New rules on country-by-country reporting for tax affect only the largest multinational groups

Background

The Finance Act 2015 gave the Treasury the power to make regulations to implement the OECD’s country-by-country reporting guidance, which was issued as part of its ‘BEPS’ initiative (to counter ‘base erosion and profit shifting’). Information reported under these measures will not be made public but will be shared with the tax authorities in other jurisdictions that have implemented similar arrangements.

Returns by UK-headed groups

Regulations have now been made and will require any UK-resident ultimate parent entity of a multinational enterprise (MNE) to make an annual report to HMRC within 12 months of the year-end, showing for each tax jurisdiction in which the MNE does business:

• the amount of revenue, profit before tax, and taxes on income that are paid and accrued;

• the total numbers of staff employed, capital, retained earnings and tangible assets.

Such companies will also have to identify each entity in the group that is doing business in each tax jurisdiction where the group operates, and provide an indication of business activities that each entity engages in, within a selection of broad areas.

Returns by UK entities in overseas-headed groups

These rules extend to the top UK entity of an MNE - even where it is not the ultimate parent - in cases where the ultimate parent is resident in a country that either has not implemented similar measures or does not exchange reports with HMRC. In this case, the requirement relates to all the entities within the sub-group of which the UK entity is the head, rather than all the entities within the worldwide group. There is an exemption in cases where the relevant information has been included in a return that HMRC can obtain access to (for example, a return by an intermediate holding company).

There is also provision for other MNEs with a UK presence to file returns voluntarily in certain circumstances.

Commencement and turnover limits

This measure applies for accounting periods beginning on or after 1 January 2016, to groups with turnover of 750 million euros or more (approximately £580 million) in the previous period (it is the turnover of the worldwide group that is relevant even if the report is made by the UK sub-group). HMRC expects the rules to affect around 300 UK-headed MNEs and 200 UK sub-groups (of which 100 will no longer be required to complete a return once their parent jurisdictions have implemented the necessary rules).

However, it appears that this may be an underestimate, and that there may be some surprising results where UK companies have a reporting obligation, in respect of relatively small sub-groups because the turnover of the worldwide group exceeds the 750 million euro threshold.

How Moore Stephens can assist

Moore Stephens can assist UK companies that are members of international groups, in determining whether they are affected by the new rules and in analysing information and preparing the return where this is required.

Please contact us to find out more.