On June 13, 2016, U.K. Parliament member Caroline Flint issued a press release concerning proposed amendments that the U.K. Labour Party added to Finance (No. 2) Bill 2016 (“Bill”) for public country-by-country (CbC) reporting. The amendments were published on June 8, 2016. MP Flint said:
“I am delighted to have such strong backing from Public Accounts Committee colleagues from all parties. MPs of different parties are saying it’s time to shine a light on these secretive tax arrangements and make sure big multinational enterprises pay the right amount of tax.”
“We believe the tide of opinion is moving towards openness, after the Google tax affair and the release of the Panama Papers. We want the Government to champion this – in the interests of UK business, and fairer taxation.”
“We are making a pro-business case for supporting this open country-by-country, reporting. It is important for investors and customers to know their company plays fair.”
The proposed amendments echo previous statements by the U.K. Chancellor of the Exchequer (George Osborne) on February 12, 2016, that the EU needs to push for public disclosure of CbC report information.
The June 13 press release says that the U.K. House of Commons will debate the proposed amendments on June 28 and 29, 2016.
Background on Finance (No. 2) Bill 2016
On March 24, 2016, the U.K. published the Bill, introducing measures to tackle multinational tax avoidance, including:
- Anti-avoidance rules with respect to intellectual property (IP), hybrid mismatch arrangements, transfer pricing, VAT, and state aid.
- Civil and criminal penalties for tax avoidance.
Background on U.K. CbC Reporting Rules
Section 122 of the Finance Act 2015 (enacted into law on March 17, 2015) said that the U.K. would introduce CbC reporting rules. The OECD BEPS Action 13 recommendations state that the CbC report should contain aggregate information relating to the (1) amount of revenue, (2) profit (loss) before income tax, (3) income tax paid, (4) income tax accrued, (5) stated capital, (6) accumulated earnings, (7) number of employees, and (8) tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE group operates. The OECD recommendations state further that the CbC report should contain information about the tax residence of each "constituent entity", where they are incorporated (when different from tax residence), and the nature of their main business activities.
On February 26, 2016, the U.K. issued the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016 ("CbC Regulations") that implemented country-by-country (CbC) reporting. The CbC Regulations follow the public technical consultation that ran through November 16, 2015, on the proposed CbC Reporting Regulations that HMRC issued on October 5, 2015. The CbC Regulations do not contain master and local file requirements, because HMRC claims that it can require those documentation requirements under its existing powers. The CbC Regulations entered into force on March 18, 2016, and will apply for fiscal years beginning on or after January 1, 2016.
According to the CbC Regulations, HMRC will issue guidance on the specific information that would be included in the CbC report.
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