Country by Country Reporting – UAE
Country-by-Country Reporting (CbCR)is the requirement of the Organization for Economic Co-operation and Development (OECD) through its Action 13 of Base Erosion and Profit Shifting (BEPS). It is initially introduced in the United Arab Protax (UAE) with effect from the year 2019 through Cabinet Resolution No. 32 of 2019, which is now replaced by Cabinet Resolution No. 44 of 2020 and will be in effect.
As per Country-by-Country Reporting in UAE(CbCR) regulation, large Multinational Groups of Enterprises (MNEs) in UAE have to file a CbC report to the Competent Authorities at the end of every Financial year. It should provide details of the amount of revenue, profit/(loss) before tax, income tax accrued, income tax paid, Tax residence of Constituent Company, etc. for each such Company of MNE Group where MNE carries out its activities.
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Is Country by Country Reporting(CbCR ) applicable for you?
As per Cabinet Resolution No 44 of 2020, Country by Country Reporting in UAE (CbCR) requirements will be applicable to you if the following two conditions are met:
- if your entity is Ultimate Parent Company of the MNE Group in the UAE, and,
- if the consolidated revenue of the MNE is equal to or more than AED 3.15 billion in the preceding financial year.
Frequently Asked Questions
1. What is CbC Reporting?
CbC Reporting is part of 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. BEPS Action 13 requires large Multinational Groups of Entities (MNEs) to file a CbC Report that should provide a breakdown of the Multinational Group’s global revenue, profit before tax, income tax accrued and some other indicators of economic activities for each jurisdiction in which the MNE operates. The purpose of CbC Reporting is to eliminate any gap in information between the taxpayers and tax administrations with regards to information on where the economic value is generated within the MNE Group and whether it matches where profits are allocated and taxes are paid on a global level.
2. What is the UAE Legislation governing CbC Reporting?
The UAE legislation governing CbC Reporting is covered by the UAE’s Cabinet Resolution no. 44 of 2020, which replaces the existing Cabinet Resolution no. 32 of 2019.
3. Can the OECD guidance on CbC Reporting be used to interpret the UAE CbC Reporting Legislation?
The OECD guidance on the implementation of CbC Reporting can be used to interpret the UAE CbC Reporting legislation to ensure a consistent and standard approach to CbC Reporting across all implementing countries. It should be noted that there are some differences between the OECD Model legislation and the UAE CbC Reporting Legislation. Where there is a conflict, the UAE CbC Reporting legislation takes precedence.
4. How should terms contained in the UAE CbC Reporting Legislation and these FAQs be interpreted?
A number of terms used in these FAQs are defined in the UAE CbC Reporting Legislation, including, e.g. “country-by-country report”. Whilst these FAQs provide further information to assist with the interpretation of some of these terms, the reader is referred to the UAE CbC Reporting Legislation for a full definition of all relevant terms.
5. How will the M Protax oF safeguard the confidentiality of information provided in CbC Reports?
The UAE Ministry of Finance (the Competent Authority, abbreviated as Protax) will ensure the confidentiality of the information contained in CbC Reports provided to it, in accordance with the provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA) developed by the OECD and the Council of Europe.
6. What will the information provided on a CbC Report be used for?
The BEPS Action 13 Report sets out three permitted uses for information contained in CbC Reports, namely:
- To assess high-level transfer pricing risk;
- To assess other BEPS-related risks; and
- For economic and statistical analysis.
The UAE is committed to using information provided in CbC Reports in accordance with the permitted uses above. The Protax will not use CbC Reporting data beyond such limitations.
7. What information should be kept by a CbC Reporting Entity i.e. the entity required to file the CbC Report in the UAE? For what duration?
The effective records should be kept by a CbC Reporting Entity for 5 years following the date on which the CbC Report is submitted to the Protax. The aforementioned records may be kept electronically, provided that the records are retained in a readable electronic format and in accordance with UAE laws and regulations relating to the retention of electronic records.
8. What is a CbC Report?
A report including quantitative and qualitative information about the MNE Group. Information such as revenues, profits, employees count, business description, etc. should be reported under three tables:
- Table I – This contains the quantitative information per tax jurisdiction such as third party and related party revenues, stated capital, taxes accrued and paid, employee count, etc.
- Table II – This contains the qualitative information per constituent entity on the main business activities undertaken during the year.
- Table III – This contains any additional information necessary to facilitate the understanding of Tables I and II (e.g. assumptions on exchange rates, source of data, etc.)
9. Which groups of companies will be required to comply with CbC Reporting Legislation in the UAE?
UAE-headquartered Groups of companies which meet the following criteria should comply with CbC Reporting legislation in the UAE:
- ● MNE Groups i.e. Groups which consist of two or more enterprises that are residents for tax purposes in different jurisdictions (an enterprise that is resident for tax purposes in one jurisdiction and has a taxable permanent establishment in another jurisdiction should be considered as a separate enterprise in the context of this definition); and
- ● Have a total consolidated revenue that is equal to or more than AED 3,150,000,000 for the financial year preceding the reporting year concerned.
ILLUSTRATION For the MNE Group’s CbCR threshold assessment for the reporting year ending by December 31st, 2019 (Y) a check should be done on the MNE Groups’ consolidated revenues for the financial year ended per December 31st 2018 (Y-1)
Case 1: an MNE Group had a consolidated revenue of AED 3,500,000,000 during the financial year ending December 31st, 2018. In this case, for the CbCR reporting year 2019, the MNE Group meets the CbCR revenue threshold and will need to comply with CbC Reporting legislation in the UAE for the reporting year 2019.
Case 2: an MNE Group had a consolidated revenue of AED 3,000,000,000 during the financial year ending December 31st, 2018. In this case, for the CbCR reporting year 2019, the MNE Group does not meet the CbCR revenue threshold and does not need to comply with CbC Reporting legislation in the UAE for the reporting year 2019.
10. When do the CbC Reporting requirements come into effect in the UAE?
CbC Reporting requirements come into effect for financial years starting on or after January 1st 2019.
11. When must a CbC Report be filed with the UAE?
The CbC report should be filed within 12 months from the end of the reporting year of the MNE Group. E.g. With respect to the financial year commencing on January 1st 2019 and ending by December 31st 2019, the CbC Report should be filed no later than December 31, 2020.
12. Which entity within the MNE Group should be primarily responsible for filing the CbC Report in the UAE?
The UAE tax resident entity, which is an Ultimate Parent Entity of the MNE Group subject to the CbC Reporting Legislation as clarified under question 9 above.
13. Who should be considered as a ‘UAE tax resident entity’ for CbCR purposes?
Based on the existing UAE laws and international tax treaties, an entity should be considered as a tax resident in the UAE if it is incorporated or created under the laws of UAE or has its place of effective management therein.
14. What sources of information should be used for preparation of the CbC report?
The entity filing the CbC Report should consistently use the same sources of data from year to year in completing the CbC Report. The data can be obtained from the following sources:
- Consolidation reporting packages; or
- Separate entity statutory financial statements; or
- Regulatory financial statements; or
- Internal management accounts.
The entity preparing the CbC Report should provide a brief description of the sources of data used and explain reasons for any changes in sources of information from year to year in the Additional Information section (Table III) of the CbC Report.
15. Is there any specific guidance on how to complete the CbC Report?
please see the links above
16. How should the CbC Report be filed?
please see the links above
17. What currency should be used for CbC Reporting purposes?
If separate entity statutory financial statements are used as the basis for reporting, all amounts should be translated to the stated functional currency of the MNE Group. The average exchange rates for the year should be used for currency conversion. The applied rates should be stated in the Additional Information section (Table III) of the CbC Report.
18. In which language should the CbC Report be submitted in the UAE?
The CbC Report should be submitted in English.
19. How should information on permanent establishments (including branches) be reflected in the CbC Report?
Permanent establishment data should be reported by reference to the tax jurisdiction in which the permanent establishment is situated and not by reference to the tax jurisdiction of residence of the entity of which it is a permanent establishment. Information reported by reference to the residence tax jurisdiction of the entity of which it is a permanent establishment should exclude financial data related to the permanent establishment.
Example: The UAE entity has a branch in the UK, The CbC Report should reflect revenue, profit and other indicators of the branch as related to the UK. Data for the UAE entity should be presented after exclusion of information related to the UK branch.
20. What is a CbCR notification?
A form containing (i) confirmation that the notifying entity is the Ultimate Parent Entity of the MNE Group, resident in the UAE, and the UAE CbCR requirements are applicable to such MNE Group; and (ii) identification of such entity including trade license number, address, business activity and year end.
21. Who is required to submit a CbCR notification in the UAE?
The UAE tax resident Ultimate Parent Entity of the MNE Group to which CbCR legislation is applicable (refer FAQ 9 above for thresholds and applicability of UAE CbCR legislation).
22. What is the deadline for submission of the CbCR notification in the UAE?
CbCR notifications must be submitted no later than the last day of the financial reporting year of the MNE. Accordingly, for the MNE Group’s financial year starting on January 1st 2019, CbCR notification should be submitted in the UAE by no later than December 31st 2019.
23. How should a CbCR notification be filed in the UAE?
please see the links above