CbCR Reporting: What It Is and How to Comply

Country-by-Country (CbC) Reporting is a tax transparency measure that applies to large multinational enterprises (MNEs). It originated from the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project. The purpose of CbCR is to provide tax administrations with a high-level overview of a company’s global allocation of income, taxes paid, and certain indicators of economic activity. This information helps authorities assess transfer pricing risks and other risks related to base erosion and profit shifting.

The framework creates a standardized format for MNEs to report financial data for each tax jurisdiction where they operate. This ensures that profits are taxed where economic activities are performed. The implementation of CbCR is a coordinated effort, with many countries embedding the requirements into their domestic law.

Determining Filing Requirements

A Multinational Enterprise (MNE) Group is a collection of companies that are related through ownership or control and operate in more than one country, or tax jurisdiction. This structure includes a parent company and its various subsidiaries, branches, or permanent establishments in different countries. The cross-border nature of its operations subjects the group to the tax laws of multiple jurisdictions.

The factor that triggers the CbCR obligation is a revenue threshold. The reporting requirement applies to MNE groups with annual consolidated group revenue of €750 million or more in the immediately preceding fiscal year. For U.S.-based companies, this threshold is $850 million. This revenue figure is based on the group’s consolidated financial statements for the prior year, meaning a company’s 2024 financial results determine its filing requirement for the 2025 reporting year.

At the top of the MNE group’s ownership structure is the Ultimate Parent Entity (UPE), which is the company not controlled by any other entity. The UPE is responsible for filing the CbC report on behalf of the entire MNE group in the jurisdiction where it is a tax resident. Each separate business unit within the MNE group is referred to as a Constituent Entity (CE). This includes any subsidiary, partnership, or permanent establishment of the MNE group that is included in the consolidated financial statements.

Information Required for the CbC Report

The CbC report is structured around three distinct tables. Table 1 requires an MNE group to provide an overview of its financial activities aggregated for every tax jurisdiction in which it operates. This includes total revenues, broken down to distinguish between revenues from related parties and those from unrelated parties. It also requires the reporting of profit or loss before income tax for all constituent entities resident in a particular tax jurisdiction.

Further financial details are required in Table 1, such as the amount of income tax paid on a cash basis and the income tax accrued for the current year. The table also mandates the disclosure of the MNE’s stated capital and its accumulated earnings. To provide a sense of the scale of operations, the report must include the total number of employees on a full-time equivalent basis and the net book value of tangible assets.

Table 2 of the CbC report serves as a directory of the MNE group’s structure. This section requires a listing of all constituent entities that are part of the group. For each entity listed, the report must identify its tax jurisdiction of residence and a description of the main business activities carried out by each constituent entity.

The final part of the report, Table 3, is designated for additional information. This section allows the MNE group to provide any necessary context, explanations, or clarifications regarding the data submitted. A company might use this space to explain the source of its data or discuss changes in accounting principles that affect the reported numbers.

The CbCR Filing Process

For a U.S.-based MNE group where the Ultimate Parent Entity (UPE) is located in the United States, the filing process is integrated with its tax compliance cycle. The completed Form 8975, the Country-by-Country Report, must be attached to the UPE’s annual federal income tax return. This means the CbC report is due at the same time as the corporate tax return, including any extensions.

There are situations where an entity other than the UPE files the CbC report, a process known as Surrogate Parent Entity (SPE) filing. This can occur if the UPE is not obligated to file a CbC report in its jurisdiction of tax residence. It can also happen if that jurisdiction does not have a qualifying agreement for the exchange of CbC reports with a country where the MNE operates. The MNE group can designate one of its constituent entities to act as the surrogate parent.

A third filing scenario is local filing, which places the reporting obligation directly on a local constituent entity. This is triggered when the UPE is not required to file in its home country, there is no surrogate filing, and the UPE’s jurisdiction lacks an active information exchange agreement with the local tax authority. The local subsidiary or branch may then be required to file a CbC report directly with its local tax administration.

Once a CbC report is filed, it is not intended to remain solely with the tax authority that initially received it. The BEPS framework established a system for the automatic exchange of these reports between the tax administrations of different countries. This is facilitated by international agreements and ensures that tax authorities in all jurisdictions where an MNE operates have access to the same high-level information.

Broader BEPS Documentation

The CbC report is one component of a three-tiered approach to transfer pricing documentation. Another document is the Master File, which provides a high-level overview of the MNE’s global business. Its purpose is to give tax administrations an understanding of the MNE’s operations, including its organizational structure, its main business drivers, and its overall transfer pricing policies.

The contents of the Master File include information about the MNE’s value chains, a description of its intangible assets, and details about its intercompany financial activities. It outlines the group’s policies on transfer pricing, providing a framework for how prices are set for transactions between its constituent entities.

The third tier of the documentation is the Local File, which provides detailed information specific to a particular tax jurisdiction. The purpose of the Local File is to justify the transfer pricing outcomes for the local constituent entity. It focuses on material intercompany transactions that take place within that specific country, providing a detailed analysis to demonstrate that these transactions were conducted at arm’s length.

These three documents—the CbC Report, the Master File, and the Local File—are designed to work together to provide tax authorities with a complete picture of an MNE’s tax position. The CbC Report offers a risk assessment tool, the Master File provides global context, and the Local File contains the detailed transactional justification. This approach enhances transparency and allows tax administrations to assess transfer pricing risks.