Base erosion and profit shifting (BEPS) FAQ

General questions

What is the context surrounding CbC reporting?

CbC reporting (Country by Country reporting) is being introduced in the context of the Principality’s implementation of Action 13 of the OECD’s BEPS Action Plan.

The BEPS (Base erosion and profit shifting) initiative was developed by the OECD in a bid to counter the tax optimisation strategies devised by some companies, who take advantage of the lack of tax harmonisation at the international level to artificially transfer their profits to low or no tax countries.

Under BEPS, participating countries will have to share with other participating countries some information about multinational enterprise (MNE) groups operating within their countries in order to allow the tax authorities in participating countries to determine whether transactions between companies that are part of the group in question comply with market conditions.

For more information, see:

• The section La fiscalité internationale
• The OECD website: Base erosion and profit shifting

What is a country-by-country (CbC) report?

A CbC report:

• Is produced by the ultimate parent entity (or a surrogate parent entity designated by the parent entity, subject to conditions) of MNE groups with consolidated annual revenue of more than EUR 750 million before tax
• Contains the following information: revenue, pre-tax profit or loss, income tax paid, income tax accrued, share capital, retained earnings, staff and tangible assets excluding cash or cash equivalents for each of the jurisdictions in which the MNE group operates
• Is drawn up for each country in which the group has constituent entities

Aims

To reduce the gaps and mismatches in tax rules between different countries which are used by MNEs, leading to BEPS.

To restore the tax base in countries which generate the group’s business.

To increase international fiscal transparency and improve the access of the respective tax authorities to information about the global distribution of profits, taxes paid and some indicators of the location of economic activity between tax jurisdictions in which MNE groups operate, with the goal of carrying out an overall assessment of transfer pricing risks and other base erosion and profit shifting risks including, where necessary, for economic and statistical analysis purposes.

Impact

Which countries are involved?

The OECD has developed a multilateral instrument enabling CbC reports to be shared.

In June 2018, more than 70 countries had committed to introducing CbC reporting.

When will the regulations come into force?

Regulations on exchanging CbC reporting came into force with the publication of Sovereign Ordinances 6712 and 6713 of 14 December 2017  which promulgate the multilateral agreement between competent authorities relating to the exchange of CbC reports and set out the procedures for applying the regulations in the Principality.

When will the first reporting year be?

The first countries to implement BEPS Action 13 – primarily all of the EU countries – exchanged CbC reports relating to the 2016 fiscal year.

In Monaco, the first declarations will need to be sent to the Department of Tax Services for the fiscal year beginning 1 January 2018.

What impact will this have on companies based in the Principality?

Which companies are affected? 

Any company that is part of an MNE group, defined as follows:

• "MNE group": any group that includes two or more enterprises, the tax residence for which is in different jurisdictions, or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction, and is not an excluded MNE group 
• "Excluded MNE group": this is a group which, with respect to any fiscal year of the group, has total consolidated group revenue of less than EUR 750 million during the fiscal year immediately preceding the reporting fiscal year, as reflected in its consolidated financial statements for such preceding fiscal year

The group’s entities will be subdivided into:

• The group’s reporting entity
• Other constituent entities of the group

Are small and medium-sized enterprises (SMEs) affected?

No, SMEs should not be impacted since CbC reporting only applies to groups with consolidated annual revenue during the preceding year of more than EUR 750 million.

Implementation of Monaco’s commitment

Who will need to submit a CbC report in Monaco?

Any reporting entity which is resident in Monaco for tax purposes will have to send the Department of Tax Services a CbC report for the reporting year.

A reporting entity is:

- Any ultimate parent entity of an MNE group resident in Monaco for tax purposes 

- A Monegasque surrogate parent entity, which is a constituent entity of the group and duly mandated by the group where one of the following conditions is met:

• The MNE group’s parent entity is not obliged to submit a CbC report in the jurisdiction where it is resident for tax purposes 
• The jurisdiction in which the ultimate parent entity is resident has, for tax purposes, concluded an international agreement to which the Principality of Monaco is a party, but is not party to an eligible agreement between competent authorities in force in Monaco on the date set out in Article 6 for the submission of the CbC report for the reporting fiscal year 
• The Department of Tax Services has notified the constituent entity resident in Monaco for tax purposes of a systemic failure in the tax jurisdiction of the ultimate parent entity

What is the deadline for the submission of CbC reports?

The country-by-country declaration is to be submitted:

• For financial years beginning on or after 1 January 2018
• Within 12 months after the last day of the reportable tax year

The first reports for 2018 will need to be submitted during 2019, and on an annual basis thereafter.

What is the definition of a constituent entity?

A constituent entity is defined as follows:

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

How will the tax authorities be informed of the identity of the company responsible for the CbC report?

Where a constituent entity of an MNE group that is resident in Monaco for tax purposes is not the ultimate parent entity or surrogate parent entity, it must inform the Department of Tax Services of the identity and tax jurisdiction of the reporting entity.

This information must be provided to the Department of Tax Services before the last day of the MNE group’s reporting fiscal year.

Note that, in the presence of several constituent companies in Monaco, each of these entities must prepare this declaration.

For groups closing their accounts on 31/12, the deadline for submitting the initial report to be produced by the Monegasque constituent entity will be 31/12/2018.

See the procedure: How to make a country-by-country declaration or a reporting Entity declaration

Who will CbC reports be sent to?

Reports received by the Department of Tax Services will be sent to the tax authorities in countries where the constituent enterprises of a Monaco reporting entity are present, and with which Monaco has signed an agreement to share CbC reports.

Who will send CbC reports to the Principality?

Monaco will receive reports from countries with which the Principality has a current agreement to share CbC reports as of the report date. These reports will come from all relevant groups with a constituent entity operating in Monaco.

OECD guidelines on the implementation of CbC reporting

The aim of these guidelines is to enable consistent application of CbC reporting throughout the world.

Overview of guidelines: These guidelines, issued in September 2018, cover the following points

Issues relating to the definition of items reported in the template for the CbC report

1. Definition of revenues (April 2017 and September 2017)
2. Definition of related parties (April 2017)
3. Aggregated data or consolidated data to be reported per jurisdiction (July 2017)
4. Amount of income tax accrued and income tax paid (September 2017)
5. Fair value accounting (November 2017)
6. Negative figure for accumulated earnings (November 2017)

Issues relating to the entities to be reported in the CbC report

1. Application of CbC reporting to investment funds (June 2016)
2. Application of CbC reporting to partnerships (June 2016)
3. Accounting principles/standards for determining the existence of and membership of a group (April 2017)
4. Treatment of major shareholdings (April 2017 and September 2018)
5. Treatment of an entity owned and/or operated by more than one unrelated MNE group (July 2017)
6. Deemed listing provision (November 2017)

Issues relating to the filing obligation for the CbC report

1. Impact of currency fluctuations on the agreed EUR 750 million filing threshold (June 2016)
2. Definition of total consolidated group revenue (April 2017, updated November 2017)
3. Short accounting period (September 2017 updated November 2017)

Issues relating to the sharing mechanism for the CbC report (exchange of information, surrogate filing and local filing)

1. Transitional filing options for MNEs 
   (parent surrogate filing) (June 2016, updated July 2017)
2. CbC reporting notification requirements for MNE groups during transitional phase (December 2016)

Issues relating to mergers/acquisitions/demergers

1. Treatment in case of mergers/acquisitions/demergers (November 2017)
2. Table summarising the interpretation on mergers/acquisitions/demergers (September 2018)

For more information, see the full OECD guidance:

OECD (2018), Guidance on the Implementation of Country-by-Country Reporting – BEPS Action 13, OECD, Paris.