Need for Increased Understanding of Multinational Corporate Structures Leads to Electronic Country-by-Country Reporting

In order to increase understanding of the ways in which multinational corporations structure their operations, the Organization for Economic Co-Operation and Development (OECD) will require jurisdictions to exchange such information in a standardized format beginning in 2018.  Specifically, multinational corporations must report revenue, profit or loss, capital and accumulated earnings, and number of employees for each country in which they operate.  Each jurisdiction’s tax administration uses these reports to identify the bases of economic activity for each of these companies, with the goal being to limit tax base erosion and profit shifting.  The tax administrations then exchange the reports, a process that the OECD hopes to streamline through use of this standardized format.

The new reporting template, named the “CbC XML Schema,” applies to corporations with annual consolidated revenue of at least €750 million (US$842 million) in the immediately preceding fiscal year.  The template will apply to all countries that have adopted the multilateral competent authority agreement (MCAA) on the exchange of country-by-country reports, which currently includes thirty-two countries.  Notably, the United States has not signed the agreement, but it intends to implement country-by-country reporting through bilateral agreements.  Although the primary purpose of the reports will be inter-jurisdictional, corporations may also rely on the report for domestic reporting purposes, so long as the report is mandated domestically.