Country by country reporting – learning points
12 January 2018
The first deadline for making country by country reports (CbCR) to HMRC has now passed but groups that do not have a 31 December year end can learn from some operational issues and helpful clarifications which have emerged over the first reporting period.
UK subsidiaries and permanent establishments of overseas parent companies
Where a multinational group meets the requirements for CbCR (ie group income is €750m or more in the prior year) and has a subsidiary (even a dormant one) or permanent establishment (PE) in the UK, then the UK entity may well have a UK CbC reporting requirement for the year ended 31 December 2016 as well as the usual UK notification requirement, even where the expectation is that the group submits its report in another territory.
This can arise in the following situations:
- A CbC report is filed but the country in which it is filed has no mechanism for exchanging the data with the UK, for example that country has not signed up to the Multilateral Competent Authority Agreement on the Exchange of CbC Reports and does not have information sharing provisions in its tax treaty with the UK. China is a prominent example of this situation.
- The parent company’s home jurisdiction did adopt CbCR for 2016 but extended the 31 December 2017 filing deadline because its systems were not ready in time (relevant countries include Italy and Japan).
- The group failed to file a CbC Report.
This is in addition to the requirement for the submission of a Report (either in the UK or a territory with appropriate exchange of information provisions) in circumstances where the territory of the group’s parent entity has yet to adopt CbCR requirements.
Failing to meet the 31 December 2016 deadline for submitting a CbCR can trigger a £300 penalty for not filing on time (plus a daily £60 penalty for each day filing remains outstanding after the assessment of the £300 penalty). We understand that HMRC is taking a relatively lenient approach where a UK reporting requirement has arisen under situation two but it is important to contact HMRC at an early stage to provide details of when the parent company’s CbCR will be submitted.
Where a non-UK resident company owns and lets a UK property, it is currently not regarded as having a UK PE so is not liable to UK corporation tax (although this is expected to change from April 2019 onwards). However, for the purposes of CbCR only, HMRC regards such companies as having a fixed place of business in the UK and, therefore, considers that they must submit a CbCR.
Initially, the reporting position for such non-resident companies was made worse by the fact that HMRC’s portal for CbCR was only able to accept registrations from businesses that had both a UK unique taxpayer reference (UTR) number and a UK address and postcode. As a non-resident landlord must pay UK income tax on its UK rental profits, it should have a UTR but may not have a UK postal address. We understand that this is a validation issue which should be resolved shortly.
If you would like to discuss any CbCR issue further please contact Anton Hume, Paul Daly or Duncan Nott.
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