The Organization for Economic Co-operation and Development (“OECD”) collaborates with governments to develop policy standards to promote sustainable economic growth. In this context, the OECD ramped up efforts to address challenges in response to growing public and political concerns about tax avoidance by large multinationals. The OECD and the Group of Twenty (“G20” countries) joined forces and developed an Action Plan to address base erosion and profit shifting (“BEPS”).
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T The OECD and the Group of Twenty (“G20” countries) joined forces and developed an Action Plan to address base erosion and profit shifting (“BEPS”). In this Action Plan 15 actions were identified. These actions have as objective the introduction of consistency in the domestic rules that affect cross-border activities, reinforcing substance requirements in the existing international standards, and improving transparency as well as certainty.
These 15 actions equip governments with the domestic and international instruments needed to tackle tax avoidance. Countries now have the tools to ensure that profit is taxed where economic activities generating the profit are performed and where value is created. These tools also give businesses greater certainty by reducing disputes over the application of international tax rules and standardising compliance requirements.
In this newsflash we will highlight Action 13 of the Action Plan. Under BEPS Action 13, all large multinational enterprises are required to prepare a Country-by-Country Report (“CbCR”) with aggregate data on the global allocation of income, profit, taxes paid and economic activity among all tax jurisdictions in which it operates. This CbCR should be provided to tax administrations in these jurisdictions. Subsequently the CbCR is used by the tax administrations for transfer pricing and BEPS risk assessments purposes. Information collected includes the amount of revenue reported, profit before income taxes, income tax paid and accrued, stated capita, accumulated earnings, number of employees and tangible assets.
As one of the four BEPS minimum standards, the CbCR requirements are subject to peer review to ensure timely and accurate implementation and safeguard the level playing field. In this context, the OECD recently released the outcomes of the fifth annual peer review of the implementation of BEPS Action 13 in various jurisdictions. Below we will focus on the comments and recommendation related to Aruba and Curaçao. We will additionally address the conditions regarding the master file and local file concerning Aruba and Curaçao.
2. Country-by-Country Reporting in Aruba
Please find below the key CbCR requirements for Aruba:
| The CbCR requirements for Aruba [1] | |
|---|---|
| First reporting fiscal year | Starting on or after January 1, 2019. |
| Consolidated group revenue threshold | AWG 1,500,000,000.- |
| Filing deadline | 12 months following the end of the reporting fiscal year. |
| Filing requirement | The requirement to file the CbCR in Aruba has been suspended. However, please note that based on a publication of the local Tax Authorities (“Departamento di Impuesto”), the latter only applies to a group entity established in Aruba that is not the ultimate parent entity. Thus, the above does not apply to an ultimate parent entity that has its tax residency in Aruba. In that case, the ultimate parent entity is obliged to submit the CbCR to the Tax Authorities of Aruba within 12 months after the end of the reporting year. |
| Surrogate parent entity filing permitted | Yes |
2.1 The master file and the local file
Besides CbCR, there are two additional standardized documentation requirements arising from BEPS Action 13. These have been enacted in the tax legislation of Aruba. It concerns the master file and the local file. The obligation to prepare a master file and a local file applies in Aruba, in short, to group entities of a multinational corporation that has earned at least AWG 100,000,000 in consolidated group revenues. Both files must be included in the records of the local company at the time of filing the Profit Tax return. It is not required to file the master file and the local file with the Tax Authorities. However, these files can be requested by the Tax Authorities. The purpose of the master file and the local file is to substantiate the applied transfer pricing standards. The master file and the local file should include, among others, the following information:
| Master File |
|---|
| Overview of the nature of the business activities of the multinational group |
| Overview of the multinational group |
| The overall transfer pricing behaviour of the multinational group |
| The global allocation of income and economic activities of the multinational group to assist the Tax Authorities in assessing the presence of substantial transfer pricing risks |
| Local File |
|---|
| Relevant information regarding transfer pricing analysis with respect to transactions between taxpayer and a group entity in another state |
| Information that substantiates an arm’s-length profit allocation to permanent establishments |
2.2 Findings based on the Fifth annual Peer Review Report
OECD states that Aruba’s domestic legal and administrative framework meets all other terms of BEPS Action 13 reference. However, Aruba has currently no bilateral relationships in place for the exchange of CbCR nor processes ensuring that the exchange of information is conducted in a manner consistent with the terms of BEPS Action 13 relating to the exchange of information framework. Therefore, OECD recommends Aruba to take steps to have qualifying competent authority agreements in effect with jurisdictions of the Inclusive Framework. Qualifying competent authority agreements with these jurisdictions should meet the confidentiality, consistency and appropriate use conditions, which allows the automatic exchange of tax information.
Furthermore, it is recommended that Aruba take steps to implement the necessary processes or written procedures to ensure exchanging of information is conducted in a manner consistent with the terms of BEPS Action 13 reference, relating to the exchange of information framework. In addition, there are no controls yet in place to ensure appropriate use of CbCR in Aruba. OECD recommends Aruba to take actions to ensure that appropriate use condition of CbCR is met.
3. Country-by-Country Reporting in Curaçao
Please find below the key CbCR requirements for Curaçao:
| The CbCR requirements for Curaçao [2] | |
|---|---|
| First reporting fiscal year | Commencing on or after January 1, 2018. Curaçao also allowed multinational enterprises groups to file a CbCR on a voluntary basis. This applies for reporting fiscal years commencing between January 1, 2016, and December 31, 2017. |
| Consolidated group revenue threshold | NAf 1,500,000,000.- |
| Filing deadline | 12 months following the end of the reporting Fiscal Year |
| Filing requirement | At this moment, a group entity established in Curaçao, that is not the ultimate parent entity, is not obliged to file the CbCR. However, based on a publication of the Minister of Finance, an ultimate parent entity, that has its tax residency in Curaçao, is obliged to submit the CbCR to the Tax Authorities of Curaçao within 12 months after the end of the reporting year. |
| Surrogate parent entity filing permitted | Yes |
3.1 The master file and the local
As indicated previously, besides CbCR, there are two additional standardized documentation requirements arising from BEPS Action 13. These have been enacted in the tax legislation of Curaçao. It concerns the master file and the local file. The obligation to prepare a master file and a local file applies in Curaçao, in short, to group entities of a multinational corporation that has earned at least NAf 1.500.000.000 in consolidated group revenues. Both files must be included in the records of the local company at the time of filing the Profit Tax return. It is not required to file the master file and the local file with the Tax Authorities. However, these files can be requested by the Tax Authorities. The purpose of the master file and the local file is to substantiate the applied transfer pricing standards. The master file and the local file should include, among others, the following information:
| Master File |
|---|
| Organizational structure |
| Description of the multinational group's business activities |
| Intangible assets of the multinational group |
| Intra-group financial activities of the multinational group |
| Financial and the tax position of the multinational group |
| Local File |
|---|
| Description of the local entity |
| Overview of affiliated transactions |
| Financial information regarding the local entity |
3.2 Findings based on the Fifth annual Peer Review Report
According to the peer review report, Curaçao confirmed that its tax legislation has not changed and continue to be applied effectively. Therefore, according to this report, Curaçao continues to meet all terms of BEPS Action 13 related to the domestic legal and administrative framework, and the exchange of information framework.
Furthermore, Curaçao is a so-called non-reciprocal jurisdiction. This means that Curaçao committed to send CbCR to its exchange partners but will not receive CbCR from its exchange partners.
4. Conclusion
Based on the abovementioned, for both Aruba and Curaçao the obligation for local group entities, that are not the ultimate parent, the requirement to file the CbCR has been suspended. An ultimate parent entity, that has its tax residency in Curaçao, is still obliged to file the CbCR, in case the threshold is met.
Please note that there is still the obligation to prepare both the master file and the local file. As indicated, both files must be included in the records of the local company at the time of filing the Profit Tax return. It is not required to file the master file and the local file with the Tax Authorities. However, these files can be requested by the Tax Authorities.
Our team can assist you with the preparation of the master file and the local file. Should it concern an ultimate parent entity, we can also assist with the preparation and the filing of the CbCR.
Should you have any questions regarding the local file, master file and/ or CbCR, and their possible impact on your business, please do not hesitate to contact us. Our team would be more than happy to assist you with your questions.
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Vivian Pieters