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Taxpayers play the waiting game on CbCR audits

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Corporate taxpayers expect country-by-country reporting (CbCR) to lead to a number of audits and subsequent disputes, but the tax authorities are yet to make a move and taxpayers are cautious of the silence.

Since CbCR came into force, tax directors have been waiting for that awkward phone call from the tax authorities. One tax director at a Swiss insurance group said: “It’s curious to me that we’ve not yet had a single question about our CbC report.”

One head of tax at a global retail business had a theory as to why the tax authorities may be taking their time. “My guess is the tax authorities don’t understand the file and they don’t know what to do with the information they’ve received,” they said during one discussion at the Managing Global Tax Disputes Summit in London on April 30.

Whatever the reasons may be for tax authorities not asking questions about taxpayer CbC reports yet, the underlying nervousness among businesses goes deeper than an audit.

“Businesses are more concerned with the risks to their reputation than ever before,” said Kim Boylan, head of the global tax practice at White & Case. “You might not want to do certain things if there’s a risk of ending up on the front page of the Wall Street Journal.”

This is why many taxpayers hope that the CbC reports stay in servers and are not opened to the public. Tax transparency is still incomplete and very new in a world traditionally shrouded in secrecy.

“If you send out your tax affairs into the world, the figures can be easily misinterpreted without an expert perspective,” the head of tax from the retail company said. “Something damaging could get out and the company might never be able to repair the damage.”

Another event attendee agreed that this misinterpretation is a significant reason for keeping CbC data private: “The proposal to make CbCR publicly available would be counter-productive because the public does not understand the complexity of tax.”

Not every tax director takes this view though. After all, US companies are used to publishing financial statements detailing every aspect of their business – including their tax affairs – to the press and public.

One vice president of tax at a US energy business is not worried about CbCR. “If increased transparency is causing you angst, I think you’ve got a problem,” the vice president said. “It’s here to stay. You see it with our auditors and our board of directors.”

“Frankly, you’ve got bigger problems. The definitional changes in transfer pricing are much more important and all taxpayers need to move on this,” he added.

Regardless, CbC reports can be exchanged under tax treaties, noted Brian Gleicher, head of the TP practice at White & Case. He warned that audits from CbCR data will come and disputes will arise from this.

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