On 26 February 2016 the UK enacted its country-by-country (CbC) reporting regulations. The regulations set out the requirements for UK parented multinational groups, UK residents and permanent establishments that are part of non-UK parented multinational group to file a CbC report (or a so called United Kingdom CbC report, as applicable) in respect of the accounting period commencing on or after 1 January 2016.
Several important amendments to the draft regulations published in October 2015 were introduced, namely:
- The requirement to file a CbC report applies to multinational groups with a consolidated revenue of EUR 750 million or more in the accounting period commencing before and ending on or after 31 December 2015 or commencing on or after 1 January 2016, or the equivalent amount at the average exchange rate for that accounting period. In the draft regulations, the revenue threshold was expressed in sterling (£568 million), so multinational groups with revenues close to the threshold will find it crucial to monitor the exchange rates fluctuations, as well as the definition of revenue.
- A UK entity whose ultimate parent entity is not a UK tax resident is now obliged to submit a 'United Kingdom CbC report' where:
- the ultimate parent entity is not required to file a CbC report in the jurisdiction where it is tax resident, or
- there is no exchange of information arrangement between the UK and jurisdiction of the ultimate parent entity, or
- the exchange of information arrangement is not operating effectively.
The 'United Kingdom CbC report' is a concept that is so far unique to the UK. This report differs from the CbC report in that it that covers the UK entity and its subgroup, as opposed to all of the entities of the multinational group.
Although the changes do largely reflect the OECD model legislation published in the final BEPS Action 13 report last year, this requirement is a clear extension from the draft regulations and will be of particular significance for UK subsidiaries of US parented multinationals, as implementation of CbC legislation in the US has been delayed.
The content and form of presentation and the method for filing the CbC report are yet to be determined by HMRC. Penalties apply for inaccurate information, whether in the original report or in response to a query about the report from HMRC, as well as failure to comply with the obligation to file a report. The maximum penalty is £3,000. The regulations will come into force on 18 March 2016 and companies will be obliged to file a CbC report within twelve months after the end of accounting periods beginning on or after 1 January 2016.
On 8 March 2016 the Economic and Financial Affairs Council (ECOFIN) agreed on a draft directive to amend the Directive on Administrative Cooperation to require CbC reporting. The agreement was reached two months after the European Commission presented the proposal as part of the Anti-Tax Avoidance Package on 28 January and is awaiting approval from the European Parliament after an impact assessment is conducted.
The agreement builds on the OECD recommendations in its BEPS Action 13 final report and will, once implemented, require each member state to implement rules requiring the ultimate parent entity of a multinational group that is resident in its territory to file a CbC report. Notably, the proposal imposes a 'secondary reporting obligation', which if adopted will require a multinational group with an ultimate parent that is not a tax resident in an EU member state and does not file a CbC report to file a report through its EU subsidiaries. The secondary reporting obligation is proposed to be optional for 2016 and mandatory for 2017. The draft directive requires that CbC reports will need to be filed within 12 months after the end of the relevant fiscal year, and that the reports will then be automatically shared between member state tax authorities within three months.
The Council will adopt the directive once the European Parliament has given its opinion, which is expected in spring 2016. Member states will then have twelve months to transpose the new rules into national law. As part of a separate work stream, the EU Commission is currently finalising its impact assessment on public CbC reporting and a proposal is expected in April.