Bloomberg BNA's Transfer Pricing Report spoke with Peter A. Barnes regarding recent changes to the Organization for Economic Cooperation and Development's template for country-by-country reporting. The OECD now requires aggregated financial data rather than separate legal entity information, however, it is uncertain whether the new format will significantly reduce compliance burden for companies and simplify the process for multinational corporations. For the complete article, please click on the PDF above.
Excerpt taken from the article. Reproduced with permission from Tax Management Transfer Pricing Report, 22 TMTR 1491, 04/07/2014. Copyright 2014 by The Bureau of National Affairs, Inc. (800 372-1033) http://www.bna.com.
Two other practitioners—William Morris, chair of the tax committee of the OECD's Business and Industry Advisory Committee, and Alison Lobb of Deloitte in London—agreed with Brimicombe, but Peter Barnes of Caplin & Drysdale in Washington, D.C., said the burden of gathering information would be largely the same for companies. Barnes, who also is a senior fellow at Duke University, said that in almost all cases, taxpayers will have to use legal entity data to compile the aggregate number.
Barnes, former chief tax counsel at General Electric, raised a different concern. Most taxpayers assume that the country-by-country information eventually will be made public even though the OECD has said the information will be used only by governments. "If the information is going to go public, then most companies will prefer to have aggregate data revealed, rather than separate legal entity information," he said.
Barnes said he understands why governments want taxpayers to provide business codes, "but the requirement has the potential to create big disputes, without necessarily giving governments a big benefit."
A company, Barnes said, may have a very small amount of its activity fall into one of the categories for which there is a business code. Under the applicable accounting rules, the amount of activity may be so small that the accounting rules do not even require segmented accounts for that line of business.
Yet, Barnes said, if the taxpayer omits a particular code, the government may believe the taxpayer is hiding information, or failing to fill out the template correctly.
Barnes said providing aggregated information is a good step, "but this compromise leaves open the likelihood of disputes and does not affect the burden imposed on taxpayers."
Barnes, meanwhile, said allowing flexibility on the source of data is "an essential move" because companies have different internal reporting systems.
Barnes argued that if corporations are to suffer opprobrium for tax planning, then so too should individuals who follow questionable advice from personal finance magazines. He pointed out that the largest companies are under continuous IRS audit -- GE has IRS agents on its premises every day who have the opportunity to issue information document requests for explanations of return positions.
Barnes responded that corporations understand the need to maintain a cooperative relationship with governments.