Academic journal article Journal of Accountancy

Country-by-Country Reporting by Multinationals

Academic journal article Journal of Accountancy

Country-by-Country Reporting by Multinationals

Article excerpt

The Organisation for Economic Co-operation and Development (OECD) has recently been advocating for increased tax transparency and for international cooperation to prevent tax avoidance. One element of this international cooperation that the OECD would like to see implemented is country-by-country income and tax reporting by multinational corporations. Country-by-country reporting would be a boon for tax administrators, but it has the potential to be a compliance nightmare for companies.

The OECD's plan would require multinational companies to report both their income and the taxes they pay to the governments of each country in which they operate, thus allowing those countries to determine if the company has avoided paying taxes in any country in which it has economic activity. Last fall, the OECD issued a draft Memorandum on Transfer Pricing Documentation and Country by Country Reporting, which examined the issues that must be resolved to implement countryby-country income and tax reporting. The two big issues are: What information should companies be required to report? And how would reporting and data sharing work?

The memorandum examined several possible approaches to income reporting. These included:

* Using the financial statements of each legal entity in a multinational group to report the net income before tax for each entity in the group;

* Using tax returns filed in each jurisdiction as the basis for reported income;

* Using accounting segment reporting rules to calculate country-by-country income of a consolidated multinational group; or

* Using data from a company's internal consolidating income statements to determine each company's contribution to consolidated income. …

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