WTS CbCR Risk Analyser

Do you know the potential of your Country by Country Reporting (CbCR) data? Is it actually hidden potential for tax authorities? What impression does the public get from your (public) CbCR data?

Public CbCR and the Safe Harbors Rules for Pillar Two have dramatically increased the data quality requirements for CbCR data. Public CbCR requires companies above a certain size to disclose key financials such as revenue, profit or loss before income taxes, and income taxes paid at country level. Therefore, companies should be aware that this increased transparency will soon enable the public to draw conclusions about their business and tax activities. Moreover, it can be observed that domestic and foreign tax authorities increasingly start tax audits when they notice anomalies in the CbCR data.

Risk assessment with identical approach to that of the tax authorities

WTS has developed the Country-by-Country Reporting Risk Analyser ("Risk Analyser") to enable a proactive and efficient identification of such peculiarities and anomalies in the CbCR data. The aim of the Risk Analyser is to perform a risk assessment that is (as far as possible) identical to the approach of the tax authorities. The basis is, therefore, the OECD's "Handbook on Effective Tax Risk Assessment". The Handbook is a guide to tax authorities on how to efficiently use CbCR data to detect and identify transfer pricing risks and other BEPS-related risks. It defines 19 risk indicators, of which 18 risk indicators are included in the Risk Analyser.

Determination of risk factors and key figures

A risk factor is determined for each tax jurisdiction included in the CbCR. This risk factor lies between 1 (low risk) and 5 (high risk). The above mentioned 18 risk indicators serve as the basis for the risk assessment and when combined, represent the risk in the respective tax jurisdiction. For each of these 18 risk indicators, key metrics (e.g. sales in a tax jurisdiction as a share of total group sales) are determined. Depending on the value of the key metric, each tax jurisdiction receives a risk rating between 1 and 5 (cf. figure below). In total, there are 40 key metrics; all of them are determined based on the CbCR data. The high number of key metrics ensures that all potential anomalies will be detected.

The risk rating does not necessarily measure the actual tax risk in a country, but the extent to which the CbCR data give an indication that there may be a possible risk. If there are any anomalies, it is important to analyze in more detail where these anomalies originate from and how they can be explained.

Visualisation of the data with dynamic dashboard

WTS Risk Analyser uses the existing CbCR data as data basis. All calculations are performed in an Alteryx workflow. With the help of visualization software such as Power BI, insights are easily accessible. Users can select relevant analyses, tax jurisdictions and key metrics in dynamic dashboards. Thanks to our specific client experience and industry expertise, WTS is well positioned to support you in creating tailored analyses for your purposes. The following video gives an impression of the dashboard and insights from the analysis.