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    19 Tax Risk Indicators in CBCR

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    idan28
    The document describes 19 potential tax risk indicators that can be identified using country-by-country reporting (CbCR) data to detect tax risks within a multinational enterprise (MNE) group. Some of the key risk indicators include a group's activities being limited to lower-risk jurisdictions; high related party revenues in a jurisdiction; results deviating from comparables; inconsistent profit levels compared to activities; and inconsistencies between CbCR and other tax filings. CbCR data provides tax authorities visibility into an MNE's operations across jurisdictions to help identify potential tax risks or areas for further examination.

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    19 Tax Risk Indicators in CBCR

    Uploaded by

    idan28
    15 views22 pages
    The document describes 19 potential tax risk indicators that can be identified using country-by-country reporting (CbCR) data to detect tax risks within a multinational enterprise (MNE) group. Some of the key risk indicators include a group's activities being limited to lower-risk jurisdictions; high related party revenues in a jurisdiction; results deviating from comparables; inconsistent profit levels compared to activities; and inconsistencies between CbCR and other tax filings. CbCR data provides tax authorities visibility into an MNE's operations across jurisdictions to help identify potential tax risks or areas for further examination.

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    19 tax risk indicators in CbCR

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    The document describes 19 potential tax risk indicators that can be identified using country-by-country reporting (CbCR) data to detect tax risks within a multinational enterprise (MNE) group. Some of the key risk indicators include a group's activities being limited to lower-risk jurisdictions; high related party revenues in a jurisdiction; results deviating from comparables; inconsistent profit levels compared to activities; and inconsistencies between CbCR and other tax filings. CbCR data provides tax authorities visibility into an MNE's operations across jurisdictions to help identify potential tax risks or areas for further examination.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    15 views22 pages

    19 Tax Risk Indicators in CBCR

    Uploaded by

    idan28
    The document describes 19 potential tax risk indicators that can be identified using country-by-country reporting (CbCR) data to detect tax risks within a multinational enterprise (MNE) group. Some of the key risk indicators include a group's activities being limited to lower-risk jurisdictions; high related party revenues in a jurisdiction; results deviating from comparables; inconsistent profit levels compared to activities; and inconsistencies between CbCR and other tax filings. CbCR data provides tax authorities visibility into an MNE's operations across jurisdictions to help identify potential tax risks or areas for further examination.

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    © All Rights Reserved
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    of 22

    Identifying the Elephant

    –
    Using CbCR Data to Detect 19 Tax
    Risk Indicators
    Tax Authorities Without CbCR

    A Tax Authority

    F Tax Authority
    B Tax Authority

    MNE
    E Tax Authority

    C Tax Authority D Tax Authority


    Using CbCR, tax authorities could identify the “Elephant” and
    how it is structured

    A Tax Authority
    Ear !!
    F Tax Authority
    B Tax Authority

    MNE Stomach!!
    Tusk !! Tail !!

    E Tax Authority

    Foot !!
    C Tax Authority
    Trunk !! D Tax Authority
    1. The footprint of a group in a particular jurisdiction

    A’s Revenue in Z
    A’s Revenue
    in Y Treshold
    for A’s
    Analysis Revenue
    in X

    Tend to be
    Included in analysis excluded in
    analysis
    2. A group's activities in a jurisdiction are limited to those that
    pose less risk

    Jurisdiction A Jurisdiction B Riskier


    3. High value or high proportion of related party revenues
    in a particular jurisdiction
    120
    Riskier
    100

    80

    60

    40

    20

    0
    A B
    Affiliated Transaction Independent Transaction Total Revenue
    4. The results in a jurisdiction deviate from potential
    comparables
    16

    Riskier
    14

    12

    10

    0
    A B C D
    Jurisdiction RoS Group Average (CbCR) RoS Industry Average RoS
    5. The results in a jurisdiction do not reflect market trends
    25

    20

    15

    10

    0
    2016 2017 2018 2019

    Total Group Sales A distributor Sales Market Trend


    6. There are jurisdictions with significant profits but
    little substantial activity (Economic-Substance Test)

    Related party revenues / total • Higher the ratio,


    revenues higher the risk

    Total revenues or profit before • Higher the ratio,


    tax / total employees higher the risk

    Total revenues or profit before • Higher the ratio,


    tax / tangible assets higher the risk
    7. There are jurisdictions with significant profits but low levels
    of tax accrued
    25

    Riskier
    20

    15

    10

    0
    A B C D

    Effective Tax Rate Profit Margin


    8. There are jurisdictions with significant activities but low
    90
    levels of profit (or losses)
    80

    70 Riskier
    60

    50

    40

    30

    20

    10

    0
    P Q R S
    -10

    Unrelated Party Revenue/Total Revenue Profit Before Tax / Total Revenue


    9. A group has activities in jurisdictions which pose a BEPS risk

    B - Sales
    - Holding (STR 28%) - Marketing
    A - Service provider
    (STR 16%) - Financing

    C - Sales
    (STR 22%) - Manufacturing

    D - Sales E - IP Holding
    (STR 25%) - Manufacturing (STR 1%)
    10. A group has mobile activities located in jurisdictions where
    the group pays a lower rate or level of tax

    IP Transfer
    Country A Country B

    Tax on royalty =>15% Tax on royalty =>0%


    11. There have been changes in a group's structure, including
    the location of assets

    A E
    B reg
    A F
    B C D
    C reg G

    A: HO
    A: HO
    B : Regional Office Sales
    B: manufacture
    C: Regional Office Procurement
    C: Distribution
    E,F: Sales Office
    D: IP
    G: manufacture
    12. IP is separated from related activities within a group

    IP

    Manufacture &
    Distribution
    13. A group has marketing entities located in jurisdictions
    outside its key markets
    Marketing
    Entity

    Distributor
    14. A group has procurement entities located in jurisdictions
    outside its key manufacturing locations
    Procurement
    Entity

    Manufacturer
    15. Income tax paid is consistently lower than income tax
    accrued
    30,000,000,000

    25,000,000,000

    20,000,000,000

    15,000,000,000

    10,000,000,000

    5,000,000,000

    0
    2016 2017 2018 2019

    Income Tax Paid Income Tax Accrued


    16 & 17. CbCR includes dual resident or stateless entities

    UPE

    ABC, Ltd DEF, Ltd


    18. A group discloses stateless revenues in Table 1

    Country A Revenue
    • 10,000,000,000

    Country B Revenue
    • 5,000,000,000

    Stateless Renenue
    • 2,000,000,000
    19. Information in a group's CbC Report does not correspond
    with information previously provided by a constituent entity

    CbCR

    MF
    &
    LF
    Tax
    Return
    Thank You

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