Country-by-Country Reporting: Challenges and Considerations

By Shawn Felt, CPA, and Adam Hales, CPA, Washington

Editor: Annette B. Smith, CPA

Foreign Income & Taxpayers

Over the past several years, the global regulatory environment has become more demanding for multinational enterprises (MNEs). In an effort to create greater transparency, many tax authorities now require MNEs to report more detailed information with respect to income taxes paid. The result has been a substantial increase in the costs of tax compliance for businesses and information overload for tax authorities.

Seeking to standardize information reporting on the global allocation of profits and taxes paid, the Organisation for Economic Co-operation and Development (OECD), at the request of the G20, has developed a common draft template for country-by-country reporting as part of its overall base erosion and profit-shifting (BEPS) action plan. Released as part of the OECD's Discussion Draft on Transfer Pricing Documentation and CbC Reporting , the proposed country-by-country reporting template is a 19-column worksheet for MNEs to report income, taxes, and business activities on country-by-country and entity-by-entity levels. Recent commentary suggests that the final template may require less data than originally proposed, thus reducing the size of the current 19-column worksheet.

The primary purpose of the country-by-country reporting template, according to the OECD, would be to provide tax authorities with information deemed necessary to conduct a high-level risk assessment while balancing compliance costs for MNEs. However, the proposed country-by-country reporting template requests a broad range of information covering financial metrics such as revenue and earnings before income tax, along with other economic data such as the number of employees.

The OECD discussion draft generated extensive commentary from the business community, as evidenced by the more than 1,100 pages of comments the OECD received during a 24-day comment period in February. The comment letters generally expressed common concerns among the multinational business community that the country-by-country reporting template, as proposed, is far too exhaustive and would continue, rather than reverse, the trend toward increased compliance costs for MNEs and information overload for tax authorities.

Various comment letters from businesses expressed support for greater transparency but stated that such initiatives must be balanced by removing costly compliance burdens that no longer are providing tax authorities with useful information. While the OECD continues to analyze the feedback received from the business community, two conclusions seem apparent when it comes to country-by-country reporting: (1) The global pressure for increased transparency by MNEs makes country-by-country reporting likely in the near future, and (2) country-by-country reporting, if adopted by countries in its current form, will materially increase the tax compliance burden of MNEs. As a result, MNEs should begin to assess the potential challenges that country-by-country reporting could present for their organizations so they can adapt quickly to any future reporting obligations.

Specifically, MNEs should begin to evaluate their adequacy of internal controls and processes regarding statutory accounting. Generally, statutory accounting processes may be decentralized, with the responsibility being primarily with local management. If statutory financial statement data ultimately is a component of the final country-by-country reporting template—as proposed in the discussion draft—MNEs would need to put processes in place for accumulating the information required.

MNEs also should evaluate their investments in data collection technology. Many MNEs have made significant investments in recent years in such technology that could be leveraged to obtain the information required to complete a country-by-country reporting template. If current enterprise resource planning (ERP) systems are not able to obtain the level of detail needed to complete a country-by-country reporting template, then tax departments, working with information technology personnel, should begin to identify and develop a plan for addressing those gaps. If upgrades to the ERP system are needed, identification of existing gaps in reporting early in the process is crucial to putting the necessary information technology changes in place before a country-by-country reporting obligation arises.

Further, MNEs should evaluate the internal resources required to complete the country-by-country reporting template. For tax departments that have undergone budget cuts, country-by-country reporting would place additional strain on the resources currently available. While the goal would be to obtain as much information as possible through an ERP system, manual efforts may be required to comply with any future country-by-country reporting requirements. As a result, tax departments may want to begin communicating with internal stakeholders regarding the need for additional personnel and resources.

Many MNEs already have begun to consider statutory accounting processes and controls, data collection tools, and the internal resources that will be required to retrieve detailed financial and economic data for each entity on a country-by-country basis. One important item to note is that each incremental increase in compliance costs and time reduces the amount of time and resources available to develop strategy and make informed business decisions. While changes to the proposed country-by-country reporting template seem likely in response to business concerns about the compliance cost, tax departments need to be adaptable to an ever-changing operating environment and should consider developing a road map to address country-by-country reporting challenges.


Annette Smith is a partner with PricewaterhouseCoopers LLP, Washington National Tax Services, in Washington.

For additional information about these items, contact Ms. Smith at 202-414-1048 or

Unless otherwise noted, contributors are members of or associated with PricewaterhouseCoopers LLP.

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