A recent BusinessWorld publication highlights the Philippines’ progress in implementing Country-by-Country reporting (CbCR), a key tool of the OECD’s BEPS Action Plan to improve international tax transparency.
What Is CbCR?
CbCR belongs to the OECD’s three-tier Transfer Pricing documentation approach, along with the Master and Local Files. It mainly aims to provide tax authorities with an overview of the distribution of revenues, profits, taxes paid, and business activities of a multinational group among the jurisdictions where it operates.
This report is mandatory for multinational companies with consolidated annual revenues of at least €750 million or its equivalent in local currency. Although it is not usually public, tax administrations exchange it under international agreements.
CbCR Structure
According to the OECD guidelines, the CbC reporting consists of three main tables:
- Table 1: presents aggregate financial and tax information of the group by jurisdiction, including revenue, pre-tax profits, taxes paid and accrued, declared capital, retained earnings, employee number, and tangible assets other than cash or cash equivalents.
- Table 2: lists all group entities, their tax residence jurisdiction, and the principal business activities carried out in each jurisdiction.
- Table 3: enables the group to provide additional explanations necessary to understand the information in Tables 1 and 2.
Situation in the Philippines
Although the Philippines joined the OECD’s BEPS Inclusive Framework more than a year ago, it has not yet formalized its alignment completely with some requirements of the BEPS package, including the CbCR. Currently, the CbCR is not formally required from ultimate parent entities (UPEs) headquartered in the Philippines.
Conversely, the Bureau of Internal Revenue (BIR) requires the filing of Form No. 1709, an Information Statement on Related Party Transactions. This form, which is mandatory for Philippine taxpayers with related-party transactions that meet specific criteria, includes detailed entity-level disclosures about each related party, the nature and value of their transactions, and other relevant corporate information.
Implications for Latin America
The Philippine experience reflects the challenges and opportunities facing developing countries in implementing the BEPS recommendations. Latin American countries, such as Peru, must monitor these developments and consider adopting similar measures to strengthen tax transparency and fight base erosion and profit shifting.
The CbCR application within the Transfer Pricing regulations for the Philippines ensures significant progress in tax matters and areas such as competitiveness, transparency, and credibility at the country level.
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Source: BWorldOnline