CRA provides detailed guidance on the CbCR rules

On Thursday, CRA released its guide on the Country-by-Country Reporting (CbCR) legislation (s. 233.8) and related return-completion guidelines. CRA comments include:

• The BEPS Action 13 Final Report should be a “useful” source in interpreting s. 233.8.
• “CRA intends to provide a reasonable degree of flexibility for MNE groups filing a CbC report in Canada in respect of their initial reporting fiscal year, where guidance or interpretation on certain issues may not have been available….”
• Some accommodations are being made for ultimate parent entities (UPEs) which are resident in jurisdictions which have been somewhat slow in implementing their legal CbCR framework.
• The s. 233.8 definition of “excluded MNE group” (i.e., excluded from CbCR reporting obligations) references consolidated annual group revenue of €750M, whereas some other jurisdictions reference the local currency equivalent of this. Provided that such jurisdiction “has implemented a reporting threshold that is a near equivalent of €750 million in its domestic currency as it was at January 2015, an MNE group that complies with this local threshold will not be subject to the secondary reporting mechanism in Canada.”
• Also, use of an average annual exchange rate is permitted in translating revenues for purposes of applying the €750M threshold.
• A Canadian entity completing the report can fill in the amounts using its functional currency, if it has made a functional currency election.
• Respecting the reporting of “Revenues-Related party” (i.e., “revenues arising from transactions between entities not dealing at arm’s length”), “the financial results of all intercompany transactions within the same jurisdiction must be aggregated and not consolidated” (which is easy to say).
• Where there has been a takeover or reorg during the fiscal year resulting in a new UPE (including perhaps one in the same jurisdiction), the old UPE reports results up to that time, and the new UPE for the balance of the fiscal year (also easy to say).
• Investment funds should follow their accounting treatment in determining whether investees are part of their consolidated group, so that unless the investees are consolidated (as contrasted presumably with equity accounting), they can be ignored.
• As the CbCR is supposed to be used only for risk assessment, “CRA will not use CbCR information, by itself, to make reassessments to the income of a taxpayer.”

Neal Armstrong. Summaries of RC4651 “Guidance on Country-By-Country Reporting in Canada” 2 March 2017 under s. 233.8(3), s. 233.8(1) - excluded MNE group, s. 241(1) and s. 247(2).