One of the actions published by the Organisation for Economic Co-operation and Development (OECD) as part of their plan to tackle Base Erosion and Profit Shifting (BEPS), introduces a new additional reporting requirement called country-by-country reporting (CbCR).
For those groups that meet the requirements, in addition to the financial information required, it is mandatory to provide employee information. Where groups have globally mobile employees, collating the employee data for each territory may be more complex than initially thought.
The first CbCR needs to be filed within 12 months of the end of the accounting period starting on or after 1 January 2016 and there may be work needed to prepare your organisation to meet the obligations.
This article summarises what employee information is required, what this means for globally mobile employees.
What employee information is required?
The OECD guidance is fairly broad on this matter. It states the reporting entity should report the total number of employees on a full-time equivalent (FTE) basis in all group entities. The number of employees may be reported as of the year-end, on the basis of average employment levels for the year, or on any other basis consistently applied across tax jurisdictions and from year to year. For this purpose, independent contractors participating in the ordinary operating activities of the entity may be reported as employees. Reasonable rounding or approximation of the number of employees is permissible, providing that such rounding or approximation does not materially distort the relative distribution of employees across the various territories.
What does this mean for globally mobile employees?
For companies who have globally mobile employees the question then becomes in which territory that employee should be reported. The answer will vary depending on the type of assignment, length of assignment, the employment contract of the individual or if a global employment company is used, for example.
Further consideration should be given to other employee information that is available to tax authorities. Considerations such as the numbers reported on short term business visitors agreements and through visa applications, as well as the correlation between the level of activities carried out in a territory compared to the level of profits. Tax authorities are looking for an overall picture of where people are versus where profits are booked,to understand whether taxing rights are aligned with where the substance of the business is.
Why should you think about this now?
There may be work needed to prepare your organisation to meet the obligations.
For instance:
- Do you know if and where you are required to file?
- Do you have suitable internal reporting tools/processes to allow you to capture the correct data.
- Have you thought about whether the current tracking solutions that you have are sufficient to identify where your globally mobile employees spend their time?
- Are you able to assess whether the activities that your mobile employees undertake in a particular territory form part of the ‘ordinary operating activities’ in that territory?
We would recommend that you undertake a dry run using existing data to identify any issues you may have in collating the information required.
Other tools and resources
Additional information on CbCR can be found here.
For further information, or to discuss, please contact Sarah Mullen or your usual PwC contact.