Background
Due to the imminent implementation of public Country by Country Report (CbC) reporting, multinational companies must prepare for a new level of transparency in their Transfer Pricing reporting. This measure will provide authorities and the general public with important information on the allocation of income, taxes paid, and companies’ global operations.
Country-by-Country Report and Its Publication
The Country-by-Country Report is a tool for tax transparency for multinational companies, containing information on their presence and operations in different jurisdictions. This measure will allow governments to assess tax compliance, while the public will have access to information to understand the tax contributions of companies in each country.
Publication Effects on the Transfer Pricing Strategy
The publication of this report will affect the Transfer Pricing strategies of many companies, as greater price justification will now be required for intercompany transactions. Companies must ensure that their Transfer Pricing policies comply with the Arm’s Length Principle and are supportable for public and regulatory scrutiny.
Challenges for Multinational Companies
The mandatory Country-by-Country reporting presents challenges regarding transparency and reputation. Companies must be very cautious in structuring their transactions and Transfer Pricing documentation, as any inconsistencies or apparent tax minimization could be negatively perceived by the public and the authorities.
Preparation and Compliance Importance
In order to avoid reputational risks and potential penalties, multinationals must thoroughly review their Transfer Pricing policies. In addition, a specialized Transfer Pricing team is crucial to deal with this new regulation and ensure compliance with international tax regulations.
Conclusion
The Country-by-Country reporting marks a significant evolution in international taxation, requiring companies to be more transparent than ever before. Multinational companies must prepare for this new reality by reviewing their Transfer Pricing strategies and strengthening documentation processes.
Source: Mondaq
