The international debate on tax is constantly evolving and the call for tax transparency to tax authorities, the European Commission, the OECD/G20 and to the general public is echoed across the globe, thereby changing the tax landscape for international business.
The Action Plan on Base Erosion and Profit Shifting (‘BEPS’) is the OECD/G20’s policy response to perceived aggressive tax avoidance by multinational enterprises (‘MNEs’) and represents one of the most significant changes to the corporate tax landscape. The goal of the Action Plan is to tax profits where actual business activity is performed and where value is created.
Action 13: Transfer pricing documentation and country- by-country reporting focuses on the global value chain of a company, transfer pricing and documentation. The goal of this framework is to collect standardized data on where profit, tax, and economic activity is occurring at a global level.
HR and mobility teams should join the CbCR conversation. The OECD and EU CbCR templates require reporting of “number of employees on a full-time equivalent basis” and the workforce may also impact revenues and functions to be included in the template. Coordination with the corporate tax and transfer pricing departments of MNEs is required to determine an overall strategy to ensure proper reporting of employees. The involvement of HR and mobility professionals is required when preparing reports in the required formats and transparency reports for publication in line with corporate social responsibility reporting.
Consistent and automated reporting requires mapping the global mobile workforce and independent contractors. The scope of countries, dealing with corporate structure complexities, interpretation of definitions and agreement on definitions are part of the determination of the scope and assessment of the impact of CbCR.
The level of resources, ease and costs involved in gathering, aggregation and analysis of consistent and accurate (HR-)data for reporting purposes needs to be considered. The (HR-)process is extremely relevant forconsistently and accurately gathering of data. Given the potential uses of the data both by tax authorities and the public, a form of assurance over the (HR-)process is appropriate. An accompanying narrative will assist in making the information as useful as possible to the reader and ensuring consistency due to the risk of information being misinterpreted.
Employee data across all countries may require review to assess consistency of data, to analyze, to identify potential areas of challenge by tax authorities and to identify improvements in the data gathering process. A “deep dive” review of the employee data for material or complex countries may be required.