In Focus

Introduction of mandatory automatic exchange within the EU of country-by-country reports (standardised forms) regarding transfer pricing of large corporate groups / Changes in the OECD Transfer Pricing Guidelines

June 16, 2016

Council Directive (EU) 2016/881 of 25 May 2016 amending Council Directive 2011/16/EU of 15 February 2016 on administrative cooperation in the field of taxation (known as ‘DAC”) is published in the EU Official Journal (L 146) of 3 June 2016.

The amendments bring within the scope of mandatory exchange of information among tax administrations in the EU standardised forms named ‘country-by-country reports’ on financial indicators and non-financial information about the activities of large multinational groups of enterprises (MNE groups). These are aimed to give the administrations data for high-level assessment of transfer pricing risks and other risks related to base erosion and profit shifting.

The obligation to submit the new types of reports concerns large MNE groups, i.e. each corporate group carrying out activities in the EU (through a company or a permanent establishment) and having annual consolidated revenues of not less than EUR 750 million (or an approximately equivalent amount in local currency).

The reports comprise of three standardised forms (tables) requiring that data, by jurisdiction of activity of the MNE group, be completed on:

• amount of revenues, including from related and unrelated parties;

• profit before income tax;

• income tax paid;

• income tax accrued;

• stated capital;

• accumulated earnings;

• number of employees;

• tangible assets other than cash and cash equivalents;

• a list of all constituent entities of the MNE group by stating the jurisdiction of organisation or incorporation and the jurisdiction where the entity is tax resident, as well as the main business activity(ies) / functions within the MNE group (e.g. purchasing or procurement, production, etc.);

• clarifications – upon discretion of the MNE.

The reports shall be submitted to one tax administration which shall then exchange them with the rest interested states. The filing obligation lies with the ultimate parent company of the MNE group or a surrogate parent determined according to specific provisions of the Directive.

The first year for which the said reports shall be exchanged is 2016. Member states shall amend accordingly their domestic legislations by 4 June 2017.

The adoption of Directive (ЕС) 2016/881 with the DAC respective amendments are the result of the work on Action 13 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The standardised forms under the Directive are part of the Action 13 Final Report ‘Transfer Pricing Documentation and Country-by-Country Reporting’ under the said OECD/G20 Project. The same Final Report shall be used by the EU member states in implementing the Directive. Besides, the said Final Report sets out the new Chapter V ‘Documentation’ of the OECD Transfer Pricing Guidelines, introducing the three-tiered approach to transfer pricing documentation: a master file, a local file and the above discussed country-by-country reports. It contains also a Country-by-Country Reporting Implementation Package (Annex IV) to facilitate adoption of the country-by-country reports and their exchange, which was agreed as a minimum standard for the BEPS participating jurisdictions, including Bulgaria.

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