Country-by-country reporting and COVID-19: CbC data is becoming a big deal in TP controversy
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Country-by-country reporting and COVID-19: CbC data is becoming a big deal in TP controversy

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Juan Ignacio de Molina and Christine Ramsay of Deloitte consider the increased reliance of tax authorities on CbCR data and how the data reported in the CbCR during the COVID-19 pandemic could impede its use.

Now OECD BEPS Action 13 requires organisations to report transfer pricing (TP) documentation and country-by-country (CbC) reporting, there is increased evidence that tax authorities are becoming more sophisticated in using CbC data to identify high-risk tax arrangements for multinational corporations (MNCs).

Tax authorities now have access to significant amounts of data as never before, to aid them in evaluating and selecting TP and tax audits. This includes utilising the automatic exchange of information (AOEI) mechanism to request information from low-tax or no-tax jurisdictions.

While 2020 has been an abnormal year, the COVID-19 pandemic will likely have longer term impact on how MNCs operate when it comes to virtual workforce, de-globalisation and redefining of business operating models (especially for certain industries).

These imminent changes will have a direct impact on the CbC data reported by MNCs. This ‘abnormal’ data may in turn impact tax authorities’ ability in using CbC data effectively on new audit risk assessments. While MNCs strive to sustain and recover from the economic disruption caused by the pandemic, the CbC data will likely reflect anomalies in light of the pandemic, causing any CbC data trend analyses to be erratic and potentially irrelevant to the tax authorities.

Further, to promote greater corporate transparency for MNCs, the EU member states are negotiating a public country-by-country reporting directive (see proposal to modify Directive 2013/34/UE for further fiscal transparency). If an agreement is reached, there will be wider implications alongside compliance requirements in the existing CbC report filings and DAC6 disclosures. This proposed EU public CbC directive will also have an underlying impact on MNCs’ corporate brand equity should this data be made available to the general public.

COVID-19 implications on CbC data

With CbC reporting, tax authorities now have available to them an unprecedentedly significant amount of taxpayer data. However, it is not yet clear how tax authorities have been relying on CbC data to audit taxpayers and TP arrangements to date.

When dealing with this abundance of additional taxpayer data, many tax authorities have invested in technical advances in data analytics to initiate TP audits, while others have been spending time analysing and interpreting the data to perform risk assessments. While tax authorities have been developing data driven insights based on CbC data, they now have to grapple with the impact the COVID-19 pandemic will have on data being reported by taxpayers in 2020.

The COVID-19 pandemic certainly has a multi-faceted impact on how businesses operate. Companies need to stay agile and think ahead in order to adapt to the evolving business landscape and consumer behaviours.

One apparent trend that has resulted from the pandemic is the increased acceptance by companies on having a remote workforce, which provides the flexibility for employees to work in a chosen location other than working in a traditional office setting in a fixed location.

When MNCs report their number of employees by tax jurisdiction on CbC reports, the impact of COVID-19 may muddy the waters on the headcount reported in each tax jurisdiction. Based on the current CbC report definition, the ‘number of employees’ includes full-time employees, independent contractors and seconded employees participating in ordinary operating activities of the constituent entity.

There may indeed be a drastic change in the year-on-year ‘number of employees’ reported in 2020, given many MNCs had to furlough or modify work arrangements with employees to more flexible arrangements including part-time or casual workers as part of cost cutting and/or providing employees with work-life balance flexibility.

Further, with the current ‘war on talent’ in certain industries, many companies are hiring senior level employees who are based in locations where the MNC may not even have a local presence as a way to address changing business needs. These new global hiring practices will need reporting on the CbC report and potentially increase permanent establishment risks for MNCs if the locations of the workforce are not monitored closely, which naturally leads to higher scrutiny by tax authorities of permanent establishment issues and the potential attribution of income to such permanent establishments.

Generally speaking, as a result of the pandemic, there are industries that are flourishing (e.g. life sciences and technology sectors) while others are suffering (e.g. hospitality sector and consumer product sectors with ‘bricks-and-mortar’ stores).

The CbC data reported for 2020 will no doubt reflect this and the resulting data anomalies may not provide the tax authorities with a coherent starting point from which to conduct a risk assessment, particularly given all of the factors impacting the data going into the CbC report.

For many industries, there will certainly be more observable losses in the ‘profit (loss) before income tax’ column on the CbC reports. This indicates that, on a single-year basis, it may be hard to immediately identify the location of entities with limited risks and functions on the CbC reports. On a multi-year basis, it would be very interesting to observe the year-on-year changes to CbC data reported for each jurisdiction, especially for limited risk entities that reported losses in 2020.

TP structures and substance are two key focus areas that are generally targeted in data-driven audit practices. The impact of the pandemic on the CbC data will make it increasingly difficult for tax authorities to ascertain if there have been changes to TP structures or overall substance.

To exacerbate trying to interpret the skewed CbC data, the numerous COVID relief incentives offered by local governments will add extra implications to the global allocation of income despite guidance issued by the OECD and certain local tax authorities on the treatment of these government assistance programmes.

As MNCs’ business operating models adapt to a post pandemic ‘new’ normal, the CbC data may not paint as clear a picture as in prior years, reducing its reliability and effectiveness as a screening tool for tax authorities’ audit risk assessment for the 2020 year. Nonetheless, the authors believe that tax authorities will continue to utilise CbC data as one of the risk assessment tools given its availability and that more data is better than less data.

As businesses return to the ‘new’ normal, tax authorities will resume their scrutiny on MNCs’ TP arrangements and will likely include 2020 in their audit assessments. After all, tax revenues provide a key source of government revenue to ease significant budget deficits that have built-up as a result of the tremendous government spending on COVID-19 relief funds and incentives.

In the short term, there will no doubt be a lot of controversy on the TP policies adopted by MNCs during the pandemic and post-pandemic years and MNCs will need to be diligent in ensuring that they have the appropriate evidence to support their CbC data as a first line of defence in audits.

The authors also envisage that there will likely be more controversy cases that will end up in the mutual agreement procedure programme, where the tax authorities will have to collaborate and agree on the global allocation of income or losses. It is likely that many MNCs have incurred losses in 2020 and will continue to incur losses in the short term.

Therefore, it will come down to determining the jurisdiction(s) that should bear the losses and agreeing on a methodology of how to split the losses, which will be challenging given the lack of publicly available arm’s-length data for extraordinary events similar to the pandemic.

EU public country-by-country report

In addition to the CbC reporting requirements which originated from the OECD BEPS Action 13 report (BEPS CbC), the EU is discussing a public CbC reporting directive (EU Public CbC).

While the reader might be familiar with the content of the BEPS CbC, it is worth comparing its requirements against the EU Public CbC. Both the BEPS CbC and the EU Public CbC have to be filed by MNCs having total consolidated group revenue of at least €750 million (approximately $888 million).

The main difference in the content of these two CbCs is that the EU Public CbC is only applicable to EU companies and is somewhat a reduced version of the BEPS CbC. The EU Public CbC requires companies to report the following data on an aggregated basis per member state:

  • Nature of the activities within the EU member state;

  • Number of employees;

  • Profit/loss before income taxes;

  • Accrued and paid taxes; and

  • Equity.

This information has to be listed per EU member state and countries included in the EU list of non-cooperative tax jurisdictions (EU list of non-cooperative tax jurisdictions approved by the ECOFIN). The rest of the information on countries outside the EU has to be detailed only on an aggregated basis.

The EU Public CbC will come into force 18 months following its approval by the EU Council and Parliament, so it will most likely be applicable to fiscal years starting January 2023 or 2024. In order to protect the competitiveness of EU entities, it includes a clause that allows a deferral of filing the report by up to five years. This is to protect trade secrets or business strategies. The EU Public CbC will have to be filed electronically, using a standard template, 12 months after the end of the fiscal year.

Clearly, the EU Public CbC is a measure of public transparency that seeks the avoidance of base erosion or profit shifting among tax jurisdictions. It is the same objective as the BEPS CbC, but with an EU focus.

MNCs have raised concerns on disclosing this information publicly. The main concern is how the data may be interpreted by the wider public. This not only has an impact on competitiveness and business secrets tors, it could also have a major impact on reputation and business (e.g. if consumer behaviour changes due to what they consider ‘unfair payment of taxes’, negative analysis by investors and shareholders, etc.). Many MNCs are asking that the EU Public CbC template be filed together with an explanatory document on how to interpret the data to avoid misinterpretation.

A TP controversy perspective

Every other year, Deloitte conducts a survey on the TP controversy landscape in over 60 countries. The 2021 survey shows that 73% of tax authorities in the countries surveyed use CbC reports ‘frequently’ or ‘sometimes’ as part of risk assessment. This percentage increases to 92% for the APAC region. In addition, 62% of tax authorities use CbC reports ‘frequently’ or ‘sometimes’ during TP audits.

In Spain, for example, the tax audit plan has publicly confirmed the use of big data to analyse TP risks through an automated risk analysis. Tax authorities have already developed, or are in the process of developing, tools to analyse the tax data they have obtained. The amount of data is impressive.

In Europe, tax authorities can analyse information from:

  • Tax returns;

  • TP reports and filings;

  • DAC3 information (EU Directive on Administrative Co-operation 3, ‘DAC3’, introduced the automatic exchange of tax rulings and advance pricing agreements – APAs);

  • DAC6 information (EU Directive on Administrative Co-operation 6, ‘DAC6’, as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements);

  • Audited financial statements;

  • VAT real time reporting systems;

  • Public databases (e.g. Bloomberg, Orbis);

  • Transparency reports (by listed companies); and

  • Own databases (personal income tax returns, wealth tax information, etc.).

The tools or solutions that are being developed will aim to analyse all this data in a holistic manner. Initially, much of the data analysis has relied on the use of financial ratios (for example related party transactions/turnover, profit/employees, debt/equity per industry) but it is expected this will evolve into a much more detailed and sophisticated analysis driven by data analytics.

From a tax authority perspective, EU Public CbC could be seen as not having a big impact since they already have the full BEPS CbC. However, it is fair to say that the relevant analyses published by other interested parties will clearly be of interest to tax authorities and provide additional resources for audit cases. These analyses may include NGOs reports, media publications, industry analysis by sector and publications by universities and professors.

Based on Deloitte’s discussions with MNCs and tax authorities, the expected impact of this EU Public CbC can be summarised as:

  • A reduction in tax planning and the use of tax haven jurisdictions with a slight progressive increase in average tax rates;

  • A spotlight on MNCs that could affect their competitiveness and reputation; and

  • An increase in resources needed in MNCs to improve their tax corporate governance and responsibilities.


In an era of accessibility to big data and technology-enabled data analytics, MNCs need to be cognisant of the sensitivity and corresponding risks involved in their CbC data as well as other data made available to the tax authorities and to the general public. It is paramount that MNCs take steps to check their CbC data is well supported and aligned with the TP arrangements, especially in abnormal years like the COVID-19 pandemic years.

With a growing public expectation of greater corporate transparency, it is also crucial for MNCs to think beyond tax when considering their intercompany tax and TP arrangements, given that any tax-related actions may have broader implications on the company as a whole.

Click here to read Deloitte's TP Controversy Guide 2021

Juan Ignacio de Molina



Deloitte Spain

T: +34 60 862 4064


Juan Ignacio de Molina is a TP partner in the international tax group at Deloitte Spain. He joined Deloitte Spain in 2009.

Juan Ignacio specialises in all TP matters and he has particular expertise in the financial industry, TP controversy, energy, construction, pharma, retail and auto industries. Throughout his career he has participated and coordinated supply chain management (business model optimisation) projects, TP projects, intangible valuation, restructuring, intra-group financing, research and development and IT licenses.

Deloitte was appointed by ITR as best TP practitioner in Spain for 2009, 2010, 2011, 2015, 2018 and 2019. Juan Ignacio was included in ‘Best Lawyers’ for Spain in 2014.

Christine Ramsay



Deloitte Canada

T: +1 41 6601 6485


Christine Ramsay is a partner and the national service line leader of Deloitte Canada’s TP practice. She has more than 22 years of TP experience.

Christine has assisted multinational clients covering a broad cross-section of TP issues in a variety of situations from establishing, documenting and defending TP policies. She has advised numerous multinational companies in media and entertainment, hospitality and leisure, high-end luxury goods retail and wholesale, consumer products, mining, manufacturing, pharmaceutical, business services, and trading companies. The transactions addressed varied from transfers of tangible goods, provision of services, licensing of intangibles, determination of interest rates, to complex restructurings and redesigns of business and TP models as well as transaction flows.

Christine’s TP experience is also focused on dispute resolution. She has successfully defended companies in tax disputes, including the preparation of audit defence strategies and representing clients before the Canadian tax authorities in TP field audits and APA assignments, in addition to advising clients through the competent authority process.

Christine has been recognised as one of the top tax controversy leaders, in addition to a leading female tax advisor by ITR.

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