On February 26, 2016, the government submitted the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016 before Parliament, which will enter into force on March 18, 2016. The final regulations follow the public technical consultation that ran through November 16, 2015, on the proposed country-by-country (CbC) reporting regulations that HMRC issued on October 5, 2015. The final regulations do not contain master and local file requirements, because HMRC claims that it can require those documentation requirements under its existing powers.
On January 27, 2016, the U.K. was among the 31 countries that signed the OECD Multilateral Competent Authority Agreement for the automatic exchange of CbC reports (MCAA). Under the MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting requirements in place and are a party to the OECD Convention on Mutual Administrative Assistance in Tax Matters.
CbC Report Content
The final regulations say that HMRC will issue guidance on the specific information that would be included in the CbC report.
For background, the OECD BEPS Action 13 recommendations say that the CbC report should contain aggregate information relating to the:
- Amount of revenue.
- Profit (loss) before income tax.
- Income tax paid.
- Income tax accrued.
- Stated capital.
- Accumulated earnings.
- Number of employees.
- Tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE group operates.
Multinationals with parent entities resident in the U.K., and with consolidated group revenue of €750 million or more in a 12-month accounting period (reduced proportionately for periods of less than 12 months), will be obligated to submit an annual CbC report to HMRC for the following period. By contrast, the proposed regulations had set the CbC filing threshold at consolidated group revenue at £586 million or more.
When the ultimate parent entity of a multinational is not resident in the U.K., another member of the group that is resident in the U.K. (“constituent entity”) may file a report voluntarily on the group’s behalf. These are generally circumstances where the ultimate parent entity is resident in a jurisdiction that is not party to an effective competent authority agreement for the automatic exchange of the CbC report between it and the U.K., or where the jurisdiction in which the ultimate parent entity is resident has either persistently failed to exchange CbC reports with the U.K. contrary to the terms of a competent authority agreement, or has suspended automatic exchange of information for reasons that are not in accordance with a competent authority agreement.
HMRC Information Requests
For purposes of determining whether the information in a CbC report is accurate, an HMRC officer will be permitted to request, by a notice in writing, certain information (including copies of any relevant books, documents, or other records) from the reporting entity— i.e., the ultimate parent entity or the constituent entity. Such entity must provide the requested information within the period specified, “being no less than 14 days.”
A multinational that does not provide its CbC report on time without a reasonable excuse for the failure or knowingly supplies incorrect information is liable to penalties.
The final regulations say that HMRC may issue fixed penalties (£300) if the ultimate parent fails to file the CbC report (or if the reporting entity fails to provide information on time). If the failure continues after fixed penalties are assessed, daily penalties not exceeding £60 a day would accrue automatically. HMRC may apply to the First-Tier Tribunal to increase the amount of the daily penalty if the failure continues for more than 30 days following notification of the penalty.
HMRC will also be permitted to issue fixed penalties (up to £3000) for inaccurate reports if the person filing the report knew of the inaccuracy when filing the report or later discovered the inaccuracy and failed to take steps to notify HMRC.
Penalties will not apply if HMRC (or on appeal, the First-Tier Tribunal) considers that the person who would otherwise be liable has a reasonable excuse. Lack of funds and reliance on a third party will not be reasonable excuses for these purposes.
Arrangements to avoid reporting obligation
HMRC may ignore any arrangements entered into for the purpose of avoiding any obligations under the final regulations.
The reporting obligation applies to accounting periods beginning on or after January 1, 2016.
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