Global tax transparency is a major concern for many countries, including Indonesia. To promote increased transparency the government is now adopting the Country-by-Country Report (CbCR) mechanism.
The obligation to submit a CbCR only applies to certain entities within multinational enterprise groups that meet specific revenue thresholds.
To know if your company must submit a CbCR and ensure compliance with international tax regulations it is important to first understand the report’s basic concept and role in the global tax system.
WHAT IS A CBCR?
A CbCR provides a tax authority with a global overview of a multinational enterprise’s business activities across different countries. It can then conduct transfer pricing risk analysis and assess whether the company’s international profit allocations among were carried out appropriately.
In Indonesia, the obligation to submit CbCR is regulated under MoF No. 172 of 2023, which adopts international standards from the OECD Base Erosion and Profit Shifting (BEPS) Action Plan 13.
WHO IS REQUIRED TO SUBMIT A CBCR IN INDONESIA
In general, the obligation to submit CbCR applies to businesses that meet the following criteria:
- It is part of a multinational enterprise company/group, meaning a group of companies with entities operating in more than one country or tax jurisdiction.
- The company/group has consolidated gross revenue of at least EUR 750 million (or the equivalent in other currencies) in the previous fiscal year.
In practice, the reporting obligation usually lies with the Ultimate Parent Entity of the group. This entity is responsible for preparing and submitting the CbCR, which reflects the activities of all entities within the group across different countries.
However, a company in Indonesia may have a reporting obligation if the Ultimate Parent Entity is located in a jurisdiction that does not require CbCR or does not exchange tax information with Indonesia.
In such cases, the local entity may be designated as a surrogate parent entity, which is responsible for submitting the CbCR to the tax authority.
INFORMATION REPORTED IN CBCR
A CbCR relates not only to revenue or profit but provides a broader overview of the economic activities of a business group in each country where it operates.
Key information reported typically includes:
- Revenue earned from related and independent parties
- Profit or loss before tax
- Income tax paid and accrued
- Number of employees and tangible assets
- A list of group entities along with their main business activities
Through this data, tax authorities can conduct analyses to identify potential profit shifting to jurisdictions with lower tax rates.
THE IMPORTANCE OF ENSURING CBCR COMPLIANCE
For multinational companies, compliance with CbCR requirements is not merely a regulatory obligation. Preparing the report also requires strong coordination among various entities within the group, particularly regarding the consistency of financial data and business structures.
Errors in reporting, delays in submission, or inconsistencies in data may increase the risk of tax audits and potential administrative sanctions. It is therefore important for companies to ensure that their CbCR obligations are properly understood and managed.
DISCUSS YOUR COMPANY’S POTENTIAL CBCR OBLIGATIONS WITH MOORES ROWLAND INDONESIA
Moores Rowland Indonesia provides Transfer Pricing Advisory and Tax Compliance services that can assist companies in assessing their CbCR obligations, preparing the required documentation, and ensuring that the reporting process complies with applicable regulations.
Contact us to learn how our services can help your company manage CbCR obligations effectively while minimizing potential tax risks.
