The EUR 750 Million CbCR Threshold: Three Things Commonly Got Wrong

The Country-by-Country Reporting threshold is widely known as "EUR 750 million", and that figure is right. Almost everything else commonly said about it is subtly wrong, in three ways that each have a practical consequence.

It is a prior-year test, drafted as an exemption

The OECD's wording runs the opposite way to how the threshold is usually taught. There is "an exemption from the general filing requirement for MNE groups with annual consolidated group revenue in the immediately preceding fiscal year of less than EUR 750 million".

Two things follow. The test looks at the immediately preceding fiscal year, not the year being reported. And the drafting creates an exemption rather than an inclusion test, which is why the model legislation's defined term is "Excluded MNE Group" rather than anything resembling a reporting entity.

The OECD's own worked example makes the timing concrete: a group with EUR 625 million of consolidated revenue for calendar 2015 "would not be required to file the Country-by-Country Report in any jurisdiction with respect to its fiscal year ending 31 December 2016". A group that crosses the threshold this year starts filing for next year, not this one.

Local currency equivalents are frozen at January 2015

This is the trap with the largest practical effect and it is almost absent from free summaries. The threshold is EUR 750 million "or a near equivalent amount in domestic currency as of January 2015", and the OECD has confirmed that those equivalents are not re-based.

Its implementation guidance is explicit: "There is no requirement for a jurisdiction using a threshold denominated other than in euros to periodically revise this in order to reflect currency fluctuations", and an MNE group complying with its local threshold "should not be exposed to local filing in any other jurisdiction that is using a threshold denominated in a different currency".

So a decade of currency movement sits inside the thresholds. A group whose parent is in a jurisdiction with a non-euro threshold set in 2015 may be legitimately non-filing while exceeding EUR 750 million on today's exchange rates, and no other jurisdiction can use that to impose local filing. Anyone screening a group's obligation by converting EUR 750 million at a current rate is using the wrong number.

It is meant to exclude most groups, and that is the design

The OECD's own calibration is worth quoting to anyone who thinks the threshold is a loophole: it "will exclude approximately 85 to 90% of MNE groups from the requirement to file the Country-by-Country Report, but ... the Country-by-Country Report will nevertheless be filed by MNE groups controlling approximately 90 percent of corporate revenues".

What it does not do is carve out sectors. There are to be "no special industry exemptions ... no general exemption for investment funds ... and no exemption for non-corporate entities or non-public corporate entities". Size is the only gate.

One point to state carefully: the OECD committed to reconsider the threshold's appropriateness in a 2020 review of the minimum standard, and the outcome of that reconsideration is not something I can point to a document for. What is verifiable is that the figure remains EUR 750 million in the current Guidelines and in the consolidated implementation guidance. "The review retained the threshold" is a claim; "the threshold remains EUR 750 million in the current texts" is a fact.

One report, three destinations

The three-tiered structure confuses people because the tiers do not travel the same way.

The master file and the local file are filed directly with the tax administration in each relevant jurisdiction. The Country-by-Country Report is filed once, by the Ultimate Parent Entity in its own jurisdiction of tax residence, and then exchanged between authorities automatically — under the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, bilateral tax treaties, or tax information exchange agreements.

Two substitutes exist for the parent-files rule. A Surrogate Parent Entity may be appointed "as a sole substitute for the Ultimate Parent Entity". And local filing operates as a backup, triggered where the parent is not obliged to file, where no qualifying competent authority agreement is in effect, or where there has been what the OECD calls a "Systemic Failure" of the parent's jurisdiction.

And it is not public

OECD Country-by-Country Reporting is confidential between competent authorities. The conditions gating receipt are confidentiality, consistency and appropriate use, and jurisdictions commit to use the report "for assessing high-level transfer pricing risk" while being told they "should not propose adjustments to the income of any taxpayer on the basis of an income allocation formula" drawn from the data.

The OECD does not prohibit a jurisdiction from legislating its own public regime, and the EU has done exactly that through a separate directive. But the two should not be conflated: the OECD minimum standard is an authority-to-authority exchange, and its 2017 guidance on appropriate use refers to conditions that "prevent the information from being published".

Where this fits

The pattern here — an international standard whose practical effect depends on how each jurisdiction implemented it — is the same one behind our piece on the EU's IFRS 17 annual cohort exemption, where the same standard lawfully produces different numbers in different places. Our list of international accounting standards covers the reporting framework alongside it, and our piece on the two live versions of ISA 240 is another case where the date a rule applies from matters more than the rule itself.

The threshold, the three-tiered structure and the exchange mechanism are set out in Chapter V of the Transfer Pricing Guidelines and the Action 13 report, both published by the OECD. Note that a taxpayer's actual obligation arises from the domestic law implementing the standard, not from the Guidelines themselves.