Materials that accompany a UK draft law suggest that OECD/G20 base erosion profit shifting (BEPS) guidance will recommend that country-by-country reporting data be disseminated using a tax treaty mechanism, vastly limiting the scope of the reform, tax campaigners say.
The UK draft law, released December 10, enables HM Revenue & Customs (HMRC) to write regulations implementing OECD/G20 BEPS output on transfer pricing documentation and country-by-country reporting. The UK was the first nation to publicly commit to implement the new country-by-country template, which is a tool designed to help tax administrations identify MNEs that may have artificially reduced their taxable profit through transfer pricing or other practices.
A key issue that has yet to be resolved in the OECD work, though, is whether the master file and country-by-country report will be disseminated to tax administrations through tax treaty mechanisms, local filing, or through some other means.
Business reps have argued strenuously for a treaty-exchange mechanism where the country-by-country template and master file would be provided by a multinational to the tax authority of the group’s top holding company. That tax authority would then share the information with other countries through exchange of information provisions. MNEs argue that the data in the reports is sensitive and no other mechanism would protect against leaks to competitors
Tax campaigners, on the other hand, have countered that such a process would greatly reduce the number of countries that have access to the country-by-country reports and would disproportionally impact poor developing countries, the very nations most in need of the tool. Many of developing nations have no treaties or very few treaties and therefore would be unable to obtain the data, they say.
According to tax campaigners Joe Stead of Christian Aid and Richard Murphy of Tax Research UK, an analysis of materials associated with the new UK country-by-country proposal reveals that the OECD may have decided on a treaty exchange mechanism for dissemination of the data.
Impact notes associated with the UK legislation reveal that HMRC expects that if the UK legislation is passed it will have increased costs relating to responding to information exchange requests from tax authorities in other jurisdictions of £100,000 ($156,894) for 2017-18 and £200,000 ($313,923) annually thereafter, Murphy notes in a December 10 blog post.
The implication of this cost assessment is that HMRC expects the OECD to adopt a treaty mechanism for country-by-country reporting, Murphy wrote.
“If true, this is absurd and a straightforward insult to the integrity and expectations of the countries that will be impacted,” he wrote.
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