Country-by-Country (CbC) reporting is an international initiative aimed at increasing transparency and promoting tax fairness. It requires multinational corporations (MNCs) to provide detailed information on their operations, profits, taxes paid, and employees in every country where they operate. Brazil has adopted CbC reporting as part of its tax policy, and this article will explain how it works in the country, including relevant laws and regulations and the data needed to understand the issue in Brazil.

Background on CbC Reporting

CbC reporting was developed as part of the Base Erosion and Profit Shifting (BEPS) project launched by the Organisation for Economic Cooperation and Development (OECD) in 2013. BEPS aims to curb tax avoidance by multinational corporations by promoting greater transparency in international tax matters. By requiring MNCs to report their profits, taxes, and employees in each country of operation, tax authorities can better assess whether these companies are paying their fair share of taxes.

CbC Reporting in Brazil

Brazil implemented CbC reporting as part of its tax legislation with the enactment of Normative Instruction (IN) No. 1,681 in 2016. The IN requires MNCs with consolidated gross revenue of BRL 2.26 billion or more to file a CbC report annually with the Brazilian Federal Revenue Service. The deadline for filing is the last business day of the sixth month following the end of the fiscal year.

The CbC report must be in the XML format and contain the following information:

• The MNC’s revenue, profits, taxes paid, and taxes accrued
• The number of employees, broken down by full-time equivalents and part-time employees
• The MNC’s tangible assets, broken down by category
• The countries where the MNC operates, including the business activities conducted in each country

The Brazilian tax authorities use the CbC report to assess whether MNCs are shifting profits to low-tax jurisdictions, as well as to identify potential transfer pricing issues. Transfer pricing rules ensure that prices charged by related parties are at arm’s length, meaning that they are similar to prices charged in transactions between unrelated parties. The CbC report provides authorities with insight into the operations of MNCs, enabling them to better understand the pricing of transactions between related parties.

Data on CbC Reporting in Brazil

The following data provides an overview of CbC reporting in Brazil:

• IN No. 1,681 came into effect in 2016
• The first CbC reports were due in 2018 for the 2017 fiscal year
• In 2019, 111 MNCs filed a CbC report with the Brazilian Federal Revenue Service
• The total revenue reported by these MNCs was BRL 2.2 trillion
• The total profit reported was BRL 235 billion
• The total number of employees reported was 1.7 million
• The total taxes paid and accrued was BRL 86 billion
• The industries with the highest revenue were manufacturing, finance and insurance, and wholesale and retail trade
• The industries with the highest profits were finance and insurance, mining, and manufacturing

Conclusion

CbC reporting is a crucial tool for promoting transparency and tax fairness in multinational corporations. Brazil has implemented CbC reporting as part of its tax policy, requiring MNCs to report their operations, taxes paid, and employees in every country where they operate. The information provided in the CbC report is used by the tax authorities to identify potential transfer pricing issues and ensure that MNCs are paying their fair share of taxes.