Transfer Pricing: Country by Country Reporting Requirements
As part of the Action 13 report of the OECD and G20’s BEPS (Base Erosion and Profit Shifting) initiative, a number of tax authorities have agreed to increase tax transparency to address the BEPS problem.
The Action 13 report made three recommendations, two of which relate to transfer pricing documentation, the third is the introduction of Country by Country (CbyC) reporting.
In implementing this, the UK tax authorities have introduced a new statutory requirement for large Multinational Enterprises (MNEs) with a UK presence to file an annual CbyC report.
What does CbyC reporting entail?
This report will need to provide details on the following for each tax jurisdiction in which they do business:
- the amount of revenue, profit before Income Tax and Income Tax paid and accrued
- their total employment, capital, retained earnings and tangible assets
- the main business activities of each entity
The new requirements apply to MNEs with a consolidated group turnover of €750m or more - and in the UK apply to accounting periods starting on or after 1 January 2016.
A significant number of jurisdictions will also bring in this new requirement and therefore we anticipate that most multinationals will choose to deal with the filing in the country where the headquarters are located.
Where should I file my CbyC report?
If the report is not being filed elsewhere in respect of periods starting after the above date, the requirement to submit may shift to the UK entity and is due for filing by 31 December 2017 (twelve months after the year end).
However, it is important to note that even if the filing is made elsewhere, a notification still needs to be made to HM Revenue & Customs (HMRC) to advise which entity will be submitting the main CbyC report. The first such notification was due by 1 September 2017.
Subsequent notifications are due by the end of the reporting period concerned (so for a 31 December 2017 period end the submission is required on this date).
In addition, where a country has yet to implement CbyC reporting or does not have a specific CbyC information sharing agreement with HMRC, a MNE group will need to make a filing either in the UK or in another jurisdiction that meets these requirements. For US headquartered groups, this could mean early voluntary US reporting, or filing here in the UK.
There is also a UK-specific requirement to make a “Tax Strategy” document available to HMRC.
This applies to UK groups and subgroups with a turnover above £200m or a balance sheet over £2bn or where they have a requirement to file a report under the UK CbyC regulations above (or they would have if they were headed by a UK resident company).
The first period affected by this legislation is the first financial year that begins after 15 September 2016.
Should you have any queries, please check with your dedicated point of contact in the tax team or Melissa Christopher below:
+44 (0)20 7430 5894 / firstname.lastname@example.org