Managing Country-by-Country Reporting (CbCR): Understanding Penalties and Non-Compliance Consequences.

The BEPS Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides templates for multinational enterprises (MNEs) to compile reports yearly and for each tax jurisdiction in which they do business. Such a report is called the Country-by-Country (CbC) Report. The BEPS Action 13 report includes a CbCR implementation package made up of: (i) model legislation that countries can use to require the ultimate parent entity of an MNE group to file the CbC report in its jurisdiction of residence — including backup filing requirements, and (ii) three model Competent Authority Agreements that can simplify the exchange of CbC reports, respectively based on the:

• Multilateral Convention on Administrative Assistance in Tax Matters
• Bilateral tax conventions
• Tax Information Exchange Agreements (TIEA)

Jurisdictions have made great efforts to establish the necessary domestic and international legal and administrative frameworks for the filing and exchange of CbC reports in accordance with Action 13 minimum standards. The global CbC reporting landscape for MNEs is still changing; this initial stage can be challenging for both tax administrations and MNE groups wanting to comply with CbCR. So the reporting mandate calls for a pragmatic approach that takes into account best efforts made to comply with CbC obligations. These challenges should decrease over time, as the reporting landscape settles a bit more, and both tax administrations and MNEs learn.

Penalties and impact of CbCR non-compliance

Imposing sanctions for non-compliance

Under the minimum standard, a jurisdiction is required to take measures to guarantee every company’s compliance with CbCR filing obligations. This can include the imposition of penalties for non-filing or late-filing of CbC reports, or for the filing of incomplete or inaccurate reports. The Action 13 Report (OECD, 2015) notes that many jurisdictions have adopted documentation related penalties to ensure the efficient operation of transfer pricing documentation and that penalty methods vary widely among jurisdictions. The report also notes, among other things, that:

• The penalty regimes may influence the quality of taxpayers’ compliance practices and could drive taxpayers to favour one jurisdiction over another
• In developing a penalty regime, a jurisdiction should take care not to impose a documentation-related penalty on a taxpayer for failing to submit data that an MNE did not have access to

Penalties for non-compliance

If a company required to file CbC report fails to do so by the due date, regulators may take the following actions:

• Impose a fine of up to $1,000
• Should this fine not be paid, the person responsible for the offence may be imprisoned for up to six months
• A fine of up to $50 may be imposed for every day during which the offence continues after conviction

A company which provides false or misleading CbC information may face the following consequences:

• A fine of up to $10,000 and/or
• Imprisonment up to two years for the person/s responsible

The need for a comprehensive BEPS solution

Spreadsheet-based software will not meet the specific needs that MNEs will have in meeting CbCR and notification requirements. Because there exist different rules for production and submission to each country, companies need a solution that can keep track of filing deadlines, and produce and file all reports and notifications for each country’s specific requirements.

With a global expertise of over 13 years in preparing compliance reports, we at DataTracks offer a simple solution to take care of all your CbC notification and reporting needs. To learn more about what we can do for you, email us at enquiry@datatracks.co.uk. Even if you just have a question about CbCR, we’d love to help you out!