Technology and Tax Reform

Technology and Tax Reform: Complying with OECD’s Country-by-Country Reporting

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Among the priorities of the Organisation for Economic Co-operation and Development’s (OECD) global tax reform project, known as the base erosion and profit shifting (BEPS) project, “transfer pricing documentation requirements should be less burdensome and more targeted.” Toward this stated goal, the OECD recently published a finalized Chapter V of the OECD Guidelines. With their significant new reporting requirements, the guidelines will instead more likely increase the compliance burden on multinational enterprises (MNEs) in the effort to create an environment of increased transparency. The costs of compliance, however, will vary depending on the technological capabilities the MNEs already have in place.

The key to implementing country-by-country reporting solutions for MNEs’ tax departments is to facilitate a holistic approach for understanding the data requirements. The tax department and the entire enterprise need to work together to design solutions that address both compliance and business needs.

One of the least costly, complex, and time consuming applications for collecting data involves enhancing spreadsheets. Tailored and enhanced spreadsheets, possibly using macros, could be created to manage data collection. In such systems, however, there is a limited ability to perform data modelling.

Solutions consisting of data warehouses with custom reporting and analytics may be more costly than spreadsheet-based solutions, but reporting and analytics capabilities would likely be more advanced and flexible. Such applications could produce bespoke and customizable reports relevant to specific stakeholders.

A dedicated transfer pricing solution may be the most costly option, but it allows for a broad-based response to the increasingly complex audit environment. Such a solution goes beyond producing the information needed for the country-by-country template. From the central tax department, reports and real-time visualizations could be used for global transfer pricing planning and active management of profit margins throughout the global organization. The solution would provide automation to manage price changes and upload this information back to the financial systems.

The advent of country-by-country reporting signifies a potential opportunity for MNEs to update tax-related technology as part of a global compliance strategy to drive value for the MNE. Enhancing technology to comply with the updated compliance landscape is not just an additional regulatory burden, it presents a potential opportunity to proactively manage the compliance process to improve global processes, defensibility, and planning. Rather than be reactive to increasing compliance burdens, MNEs can be proactive and utilize available resources to create strategic value from the tax department.

You can learn more about OECD’s BEPS Action Plan by listening to a recent Deloitte Dbriefs webcast “Base Erosion and Profit Shifting (BEPS) Update: Change Is in the Air.

Let us know how technology is impacting your organization’s compliance with global tax reform requirements by commenting below.

Boris Nemirov, Darcy Alamuddin, and Todd Wolosoff of Deloitte Tax LLP contributed to this article. 

As used in this document, “Deloitte” means Deloitte Tax LLP, subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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