Country-by-Country Reporting (CbCR): What You Need to Know

Introduced as part of the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13, CbCR provides tax authorities with a high-level overview of where MNEs generate profits and pay taxes. 

This article explores the essentials of CbCR, who needs to comply, and best practices for accurate reporting. 

 

What is Country-by-Country Reporting (CbCR)? 

CbCR requires large MNEs to disclose key financial data for each jurisdiction in which they operate. The purpose is to help tax authorities detect profit shifting and assess transfer pricing risks more effectively. 

Key elements of a CbCR report include: 

• Revenue and profits: A breakdown of revenue from both related and unrelated parties, as well as pre-tax profits. 
• Income tax paid and accrued: Disclosure of cash taxes paid and accrued taxes per jurisdiction. 
• Employees and assets: The number of employees and tangible assets in each country. 
• Activities per jurisdiction: The nature of business activities conducted in each tax jurisdiction. 

 

Who Needs to Comply with CbCR? 

CbCR applies to MNE groups with consolidated group revenue exceeding ,  €750 million. The report is  filed with the ultimate parent entity’s tax authority and is automatically exchanged with other jurisdictions through international agreements. 

 

Why is CbCR Important? 

• Increased tax transparency: Helps tax authorities identify potential transfer pricing risks. 
• Audit risk assessment: MNEs with significant profits in low-tax jurisdictions may face increased scrutiny. 
• Global compliance: Ensures that tax authorities worldwide have access to structured financial data for assessment purposes. 

 
Key Challenges in CbCR Compliance 

Preparing an accurate CbCR report presents several challenges, including: 

• Data consistency: Ensuring that figures reported in CbCR align with other transfer pricing documentation (Master File, Local File, and financial statements). 
• Interpretation of reporting categories: Defining revenue sources and taxable profits consistently across jurisdictions. 
• Managing multiple tax authorities: Different countries may have varying expectations regarding CbCR disclosure. 

 

Best Practices for CbCR Compliance 

To ensure accurate and efficient compliance, MNEs should adopt the following practices: 

1. Standardise reporting methods Use a structured approach to compile financial data across jurisdictions, ensuring consistency with the Master File and Local File. 
2. Centralise data collection Establish clear processes for gathering information from different entities within the group, reducing discrepancies and errors. 
3. Regularly review data Conduct periodic internal audits to ensure all reported information is accurate and aligned with other tax filings. 
4. Engage with tax advisors Work with professionals to address complex reporting issues and ensure compliance with local requirements. 
5. Monitor regulatory changes Stay updated on evolving CbCR requirements in different jurisdictions to ensure full compliance. 

 

Common Mistakes to Avoid

• Inconsistent data across documents: Differences between the CbCR, Master File, and Local File can raise red flags. 
• Lack of supporting explanations: Failing to provide context for data variations can lead to unnecessary scrutiny. 
• Overlooking filing deadlines: Different jurisdictions have different timelines, making compliance coordination essential. 

 
Conclusion 

Country-by-Country Reporting plays a vital role in enhancing tax transparency and ensuring transfer pricing compliance. By implementing robust reporting processes, MNEs can mitigate risks and demonstrate alignment with global tax requirements. 
 

How We Can Help 

At BDO Malta, we assist multinational enterprises in preparing and reviewing CbCR reports, ensuring alignment with OECD standards and local tax regulations. Contact us to learn how we can support your organisation in meeting CbCR compliance requirements. 

 

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