In an international context marked by tax cooperation and the need to prevent tax base erosion, the Country-by-Country Report (CbCR) has become a key tool in the global tax system. Developed within the framework of Action 13 of the BEPS Plan of the Organization for Economic Cooperation and Development (OECD), this report aims to provide tax administrations with a clear and standardized view of how multinational groups allocate their income, profits, and taxes across different jurisdictions.
Beyond a formal requirement, the CbCR helps authorities identify Transfer Pricing risks, spot discrepancies in profit allocation, and improve tax fairness among countries.
Rationale and Objectives of the CbCR
The Country-by-Country Report (CbCR) was introduced by Action 13 of the OECD and G20 BEPS Project to enhance international tax transparency and tax administrations against risks of base erosion and profit shifting.
The CbCR aims to provide a comprehensive and standardized overview of the global distribution of income, profits, taxes paid, and economic activities of multinational enterprises (MNEs), which identify whether the reported profits correspond to the economic substance and functions performed in each jurisdiction.
Its main objectives include:
- Assessing the risks of aggressive tax planning by detecting possible misalignments between profits and actual economic presence.
- Promoting international cooperation through the automatic and confidential information exchange among participating tax administrations.
- Encouraging transparency and accountability by clarifying how multinational groups distribute their value and tax burden across different jurisdictions.
- Aligning taxable profits with value creation, ensuring taxation occurs where economic activities are actually carried out, and business risks are assumed.
Likewise, the CbCR is part of a tiered documentation system established by the OECD, along with the Master and Local Files. Together, these three levels of information enable administrations to carry out a comprehensive Transfer Pricing risk analysis based on both quantitative and qualitative data.
Application Scope and Threshold
The Country-by-Country Report (CbCR) must be filed by multinational groups whose consolidated annual turnover exceeds €750 million (or the equivalent in local currency) during the previous fiscal year. This OECD threshold focuses the obligation on conglomerates with greater economic capacity and international presence, which account for the highest percentage of cross-border flows and, therefore, the considerable potential risk of tax base erosion.
The report is filed annually to the local tax administration where the ultimate parent entity of the group is located, which is responsible for gathering information from all affiliated entities. When the parent company is located in a jurisdiction that does not participate in the automatic information exchange, or that does not guarantee the confidentiality or appropriate use of the data, affiliates should file the report in their own jurisdiction through secondary or substitute filing mechanisms.
The scope of the CbCR is truly global: Over a hundred countries have adhered to the Inclusive Framework on BEPS, committing to implement the minimum standard of Action 13 and to exchange reports automatically under multilateral agreements. This international cooperation system has enabled tax administrations to obtain a comprehensive view of the economic activity of multinational groups, strengthening the early detection of tax risks and promoting fairer competition among jurisdictions.
Structure and Content of the Report
The Country-by-Country Report (CbCR) employs a standardized format defined by the OECD to ensure international comparability and consistency of data. It consists of three main tables, each focusing on a key aspect of tax analysis.
Table I – Financial information by jurisdiction: It includes total income, pre-tax profits, taxes paid and accrued, capital, retained earnings, number of employees, and tangible assets. This data identifies potential discrepancies between profits and economic substance, highlighting risks of profit shifting.
Table II – Constituent entities: It lists all entities in the group, their country of tax residence, and the nature of their main activities. This document provides a clear overview of the group’s operating model, detailing the distribution of its functions and risks.
Table III – Additional information: It includes explanations or notes that contextualize the financial data, such as restructuring or extraordinary events, which facilitate the interpretation of the report and reduce potential erroneous analyses by authorities.
Together, the CbCR format provides tax administrations with an evident and verifiable overview of the multinational group’s economic activity, which is essential for assessing Transfer Pricing risks and tax consistency.
Use by Tax Administrations
The CbCR is not used for direct Transfer Pricing adjustments, but as a risk assessment tool. According to the OECD, the report allows authorities to identify:
- Jurisdictions where profits are disproportionately concentrated compared to the economic activity.
- Possible discrepancies between reported profits and the number of employees or assets used.
- Business structures that could lead to tax base erosion.
Thanks to the automatic information exchange, countries can compare CbCR data with other reports, strengthening international tax consistency.
Challenges and Best Practices for Implementation
The preparation of the Country-by-Country Report (CbCR) involves various technical and organizational challenges for multinational groups. Among the most relevant is the consolidation of global information, which requires integrating financial data from different jurisdictions and accounting systems, thus ensuring uniformity and accuracy.
Another relevant challenge is maintaining consistency with other Transfer Pricing reports, such as the master and the local files. Differences between these documents may give rise to audit risks and questions from tax authorities.
Likewise, the management of sensitive data requires special attention, as the CbCR, although confidential, contains strategic information reflecting the group’s operational and financial structure.
To address these challenges, the OECD recommends establishing solid internal controls, assigning specialized teams to gather and validate data, and doing technical reviews before filing the report to ensure consistency and accuracy across all jurisdictions involved.
Impact and Outlook
The CbCR has consolidated its position as a pillar of global tax transparency. Its implementation has improved the detection of Transfer Pricing risks and strengthened cooperation among countries. In addition, the information obtained has served as the basis for the development of complementary initiatives, such as the Global Minimum Tax (Pillar Two), which aims to ensure a minimum taxation of 15% on the profits of multinationals.
In the future, the CbCR standard may evolve to provide greater data granularity, potentially leading some countries to adopt public versions of the report due to demands for corporate social responsibility and tax transparency.
Conclusion
The Country-by-Country Report (CbCR) is one of the most crucial instruments for balancing the international tax system. Its correct implementation strengthens trust between taxpayers and authorities, ensures documentary consistency, and reduces the risks arising from ambiguous tax structures.
In this context, multinational companies should consider the CbCR not only as a formal obligation but also as a strategic tool to demonstrate compliance, transparency, and global fiscal responsibility.
International Transfer Pricing and BEPS Compliance Advisory Services
At TPC Group, we provide comprehensive advisory services on Transfer Pricing, tax planning, and compliance with international standards, including the implementation and review of the Country-by-Country Report (CbCR). Our multidisciplinary team combines technical expertise, regulatory knowledge, and a strategic approach focused on transparency and tax efficiency.
Operating in Latin America, the United States, and Spain, we support multinational groups and local companies in preparing technical documentation, risk analysis, and master and local files, in addition to aligning Transfer Pricing policies with OECD guidelines and BEPS frameworks.
Source: OECD