Financial Services Ireland


Are you ready for country by country reporting?

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Action 13 of the BEPS project is the item around which the broadest and quickest government consensus was reached. It is not surprising given the exclusive focus on transparency and the fact that it does not (directly, at least) impact the overall taxes paid by an enterprise in any one location. Ireland was one of the early adopters of Action 13.

Two of the key elements are the tangible outcomes of Action 13 – Country by Country Reporting (CbCR) and the Transfer Pricing Master File. On January 1 2016, local file reporting requirements came into effect for Irish entities. Being an early adopter brings challenges as well as opportunities for Ireland’s financial services industry. In line with Organisation for Economic Co-operation and Development (OECD) recommendations, no industry exemptions are included in Ireland’s CbCR regime. For the financial services industry this means that, investment funds and special purpose vehicles such as section 110 companies that are members of larger international groups and meet the specified thresholds (in particular group consolidated revenue in excess of €750 million) are in scope.

By 31 December 2016, the Revenue Commissioners must be notified of the status of your entity and the first CbC report must be filed by 31 December 2017 (i.e. 12 months after the end of the period to which the report relates). If the Irish entity is not the group’s reporting entity, the group must notify the Revenue Commissioners of the identity and jurisdiction of the reporting entity by 31 December 2016. As the decision to report status is required in 2016 for the Irish CbCR regime, it needs to be looked at on a group-wide basis before the end of 2016. Failure to comply with the relevant reporting deadline could trigger a penalty of €19,045 and in some cases a further penalty of €2,535 per day until the CbC report is submitted.  As the legislation allows for CbCR to be shared between tax authorities but not made public, entities need to consider how their CbC Report will look and whether it tallies with information already available to tax authorities, such as submitted returns, results of audits or investigations, transfer pricing agreements, etc. There is strong political support for making CbCR publically available in the future on a multilateral basis and it is likely that this will happen.

But is your organisation ready?

  • Have you considered the business risk associated with CbCR?
  • What is your global visibility into the financial data that will make up the CbCR?
  • Can you rely on local entities’ information?
  • If the Irish entity is not required to prepare a CbC report do you have visibility over what is included in the overall CbC report in connection with the Irish entity?

Systems readiness will be another challenge. There may also be requirements that data is verified or peer checked prior to submission to the authorities, creating an additional cost and compliance burden. And finally, some companies may find the data they are disclosing to the authorities may contain anomalies or require additional explanation (and documentation) when viewed through the tax authority lens.

There is no doubt that financial organisations will struggle with applying the definitions contained in the model legislation, as the definitions are not readily transferrable to financial organisations.

For example, how is the “Ultimate Parent” of a fund or a section 110 determined for CbCR purposes? A fund may be part of a “Group”, due to the ownership of its shares and may therefore be consolidated, particularly if it is owned by an insurance company, but may not prepare consolidated financial statements itself. Does this mean it is not part of a MNE Group? If not, does reporting take place at the fund level or at the parent level? Furthermore, a fund or a section 110 may have CbCR obligations where that fund or section 110 has a significant investor (whether direct or indirect) that has consolidated revenue of over €750 million.

Does “Revenue” for CbCR include income such as interest and dividends or does it include realised and unrealised gains and interest income? Should interest income be on a net or gross basis? The overarching theme, so far, is the multitude of questions, queries, inquiries and discussions, taking up valuable time and focus. Confusion and controversy will likely be driven by a lack of leadership in implementing CbCR, which will lead to further battles to carve up taxes.

As Ireland is an early adopter of the OECD’s CbCR legislation, and in the absence of further guidance from the OECD or other relevant organisations, it is an opportunity for the financial services industry here to shape how CbCR is adopted. EY is working with a number of clients to determine whether or not they are within the scope of the legislation. We are assisting with data extraction and consolidation and we are carrying out assessment reviews to identify potential data gaps and provide feedback on how the CbCR may be interpreted.

The intent of Action 13 is not to cause confusion and controversy, nor to place a CbCR filing obligation on entities that are not required to consolidate for financial accounting purposes. Likewise the intent would not be to create onerous work for tax authorities reconciling information due to differing basis of accounts preparation, etc.

In order to meet the Revenue’s notification requirements before 31 December 2016, the Irish entity regardless of whether it is top, middle or bottom in an international organisation needs to start considering CbCR now. Finally, we consider it critical for the Irish entity to ensure the information contained in its organisation’s CbC report is an accurate reflection of its business model and value chain.

This article was originally published in the July 2016 edition of Finance Dublin

Sinéad Colreavy

FS Partner, Tax and EY FS Ireland People Partner
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