On 5 October 2015 the UK issued draft Regulations in relation to country by country reporting, along the lines of the recommendations made in the OECD action plan on base erosion and profit shifting (BEPS). The aim is to require multinational groups to report global information on revenue, profits, tax and indicators of economic substance on an annual basis. The information will assist HMRC in assessing the extent to which the group; may have taken actions that have the effect of eroding the tax base or shifting profits away from the UK.
The Regulations are intended to implement in the UK the country by country reporting requirements drawn up by the OECD as part of the BEPS action plan. Primary legislation was introduced by the UK in the Finance Act 2015 and the draft Regulations now published for consultation set out the details of how this will be put into effect.
The form and content of the report will follow the OECD’s template. The report will be filed electronically on an annual basis. The Regulations apply where the parent entity of a multinational enterprise is resident in the UK and the consolidated group revenue is GBP 586 million or more in a twelve month accounting period.
In addition to showing the revenue, pre-tax profit and tax paid and accrued in each jurisdiction where the group is doing business the report will also need to show the total employment, capital, retained earnings and tangible assets. The report will identify each group entity that is doing business in each jurisdiction and indicate the business activities (within broad categories) in which the entity engages. The reports will be automatically shared by the relevant countries.
The Regulations also provide for another member of the group resident in the UK to voluntarily file a report if the parent company is non-resident. This could occur if the parent company is resident in a jurisdiction that is not a signatory to the competent authority agreement for automatic exchange of the report with the UK, or where in practice the residence country of the parent company has persistently failed to exchange the report with the UK.
The reports will be required for accounting periods beginning on or after 1 January 2016 and should be filed within twelve months after the end of each accounting period. Penalties are to apply for failure to provide the country by country report on time without reasonable excuse or for an incorrect report.
Comments are invited on these draft Regulations by 16 November 2016.