Country-by-Country reporting: learn about this requirement for multinational groups

Country-by-Country Reporting (DPP) is an annual obligation that is mandatory for every corporate entity resident in Brazil for tax purposes that happens to be the ultimate parent company of a multinational group. The document aims to collect tax information related to global income allocation, sites of economic activities, and taxes paid and due from multinational companies. It was a jointly coordinated effort by the G-20 member countries and the Organisation for Economic Co-operation and Development - OECD, stemming from the BEPS project, an international commitment set in place to fight against base erosion and profit shifting. In Brazil, the tax obligation was created by Normative Instruction No. 1,681 issued by the Brazilian Federal Revenue Service on December 29, 2016.

The DPP is an integral part of the Tax Accounting Bookkeeping (ECF) and must be filled out annually with information relating to the tax year immediately preceding that of the submission of the ECF, whose deadline pertaining to the fiscal year of 2021 is set on August 31, 2022.

Residents in Brazil are exempt from submitting the DPP if their multinationals’ total consolidated income for the year immediately prior to the statement, as per the consolidated financial statements of their ultimate parent company, amounts to less than BRL 2,260,000,000.00 (or GBP 70 million or equivalent in the local currency of the country/jurisdiction for tax purposes of the group’s ultimate parent company).

Brazilian entities that are not required to submit the DPP shall provide the Federal Revenue Service of Brazil with their justification via Tax Accounting Bookkeeping (ECF), under Block W.

Even if a Brazilian legal entity is not an ultimate parent company, it must submit its DPP should any of the following situations occur:

The multinational group’s ultimate parent company of which it is part is not legally required to file a Country-by-Country Report in its country/jurisdiction of residence for tax purposes;

The ultimate parent company’s country/jurisdiction of residence for tax purposes has entered into an international agreement with Brazil, but has yet to sign a Multilateral Competent Authority Agreement with the country by the deadline for submission of the Country-by-Country Report;

A systemic failure took place at the ultimate parent company’s country/jurisdiction of residence for tax purposes, and a notice has been sent by the Brazilian Revenue Service to the constituent entity resident in Brazil.

Every constituent entity resident in Brazil for tax purposes must inform the Brazilian Revenue Service whether it is the ultimate parent company of a multinational group, a surrogate parent entity or a reporting entity.

Brazilian companies that fail to submit the information required by the DPP, or do it with inaccuracies, omissions or after the established due dates will be subject to the following fines:

In case of late submission: BRL 500.00 per month of delay or fraction thereof, if the company is starting its activities or if it has calculated taxes on profits under the Presumed Profit Method (PPM);

BRL 1,500.00 per month of delay or fraction thereof in other situations. This amount may be halved if the obligation is fulfilled before the authorities undertake any tax procedure;

BRL 500.00 per month, in case of failure to comply with the notice issued by the Revenue Service requesting the fulfillment of the obligation set forth in the Normative Instruction or that explanations be given within the period defined by the tax authorities;

3% (not less than BRL 100.00) of the amount that has been reported incorrectly, incompletely or outright omitted from the DPP.

To avoid the risks and penalties described above, multinational groups should seek specialized counseling to check their tax situation and to submit their statement in compliance with regulations.

Domingues e Pinho Contadores assists businesses in the preparation and submission of ECF statements and in filling out Country-by-Country Reports, when applicable, in compliance with the legal requirements. Count on this support: dpc@dpc.com.br