Who is likely to be affected
Multinational enterprises (MNEs) with a UK presence.
General description of the measure
This new measure updates The Taxes (Base Erosion and Profit Shifting) (country-by-Country Reporting) Regulations 2016 (the 2016 Regulations) which require MNEs to provide HM Revenue and Customs (HMRC) with information about global activities, profits and taxes. The updates are to take account of international developments including by:
- extending the original statutory requirements to partnerships, this amendment was announced in August 2016
- requiring a UK entity with an obligation to file a UK Country by Country (CbC) report to ask for the information necessary to complete a full CbC report and making a minor change to align the “local filing” requirements with the OECD model
- introducing a requirement for a UK entity in each MNE group to tell HMRC, annually, which entity in the MNE group will file the CbC report and where and provide the names and unique taxpayer references for all of the MNE group’s UK entities
Country by country reporting will help HMRC to better assess international tax avoidance risks. It is intended that the information reported by MNEs will be shared with other relevant tax jurisdictions so that they too can assess international tax avoidance risks.
Background to the measure
The UK was one of the first countries to formally commit to introducing CbC reporting and the detailed implementation was given effect through the 2016 Regulations. Since the UK introduced these regulations in February 2016, the Organisation for Economic Co-operation and Development (OECD) has issued further guidance and the EU has agreed a Directive to implement CbC reporting in the EU. The Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) (Amendments) Regulations 2017 update the CbC reporting rules to take account of these developments.
CbC reports will need to be filed which cover periods starting on or after 1 January 2016 for MNEs that are in scope. The new measure introduces notification requirements which must be made by the end of the period being reported on. However given that the first period covered by the regulations is the year ended 31 December 2016, the amendments require notifications to be received by 1 September 2017 for the first year and by the end of the relevant period in subsequent years.
Section 122 of the Finance Act 2015 gives the Treasury the power to make regulations to require MNEs to provide HMRC with a CbC report.
The 2016 Regulations introduced a reporting requirement for any UK resident ultimate parent entity of an MNE with a consolidated group turnover of €750 million or more. It applies to accounting periods commencing on or after 1 January 2016 and companies will have 12 months from the end of the relevant accounting period to file a report with HMRC.
The 2016 Regulations also include a requirement for the top UK entity of an MNE to file a CbC report, when it is not the ultimate parent entity (UPE) of the MNE and the UPE is resident in a country that either does not require a CbC report or does not exchange reports with HMRC in accordance with an effective multilateral competent authority agreement. This local filing requirement will mean that the top UK entity of an MNE will file a CbC report covering all entities within the sub group of which it is head. There are exceptions if the results the UK entity would be required to file have already been included in a CbC report that HMRC can receive or has received.
In addition, the 2016 Regulations include a provision to allow MNEs with a UK presence to voluntarily file a CbC report with HMRC in certain circumstances; broadly where the ultimate group parent is resident in a country that either does not require a CbC report or does not exchange reports with HMRC in accordance with an effective competent authority agreement.
The reporting requirement is supported by a penalty regime in the regulations to encourage MNEs to file on time and to take due care in the preparation of the report.
Since the 2016 Regulations were introduced the OECD have issued additional guidance clarifying that partnerships should be reporting entities for CbC reporting. This measure amends the rules to reflect this change in guidance.
This measure also makes a minor adjustment to align the UK’s ‘local filing’ requirements with the OECD model. ‘Local Filing’ will only be required if the parent jurisdiction of the foreign MNE has entered an international agreement which allows for exchange of information but has not entered into specific arrangements to exchange CbC reports.
In addition the EU has amended the Council Directive on Administrative Cooperation 2011/15/EU to implement an EU version of the OECD recommendations (known as DAC4). DAC4 results in the following changes to the regulations.
Firstly there is now a requirement on a UK entity in each MNE group that is within the scope of CbC reporting to tell HMRC annually which entity in the MNE group will file the CbC report and where. The amendments also require the entity to provide the names and unique taxpayer references for all of the MNE group’s UK entities.
The notification is to be made by the end of the period being reported on. However the first notifications must be received by the later of the last day of the period covered by the report or 1 September 2017.
Secondly the measure introduces a requirement for the top UK entity required to file under the local filing rules to ask its parent entity for the information it would need to be able to file a full CbC report for the whole group. If the parent entity refuses the UK entity must tell HMRC of the refusal and file a CbC report covering all entities within the sub group of which it is head.
Summary of impacts
Exchequer impact (£m)
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This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is expected to affect a small number of individuals who are partners in a partnership that is within scope. It is expected that any impact on those individuals will be negligible and it is not expected to adversely impact households, nor impact on family formation, stability or breakdown.
This measure is expected to affect only a small number of individuals. Data is not available for these but it is not anticipated that there will be adverse impacts on any group with protected characteristics.
Impact on business including civil society organisations
This measure will have a negligible impact on businesses. The measure will not affect the existing obligation for approximately 300 UK head quartered MNEs to complete a template every year. This measure will affect which entity in an MNE group is responsible for the reporting in less than 20 MNEs headed by partnerships. The measure imposes a further notification obligation on MNEs with a UK presence. As only one UK entity will be required to notify on behalf of all of the UK entities in each affected group this is expected to affect around 2,000 UK entities overall. There is expected to be a negligible one-off cost in the first year as businesses will need to familiarise themselves with the new notification requirements, gather relevant information and provide training to staff. Businesses will also incur a negligible on-going cost of making the notification.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There will be a negligible cost to HMRC from receiving and processing the small number of additional reports in the UK. The additional cost of processing notification is expected to be negligible.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
There will be ongoing monitoring of information provided in notifications and CbC reports and exchanged with other jurisdictions.
If you have any questions about this change, please contact Hugh Dorey on Telephone: 03000 585838 (email: firstname.lastname@example.org) or Debra Evans on Telephone: 03000 589657 (email: email@example.com).
Jane Ellison, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.