From the tax period that began on January 1st, 2016, companies are required to report on country-by-country related party transactions. This obligation does not affect a large number of companies, but it does represent an important procedure for those that must submit the Country by Country (CBC) report.

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What is CbC?

It is a regulation requiring multinational group companies to provide, each year and for each tax jurisdiction in which they operate, a series of data related to country-by-country reporting. This information includes, with respect to the tax period of the ultimate parent entity, in aggregate, for each country and in euros (or other official currency), the following concepts:

• Gross income of the group, distinguishing between income obtained from related parties and third parties.
• Results before income tax or similar taxes.
• Income tax or similar taxes, including withholding taxes suffered.
• Income tax or similar taxes, including withholding taxes.
• Amount of capital and other equity.
• Average number of employees.
• Tangible assets and real estate investments other than cash and receivables.
• List of resident entities and their main activities.
• Other relevant information and explanation of the provided data.

Who should submit CbC?

The Country-by-Country Reporting (CBC/DAC4) is mandatory mainly for all entities resident in signatory territories that have the status of ultimate parent of a group and are not, at the same time, dependent on another entity (resident or non-resident). Their combined turnover must be equal to or greater than €750 million in the 12 months preceding the start of the tax period.

There is another scenario where the submission of CbC is mandatory. Specifically, for dependent resident entities of a non-resident entity (which is not dependent on another entity) or permanent establishments of non-resident entities. Also, they must reach or exceed €750 million in turnover in the previous year before the tax period (or the equivalent in local currency).

What is CbC used for?

Its annual submission aims to enable the assessment of transfer pricing risk on a global basis to:

• Perform analysis of related party transaction risks.
• Facilitate the work of tax administrations.
• Assess risks related to the erosion of the tax base and the transfer of profits. To do so, obligated companies can submit Form 231 from the day following the end of the tax period to which the information to be provided refers until the following 12 months.

Entities required to submit CbC Report must identify themselves using an electronic certificate and make the submission electronically through web services. The format and design of country-by-country reporting messages are specified by each authority, which have introduced various changes since 2016.

We have enabled a system to perform this procedure in a simple way, adjusting the content to what is established by the official orders, which only requires filling in the requested data in the enabled cells.

As established by Public Administrations, the system sends the submission and receives the computer response message, which contains the list of accepted and rejected records, with the reason for non-acceptance if any.

In this second scenario, the program allows for necessary corrections to be made for a new submission, to cancel a previously made submission and resend it with the necessary changes. It also has a simulation environment to perform the relevant tests before sending in real.

Contact us to learn more.