In line with Action 13 of the Base Erosion and Profit Shifting (BEPS) initiative led by the Organization for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) industrialized nations , Country by country reporting (CbCr) was introduced in UAE by CABINET RESOLUTION NO (44) OF 2020 ORGANISING REPORTS SUBMITTED BY MULTINATIONAL COMPANIES, aimed at preventing tax planning that exploits gaps in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.
A CbC Report containing detailed information about an MNE's global revenue, profit before taxes, and income taxes accrued in each jurisdiction it operates must be filed as part of BEPS Action 13.
All UAE-headquartered MNE Groups Consolidated Group revenue exceeding AED 3.15 billion in previous financial year, are required to comply with the UAE CbCR regulations.
A few frequently asked standard questions about CbCr in the UAE are listed below.
- What is Country-By-Country-Reporting (CbCr)?
OECD-led BEPS initiative Action 13 as part of the Organization for Economic Co-operation and Development's (OECD) and Group of Twenty's (G20) industrialized nations' Base Erosion and Profit Shifting Initiative (BEPS) includes CbC Reporting. As a result of BEPS Action 13, large multinational groups of entities (MNEs) must file a CbC Report that includes a breakdown of global revenue, profit before tax, income tax accrued, and other economic indicators for each jurisdiction where the MNE operates.
However, in UAE only Ultimate parent entities of UAE-headquartered Multinational (MNE) Groups with Consolidated Group revenue exceeding AED 3.15 billion in previous financial year are within the scope of CbCr.
Reporting CbC eliminates gaps between taxpayers and tax administrations regarding where the economic value is generated and where profits are allocated within the MNE Group. This results in global taxation.
For CbCR purposes the MNE Group is the group which consists of two or more enterprises that are residents for tax purposes in different jurisdictions
- How is CbC reporting governed in the UAE?
CbC Reporting in the UAE is governed by the UAE's Cabinet Resolution no. 44 of 2020, which replaces Cabinet Resolution no. 32 of 2019.
- How does the UAE's CbC Reporting Legislation compare with the OECD guidance on CbC Reporting?
To ensure consistency and standard CbC Reporting across all countries implementing CbC Reporting, the OECD's guidelines on implementing CbC Reporting can be used to interpret the UAE's CbC Reporting legislation. While there are some similarities between the OECD Model and UAE CbC Reporting Legislation, there are also some differences. As a result, the UAE CbC reporting law takes precedence when conflict arises.
- Will the MoF ensure that the information provided in CbC Reports is confidential?
Taking into account the provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA) developed by the OECD and the Council of Europe, the UAE Ministry of Finance (the Competent Authority, abbreviated as MoF) will maintain the confidentiality of the information contained in CbC Reports it receives.
- For what purpose is the information contained in a CbC Report used?
According to the BEPS Action 13 Report, CbC Reports may be used for three purposes:
- Assessing high-level transfer pricing risks
- Assessing other BEPS-related risks.
- Analyzing economic and statistical data
In accordance with the permitted uses above, the UAE will use the information provided in CbC Reports. The Ministry of Foreign Affairs will not use CbC Reporting data beyond these limitations.
- To file the CbC Report in the UAE, what information should a CbC Reporting Entity keep?
Following the submission of the CbC Report to the MoF, a CbC Reporting Entity should maintain adequate records for five years. It will be permissible to keep the previous records electronically.
- What are the requirements of CbCr?
- CbCR notification to be filed - Before end of the financial year
- CbC Report to be filed - Within 12 months from the end of the financial year
- What are the consequences for non-compliance
For Non-Compliance of CbCr deadlines, penalties ranging from AED 100,000 to AED 1.25 million will be incurred.