Focus: Corporate reporting

Tax transparency: a wind of change sweeping the world of business

Bruno Hollenstein
Partner Tax & Legal Services

The rules promulgated by the Organisation for Economic Co-operation and Development (OECD) and the European Union (EU) are creating greater transparency among corporations. They raise the question – which also arises for private individuals – of whether a business is making an appropriate contribution to the public coffers. This question is increasingly taking on a moral dimension. Calls for greater transparency are bringing about fundamental, permanent changes in the tax landscape. Most seriously affected are international companies.

Transparency and the cross-border exchange of information: these are the magic words that are supposed to prompt global companies to adopt new behaviour. But a distinction has to be made between two different issues.

  • On the one hand there are various initiatives calling for country-by-country reporting of financial and tax-related information and the harmonisation of the rules governing transfer pricing documentation. This obliges companies to disclose more information, in greater detail, to the tax authorities, broken down by country. Country-by-country reporting is supposed to give an overall view of the global distribution of earnings and taxes paid by multinationals, and details of where their assets and business operations are located.
  • On the other hand, spontaneous or even automatic
    cross-border exchange
    is giving tax authorities easier access to foreign tax information. The emphasis here is on exchanging details of tax rulings. The spontaneous exchange of information means that one tax authority spontaneously passes on information to another state because it suspects that the other party might have an interest in the information – and not because it was explicitly requested. There may be foreseeable interest if the other state can use the information in question to apply and enforce its tax laws. The automatic exchange of information goes a step further: here tax authorities exchange information automatically on a routine basis (generally quarterly) in a predetermined form.

Pressure from the OECD

In recent years the OECD, under the aegis of the G8 and G20 nations [1], has drawn up an action plan designed to prevent base erosion and profit shifting (BEPS). There are two aims behind the BEPS project.

  • The first goal is to prevent international double non-taxation, especially of mobile income, by exploiting the tax rules in different jurisdictions.
  • The second goal is to make sure that the profits of multinational corporations are taxed where they are generated.

[1] G8: Group of the seven leading industrial countries plus Russia. The seven are Germany, France, Italy, Japan, Canada, the US and the UK. G20: Group of the 20 most important industrial and emerging nations, comprising the G8 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, Turkey and the rest of the EU.

On 5 October 2015 the OECD published its final report on the 15 BEPS actions and its recommendations. There will be additional instruments enabling the OECD to monitor the implementation of its BEPS action plan. Rather than being industry-specific, the actions are basically geared to all multinational companies. However, according to the OECD’s recommendations, country-by-country reporting should initially only be obligatory for multinationals with consolidated annual sales of at least EUR 750 million.

Two actions requiring particular attention

Two of the BEPS actions require special attention: the transparency rules governing country-by-country reporting and transfer pricing documentation (BEPS Action 13) and those governing the spontaneous exchange of tax rulings (BEPS Action 5).

  • Action 13 defines the content of country-by-country reporting and sets down the structure and content of transfer pricing documentation (consisting of two parts: master file and local files). The information companies have to disclose to the tax authorities on a country level includes related party and third party sales, profit before tax, cash tax paid, headcount and main business activities.
    It is up to legislators in individual countries to decide how to implement these requirements in national legislation. The OECD has not stipulated whether figures such as sales and profit before tax are to be calculated bottom up by aggregating the figures on the basis of audited statutory financial statements for individual entities, or top down by allocating IFRS group figures to individual countries.
  • Action 5 concerns the spontaneous cross-border exchange between tax authorities of tax rulings that relate to harmful tax practices or possibly contradict the principles and objectives of BEPS. For Switzerland the focus is on rulings deemed to be harmful for holding, auxiliary and mixed companies, and principal company rulings. Action 5 also describes how states should formulate their policy on rulings in the future.

Legislators all over the world on board

Parallel to the BEPS project the EU has amended its guidelines, which from 1 January 2016 will pave the way for the automatic exchange of rulings. Not only this, but all around the world national laws on transfer pricing and transfer pricing documentation are currently being amended and expanded. Swiss groups may also be affected by rules of this sort – indirectly at least if the rules impact their group companies abroad. The fact that the major economic locations are involved in BEPS should result in a more level playing field in global tax competition.

Switzerland active for some time

Like other OECD states, Switzerland is also having to make certain changes to the law and taxation practice to be able to implement the BEPS action plan. Some aspects have already been taken into account in the formulation of Corporate Tax Reform III, for example with the abolition of tax regimes for holding, auxiliary and mixed companies, and principal company rulings. Switzerland is also cooperating on the spontaneous exchange of information. At the end of 2013 it signed the OECD and Council of Europe’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters, thereby undertaking to introduce the spontaneous exchange of information as set down in
BEPS Action 5. The Swiss tax authorities are to spontaneously exchange tax data from 2017 from 2018 on. In summer 2015 the Swiss Federal Council submitted the relevant dispatch to parliament to set the parliamentary debate on ratification of the convention in motion. Within the next three years or so a legal basis for country-to-country reporting should be established in Swiss law.

A challenge for Swiss multinationals

In many respects, implementing the BEPS project will be a herculean task for Swiss companies. The biggest challenge is likely to be the spontaneous exchange of rulings. Companies will have to answer a number of key questions: What rulings have been agreed in Switzerland and the rest of the world, and which ones are still in force? For which rulings are the tax authorities likely to exchange data? What information could reach which foreign tax authorities in this way? What are the implications, for example, in terms of the taxation of foreign group companies? Companies will also have to work out how to reformulate in BEPS-compliant wording, or how to divide information for exchange into relevant and irrelevant information. They might also have to think about how to switch from a ruling to a suitable alternative. When it comes to country-by-country reporting, the main challenges concern data acquisition and the related processes: Where can we get what figures, and how quickly? How secure are the sources of data? In evaluating and presenting these figures Swiss companies will see whether their group structure or transfer pricing have to be modified.


The wind of change is sweeping through the world of Swiss business in the form of developments in connection with tax transparency. This means that managers at multinational companies have to clarify the key questions in relation to country-by-country reporting and the exchange of tax rulings. Whatever the case, you will have to make any changes in your company before the end of 2016.

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Bruno Hollenstein

Bruno Hollenstein

Partner and Leader Connected Compliance, PwC Switzerland

Tel: +41 58 792 43 72

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