CbCR: Definition, Process, and Notification Obligations

CbCR : Definition, Process, and Notification Obligations , Imagine a huge tree growing in the middle of a forest. Each of its branches is towering, its leaves are dense and spread in all directions. This tree is a representation of a multinational business group that has many member entities spread across various countries.

Each branch, like each member entity, has a different role and contribution in providing nutrients and energy to the tree. To know how well the tree is growing and thriving, a report is needed that can describe the overall performance of the tree. In the business world, this report is known as a Country by Country Report (CbCR).

Just like a large tree that requires comprehensive attention and monitoring, multinational business groups also require close scrutiny to ensure tax transparency and compliance. Therefore, in addition to submitting CbCR, taxpayers incorporated in multinational business groups must also submit notifications to the Directorate General of Taxes (DGT). In this article, Pajakku will discuss the CbCR notification obligation and its submission steps.

Definition of CbCR

CbCR is a transfer pricing document that includes information on the allocation of income, profits, taxes, and business activities of each member entity of a multinational business group in various countries. The report is designed to increase transparency and prevent tax avoidance practices between countries. The CbCR is prepared according to international standards and exchanged between the tax authorities of the countries involved according to signed agreements.

Indonesia, as one of the countries committed to implementing this standard, has signed the Multilateral Competent Authority Agreement (MCAA) on the Exchange of Country-by-Country Reports on 26 January 2017. Therefore, taxpayers who are the parent entity of a multinational business group must submit CbCR to DGT which will then be exchanged automatically (Automatic Exchange of Information/AEoI) with other countries’ tax authorities that have Qualifying Competent Authority Agreement (QCAA) with Indonesia. Conversely, Indonesia will also receive CbCR from other countries related to Indonesian taxpayers whose parent entities are located overseas.

Indonesia implements CbCR as an effort to address tax base erosion and profit shifting (BEPS) that is detrimental to the country. In addition, CbCR also aims to encourage taxpayer transparency in transactions with related parties.

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CbCR Reporting Notification Obligation

Corporate taxpayers who have related party transactions or are members of a business group, must submit a notification. In fact, corporate taxpayers who do not have related party transactions but are members of a business group are still required to submit a notification.

Indonesia has issued Minister of Finance Regulation Number 213 Year 2016 that regulates this obligation. Based on the regulation, taxpayers who fulfil certain criteria must prepare and/or submit three types of transfer pricing documents, namely master file, local file, and CbCR.

Steps to Submit CbCR Notification

To submit a CbCR notification online, here are the steps:

Log in to the DGT Online website with your existing account
Activate the “e-CbC Reporting” feature in the account settings menu
After the feature is active, select the “e-CbC Reporting” service on the main menu
Select the appropriate tax year. For example, for submission in December 2023, select tax year 2022
Answer the questions that appear according to the company’s condition. If you are required to submit CbCR, upload the CbCR file and working paper on the menu provided. CbCR file and working paper must be in XML format according to DGT standard.
After answering the questions, you will see a summary of the taxpayer’s status. Enter the verification code and click “Submit”
If the submission is successful, you will get a Report Submission Receipt per Country

In conclusion, the submission of CbCR notification is an important part of increasing transparency and preventing tax avoidance between countries. Through the implementation of CbCR, Indonesia seeks to address tax base erosion and profit shifting that can harm the country, as well as encourage transparency and taxpayer compliance.

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