TT250: Country-by-Country Reporting (CbCR) for Large Multinationals

Country-by-Country Reporting (CbCR) is one of the actions recommended by the Organisation for Economic Co-Operation and Development (OECD) as part of its work on Base Erosion and Profit Shifting (BEPS), to enhance global transparency and anti-tax avoidance.

CbCR requires qualifying multinationals to disclose key financial and other indicators predominantly related to tax, based on a template set out by the OECD. The information is shown by tax jurisdiction, and the report will typically be filed in the head office country and then can be shared between tax authorities.

Legislation of CbCR

 On 5 October 2015, the OECD published final guidance on the implementation of their proposals under Action 13 of the BEPS project.  On the same day the UK Government issued draft regulations to implement CbCR in the UK.

Following a period of consultation revised UK regulations were issued on 26 February 2016 on Taxes BEPS CbCR Regulations 2016 with some significant changes from the original draft.

In June 2016 OECD published further guidance on CbCR to clarify that partnerships are within its scope as reporting entities. On 2 August 2016, HMRC announced that they would be following the OECD’s guidance by requiring partnerships to meet this new reporting standard.

In practical terms, CbCR better ensures that adequate taxes are paid in the jurisdiction where profits are generated, value is added, and risk is taken. The ultimate goal, of course, is to promote transparency and accuracy in reporting.

Who qualifies for CbCR?

Ultimate parent companies of multinational enterprises (MNEs) with a consolidated turnover exceeding a threshold of €750 million (or near equivalent) will be obliged to file in their home country a CbCR on an annual basis which provides a clear overview of its:

  • Profits
  • Revenue
  • Employees
  • Location of Assets
  • Income tax paid
  • Income tax accrued

Tax authorities may then share this information with jurisdictions where the multination operates, pursuant to tax treaties.

Multinationals operating in the UK

UK headed MNEs, UK sub groups of MNEs, and partnerships are required to make an annual CbCR to HM Revenue and Customs (HMRC) for all accounting periods starting on or after 1 January 2016 if their consolidated group turnover is in excess of €750 million.
There are three different requirements for filing for MNEs, which are as follows;

1.Primary requirement – For MNE’s over the threshold with a UK tax resident ultimate parent to file a global CbCR

2.Secondary requirement – For UK entities of foreign headed MNEs to file a UK CbCR in certain circumstances. These include where;

  • the ultimate parent is not required to file a global CbCR in its country of tax residence; or
  • there are no exchange mechanisms in place between that jurisdiction and the UK; or
  • the exchange mechanism is not effective.

There are certain exceptions to this, broadly being where the required data is included in a CbCR report which HMRC will receive.

3.Surrogate filing option – There is an optional surrogate filing permitting a non UK tax resident ultimate parent to file a global CbCR in the UK providing certain criteria are met.

 Deadlines for CbCR submission

 The reports are to be filed with HMRC within 12 months of the end of the relevant accounting period. There are various notification requirements which need to be met before the filing deadline for the exceptions to filing a UK CbCR under the secondary mechanism and under the surrogate mechanism

How should MNEs approach CbCR?

Although the OECD has provided guidelines in Chapter V of the OECD Transfer Pricing Guideline, of CbCR, it has been left to each business as to how it gathers data and reports CbCR.

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