Spain: Handbook on Effective Tax Risk Assessment by using CbC Reporting and examples of potential tax risk indicators

​​​​​Published on October 26, 2017

On September 29th, a second Handbook on Effective Tax Risk Assessment by On September 29th, a Handbook on Effective Tax Risk Assessment by using the Country-by-Country (CbC) Reporting has been published by the OECD. According to the OECD ”This handbook supports countries in the effective use of CbC Reports by incorporating them into a tax authority's risk assessment process". This is a second Handbook released by OECD after the Handbook on Effective Implementation of Country-by-Country Reporting.

This handbook would help tax authorities and taxpayers to detect and identify transfer pricing risks and other BEPS-related risk.

1. The footprint of a group in a particular jurisdiction
2. A group's activities in a jurisdiction are limited to those that pose less risk
3. There is a high value or high proportion of related party revenues in a particular jurisdiction
4. The results in a jurisdiction deviate from potential comparable
5. The results in a jurisdiction do not reflect market trends
6. There are jurisdictions with significant profits but little substantial activity 
7. There are jurisdictions with significant profits but low levels of tax accrued 
8. There are jurisdictions with significant activities but low levels of profit (or losses)
9. A group has activities in jurisdictions which pose a BEPS risk 
10. A group has mobile activities located in jurisdictions where the group pays a lower rate or level of tax
11. There have been changes in a group's structure, including the location of assets
12. Intellectual property (IP) is separated from related activities within a group 
13. A group has marketing entities located in jurisdictions outside its key markets 
14. A group has procurement entities located in jurisdictions outside its key manufacturing locations 
15. Income tax paid is consistently lower than income tax accrued 
16. A group includes dual resident entities 
17. A group includes entities with no tax residence 
18. A group discloses stateless revenues 
19. Information in a group's CbC Report does not correspond with information previously provided by a constituent entity

Nevertheless, according to OECD, these situations should not be used by themselves as indicators of an increased tax risk in a jurisdiction, but their combination can provide a general overview of the main tax risks of a MNE Group.

As previously indicated by Rödl & Partner, MNE Groups should analyse the supplementary remarks with regard to the CbCR at an early stage and take countermeasures, in order to avoid or reduce tax risks.