The UK introduces country-by-country reporting − may affect Middle East

Tax Insights
from Transfer Pricing
Middle East
The UK introduces country-by-country
reporting − may affect Middle East
MNEs with UK presence
March 2016
In brief
Final UK regulations mandate UK-parented multinational entities (MNEs) and possibly Non-UK MNEs
with UK group entities to comply with new transfer pricing and transparency requirements, with the
first country-by-country report (CBCR) due for fiscal years beginning on or after January 1, 2016.
This Tax Insight outlines the new country-by-country requirements in the UK and highlights some of
the potential implications for Middle East MNEs with UK operations.
In detail
Overview of new
requirements
On February 26, 2016, the
Taxes (Base Erosion and Profit
Shifting) (Country-by-Country
Reporting) Regulations 2016
were laid before Parliament
and will come into force on
March 18, 2016.
These rules (the CBC
regulations) are based on
recommendations in the
"Transfer Pricing
Documentation and Countryby-Country Reporting, Action
13 2015 Final Report" (Action
13 Report) published on
October 5, 2015 as part of the
Base Erosion and Profit
Shifting (BEPS) project of the
Organisation for Economic
Cooperation and Development
(OECD) and G20.
The CBC regulations concern a
new form of transfer pricing
documentation called a CBCR,
which contains high-level data
on the global allocation of the
MNE's income and taxes and
certain other measures of
economic activity.

the ultimate parent
entity’s tax jurisdiction
has not introduced
legislation for countryby-country reporting,
The obligation to submit an
annual CBCR to the UK tax
authority (HMRC) applies to
MNEs with a UK resident
parent company and a
consolidated turnover of at
least €750 million (for the
previous 12 months).

the ultimate parent
entity’s tax jurisdiction
has not entered into
information exchange
provisions with HMRC
for the CBCR, or

the information
exchange provisions
with the ultimate
parent entity’s tax
jurisdiction or the tax
jurisdiction of a
surrogate affiliate that
has filed a CBCR
locally “are not
operating effectively”
and HMRC has
notified the relevant
UK taxpayer.
However, in certain cases, UK
group entities belonging to
MNEs without a UK-resident
ultimate parent also may be
obliged to submit a CBCR. This
is a key change to the UK's
expected approach, as it
increases the scope of the
regulation compared to an
earlier draft and creates
additional obligations and
complexity. This extension
applies in any of the following
situations:
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Tax Insights
Impact on Middle East MNEs
Penalties
The CBC regulations potentially
extend the reporting obligation to
the top UK entity of certain nonUK parented MNEs, hence, the
compliance burden may be
significant. In the long term,
these provisions are expected to
apply less frequently. But in the
short to medium term, they will
need to be considered by Middle
East parented MNEs as to date no
Middle Eastern countries have
announced an intention to
introduce legislation for CBCR.
Failure to provide the CBCR or
providing an incorrect or
incomplete CBCR will trigger a
fixed penalty of up to £3,000. In
some instances, penalties up to
£1,000 also may be charged for
each day the failure continues.
Also, UK subsidiaries not acting
as surrogate filers and/or
permanent establishments
required to file a CBCR only need
to file a 'UK CBCR.' Unlike the
Action 13 Report, this UK CBCR
only needs to include information
in relation to the top UK entity
and its subsidiaries.
This requirement will be
particularly burdensome for
Middle Eastern MNEs whose UK
subgroup contains overseas
subsidiaries. Furthermore, it
creates the prospect of some
groups preparing two versions of
the CBCR where HMRC cannot
obtain the whole group CBCR
under information sharing with
another tax authority or the MNE
chooses not to submit the whole
group CBCR on a voluntary basis
to HMRC.
Entry into force
The effective date of the new
legislation is March 18, 2016. The
legislation will apply to fiscal
years beginning on or after
January 1, 2016.
Timeline
The CBCR must be submitted
within 12 months of a group's
financial year-end. Thus, the
CBCR for December 31, 2016
yearends must be submitted on
December 31, 2017 at the latest.
PwC
In view of these new rules, UK
entities should commence
preparation to collect and analyse
the necessary information and
prepare the CBCR appropriately.
Consideration should be given to:

Filing obligation and
strategy: Assess where
your group will be
required to file. For nonUK parented groups,
assess whether you have
to prepare the whole
group CBCR, a UK CBCR,
or a combination of both.

Dry run and impact
appraisal: Undertake a
dry run now to assess the
risks that will arise when
the group is required to
report in 2017.

Process and
governance: Consider
whether additional
resource is required to
manage CBC
requirements, master file
and local file
implementation, and
ongoing reporting.

Data and technology:
Undertake a strategic
assessment of your
technology capabilities as
they relate to CBC
reporting, transfer
pricing documentation,
and wider transparency
and tax reporting
requirements.
Continuing areas of
uncertainty
The exact filing method, content,
and form of the UK CBCR is still
to be confirmed. Further
information from HMRC is
expected.
No reference is made in the CBC
regulations to any potential
modifications to other areas of
the existing UK transfer pricing
legislation. For example, it
remains to be seen if the UK will
implement the other
recommendations included in the
Action 13 Report.
The takeaway
Effective from March 18, 2016,
the CBC regulations represent an
entirely new requirement under
UK law.
The introduction of CBC
reporting in the UK imposes new
transfer pricing reporting
requirements on UK-parented
MNEs, however most pertinently,
the changes from the Draft
Regulations make the
implications for non-UK parented
MNEs with UK resident
companies or permanent
establishments even more
significant which is of particular
impact to Middle East parented
MNEs.
The new CBC regulations are
broadly in line with the Action 13
Report, but there are key
divergences that create challenges
and questions for UK entities to
consider.
2
Tax Insights
Let’s talk
For a deeper discussion of how this issue might affect your business, please call your usual PwC contact or any of our
subject matter experts below:
Middle East contacts
Dean Kern
Middle East Tax and Legal Services Leader
+971 (0)4 304 3575
[email protected]
Sajid Khan
International Tax Partner
+974 (0) 4 419 2803
[email protected]
Jochem Rossel
Middle East International Tax Leader
+971 (0) 4 304 3445
[email protected]
Mohamed Serokh
Middle East Transfer Pricing Leader
+971 (0) 4 304 3956
[email protected]
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