UK: BEPS implications for UK taxpayers; country-by-country reporting, patent box

UK: BEPS implications for UK taxpayers; CbyC reporting

The UK government released draft regulations for country-by-country (CbC) reporting, to implement Action 13 of the OECD’s base erosion and profit shifting (BEPS) project. The draft UK regulations broadly reflect the OECD reports, released 5 October 2015, and specifically make reference to the model legislation.

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Key points of the CbC draft regulations in the UK are as follows:

  • The UK regulations would apply to multinational enterprises with a UK tax resident ultimate parent and group consolidated revenues of £586 million or more in the preceding financial year.
  • The regulations would apply to accounting periods starting on or after 1 January 2016.  
  • The CbC report would follow the form of a template set by the OECD and would need to be filed electronically within 12 months of the end of the accounting period.
  • There are provisions for groups with a non-UK tax resident parent company to nominate a UK tax resident company to be the “surrogate parent entity” and file the group CbC report in the UK in certain defined circumstances.

As expected, there is no provision for a mandatory filing in the UK for UK subsidiaries of overseas resident parent companies, if the UK does not receive a CbC report under the inter government sharing mechanism. 

The UK draft regulations would impose penalties for failure to file, for filing an inaccurate CbC report, and for failing to comply with requests for information to enable HMRC to assess the accuracy of the filing, with the penalties ranging from £300 to £3,000 with daily penalties for continued failure to provide information. 

Patent box

Following this week’s release by the OECD of the latest deliverables on the BEPS project, HM Treasury is expected to launch a consultation shortly on the UK’s patent box regime (anticipated to be during the week commencing 12 October 2015). 

BEPS Action 5 (countering harmful tax practices) recommends that preferential intellectual property (IP) regimes be based on a “nexus” approach, and the consultation is expected to cover possible changes to the current patent box regime which are necessary to make it compliant with Action 5. 

The UK is required to introduce a new patent box regime that is compliant with the “nexus” approach from 1 July 2016. Benefits available under the patent box will then be linked to the claimant’s proportionate contribution to the R&D activities underpinning the income subject to the benefit. This is likely to increase the compliance burdens involved in making a claim and affect the benefits available to groups that have global R&D centres or have acquired IP. However, for companies that are using the existing regime at 30 June 2016, grandfathering provisions mean that the companies can continue to benefit from the existing regime until 30 June 2021. 


Read an October 2015 report [PDF 816 KB] prepared by the KPMG member firm in the UK: Weekly Tax Matters (9 October 2015)

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