Monaco is committed to the fight against tax base erosion and profit shifting.
Background Information
The Principality of Monaco undertook, on 17 May 2016, to adopt all the mandatory measures of the BEPS (fight against base erosion and profit shifting) and to apply them consistently. This commitment and the consequent levelling up to international standards is a natural move that reflects H.S.H. the Sovereign Prince's determination to support the global movement to enhance tax transparency.
The 15 actions BEPS, published in October 2015, provide states with national and international instruments to fight against the erosion of the tax basis. However, at this stage, only 4 actions are mandatory (actions 5, 6, 13 and 14).
In order to implement Actions 6 and 14, the Principality of Monaco has acceded to the Multilateral Convention for the Implementation of Measures on Tax Conventions to Prevent Base Erosion and Profit Shifting (the "MLI"). On 7 June 2017, more than 70 ministers and high-level representatives took part in the MLI signing ceremony at the Château de la Muette, the OECD headquarters in Paris, including Minister of State Serge Telle, accompanied by the Ambassador Extraordinary and Plenipotentiary of the Principality of Monaco to France, Mr. Claude Cottalorda.
The new convention, an unprecedented multilateral agreement, allows jurisdictions to translate the results of the OECD and G20 BEPS project into their existing networks of bilateral tax treaties.
A closer look at BEPS Action 13
The action 13 sets out a reporting requirement of a " Country-by-Country report" for all entities whose total consolidated group turnover is greater than or equal to 750 million euros.
Thus, these companies will have to transmit annually to the tax authorities of their State of residence, for each country in which they operate, Country-by-Country declarations which will then be exchanged between the tax administrations concerned.
In order to meet the unique requirements of Action 13, the Principality has signed the Multilateral Agreement between Competent Authorities on the exchange of Country-by-Country declarations dated 2 November 2017.
A total of 101 jurisdictions have signed this agreement between competent authorities to enable the exchange of Country-by-Country declarations between jurisdictions party to the Multilateral Convention on Administrative Assistance.
General questions
CbC reporting (Country by Country reporting) is being introduced in the context of the Principality’s implementation of Action 13 of the OECD’s BEPS Action Plan.
The BEPS (Base erosion and profit shifting) initiative was developed by the OECD in a bid to counter the tax optimisation strategies devised by some companies, who take advantage of the lack of tax harmonisation at the international level to artificially transfer their profits to low or no tax countries.
In this context, participating countries will have to share with other participating countries some information about multinational enterprises operating within their countries in order to allow the tax authorities in participating countries to determine whether transactions between companies that are part of the group in question comply with market conditions.
To find out more, please visit:
- The section La fiscalité internationale
- The OECD website: base erosion and profit shifting
A Country-by-Country report:
- Is produced by the ultimate parent entity (or a surrogate parent entity designated by the parent entity, subject to conditions) of MNE groups with consolidated annual revenue of more than EUR 750 million before tax
- Contains the following information: revenue, pre-tax profit or loss, income tax paid, income tax accrued, share capital, retained earnings, staff and tangible assets excluding cash or cash equivalents for each of the jurisdictions in which multinational enterprise groups operates
- Is drawn up for each country in which the group has constituent entities
CbC reporting aims:
- To reduce the gaps and mismatches in tax rules between different countries which are used by multinational enterprises leading to BEPS
- To restore the tax base in countries which generate the group’s business
- To increase international fiscal transparency and improve the access of the respective tax authorities to information about the global distribution of profits, taxes paid and some indicators of the location of economic activity between tax jurisdictions in which multinational enterprise groups operate, with the goal of carrying out an overall assessment of transfer pricing risks and other base erosion and profit shifting risks including, where necessary, for economic and statistical analysis purposes
Impact
The OECD has developed a multilateral instrument enabling CbC reports to be shared.
To date, more than 100 countries had committed to introducing Country-by-Country reporting (CbC reporting).
Regulations on exchanging Country-by-Country reporting came into force with the publication of Sovereign Ordinances no. 6712 and no. 6713 of 14 December 2017 which promulgate the multilateral agreement between competent authorities relating to the exchange of Country-by-Country reports and set out the procedures for applying the regulations in the Principality.
The first countries to implement BEPS Action exchanged Country-by-Country reports relating to the 2016 fiscal year. This particularly concerns all EU member states.
In Monaco, the first declarations will need to be sent to the Department of Tax Services for the fiscal year beginning 1 January 2018.
Any company that is part of a multinational enterprise group, defined as follows:
- Multinational enterprise groups: any group that includes two or more enterprises, the tax residence for which is in different jurisdictions, or includes an enterprise that is resident for tax purposes in one jurisdiction but which is subject to tax in another jurisdiction in respect of activities carried out through a permanent establishment, and which is not an excluded multinational enterprise group
- Excluded multinational enterprise groups: this is a group which, with respect to any fiscal year of the group, has total consolidated group revenue of less than EUR 750 million during the fiscal year immediately preceding the reporting fiscal year, as reflected in its consolidated financial statements for such preceding fiscal year
The group’s entities will be subdivided into:
- The group’s reporting entity
- Other constituent entities of the group
No, SMEs should not be impacted since Country-by-Country reporting only applies to groups with consolidated annual revenue during the preceding year of more than EUR 750 million.
Implementation of Monaco’s commitment
Any reporting entity which is resident in Monaco for tax purposes will have to send the Department of Tax Services a Country-by-Country report for the reporting year.
A reporting entity is:
- Any ultimate parent entity of a multinational enterprise group resident in Monaco for tax purposes
- A Monegasque surrogate parent entity, which is a constituent entity of the group and duly mandated by the group where one of the following conditions is met:
- The multinational enterprise group parent entity is not obliged to submit a Country-by-Country report in the jurisdiction where it is resident for tax purposes ; or
- The jurisdiction in which the ultimate parent entity is resident has, for tax purposes, concluded an international agreement to which the Principality of Monaco is a party, but is not party to an eligible agreement between competent authorities in force in Monaco on the date set out in Article 6 for the submission of the Country-by-Country report for the reporting fiscal year; or
- The Department of Tax Services has notified the constituent entity resident in Monaco for tax purposes of a systemic failure in the tax jurisdiction of the ultimate parent entity
The Country-by-Country declaration is to be submitted:
- For financial years beginning on or after 1 January 2018
- Within 12 months after the last day of the reportable tax year
The first reports for 2018 were due to be filed during 2019, and on an annual basis thereafter.
A constituent entity is defined as follows:
- (i) Any separate business unit of a multinational enterprise group that is included in the consolidated financial statements of the multinational enterprise group for financial reporting purposes, or would be so included if equity interests in this business unit of a multinational enterprise group were traded on a public securities exchange
- (ii) Any such business unit that is excluded from the multinational enterprise group consolidated financial statements solely on size or materiality grounds; and
- Any permanent establishment of any separate business unit of the multinational enterprise group in the following categories, (i) or (ii) above, provided the business unit prepares a separate financial statement for this permanent establishment for regulatory, tax, financial reporting or internal management control purposes
Where a constituent entity of a multinational enterprise group
that is resident in Monaco for tax purposes is not the ultimate parent entity or surrogate parent entity, it must inform the Department of Tax Services of the identity and tax jurisdiction of the reporting entity.
This information must be provided to the Department of Tax Services before the last day of the multinational enterprise group’s reporting fiscal year.
Note that, in the presence of several constituent companies in Monaco, each of these entities must prepare this declaration.
For groups closing their accounts on 31/12, the deadline for submitting the initial report to be produced by the Monegasque constituent entity will be 31/12/2018.
See the procedure: How to make a country-by-country declaration or a reporting Entity declaration
Reports received by the Department of Tax Services will be sent to the tax authorities in countries where the constituent enterprises of a Monaco reporting entity are present, and with which Monaco has signed an agreement to share Country-by-Country reports.
Monaco receives reports from reporting Entities in countries that have signed the OECD Multilateral Agreement between competent authorities on the exchange of Country-by-Country tax returns, with which the Principality has active exchanges, and which have a constituent entity in Monaco at the time of reporting. These reports will come from all relevant groups with a constituent entity operating in Monaco.
OECD guidelines on the implementation of Country-by-Country reporting
The aim of these guidelines is to enable consistent application of Country-by-Country reporting throughout the world. For more information on implementation, please consult the OECD guides and recommendations via the following link.
For more information, please refer to the full set of guidelines and the documents on transfer pricing and country-by-country reporting published on the OECD's official website.