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07.09.2017 02:49 Age: 2 days

Tax authorities forbidden to misuse country-by-country reports

The Organisation for Economic Co-operation and Development (OECD) has issued a new 'appropriate use' rule restricting tax authorities' use of the country-by-country (CbC) reports soon to be filed by multinational companies.

The rule instructs national tax authorities not to use the information for anything other than assessing high-level transfer pricing, or risks related to tax base erosion and profit shifting (BEPS), or economic and statistical analysis.

Country-by-country reporting is part of the OECD's BEPS project to prevent multinationals avoiding corporation tax by moving reported profits from one jurisdiction to another. Their purpose is to indicate to tax administrations whether a multinational operating in their country is avoiding tax. Initially it was suggested that the reports would be made available to the public, but several jurisdictions objected to this on the basis of commercial confidentiality. This led to the circulation of CbC reports being restricted to tax authorities (except in jurisdictions that decide otherwise).

Nevertheless, multinational companies fear that tax officials will use the reports for purposes not intended by the OECD - for example, to form a basis for the tax authority to propose changes to transfer prices. The new appropriate use rule is intended to reassure them that this will not happen: 'The information in the Country-by-Country Report should not be used as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a fully functional analysis and a full comparability analysis. The information in the Country-by-Country Report on its own does not constitute conclusive evidence that transfer prices are or are not appropriate. It should not be used by tax administrations to propose transfer pricing adjustments based on a global formulary apportionment of income.'

A tax authority that breaches the rule will automatically have to retract its tax assessment if challenged by the company concerned: 'If such adjustments based on Country-by-Country Report data are made by the local tax administration of the jurisdiction, the jurisdiction's competent authority will promptly concede the adjustment in any relevant competent authority proceeding'.

A transgressing tax authority might also be temporarily barred from exchange of country-by-country reports with other countries, says the OECD guidance.


Tax authorities forbidden to misuse country-by-country reports