OECD ‘s updated Guidance on Country-by-Country reporting
Recently, the OECD had issued its updated guidance on Country-by-Country reporting. The May 2024 update is on treatment of dividend in Table 1 of the Country-by-Country (CbC) report.
The BEPS Action 13 report prescribes the format for CbC report as well as the definitions for each of the line item such as Revenue, profit (loss) before Income tax (PBT), Income Tax Paid (on Cash Basis), etc. For ‘Revenue’, the definition specifically excludes dividend income from constituent entities. However, there was no parallel exclusion in the definition of Profit (Loss) before Income Tax, resulting various approaches being adopted.
The updated guidance now clarifies that payments received from other Constituent Entities that are treated as dividends in the payer’s tax jurisdiction will have to be excluded from PBT as well.
The guidance also clarifies on the expression “payments received from other Constituent Entities that are treated as dividends in the payer’s tax jurisdiction”. In this regard the guidance clarifies that there should be consistency in the treatment of payments between the payer and the recipient viz.,
- Where the payer treats the payment as the dividend, the recipient to treat it as dividend and exclude from the revenue and PBT.
- Whereas, when the payer treats the payment other than dividend – such as interest, the recipient to retain the receipts in the revenue and PBT
The guidance also clarifies that where applicable accounting standards requires an entity to include an amount from the profit of another constituent entity in its PBT, then such amount will be treated as dividend and should be excluded from revenue and PBT for the recipient. This guidance shall not apply where the entity from whom such amounts are received is a transparent entity for tax purposes.
This guidance applies to reporting fiscal years commencing on or after 01 January 2025.
This update to guidance aligns the definition of ‘revenue’ and ‘profit (loss) before income tax’.