The Cabinet Resolution No. 44/ 2020 has been issued by the Ministry of Finance (MOF), UAE on Organizing Reports Submitted by Multinational Companies substituting the prior resolution No.32 of 2019 on country-by-country performance reporting. The latest resolution specifies the responsibilities of the country-by-country reporting communities (CBCR) for multinational entity groups (MNE) whose principal office is working in the UAE.
Objective of Country-by-Country Reporting (CbC)
The objective of Country by Country Reporting (CbC) is to eradicate any gap in data related to taxpayers and tax authorities in respect of information about where economic value is yielded within the MNE group and whether it corresponds to where gains are dispensed and taxes are paid globally.
The Organization for Economic Co-operation and Development (OECD) under Action 13 of Base Erosion Profit Shifting (BEPS) requires that businesses maintain appropriate documentation in a three-tier structure where their related party transactions are. The value of the arm's length is greater than a certain limit. The relevant tax period and the same are reproduced in the UAE Corporate Tax Public Consultation Document.
The OECD Guidelines aim to achieve three main objectives:
- countries adopt a three-tiered standard
- approach to transfer pricing documents,
- Country-by-Country Reporting (CbCR) is one of them
Country by Country Reporting’s Scope
Country by Country Reporting (CbCR) is framed under the directive that is consistent with the recommendation given by the Organization for Economic Co-operation and Development (OECD) on CbCR. The Resolution sets CbCR prerequisites through notification and filing for corporate bodies that are tax residents in the UAE.
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Country by Country Reporting’s Eligibility
The scope encompasses entities that are tax residents in the UAE and are part of a multinational group of enterprises (MNE) that have consolidated revenues equal to or more than 3.15 AED billion in the financial year before the financial reporting year. If the UPE (Ultimate Parent Company) of the MNE is a UAE resident or if the UAE Resident CE (Constituent Entity) of the MNE group with a UPE outside the UAE as an Alternate Parent Entity (APE)/Surrogate Parent Company (SPE) has been assigned or if the MNE has a UAE resident CE who is neither a UPE nor an APE.
Requirements for Filing
Article 4 of the Resolution states that the CbC report must be submitted within 12 months of the end of the reporting period. For example, for the financial year starting 1 January 2023, the CbC report must be submitted by 31 December 2024.
CbCR notifications must be submitted no earlier than the last day of the MNE's financial reporting year. Accordingly, for an MNE group's financial year commencing on 1 January 2019, the CbCR notification must be submitted to the UAE prior to 31 December 2019.
Format for Filing
A report containing quantitative and qualitative information about the MNE group. Information like revenue, profit, number of employees, business description, etc. should be reported under three tables:
- Table 1 of CBCR Templates Share Capital, Profit/Loss before Income tax accrued, Tax Jurisdiction, Income Tax Accrued and Paid, Income of Related and Unrelated Parties,) Number of Employees, and relevant information about tangible assets. Cash and cash equivalents.
- Table 2 of the template mandates the reporting of a list of all constituent entities of the MNE group that are included in each accumulation in each tax jurisdiction. This table supplies information about all the institutions in a jurisdiction and their constituents.
- Table 3 This Table includes any supplementary information essential to simplify the understanding of Tables I and II for instance data source and assumptions of the exchange rate, etc. Further, from the Ministry of Finance, UAE, information can be taken regarding guidance on the completion of the Waiting for Filing CBCR report in the UAE.
The CbCR template requires that permanent establishment data be reported in respect of the concerned tax jurisdiction in which it is located. The procedures further require that the reporting template cover the financial year of the MNE group and declare the information consistently. The reporting MNE must invariably use the same data sources from year to year in completing the template and provide a succinct description of the data sources used in the preparation of the template in the supplementary information section of the template. If the data source has been changed, it should be disclosed accordingly in the Additional Information section.
Maintenance of effective records
Maintain effective records for 5 years after the date on which the CbC report is submitted to the competent authorities. The records may be kept electronically, it is provided in a compatible and readable electronic format.
Records will be maintained in English. If the record is kept in a language other than English, it requires to be translated into English on submission by the competent authority.
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Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.