The UK published its final country-by-country reporting regs for tax purposes last week. They do, unfortunately, include this provision:
5.–(1) “United Kingdom country-by-country report” means a report which–
(a) relates to–
(i) a United Kingdom Entity; and
(ii) where applicable, the Constituent Entities in respect of which the United Kingdom Entity is required to prepare Consolidated Financial Statements or would be so required if its equity interests were traded on a public securities exchange;
Let me explain what I think this regulation means. First, and obviously, country-by-country reporting for tax will apply to any UK based group. That is welcome.
Second, it will only apply to the UK subsidiaries of any non-UK based group that trades here and then only if there is a UK parent of the UK entities that the group owns. Now as a matter of fact to have a UK parent of all the UK entities owned by a foreign group that has subsidiaries in this country is rare: I know because I have spent years of frustrated time looking for such UK based parents when they simply do not exist. Which means that, in effect, the UK is applying country-by-country reporting on a voluntary basis to the UK operations of overseas multinational corporations trading in this country. The timidity is typical of HMRC who whenever they can back down to multinational corporations seem to do so.
Compare this with Australia and China. There the rules are very different. The expectation is, in effect, that a subsidiary of a multinational corporation trading in those countries will, whether they like it or not, submit the country-by-country reporting return for the group as a whole if it is not available any other way to the local tax authority. That seems reasonable to me.
All the UK does is make the case, yet again, for public country-by-country reporting because right now the new UK tax rules are, to be polite, toothless in the case of abuse. I do wonder why we have to put up with this.
NB: thanks to Prof Sol Picciotto for discussion on this issue
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I think you’re misreading these regulations completely – in fact, you seem to have them backwards.
The primary requirement is that the multi-national group has revenue of €750m. If the group does, then either:
1) If the group is UK-based, it has to file a report for the whole group
2) If the group is non-UK based and files an equivalent report in its home jurisdiction that HMRC have access to, that report is enough
3) If there is no report of the whole group, each UK company must be included in a UK report (either filing directly, or being consolidated into another report).
There is no requirement at all to have a UK sub-group.
You have failed to quote the part of regulation 5 which sets this out:
“(2) United Kingdom Entity” means a Constituent Entity (“UKE”) in respect of which conditions A and B are satisfied.
(3) Condition A is satisfied where UKE is resident in the United Kingdom for tax purposes or has a permanent establishment in the United Kingdom.
(4) Condition B is satisfied where there is no other Constituent Entity of the MNE Group–
(a)resident in the United Kingdom for tax purposes; or
(b)which has a permanent establishment in the United Kingdom,
and which is required to prepare Consolidated Financial Statements or would be so required if its equity interests were traded on a public securities exchange and such statements include or would include UKE.”
Picking that apart: any company with a UK permanent establishment has to be a report unless it is already included in another one.
So, far from meaning that UK companies are exempted from filing unless they are in a UK sub-group, in fact they are *only* exempted if they are in a UK sub-group that is already filing a report; in addition, the reporting requirement extends beyond UK companies to include any entity with a UK PE.
As I say, you have it backwards.
I disagree: they have to report, but they have to file accounts anyway
What they do not have to do is report on a consolidated basis
Or supply the group accounts
And so my contention is correct, I think
Here is a link to the actual regulations, rather than the HMRC commentary on them. http://www.legislation.gov.uk/uksi/2016/237/contents/made
I think you need to be looking at regulation 3(4) and regulation 6: they set the conditions for UK entity, which is not the ultimate parent, to file a report in the UK (that is, if the parent is not filing a report, or is in a jurisdiction that won’t share the report with the UK).
As I read it, if there are two UK entities without a common UK parent, then they would both have UK reporting obligations, but only one of them needs to file the country by country report (see regulation 3(6)).
This is hardly surprising, as this is what the OECD suggested in the BEPS proposals.
No one disputes they must file
But as far as I can see there is no obvious requirement to file a consolidated report is there is no consolidation and none re the total entity
Which is the point I was making
I can see the counter argument: that condition B requires consolidation if it is not happening under A, but if that was the intention why doesn’t it say so? I think the position extremely vague, at best and wide open to the interpretation I suggest. There is also obvious opportunity for dispute to arise between group entities: this is diabolically constructed
And there is still no requirement to file for the group as a whole
Regulation 5 is about the contents of the report, not the requirement to file it, and most of the detail will be elsewhere (5(1)(b) “contains the information specified in specific or general directions given by the Commissioners”)
I agree with Andrew Jackson.
But if the report is about single entities – and I think reg 5 leaves that option open with each UK subsid filing its own data under this Reg as it is not clear that consolidation is required – then country-by-country reporting is subverted
And the risk of that is the point I was making: it looks like non-UK companies could easily work round this as the regulation is far from clear
And that’s not good enough
Why should non-UK entities be bound by a UK regulation in the first place? The whole concept of “working round” a regulation that doesn’t apply to you is rather an odd one 🙂
They are UK entities
They are foreign owned
And you may not have noticed this, but BEPS is a multinational initiative which is why the Australian and Chinese approach is right
“BEPS is a multinational initiative ”
Yes, exactly. The UK regs set out what needs to be done if there is no report being filed in the parent’s home jurisdiction; if there is one, then HMRC would have access to it anyway.
Yes, and as I point out the outcome could be they get nothing at all in that situation
As ever I am totally baffled as to how you get everything wrong
This would be a quick go at my suggested wording
It does not address the Chinese and Australian point but at least it makes clear that UK consolidated data is required and who by
5.–(1) “United Kingdom country-by-country report” means a report which–
(a) relates to–
(i) a designated United Kingdom Entity; and either
(ii) where applicable, the Constituent Entities in respect of which the United Kingdom Entity is required to prepare Consolidated Financial Statements or would be so required if its equity interests were traded on a public securities exchange; or
(iii) those Constituent Entities that it is required to produce Consolidated Financial Statements for as a consequence of their being deemed to be owned by it as representative of the common owner resident outside the United Kingdom for the purposes of corporation tax who is their owner in common.
(b) contains the information specified in specific or general directions given by the Commissioners.
(2) “United Kingdom Entity” means the parent company of a UK group of companies in respect of which Consolidated Financial Statements would be required if its equity interests were traded on a public securities exchange.
(3) “Designated United Kingdom Entity” means either:
(a) A United Kingdom Entity, or
(b) An entity designated by either election or at the direction of HM Revenue & Customs to be the representative member of those companies that are under the common control of a person, persons or company not resident in the United Kingdom for corporation tax purposes which companies would not, but for the purposes of this provision, be required to produce Consolidated Financial Statements but which shall, as a result of the operation of this section be required to prepare Consolidated Financial Statements for submission to HM Revenue & Customs as if the Designated United Kingdom Entity were the parent entity of those companies that are under such common control.
Re-reading again, I think Richard has a point, although not quite the one he was making. There are two issues – (a) is a report required; and (b) what does it include.
It seems clear that UK entities in a sufficiently large group will be required to file a report, if their ultimate parent is not reporting, and they are not included on a report filed by another group entity. So that is the answer to (a) – yes, UK entities are required to report (either directly or indirectly, by being included in a report made by another group entity). As I read it, if there are two or more UK subgroups, each will be required to report separately, unless that are included in wider report.
However, as to (b), there seems to be a distinction between a “country-by-country report” filed under regulation 3(3) or 3(8), which covers the whole group, and a “United Kingdom country-by-country report” filed under regulation 3(4). The UK report only include the relevant UK entity and its subsidiaries, whether those subsidiaries are in the UK or not, but it does not include the rest of the group.
This seems to be deliberate. See paragraph 7.10 in the explanatory notes: “This local filing requirement will mean that the top UK entity of a multinational will file a country-by-country report covering all entities within the subgroup of which it is head.” http://www.legislation.gov.uk/uksi/2016/237/pdfs/uksiem_20160237_en.pdf
Frankly, that was not what I was expecting or how I read it the first time, and it is not entirely consistent with the OECD’s Action 13 report, which only envisions a single type of “country by country report” that covers the entire group. The concern here seems to be that a subsidiary cannot compel its parent entity (or sister entities) to provide it with information. See for example http://www.ey.com/UK/en/Services/Tax/Midweek-tax-news (the version for 1 March 2016: in a few days, a link will be needed to their archive)
I think you have now got my concern
We are not gong to get the reports the OECD anticipated that we should
And as far as I am concerned that is not complying
First of all, I have to agree that these regulations are diabolically constructed, taking a simple concept and mangling it to the point of impenetrability.
That said, it is clear that the “UK CbC Report” represents a mere sub-set of the full CbC Report. While it is true that Regulation 5(1)(b) leaves open the contents of the report to be determined by the directions of the Commissioners, it nevertheless appears clear that what is meant by a UK CbC Report contains details only of UK entities and subsidiaries of those UK entities. This is made clear (I believe) by HMRC’s comment that “This local filing requirement will mean that the top UK entity of an MNE will file a CBCR covering all entities within the sub group of which it is head.”
Evidently therefore, groups without a UK ultimate parent entity will not be required to file a full CbC Report in the UK. The requirement appears to be merely to supply effectively a cut-down localized version of a CbC Report, omitting details of all associated enterprises of the group that are not within the UK’s entities’ immediate sub-set.
Exception A of Regulation 3 only applies where a UK entity has voluntarily opted to provide a full group CbC Report, there being no obligation for this. Exception B of Regulation 3 only applies where the group’s full CbC Report has been filed in a jurisdiction with which exchange of information is operative and the UK entity opts to provide HMRC with details of the filing, again without obligation.
Thus any group without a UK ultimate parent entity would certainly appear able, if it so chose, to withhold from HMRC the full group CbC Report, limiting its disclosure to HMRC merely to UK subsidiaries of the group and their UK or overseas subsidiaries.
It is probably more apt to consider the UK CbC Report as a Country Report than a Country by Country Report in fact.
Which supports what I claimed in my headline
OK, but your headline is right in any event, because the €750m threshold will exclude perhaps 80% of all multinational groups. HMRC estimates only 300 UK-headed groups will be caught by the UK regulations.
What I was trying to address (and I think Andrew Jackson too) was the body text, where you said “it [i.e the regulation] will only apply to the UK subsidiaries of any non-UK based group that trades here and then only if there is a UK parent of the UK entities that the group owns”. That is not right. UK companies in a sufficiently large group will have filing requirements under the regulation, whether or not they have a UK parent.
And “the UK is applying country-by-country reporting on a voluntary basis to the UK operations of overseas multinational corporations”. That is not right either. The UK operations will be included, one way or another. What won’t be included are the overseas operations of a group which are not under the control of a UK company.
Did you mean to say: “a UK subsidiary will not have to file a report covering the entire worldwide group”?
So, if I have got this right, the three routes to compliance appear to be:
* a UK headed group will file a CbyC report in the UK
* a non-UK headed group will file a CbyC report elsewhere, and that report will be shared with the UK by that tax authority
* if a non-UK headed group does not file elsewhere, or that report is not shared with HMRC, then UK subsidiaries will have to file a cut-down “UK CbyC report” for itself and its subsidiaries in the UK
I am suggesting your conclusion 3 can be avoided under regs as drafted
Ok. Please would you explain how a UK company (which is not included in a group-wide report filed in the UK elsewhere, or filed elsewhere but made available to HMRC) can avoid its obligation to file a UK report?
I have
If the obligation to consolidate is avoided then there is no report – or rather a multiple of reports which wholly misses the aim of BEPS and is not CBC
Fine. So you agree with my third point, that the regulations will require UK companies to file a UK report (if they are not included on another report, to which HRMC has access).
But tgat’s no more than a normal tax return in all likelihood
So my proposition was right