CBC report instructions

The following guidance summarises the main points you need to consider when preparing your CBC report and provides some Australian context.

Overview

A CBC reporting entity with an obligation to lodge a CBC reporting statement, must lodge the statement in the approved form. The approved form of the CBC report follows the OECD XML schemaExternal Link. It is modelled on the template in Annex III to Chapter V of the OECD's final report on Action 13External Link. Annex III provides an outline of the structure of the CBC report alongside instructions on how to complete it and an explanation of the terms used to describe fields within it.

The final report contemplated the acceptance by participating jurisdictions of the ability for entities to file a CBC report as a surrogate parent entity. This means that one of the members of the group other than the CBC reporting parent has been appointed to file the CBC report in that member's jurisdiction of tax residence.

Surrogate parent filing is permitted in Australia. An Australian member of a CBC reporting group can notify, in the CBC report, that it is lodging as a surrogate parent entity.

The CBC report includes some terminology that requires explanation in an Australian CBC reporting context.

Table 1: CBC report terminology explained

OECD CBC report template	Australian CBC reporting – conceptual equivalent
MNE group	CBC reporting group
Ultimate parent entity	CBC reporting parent
Constituent entity	CBC reporting entity
Fiscal year (of the ultimate parent entity)	Income year (of the CBC reporting parent)

Structure and content

A CBC report consists of 3 tables.

• Table 1 provides an overview of income, taxes, employees and assets of the MNE group allocated to each of the different tax jurisdictions in which the MNE group operates. Each line of the table reports the aggregated numbers relating to a particular tax jurisdiction.
• Table 2 provides an overview of each constituent entity (including permanent establishments) of the MNE group, grouped according to the tax jurisdictions in which the entities are tax resident. The main business activities of each entity also need to be stated.
• Table 3 allows the MNE group to provide any additional information it believes would be necessary or useful in interpreting and understanding the data provided in the CBC report.

The amounts reported in the CBC report are not required to reconcile or be reconciled to the amounts in the global financial statements for the group.

The reporting entity may use data from its consolidation reporting packages, from the statutory financial statements of separate entities, regulatory financial statements, internal management accounts or any combination of these sources. The reporting entity should provide a brief description in Table 3 – Additional information of the sources of data used in preparing the CBC report.

The same sources of data should be used consistently from year to year. Where circumstances necessitate a change in data source, the change, the reasons for it and its consequences should be explained.

Period covered

The period a CBC report covers should be the income year of the reporting entity, unless a replacement reporting period has been approved.

At the discretion of the reporting entity (usually the CBC reporting parent) and in respect of constituent entities, the CBC report should reflect on a consistent basis either:

• information for the fiscal year of the relevant constituent entities ending on the same date as the fiscal year of the reporting MNE, or ending within the 12-month period preceding such date, or
• information for all the relevant constituent entities reported for the fiscal year of the reporting MNE.

Currency

The CBC report requires the currency used for the report to be stated. An Australian CBC reporting parent should report amounts in Australian dollars. However, an Australian CBC reporting parent that uses another functional currency in its financial statements is permitted to use that currency for the CBC report.

A CBC report prepared by a foreign CBC reporting parent in a foreign currency does not need to be converted to Australian dollars. The CBC report may state rounded amounts where the source data, from which those amounts have been obtained, were rounded and the rounding is not material in relation to the values provided in the CBC report. Rounded numbers will still need to be shown in full.

If it is necessary to translate an amount appearing in financial statements to the currency used in the CBC report, it must be translated at the average exchange rate for the year. The average exchange rate used for this purpose must be stated in Table 3 of the CBC report.

Tax jurisdiction

For both Tables 1 and 2 of the CBC report, the reporting entity should list all of the tax jurisdictions in which constituent entities of the group are resident for tax purposes or carry on business operations at or through a permanent establishment. A tax jurisdiction is defined as a state as well as a non-state jurisdiction which has fiscal autonomy.

A separate line should be included for all constituent entities in the group that are not a resident of any jurisdiction for tax purposes.

Where a constituent entity is resident in more than one tax jurisdiction, the applicable tax treaty tie breaker rule should be applied to determine the jurisdiction of tax residence. Where no applicable tax treaty exists, the constituent entity should be reported for the tax jurisdiction of the constituent entity’s place of effective management. In such instances, the place of effective management should be determined in accordance with Article 4 of the OECD Model tax convention on income and on capitalExternal Link and its accompanying Commentary.

Constituent entity

In the context of a CBC report, a constituent entity of an MNE group is:

1. any separate business unit of the group that is included in the consolidated financial statements of the group for financial reporting purposes, or would be so included if equity interests in such business unit of the group were traded on a public securities exchange
2. any such business unit that is excluded from the group’s consolidated financial statements solely on size or materiality grounds
3. any permanent establishment of any separate business unit of the group included in (1) or (2) above provided the business unit prepares a separate financial statement for such permanent establishment for financial reporting, regulatory, tax reporting, or internal management control purposes.

Where an elimination entity is created in an accounting system for the purposes of preparing consolidated financial statements, it is not a constituent entity of the group and should be excluded from the listing of entities in Table 2 of the CBC report.

Revenues

In the 3 columns of Table 1 of the CBC report under the heading 'Revenues', the CBC reporting entity must report:

• the sum of revenues of all the constituent entities of the group in the relevant tax jurisdiction generated from transactions with unrelated parties
• the sum of revenues of all the constituent entities of the group in the relevant tax jurisdiction generated from transactions with related parties
• the total revenue, both from related and unrelated parties.

Revenues should include revenues from sales of inventory and properties, services, royalties, interest, premiums and any other amounts received, including extraordinary items of income and gains from investment activities.

Revenues should exclude payments received from other constituent entities that are treated as dividends in the payer's tax jurisdiction.

When financial statements are used as the source of the data to complete the CBC report, all revenue, gains, income, or other inflows shown in the financial statements prepared in accordance with the applicable accounting rules relating to profit and loss (such as the income statement or profit and loss statement) should be reported as Revenues. Comprehensive income/earnings, revaluations, or unrealised gains reflected in net assets and the equity section of the balance sheet should not be reported as Revenues.

'Related parties' in Table 1 means constituent entities as listed in Table 2.

Where a permanent establishment is treated as a constituent entity, record allocations of revenue derived from a third party that was not a constituent entity of the group in the 'Unrelated party' column of Table 1.

Profit (loss) before income tax

The reporting entity should report the sum of the profit (or loss) before income tax in Table 1 for all constituent entities that are resident for tax purposes in the relevant tax jurisdiction. The profit (loss) before income tax should include all extraordinary income and expense items.

The profit/loss before income tax may include the dividends received from other constituent entities. If included, this should be noted in Table 3 of the CBC report with identification of the relevant jurisdictions and an explanation of any disparity this may cause between the amounts reported under 'Revenues', 'Profit (loss) before income tax', 'Income tax paid' and 'Income tax accrued'.

A loss incurred by an entity is a negative number that is netted off against the profit of any other entities in the same tax jurisdiction. Where that entity is the only entity in a particular country, specify the negative number.

Income tax paid (on cash basis)

The reporting entity should report the total amount of income tax actually paid during the relevant income year by all constituent entities that are resident for tax purposes in the relevant tax jurisdiction. Taxes paid should include cash taxes paid by the constituent entity to the jurisdiction of tax residence and to all other tax jurisdictions.

Taxes paid should include withholding taxes paid by other entities (related and unrelated) with respect to payments to the constituent entity. For example, if company A resident in tax jurisdiction A earns interest in tax jurisdiction B, the tax withheld in tax jurisdiction B should be reported by company A. Company A may presume, in the absence of knowledge to the contrary, that tax was appropriately withheld and paid by the relevant entity.

Any income taxes paid on dividends should only be included if the relevant dividends were included in 'Profit (loss) before Income Tax' in Table 1. If included, this should be noted in Table 3 of the CBC report.

Refunds during the period are treated as negative payments. A refund position overall is to be reported as a negative number.

Income tax paid includes taxes at each level of government to the extent that it is actually income tax. If in any doubt on whether a tax is an income tax, consult the tax authority in that jurisdiction.

An Australian entity required to pay Australian income tax on income of a controlled foreign company (CFC) will report this as tax paid in Australia.

Income tax accrued (current year)

The reporting entity should report the sum of the accrued current tax expense recorded on taxable profits or losses of the year of reporting of all of the constituent entities resident for tax purposes in the relevant tax jurisdiction.

The current tax expense should reflect only operations in the current year and should not include deferred taxes or provisions for uncertain tax liabilities.

Any income taxes accrued on dividends should only be included if the relevant dividends were included in 'Profit (loss) before Income Tax' in Table 1. If included, this should be noted in Table 3 of the CBC report.

Stated capital

The reporting entity should report the sum of the stated capital of all the constituent entities resident for tax purposes in the relevant tax jurisdiction. For a permanent establishment, the stated capital should be reported by the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes.

The amounts recorded as 'Stated capital' for each entity should generally be the residual of equity after subtracting amounts that are, or are in the nature of, accumulated earnings (or retained earnings). Accounting standards in the jurisdiction of the entity may be followed in determining these amounts.

Accumulated earnings

This is the sum of the total accumulated earnings of all constituent entities that are resident for tax purposes in the relevant tax jurisdiction as of the end of the year. For permanent establishments, accumulated earnings should be reported by the legal entity of which it is a permanent establishment.

Accumulated earnings may be a negative amount. If there are 2 or more constituent entities in the same jurisdiction, any negative figures should be netted with any positive figures. Where this is the case, you should provide the following type of statement in Table 3, 'Accumulated earnings include negative figures for [specify the relevant tax jurisdiction]'.

Number of employees

The reporting entity should report the total number of employees on a full-time equivalent (FTE) basis of all constituent entities that are resident for tax purposes in the relevant tax jurisdiction.

What constitutes FTE for a jurisdiction may be determined according to standards applicable to the jurisdiction of the employees. The number of employees may be reported as of the year-end, based on average employment levels for the year or on any other basis consistently applied across tax jurisdictions and from year to year. Independent contractors participating in the ordinary operating activities of the constituent entity may be reported as employees.

Reasonable rounding or approximation of the number of employees is permissible, providing that such rounding or approximation does not materially distort the relative distribution of employees across the various tax jurisdictions.

Consistent approaches should be applied from year to year and across entities.

Tangible assets other than cash and cash equivalents

The reporting entity should report the sum of the net book values of tangible assets of all constituent entities that are resident for tax purposes in the relevant tax jurisdiction. For permanent establishments, assets should be reported by reference to the tax jurisdiction in which the permanent establishment is situated. Tangible assets for this purpose do not include cash or cash equivalents, intangibles or financial assets.

Main business activity

Table 2 of the CBC report records the nature of the main business activity or activities carried out by each constituent entity. If appropriate, more than one activity in the available options may be selected.

Consolidated versus aggregated data

Data should generally be reported on an aggregated basis, regardless of whether the transactions occurred cross-border or within the jurisdiction, or between related parties or unrelated parties. This guidance will be particularly relevant for the columns on related party revenues and total revenues. An MNE group may use the notes section in Table 3 to explain the data if it wishes to do so.

An exception to the above approach is permissible if you are both the head entity of a tax consolidated group and a CBC reporting parent. If so, you may complete the CBC report using consolidated data at the jurisdictional level, as long as the consolidated data is reported for each jurisdiction in Table 1 of the CBC report and consolidation is consistently used across the years. If you choose this option, you should use the following wording in Table 3 'This report uses consolidated data at the jurisdictional level for reporting the data in Table 1'. You should also specify the columns in Table 1 in which the consolidated data is different than if aggregated data were reported.

Table 3 additional information

Table 3 of the CBC report is a free-text field, which should be used to provide any additional information that would facilitate the understanding of the information presented in Tables 1 and 2.

Examples include:

• a brief explanation of the sources of information used
• noting if in-country consolidation has been used
• identifying constituent entities joining or leaving the group during the year
• changes in jurisdiction of tax residence during the year
• the use of differing periods – for example, where a CBC report covers a non-12 month reporting period
• where negative amounts are reported and there is ambiguity as to their interpretation
• whether accumulated earnings include negative figures and if so, the tax jurisdiction where this is the case
• if Table 2 records a main business activity of a constituent entity as 'other', a description of the nature of that business activity.

Operation of ships or aircraft in international traffic

Australia’s tax treaties allocate rights to tax the profits of an enterprise of a contracting state derived from the operation of ships or aircraft in international traffic exclusively to that state – that is, to the jurisdiction in which the enterprise is a resident for the purposes of the tax treaty. For example, Article 8 of the New Zealand Convention allocates the rights to tax such profits derived by an Australian resident to Australia.

Where you derive such profits, the information required in the CBC report in respect of those profits may be disclosed against the jurisdiction allocated with the taxing rights.

Foreign enterprises that derive such profits from operating an Australian permanent establishment should disclose the information required in the CBC report for such profits against the jurisdiction in which the enterprise is a resident.