Netherlands delays first notification obligation under country-by-country reporting rules

In a decree published on 21 November the Dutch State Secretary of Finance has allowed multinational groups (MNE) with a taxable presence in the Netherlands to delay the first notification under country-by-country reporting (CbCr) rules to 1 September 2017.

As a result of the implementation of action point 13 of the BEPS project, MNEs with tax years starting on or after 1 January 2016 are subject to new and standardised documentation obligations in respect of intra-group transfer pricing. Based on these documentation obligations, reporting entities must submit a country file on the MNE to the tax authorities in its country of residence. The information in the country file will subsequently be automatically exchanged with other tax authorities.

To determine which entity of the MNE is the actual reporting entity for CbCr purposes, the MNE must ascertain which countries agreed to the exchange of CbCr information. This will be the case if the other jurisdiction also has signed the Multilateral Competent Authority Agreement (MCAA) and has notified the OECD accordingly. Under the notification, a country declares that it has implemented the CbCr rules and it states with which other countries it will exchange the country information. In case of two corresponding countries, there will an exchange relationship. A similar “matching process” took place in respect of the exchange of information under the Common Reporting Standards.

As at 21 October 2016 49 countries have signed the MCAA. Currently only 10 countries have actually implemented CbCr rules in their domestic legislation. It is now expected that the OECD will set the deadline for the implementation and notification under the MCAA at 1 July 2017. Taking into account a reasonable time for the matching process, it should be clear by the end of August 2017 which countries have reached an agreement for the exchange of information.

Under the CbCr rules as now implemented in the Netherlands, a MNE with a taxable presence in the Netherlands must notify the tax authorities ultimately before the end of the tax year starting on or after 1 January 2016 (i.e. in most case by 31 December 2016) which entity of the MNE will be the reporting entity for CbCr purposes. It is clear that not all MCAA notifications will be made, and the matching process will not be finished, before this first mandatory notification date in the Netherlands. It is considered unreasonable to demand from MNEs to decide on their reporting entity before there is more clarity on which countries have actually agreed to the MCAA and notified the OECD.

The Dutch State Secretary of Finance has therefore decided that in a relaxation of the Dutch CbCr rules, a MNE must now notify the Dutch tax authorities on the group entity that will be the ultimate parent company, the surrogate parent entity or the reporting entity before 1 September 2017. This only applies if the last day of the tax year of the MNE is before 31 August 2017.

In the Decree of 21 November 2016, the State Secretary of Finance made two additional announcements. He announced that the automated notification tool as developed by the Dutch tax authorities will become the mandatory way of notification for all MNEs.

In addition he announced a proposal in respect of voluntary filing. In October the OECD published guidance on the situation in which countries have not timely implemented CbCr rules for tax years starting on or after 1 January 2016. To prevent that group entities of MNE temporarily falling back on “local filing”, the OECD recommends that countries, in anticipation of the implementation of CbCr rules in the relevant country, allow for the country report to be filed by the ultimate parent company in its country of residence. A proposal that allows voluntary/ parent surrogate filling will be published shortly.