IEIM300140 - Country-by-Country Reporting - Guidance on the completion of the CbC report
The UK rules use many terms and definitions that are taken from the OECD guidance (link is external) and that guidance should be checked when completing a CbC report.
The CbC report provides valuable information that is used for high level transfer pricing risk assessment and risk assessment of other BEPS risks. In order for the risk assessment to be effective the information contained in the CbC report needs to be accurate and complete.
Upon receipt of a CbC report, HMRC checks the data and if any mistakes or incomplete information is identified, HMRC may ask for a correction to be made. This ensures that the reports are as accurate and useful as possible to HMRC and its treaty partners.
HMRC has identified issues that have occurred in a number of CbC reports. A selection of the most common issues are listed below. Additionally the OECD have collated a comprehensive list of errors which they will update as the issues are reported by tax administrations. The list can be found here (LINK)
Treatment of Dividends for purposes of Revenues and Profit (Loss) before Income Tax
The Action 13 report is clear that payments received from other constituent entities that are treated as dividends in the payor’s tax jurisdiction are excluded from revenues when completing Table 1 of the CbC report. The Action 13 report is silent on whether they should be excluded from Profit (Loss) before Income Tax. This has led to a different approaches being adopted by tax administrations and MNE Groups.
For reporting periods beginning on or after 01/01/20 payments received from other constituent entities that are treated as dividends in the payor's tax jurisdiction must be excluded from Revenue and Profit (Loss) before Income Tax.
HMRC encourages MNE Groups reporting in periods starting before 01/01/20 to adopt this guidance or to indicate in Table 3 if the Profit (Loss) before Income Tax includes dividends and the amounts included.
For reporting periods beginning on or after 01/01/24, the following interpretation applies to the treatment of Dividends for the purposes of both Revenues and Profit (Loss) before Income Tax:
The phrase “payments […] that are treated as dividends in the payor’s tax jurisdiction”, should be understood to apply only to payments that are treated as dividends in the source data for completion of Table 1 in respect of the payor’s tax jurisdiction. In practice, this means that a payment is excluded in the recipient where the accounting treatment in the payor’s accounts is that of a dividend and not, for example, if that payment is treated as interest in the payor’s accounts.
Use of NOTIN
Tax Identification Numbers (TINs) are required information within the XML schema and play a vital role in allowing tax authorities to identify an MNE Group. NOTIN can only be entered in cases where a constituent entity has not been issued a TIN by the tax administration in its jurisdiction of residence or operation.
It is recommended that where a constituent entity has no TIN, a note is added to Table 3 to explain the reason for the missing TIN.
To enable efficient data verification and minimise potential queries HMRC recommends that the following text should be used:
"NOTIN entered for [insert name of entity] because [insert explanation]"
Multiple currencies are included in Table 1
A CbC report should be completed using the functional currency of the ultimate parent entity as specified in the Action 13 report. Information on all constituent entities must be converted into this currency when completing the CbC report. A CbC report should never contain information in more than one currency.
Shortened numbers are included in Table 1
Full numbers must be used in completing Table 1, without decimals. The use of shortened numbers is not permitted. For example, £120,450,123 should not be shown as £120 or £120,450.
Rounding of numbers in Table 1
The Action 13 report does not provide any guidance on the rounding of amounts in Table 1 of the CbC report other than in respect to the number of employees. HMRC will accept a reasonable level as long as it does not distort the CbC report.
Negative numbers in Table 1
In most instances, amounts in Table 1 should be completed using positive values, except in specific circumstances when negative values must be used. For instance Income Tax Paid (on Cash Basis) may be negative if a tax repayment has been received by the MNE Group.
HMRC expects the following columns to always be positive:
- Number of employees
- Tangible Assets other than Cash and Cash Equivalents
- Stated capital
In the majority of instances both unrelated and related party revenues should be a positive amount.
Where a negative amount is recorded for these columns an explanation should be added to Table 3. To enable efficient data verification and minimise potential queries HMRC recommends that the following text should be used:
"A negative value has been entered for Revenue/Stated Capital/Tangible Assets/Employees (delete as applicable) because [insert explanation]"
Multiple lines per tax jurisdiction
Each tax jurisdiction should only occur once in Table 1 with the data for that jurisdiction aggregated. Multiple lines per jurisdiction are not permitted.