New rules in the UK for multinationals
It has been five years since George Osborne and his G7 counterparts kick-started the overhaul of the international tax system, leading to the OECD’s base erosion and profit shifting (BEPS) action plan. Companies that are part of multinational groups now need to take action to comply with updated UK legislation concerning perhaps the most far reaching consequence of BEPS – country by country (CbC) reporting.
CbC reporting requires large multinational groups (those with consolidated group turnover of €750 million or more) to disclose revenues, profits, taxes paid and other data for each country in which they operate. The updated legislation brings certain partnerships within the reporting obligation and introduces new reporting obligations and notification requirements for members of such qualifying multinational groups.
So how do these new rules impact multinationals?
There are a number of new requirements, but the key point for many groups will be that in some situations the responsibility to file the CbC report shifts to a UK entity. This can happen, for example, where the country of the ultimate group parent entity does not have an exchange of information agreement with the UK that specifically covers CbC reports. In such a situation a UK entity will have to request all of the CbC information from its ultimate parent and file the report in the UK. The impact of this could be significant for a large number of groups with overseas parent entities where the UK subsidiaries might have assumed that CbC reporting was not something that need concern them. For example, at the time of writing the United States does not have such an agreement with the UK and so a UK subsidiary of a US parent company would need to file a CbC report in the UK.
Another important point is that one of the UK entities that is not the ultimate parent of a qualifying group and that does not need to submit a CbC report in the UK still has to notify HMRC of which entity in the group be filing it in which jurisdiction, together with further information on other members of the group. Notification of the names and details of UK group entities is also now required from UK entities that are the ultimate parent entity of a qualifying group. These notifications will need to be made by 1 September 2017 in many cases and by 31 December 2017 in most other instances.
Our experience of talking to multinationals is that many have been slow to start their CbC reporting exercise, or have underestimated the complexity of the task. Many countries have similar notification deadlines to those that now apply in the UK, but some of those deadlines have already passed or will do so soon. There are significant penalties for failure to comply in some countries, with penalties potentially running into the equivalent of hundreds of thousands of pounds.
Don’t draw attention to yourself
Perhaps more important is bearing in mind that CbC reporting is all about helping tax authorities to risk assess multinational groups. Penalties apply for failure to meet the new notification deadlines or to complete the report properly and in a timely fashion, but additional consequences could include reputational damage as well as tax audit costs. The five years since BEPS was born have passed quickly, groups now have less than four months to make sure that they are not the ones that stand out when HMRC checks who has failed to meet the 1 September deadline.
For more information please get in touch with Ken Almand, or your usual RSM contact.