In this article we will share our experience and best practice when it comes to CbC reporting.
You are probably at the moment considering how to meet the CbC reporting requirements. You may already have compiled the CbC data and done a test run. Now you need to think of how the filing of the gathered information should be managed.
Many countries have already decided that filing should be made using the OECD XML schema format. The OECD has provided a detailed guide for creating the XML schema which must be followed. If your XML file is not set up properly your reporting will not meet the requirements for filing.
As responsible for CbC reporting, you need to have a clear picture of what the XML reporting should contain. This to ensure that you can compile all relevant information which should be included in the XML schema, and to be able to guide the IT specialists that support you in creating the XML file.
You need to ask yourself if you have all the required information to create the XML file. In this respect, you cannot simply complete table 1-3 and from that create an XML file. There are detailed instructions in the OECD guidelines which require you to consider a number of issues before the creation can begin. We have listed a few of these below.
- You need to consider how to sum up figures from your permanent establishments as some figures should be consolidated with the “parent” company and some not. For permanent establishments you will also need to consider the format for filing.
- You need to collect tax jurisdiction codes and TIN numbers for all entities.
- If you choose to report your local GAAP figures, you must collect currency rates and include these in table 3.
Not getting the above things right from the start will result in making the reporting process and the creation of the Excel file burdensome.
When you have compiled all the necessary information, you need to create an XML file. This work is most likely carried out together with an IT specialist, as the creation requires knowledge about programming. At the same time the IT specialist will have no knowledge of transfer pricing, which is why it is important that you take part in the creation process and sign off on the XML file. Below, we have listed some of the questions you need to consider.
- The XML file might need to have support for surrogate parent filing. You need to find out if this is applicable for your group and include this possibility when creating the XML file.
- Some of the information mentioned above, such as TIN numbers, will need to be included in the XML file using a special format.
- There is information which is optional to include in the XML file. You need to consider if the optional information is something you wish to include and decide the format for that.
When you have created your XML file, you will need a process for how to correct information in case you need to change, resend or delete data after the filing has been completed. There are rules for how corrections can be made which require your XML conversion process to e.g. include creation IDs and be able to refer to these IDs when correcting information.
It is important to file your XML schema with your tax authority well before the deadline. Should it not meet the standards you will then have time to work with your IT specialists to correct it and still meet the deadline when filing the updated file.
Do not forget to properly document the work you have done since you will need to repeat the process next year. The documentation is also important when you receive questions from different countries regarding previously filed figures.