E-invoicing requirements in Latin America began as a way for individual countries to track tax obligations within their own borders, but now efforts are underway to prevent tax evasion on a more comprehensive, global basis. Not only are similar e-invoicing mandates popping up worldwide, in places like Indonesia and Vietnam, but countries are also examining ways to increase visibility into all of the transactions companies conduct – not just locally, but cross-border and worldwide.
Late last year, we discussed how Latin America is examining regional cross-border reporting requirements as a way to close loopholes that prevent tax authorities from accessing transactions that take place outside of their jurisdictions. Now, these efforts are going global, as country-by-country reporting provides tax authorities added transparency as they share key information.
Country-by-country (CbC) reporting is a global effort to ensure that companies pay taxes where they conduct business, and don’t transfer their cash to countries with lower tax rates or manipulate earnings through transfer pricing. Globally, such practices equate to lost tax revenues of $100 billion to $240 billion annually, according to a report by the Organisation for Economic Co‑operation and Development (OECD)/G20. At the request of global governments, the OECD has developed a CbC reporting template that provides a clear view of profits, sales, assets and taxes paid with each country in which a company operates.Called “the most significant transnational effort in the history of international taxation” by the Tax Foundation, the OECD’s Action Plan on Base Erosion and Profit Shifting encompasses country-by-country reporting, requiring multinational companies to provide the following information for each tax jurisdiction it, or any of its subsidiaries, operates:
- Revenues (broken down by external and internal transactions)
- Profit or loss before taxes
- Taxes paid
- Taxes accrued
- Stated capital
- Retained earnings
- Number of employees
- Tangible assets
- Each legal entity it owns/operates
The first round of reports is expected to be due in 2017 for the 2016 tax year, and will be filed in the parent company’s jurisdiction and shared with the other countries in which it operates.
These detailed data requirements will no doubt be cumbersome for many companies to collect at the level that the CbC reporting template requires, but as countries across the globe announce measures to cut down on tax fraud, companies need to be prepared for this increasingly global wave of visibility.