Rebecca Wilkinson – Business Tax Partner
UK enterprises that are part of a group with a consolidated turnover of €750 million or more need to consider annual CBCR (Country-By-Country Reporting).
A careful review should be undertaken to determine the exact reporting requirements and responsibility for providing HMRC with information on global activities, profits and taxes. Failure to do so could lead to daily penalties.
What are the CBCR rules?
The regulations came into force on 18 March 2016 and apply to fiscal years beginning on or after 1 January 2016 and require that UK-headed Multi National Enterprises (MNEs) must file an annual CBCR within 12 months of the relevant period end. For groups with a 31 December year end, the first reports will need to be filed by 31 December 2017.
Most UK headed MNEs should have the necessary resources to deal with the onerous task of preparing the CBCR however, the regulations also place reporting obligations on much smaller UK entities in certain circumstances.
The rules are complex and many smaller entities are unaware that they will be required to comply if they are the head of a UK sub-group (or a standalone UK subsidiary) and:
- the ultimate parent entity of the whole group is resident in a jurisdiction that does not require a CBCR to be prepared, or
- the ultimate parent entity is required to prepare a CBCR, but it is resident in a jurisdiction that has not entered into an exchange of information agreement with HMRC, or
- CBCR exchange of information provisions are in place but they are not operating effectively and HMRC has notified the UK entity of this fact.
There are no de minimis UK sub-group size limits, so even very small UK entities will be caught where the above situations apply. However, in such circumstances the UK entity will only be required to file a UK CBCR, which will include information relating to just the UK top entity and its subsidiaries. Although not as onerous as preparing a report for the whole group, this could still represent a significant compliance burden for small entities that may have limited resources available.
In the longer term, it is expected that most OECD countries will introduce CBCR reporting and will enter into exchange of information agreements with other OECD countries, including the UK. Therefore, the situations that require non ultimate-parent UK companies to file reports may not apply very often. However, as the UK is one of the first countries to introduce CBCR, care needs to be taken in the short term. For example, the US is not expected to introduce CBCR until much later in 2016 and the regulations will only apply to periods beginning on or after the date the regulations are adopted as final. UK entities that are part of US-headed groups may therefore be required to file a UK CBCR a year before the ultimate parent is required to file the group CBCR.
CBCR Penalties
The penalty for failing to file a CBCR by the relevant due date is £300, plus a daily penalty of £60. This could amount to £22,200 for reports that are 12 months late. In addition, a penalty of £3,000 could apply for providing inaccurate or incomplete information in the CBCR. It is therefore important for UK sub-groups to determine whether they are required to file and to ensure they have access to the information they need in order to fully comply with the requirements.
What can you do?
To avoid getting caught out, early identification of whether the regulations apply is key. We recommend the following actions:
- Assess whether the group is within the scope of CBCR by ascertaining the consolidated turnover of the ultimate parent entity of the group.
- Determine what actions the ultimate parent entity of the group is taking and whether a UK CBCR is required.
- Where a UK CBCR is required, review the information that is required to be reported and ensure suitable resources are in place to manage the process.
How Menzies can help
Menzies can help you assess whether the CBCR regulations will apply to your group or sub-group. Through our membership of HLB International we can also provide advice on reporting regulations in overseas jurisdictions to help ascertain if a UK CBCR is required. Should a UK report be required, we can provide advice on the format and scope of the report and can assist with its preparation, if required.