On June 28, 2016, the U.K. House of Commons defeated the public country-by-country (CbC) reporting amendments to the Finance (No. 2) Bill proposed by Parliament member Caroline Flint on June 8, 2016. However, the proposals were narrowly defeated by a vote of 295 to 273 (i.e., a 22 vote margin).
"This is a stunning result which gives us huge encouragement to keep pushing for a reform that is so urgently needed by people everywhere," said Simon Kirkland, U.K. political adviser at Christian Aid. "We are delighted to have got this far, thanks to the support of MPs across many different parties, and we will now renew our efforts to change the law. Multinationals cannot be allowed to hide their finances from public scrutiny any longer," Kirkland added.
Financial Secretary to the Treasury, David Gauke, said during the Parliamentary debates on June 28 that the government agrees with MP Flint on increasing transparency and limiting tax avoidance. However, he added that “[a]ccording to government legal advice, the amendment would, in practice, place such a requirement only on U.K.-headquartered multinationals. The amendment also risks putting U.K. multinationals at a competitive disadvantage by imposing a reporting requirement that does not apply to foreign competitors operating in the same market."
Gauke also said that the Finance Bill is not the best way to address inclusion of public CbC reporting. "We are keen to implement public country-by-country reporting, and we want to do it on a multilateral basis. If there was a lack of progress, the government would obviously want to return to the issue," Gauke said. He added, "I think that we are in a position to aim for what I am sure we all agree would be the best result: achieving our aims on a multilateral basis."
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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