The final Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016 were published on 26 February. There are several amendments to the draft regulations published in October 2015, the most fundamental being that UK subsidiaries of foreign-parented groups will be required to file a country by country (CbC) report for the UK sub-group if the foreign parent is not required to file in its own territory (or HMRC does not expect to receive the report from that tax authority). This brings the UK into line with other G20 and OECD countries that have a secondary filing requirement where the foreign parent is not subject to CbC reporting. It will be of particular interest to US-parented groups, since the US CbC regulations are not expected to come into force until 2017. These groups should now consider whether a surrogate filing in the UK or elsewhere is beneficial to reduce the compliance burden.
For accounting periods starting on or after 1 January 2016 UK parented multi nationals with revenues above the sterling equivalent of €750m in the previous period (converted at the average exchange rate for that period) will be required to submit a CbC report for the global group to HMRC within 12 months of the year end.
For UK companies with a foreign parent in a country which does not introduce CbC reporting or does not have an effective exchange mechanism with the UK, a UK CbC report will need to be submitted for the sub-group unless certain exceptions apply. The exceptions are where a group company has filed a global CbC report either in a territory with an effective exchange agreement with HMRC or in the UK under the voluntary surrogate mechanism. There are notification requirements which need to be complied with before the filing deadline.
In our experience, multi-national enterprises (MNEs) should not underestimate the practical complexities of gathering the data and as many groups are already within their first reporting period, they will want to ensure that an effective and efficient process is in place to generate the report. A dry run can be a useful exercise to help understand the scope of the rules and the extent to which existing data sources can be relied upon to produce a coherent picture of the group’s transfer pricing position. For those MNEs headquartered in countries that have deferred implementation or do not intend to implement the regulations consideration should be given to the pros and cons of submitting a global report under the surrogate filing mechanism either in the UK or elsewhere.
To read the full regulations, please click here.