In December 2016 we informed you in our News Flash about the expected implementation of the rules of the European Union for so-called “country-by-country reporting” (CbCR) for multinational groups with total consolidated group revenue reaching 750 million EUR or more. These rules were approved by the National Council of the Slovak Republic on 1 February 2017 within the Amendment to the Act on international assistance and cooperation in tax administration and will be effective as of 1 March 2017. The publication of these rules in the Collection of Laws of the Slovak Republic is expected in the following days. The rules are based on the OECD Model Legislation for CbCR, which is a part of the updated OECD Transfer Pricing Guidelines since 2015.
The respective rules bring new notification duties in the field of taxation for entities that belong to such multinational groups. The notification of the reporting entity that will file a country-by-country report should be done till the end of March 2017 – within the filing deadline for corporate income tax return. Otherwise there is a threat of penalty.
The aim of the CbCR rules
The rules for the CbCR shall help to tax authorities to expose potential transfer pricing risks, or any other risks resulting from tax base erosion and profit shifting. The CbCR will also be used for the purpose of economic and statistical analyses.
Who is affected by the CbCR rules
The CbCR rules are applicable to multinational groups with total consolidated group revenue reaching 750 million EUR or more, and obligate them to annually file a “Country-by-Country Report” with the tax administration.
The reports shall contain aggregate information based on a defined template about the amount of revenue, profit (loss) before income tax, income tax paid, income tax due, registered share capital, retained earnings, number of employees, tangible assets other than cash or cash equivalents with regard to each tax jurisdiction in which the multinational group operates; including the identification of each constituent entity of the multinational group (i.e. members of the group) and the nature of the main business activity of such constituent entity.
These data will be subject to the automatic data exchange between countries where the members of multinational companies are seated.
Which member of the multinational group is required to file a Country-by-Country Report, i.e. is the reporting entity
The filing of reports is obligatory for ultimate parent entities of the multinational groups with total consolidated group revenue reaching 750 million EUR. or more. In some cases this duty can apply to another member of the multinational group.
Under certain conditions the rules allow transferring of the report filing obligation from the ultimate parent entity to a surrogate parent entity.
The rules also define exceptions from the report filing obligation by the ultimate parent company, when a constituent entity which is not the ultimate parent entity of a multinational group shall file a report.
The reporting entity shall file the country-by-country report in the country of its tax residence. In the Slovak Republic only small number of reporting entities is expected.
The ultimate parent entities and surrogate parent entities are filing the report for the first time for the fiscal year of 2016. If the report is to be filed by other constituent entity, it shall be filed for the first time for the fiscal year of 2017.
Notification of the reporting entity
The CbCR rules also include the obligation to notify the tax administration of the reporting entity that willfile the country-by-country report.
This notification duty concerns in Slovakia every Slovak member of a multinational group with total consolidated group revenue reaching 750 million EUR or more. This notification duty concerns the foreign entities with a registered branch in Slovakia, as well.
In the notification, the company shall notify whether it is the ultimate parent entity or the surrogate parent entity or the constituent entity required to file the country-by-country report. If the company is none of these entities, it shall notify the Slovak Financial Directorate of the commercial name, registered office, ID number of the reporting entity, including of the tax residence of the reporting entity, and this at latest on the last day of the corporate income tax return filing deadline (i.e. till 31 March 2017 for the fiscal year 2016). For this notification there is no particular form provided.
For the purpose of this notification there is no defined template.
For failure to file the country-by-country report a penalty can be imposed by the tax authority up to 10 000 EUR.
For failure to notify the reporting entity a penalty can be imposed up to 3 000 EUR.
For carrying out the notification duty, we recommend you contacting your global tax team and confirm with them who will be the reporting entity (i.e. who will be filing the country-by-country report).
We also recommend paying higher attention to the matters of transfer pricing and to the documentation of applied transfer prices in transactions with related parties. In relation to this we would like to bring to your attention our latest eBook on Transfer pricing rules in Slovakia in 2017.