 0% 17% 8% 6% N 24% 14% 15% 21% 0% 0% 12% 7% 8% 8% 8% O 3% 7% 0% 9% 7% 6% 38% 0% P 22% -15% 21% 54% 30% 34% 12% 7% 3% -12% 8% -15% -16% Q -17% -10% -23% 10% 0% 21% 43% 15% 2% 14% 7% 6% -5% 21% R 15% 24% 0% 10% S 3% 11% 11% 7% 6% 10% -7% 5% 181% 39% 48% -10% T 13% 0% 10% 6% 9% 17% 10% U 11% 24% 23% 29% 4% 3% 0% 6% 10% 10% 0% -3% 8% 16% 15% 20% V -6% 0% 10% 8% 7% W 14% -7% 13% 9% -1% 4% 17% X 12% 13% 3% 13% -13% 0% 10% 15% 8% 7% 25% 0% 11% 14% 51% 5% 55% 4% 64% Y 6% 11% 0% 22% Z -17% 10% 9% 15% 0% -30% -COUNTRY REPORTING - T © OECD 2017 BY COUNTRY- HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN

82 ANNEX 3 - EXAMPLE USE OF A CBC REPORT FOR TAX R 81 ISK ASSESSMENT - Changes in key ratios by tax jurisdiction (nominal) MNE SA Name of the MNE Group: Comparing 31 12 2016 and 31 12 2017 Fiscal year concerned: EUR Currency used: Tax jurisdiction Proporation Pre -ta x profit Revenues Proportion of Revenues Post-ta x Pre -ta x profit of revenues generated per generated per Effe ctive ta x Pre-tax return revenues Profit ma rgin return on generated per generated per from EUR of EUR of on equity ra te from related employee equity employee unrelated tangible tangible parties parties a sse ts a sse ts Total revenues Profit before Unrelated party Profit before Income tax Total revenues Profit before Profit before Related party (Profit before revenues / / Tangible tax / Total / Number of tax / Number of accrued / Profit tax - Income tax / Tangible revenues / tax / (Stated capital + tax accrued) / employees Total revenues assets Total revenues before tax employees revenues assets '000 '000 (Stated capital retained '000 '000 + accumulated earnings) earnings) -0.77 A 0.00 -1.38% -1.13% 0.10% 0.94% 0.06% -0.06% -8.95 -0.06 -7.91 -1.12 -0.16 -0.03 -1.32% -1.11% -0.11% 1.14% B 0.19% -0.19% -103.50 1.54% -0.38 0.05 -0.50% -0.53% 0.38% 0.52% C -1.54% -6.61 -7.38 -1.66 -0.01 -3.70% -3.19% -0.63% 1.70% 0.04% D -0.04% -0.07 -0.63% -12.00 0.00 -2.83% -2.15% 0.38 -0.31% 1.43% -1.43% E -2.00 -9.14 0.60 -0.10 0.00 0.96% 0.88% 1.23% -0.69% F 0.69% -0.69% 0.50% -6.61 -0.28 0.06 2.50% 2.37% 1.34% -0.89% G -0.50% 1.58 92.00 7.81% 0.58 0.01 11.11% 96.97% 1.75% 29.67% H 3.03% 1.61 2.81% 5.47% 5.36 0.07 2.69% 2.85 -7.18% -6.93% -5.47% I 391.48 -1.63% -9.01 -2.23 -0.28 -0.08 -2.13% -2.00% -0.97% 1.41% J 1.63% 13.94% 41.86 11.16 0.34 0.09 10.85% 10.17% 4.14% -5.58% K -13.94% -0.31% L 0.21 0.08 3.16% 1.90% 0.87% 0.51% 3.01 0.31% 1.14 2.95 1.05 0.02 3.58% 2.57% 0.73% -0.94% 0.09% M -0.09% 0.08 2.14% 219.42 4.93 35.33% 35.33% 6.81 0.00% -1.07% 1.07% N 176.79 1.55 0.39 0.10 0.03 1.41% 1.26% 0.25% -0.96% O 0.07% -0.07% -0.38% 12.81 -0.86 0.07 9.72% 8.16% 2.42% -3.55% P 0.38% 3.67 -25.24 -2.97% -0.17 -0.03 -4.53% -8.61% -0.76% 0.05% Q 8.61% -3.78 -0.56% -0.19% 0.45 -0.06 -0.42% -0.23 -0.96% 1.24% 0.19% R 13.67 -2.70% 8.30 -0.19 0.85 -0.03 -0.21% -0.52% -0.57% S 2.70% 1.76% -5.39% 228.65 151.26 3.78 3.12 64.62% 64.52% 16.46% -8.43% T 5.39% 0.55% 53.95 0.94 0.76 56.04% 56.02% 2.60% -0.98% U -0.55% 56.76 1.28% -0.97% 0.07 0.00 0.62% -0.09 -0.49% -3.65% 0.97% V 7.65 -1.05% 5.56 0.01 0.84 0.01 0.28% 0.49% -0.12% -1.27% W 1.05% -0.18% 0.44 -0.75 0.18% -0.02 -0.20% 0.78% -0.41% -4.20% X -2.52 -5.22% 2.40% -0.06 2.03 -0.07 0.30% -0.21% -1.80% 5.22% Y 41.73 0.69% 0.74% 81.94 -0.74% 0.22 7.23% 5.23% 1.31% 190.38 Z 0.29 T © OECD 2017 - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN EPORTING COUNTRY BY COUNTRY R

83 82 – ANNEX 3 - ISK ASSESSMENT EXAMPLE USE OF A CBC REPORT FOR TAX R Changes in key ratios by tax jurisdiction (relative) MNE SA Name of the MNE Group: Fiscal years concerned: Comparing 31 12 2016 and 31 12 2017 EUR Currency used: Proporation Tax jurisdiction Pre -ta x profit Revenues Proportion of Post-ta x Revenues Pre -ta x profit generated per of revenues generated per Pre-tax return Effe ctive ta x revenues Profit ma rgin generated per return on generated per EUR of from EUR of ra te on equity from related employee employee equity unrelated tangible tangible parties a sse ts parties a sse ts Unrelated party Related party Profit before (Profit before Profit before Total revenues Profit before Profit before Income tax Total revenues tax / Number of revenues / revenues / / Tangible tax - Income tax / Total tax / Tangible tax / (Stated accrued / Profit / Number of employees tax accrued) / revenues assets Total revenues Total revenues employees before tax assets capital + (Stated capital retained + accumulated earnings) earnings) 1% -7% -4% -6% -7% -5% 3% 0% 0% A -6% -6% -7% -3% -4% -7% -8% -1% 4% B 0% -12% -6% -2% 1% -2% -3% 3% 3% 7% C -3% -2% -11% -6% -12% -12% -14% -5% 6% D 0% 0% -6% -6% -10% 0% -15% -14% 6% 0% 20% -2% E -15% -7% 4% -8% 3% 4% 5% 12% -3% F 1% -2% 15% -4% 9% 15% 16% -4% -7% G -1% 5% 10% Newly acquired or incorporated entity, so a relative comparison is not possible H 230% 284% 34% 34% 6% -65% -31% 46% I -78% 15% -8% -14% -13% -14% -15% -5% 9% -16% 2% J -7% 32% 89% 36% 94% 58% 69% K -26% -29% 27% 43% -13% 13% 3% 14% 14% 13% 10% 1% L 0% 3% 3% 0% 16% 14% 16% 8% -3% M 11% 0% 7% 11% 9% 9% 9% 5% 0% -1% 7% N 6% 14% -4% 5% 7% 8% 3% 4% 2% -1% 0% O 1% 45% -12% 12% 46% 53% 27% -13% P 0% -30% 14% -16% -22% -23% -14% -14% -7% 0% Q 22% -14% -17% -4% -15% -11% -2% -4% 14% 5% R 0% -21% 5% -11% 8% -4% -1% -3% 7% 8% -4% 7% S -3% 49% 201% 33% T 172% 198% 102% -62% -35% 6% 169% 1% 10% 12% 17% 25% 27% 5% -20% U -9% 6% 8% 3% -4% 3% 8% -9% -11% V -2% -1% 5% -4% 4% 1% 1% 3% 5% -4% -17% 1% W 0% -2% -10% 4% -4% -1% 5% -8% -15% X 0% -1% 45% Y 24% -16% 2% -2% -32% 8% 6% -33% -1% -24% 9% 3% 1% 4% 4% 5% 6% 15% Z 8% T © OECD 2017 HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN -COUNTRY REPORTING - BY COUNTRY-

84 ANNEX 3 EXAMPLE USE OF A CBC REPORT FOR TAX R – 83 ISK ASSESSMENT T © OECD 2017 - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN EPORTING COUNTRY BY COUNTRY R

85 84 EXAMPLE USE OF A CBC REPORT FOR TAX R ISK ASSESSMENT – ANNEX 3 - -COUNTRY REPORTING - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017 BY COUNTRY-

86 ANNEX 3 EXAMPLE USE OF A CBC REPORT FOR TAX R – 85 ISK ASSESSMENT - HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN T © OECD 2017 EPORTING COUNTRY BY COUNTRY R

87 86 ISK ASSESSMENT EXAMPLE USE OF A CBC REPORT FOR TAX R – ANNEX 3 - T © OECD 2017 HANDBOOK ON EFFECTIVE TAX RISK ASSESSMEN BY COUNTRY- -COUNTRY REPORTING -

88 • • • • • •

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