Do we actually have to file a country-by-country report?
It depends on the group's size and on the rules in the jurisdiction of the entity at the top of it, rather than on anything about your local company. So the question is answered upward, not locally: identify the ultimate parent, establish which jurisdiction's filing rules apply to it, and confirm what those rules require for a group of your consolidated size. Do that in writing and keep it, because a group that has grown across a threshold and not noticed usually discovers it through a notification requirement rather than through the report itself.
What information goes into a country-by-country report?
Revenue, profit, tax paid and tax accrued, capital, earnings, employees and tangible assets, all reported for each jurisdiction the group operates in. It is a template, which makes it comparable across groups and across years, and that is the feature to plan around. The columns most often filled from the wrong source are tax paid and tax accrued, which come from different places in the ledger and are not interchangeable. Decide where each figure will be drawn from before the first filing and document it, because the basis has to hold for later years too.
Does the parent file it or does each subsidiary?
It is filed once for the group and then exchanged between authorities, which is what makes local filing unnecessary in the ordinary case. The complication is that the exchange has to actually happen: where the parent's jurisdiction does not exchange with a country the group operates in, arrangements can put a filing obligation on an entity there instead. Local notification duties also tend to survive regardless of who files. So the mapping worth keeping is which entity files, which authorities receive it by exchange, and which local entities still have to say something themselves.
Will the tax authority compare our report with our local file?
That is what it is for. Because it is exchanged between authorities, an unexplained mismatch with a local file is discovered without an audit being opened first. The report says what profit and how many people are in a jurisdiction; the local file says what the entity there does and why its margin is what it is. If one says the local entity carries limited functions while the other books substantial profit there with very few people, the discrepancy is the enquiry. Read the two documents against each other before either is filed.
Does low tax in one country trigger an audit on its own?
The report is a template that invites comparison between where profit is booked and where people are, so a jurisdiction holding significant profit alongside few employees and little in the way of tangible assets will attract attention. Attention is not an assessment. Such a pattern can be entirely explicable — financing, a licensing structure, a holding entity — and the answer is that the explanation should exist in your documentation before anybody asks for it. What causes difficulty is a shape in the report that the group's own master file and local files do not account for.
Which employee number do we report for each country?
Pick a basis, apply it consistently and record what you picked. The figure can be taken on several defensible bases — headcount at year end, an average across the year, full-time equivalents — and the problem is never which one you chose, it is choosing differently in different jurisdictions or in different years. Because the report is read alongside earlier years and alongside the local files, an unexplained movement in employees invites the question. Document the basis and how contractors and part-time staff are treated, then use it again next year.
What is country-by-country reporting?
A report that the largest multinational groups file with their home authority, setting out revenue, profit, tax paid and accrued, capital, employees and tangible assets for every jurisdiction they operate in. It is exchanged between authorities and used for risk assessment, not to compute tax. Its effect on the ground is that inconsistency between the report, the local files and the statutory accounts is itself what draws attention. See our transfer pricing work.
What is the difference between a master file and a local file?
The master file describes the group as a whole — its structure, where value is created, how intangibles and financing are held. The local file covers one entity's own related-party transactions in detail, with the analysis supporting each price. Larger groups file both, plus country-by-country reporting above a size threshold, and the thresholds differ by country. See master file vs local file.
