Fighting BEPS in Africa: a review of Country-By-Country Reporting

Fighting BEPS in Africa: a review of Country-By-Country Reporting

Published Jan 2017

Authors

P. Draper, H Krogman

Publisher

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Following the Panama Papers leak and numerous press reports of aggressive tax planning by Multinational enterprises (MNEs) around the world, there has been a concerted effort, notably in developed countries, to combat MNE tax avoidance and increase international cooperation in tax matters. As MNEs operate across borders they can use multi-jurisdictional tax planning, in combination with transfer pricing, to limit their tax obligations. Unfortunately, some MNEs aggressively plan an operation around these tax structures to avoid paying their fair share of tax. This is mostly legal, as MNEs generally do not breach any single tax jurisdiction’s laws. However, such practices have a negative impact on the countries in which they are operating, regardless of whether they are legal or not.

A key responsive measure to address aggressive MNE tax planning has been the OECD/G20 Base Erosion and Profit Shifting (BEPS) Package. Its aim is to close loopholes between various national tax authorities that allow MNEs to unjustifiably shift profits across borders. Within this, a key component, and part of the minimum BEPS action requirements, is Action 13: Transfer Pricing Documentation and Country by Country Reporting (CbCR).

Policy recommendations made by this brief:

  • by the time of the 2020 review MNEs will be more aware of this process, and it is possible that the idea of lowering the EUR 750 million revenue threshold will find a more receptive audience
  • given the trust barriers to lowering exchange of information requirements it is not clear that this issue can be resolved in favour of those African states currently not able to comply. Consequently, African countries need to upgrade their institutional capacities and legal frameworks. Official development assistance could be targeted at this area
  • as Action 13 reports are submitted over the next two years a much more informed assessment of the strengths and limitations of CbCR should emerge. This should enable the refinement, and possibly the extension, of the system
  • the application of CbCR to include other taxes paid by MNEs, beyond corporate income tax, could also be considered
  • the transparency of CbC reports will, no doubt, feature in the 2020 review and African revenue authorities will need to engage with the issue, as it could bridge a lot of their constraints

 

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