Action 13 of the OECD’s Base Erosion Profit Shifting ("BEPS") Action Plan mandates the development of rules to enhance transparency for tax administrations. As a result, the OECD established a new three-tiered approach for transfer pricing documentation including, among the master and local file, a Country-by-Country report (“CbC report”). Several jurisdictions have already taken required actions to ensure a timely implementation, regarding filing requirements and information exchange, for financial years (“FY”) starting 1 January 2016, putting pressure on multinationals to ensure information can be delivered (and justified) on time.

Despite the fact that Switzerland will implement the requirement for CbC reporting a year later, we would like to make companies aware of the fact that the OECD defined an alternative mechanism, which requires multinationals to submit the FY 2016 data in FY 2017 in another country that already implemented the necessary legal changes.

The CbC report is a new element of the documentation requirements defined by the OECD. Although documentation is designed to enhance transparency towards tax authorities and to allow them pursuing more efficient tax and transfer pricing audits, this new element appears to be of crucial importance. In essence, the CbC report provides an overview of key financial and tax figures on a country-by-country basis and allows tax authorities to perform a high-level computation of key ratios (e.g. taxes paid vs. staff base).

The OECD proposal will require large multinationals with consolidated group revenues of more than EUR 750 million to report several key indicators and statistics for each tax jurisdiction. Key indicators include revenue, EBT, income tax paid and headcount, allowing tax authorities to map economic activity and substance to reported revenue and tax payments.

The CbC reports need to be filed in the jurisdiction of the ultimate parent company, but should this country not require or allow the filing of a CbC report, then a designated entity in another country needs to file a report. The report will subsequently be exchanged among tax jurisdictions participating in the information exchange.

Switzerland has announced that the automatic exchange of CbC reports is one of several so-called “minimal standards” of the OECD that need to be complied with. A draft decree for creating a domestic legal basis for the automatic exchange of information in Switzerland has been submitted to parliament at the end of 2015 (for more details, please read our blog post dated 18 November 2015 on spontaneous exchange of tax rulings). In total approx. 50 jurisdictions have previously committed themselves to implement the new standards on the automatic information exchange for tax years 2016/2017 and another 50, including Switzerland, for tax years 2017/2018.

Country examples

Regarding filing requirements, the French National Assembly recently approved an amendment to the draft Finance Bill for 2016 implementing the CbC reporting requirement in France. Similarly, the IRS has recently issued proposed regulations that would require annual CbC report in the US. Australia, China Denmark, Ireland, Mexico, the Netherlands, Poland, Spain, South Africa and the UK have also advanced by introducing filing obligations and it can be expected that there are several more to follow.

Implementation of the CbC reporting in the different jurisdictions is still unclear. We can only hope that the guidance provided by the OECD will be followed, as differing content and filing thresholds may create an unreasonable level of administrative burden upon MNEs.

Swiss view

Switzerland will introduce the CbC reporting requirement in 2017 requiring MNEs to provide the first report in FY 2018. This however does not mean that large Swiss MNEs will get a free pass on the CbC report in FY 2017. This simply means that until Switzerland aligns local legislation with the new OECD suggestions, the CbC report covering FY 2016 data will need to be filed in another jurisdiction of the group that requires CbC reporting.

Based on our experience we strongly suggest MNEs to tackle the task in due course. What seems straightforward at first glance is often a far more complex task since data often is not available in the right format on a country-by-country basis.

Raoul Stocker - Partner, Overall Lead Business Model Optimization and Transfer Pricing

Raoul Stocker is a tax partner with more than 15 years’ experience specifically in international tax litigation such as mutual agreement procedures and advanced pricing agreements. His focus lies on corporate tax planning, cross-border structuring of corporate transactions and businesses, transfer pricing as well as taxation of financial institutions. Raoul is also a lecturer of transfer pricing and tax law at the University of St. Gallen.

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Hans-Rudolf Habermacher - Partner, Transfer Pricing Leader Switzerland

Hans Rudolf has over 13 years’ of experience in advising clients in Transfer Pricing concepts. He successfully engages with MNCs in various industries in the planning, implementation, documentation & defence of TP concepts. Further he has significant experience in the design and implementation of principal & licensing structures. He is also highly successful in filing and negotiating bilateral APA's (Advanced Pricing Agreements) and mitigating double taxation issues through MAP procedures.

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Markus Reese - Senior Manager, Tranfer Pricing

Markus is a Senior Manager  within the Transfer Pricing team of Deloitte in Switzerland. He has over 9 years of experience in advising multinationals on the set up of tax efficient and OECD transfer pricing compliant operational structures as well as on business model transformation. 

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Kayla Eberli - Consultant, Transfer Pricing

Kayla is working within the transfer pricing team of Deloitte in Switzerland. She has been involved in various transfer pricing and tax planning as well as compliance projects for Swiss headed and other multinational clients. She has also assisted projects concerning advance pricing agreements and mutual agreement procedures

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