In this Edition: Country-by-Country Reporting is Formally Introduced in France.
France and Australia Provide Country-by-Country Reporting Updates
Country-by-Country Reporting is Formally Introduced in France
Enacted on December 29, 2015, the Finance Act for 2016 introduces country-by-country (CbC) reporting for fiscal years commencing on or after January 1, 2016, for multinational groups which meet the following four conditions:
The legislation further provides that:
It should be noted that a proposal to make certain elements of CBC information publicly available was abandoned by the government late in the legislative process.
At the time of this publication, the detailed implementation decree for this measure has not been issued but, based on the legislation, the specific requirements in France for CbC are likely to be a direct reflection of the OECD BEPS Action Item 13. More information will be provided as it becomes available.
Effective, January 1, 2016, Form 2257-SD is a complement to CbC reporting and requires certain disclosures at the time returns are filed (See Transfer Pricing Times Vol.11 Issue 8). Duff & Phelps English-language translation of Form 2257-SD, and accompanying commentaries.
Additional Clarity on Australian Country-by-Country Reporting
On December 17, 2015, the Australian Taxation Office (ATO) released guidance (Law Companion Guidelines 2015/3) on the newly enacted Subdivision 815-E of the Income Tax Assessment Act 1997, with specific guidance on CbC reporting and the corresponding transfer pricing Master File and Local File documentation. Multinational groups with annual global income exceeding AUD 1 billion are required to comply unless exempted by written notice or legislative provisions.
The new rules apply to income years commencing on or after January 1, 2016. Qualifying companies in Australia must file all statements (i.e., Master File, Local File, CbC report, collectively, the "required statements") for each fiscal period. An Australian subsidiary or permanent establishment may apply for an exemption to file one or more of the required statements. Factors considered by the ATO on whether or not to grant an exemption will be the entity’s risk profile, the compliance burden on the entity, and whether the ATO may receive the information through alternate means.
Further guidance will be issued by the ATO on specific classes of entities that may receive exemptions from certain of these provisions and requirements. Taxpayers should not expect exemptions in regards to CbC provisions solely because the taxpayer has an Advanced Pricing Arrangement or Annual Compliance Arrangement covering some or all of its cross border controlled transactions within Australia. Where more than one entity within a consolidated group is subject to the Australian CbC regime, only one entity may be required by the ATO to submit the required statements, as nominated by the taxpayer. It is estimated that over 1,000 multinational entities may be affected by these rules.
The ATO has signaled a potential difference of approach in respect of the Local File “approved form” as compared to Annex 2 to the OECD’s BEPS Action 13 report (Chapter V of the OECD Guidelines). Specifically, the ATO has identified that different entities may be permitted to submit differentiated Local Files:
The ATO has noted that an entity’s risk profile, turnover, and controlled transactions and arrangements will be key considerations in determining the type of Local File required to be prepared and submitted. The different types of Local File appear to reflect the ATO’s attempt to develop a practical application of the OECD’s guidance on materiality of transactions. Further guidance is expected in the next year.
The ATO Categorizes Multinationals’ Avoidance Risk Profiles – Where Will You Fit?
On January 12, 2016, the ATO also released a 'Client Experience Roadmap' designed to assist taxpayers in the initial period of the new Multinational Anti-Avoidance Legislation (MAAL), with a view towards resolving related taxation issues. Principally, the ATO has proposed the creation of five categories of taxpayers in regard to this transitional period, in order to address legacy and forward-looking transfer pricing areas of risk:
The above categories of taxpayers correspond to the compliance required. The ATO expects taxpayers and advisors to engage early to discuss how and if the MAAL applies to a taxpayer’s existing situation. Further, we would strongly recommend that companies under ATO review or audit consider this roadmap closely.
Overall, the ATO's recent guidance in regards to CbC reporting and the MAAL appears to have clarified some of the questions and concerns of taxpayers, and acknowledges the potential duplication of documentation and reporting requirements that have been imposed on multinationals, with a view towards considering this further in future guidance.
Update from Hong Kong
On December 4, 2015 a bill was introduced to the Hong Kong Legislative Council that would amend the Inland Revenue Ordinance and, if enacted, would:
Details of the bill are still being ironed out; the changes may be effective from April 1, 2016. For more information, a copy of the bill (Inland Revenue (Amendment) (No. 4) Bill 2015) is available here.
FASB Proposes Draft on Accounting for Government Assistance
On November 12, 2015, the Financial Accounting Standards Board (FASB) proposed an update regarding Topic 832, Government Assistance, intending to increase the transparency of government assistance arrangements. The existing generally accepted accounting principles (GAAP) do not provide guidelines for the recognition, measurement, and disclosure of such assistance. The amendments proposed by FASB are consistent with and expand upon International Financial Reporting Standards (IFRS) International Accounting Standard 20 (IAS 20), Accounting for Government Grants and Disclosure of Government Assistance, which provides guidance on recognition and measurement of government grants only, and not other forms of government assistance.
The proposed FASB amendments would require disclosures about government assistance in the notes to the financial statements. All entities, excluding not-for-profit, that enter into a legally enforceable agreement with a government to receive value must disclose:
The scope of the proposed amendments does not apply if the government is either legally required to provide a nondiscretionary level of assistance or is solely a customer of the business entity.
The Board is soliciting public comment on the proposed update until February 10, 2016.
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