The United Arab Emirates (UAE) Ministry of Finance (MoF), by way of a Cabinet of Minister’s Resolution, (the Resolution) issued Country-by-Country Reporting (CbCr). The UAE is the third GCC country to implement CbCr following the introduction of transfer pricing (TP) by-laws in Saudi Arabia and CbCr implementation in Qatar.
The simultaneous introduction of CbCr and economic substance regulations affirms the UAE’s commitment to addressing substance and transparency topics, in line with the European Union’s requirements.
The resolution introduces CbCr requirements for entities that are “tax residents” in the UAE and part of a multinational enterprise (MNE) with consolidated revenues equal to or exceeding AED 3.15 billion (approximately EUR 760 million or USD 855 million) in the preceding financial year.
The resolution requires the UAE-based entity of an MNE to notify the competent authority (i.e. the UAE MoF) if it is an ultimate parent entity (UPE) or will act as a surrogate parent entity (SPE) appointed to file the CbC report on behalf of the MNE, or the identity and tax jurisdiction of the enterprise that would submit the CbC report, before the end of the financial reporting year of the MNE. The CbC report is then to be filed within 12 months from the end of the financial reporting year of the MNE. The first financial reporting period commences from 1 January 2019.
The CbCr rules are in line with the guidance issued by the OECD on the content and format of CbC reports. This includes aggregate financial information (relating to the amount of revenues, profits/losses before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than non-cash or cash-equivalent assets), along with details about business activities conducted and other disclosures and explanations provided by the MNE, with respect to each jurisdiction in which the MNE operates.
The resolution introduces various penalties for violation or non-compliance with the CbCr requirements, as provided below:
|1) Failure to report the information or failure to notify the competent authority on or before the required reporting date, of the intention to file a report in respect of a certain accounting period||AED 1,000,000 (plus AED 10,000 every day for which the failure continues to a maximum of AED 250,000)|
|2) Failure to report complete or accurate information||from AED 50,000 to AED 500,000|
|3) Failure to provide the competent authority with any requested information||AED 100,000|
|4) Failure to retain documentation and information for minimum five years from the date of reporting||AED 100,000|
The total fines imposed for any of the non-compliance mentioned above are capped at AED 1,000,000 for any reporting year (except for the additional fine under 1.).
UAE-based MNEs which will fall within the scope of the CbCr requirements for the first time may want to take actions to define their initial reporting strategy—but equally important, make efforts to better understand how the CbC reporting requirements apply to the organization, and in what way the information contained therein could be interpreted by (multiple) tax authorities.
UAE headquartered MNEs which have previously filed the CbC report in an SPE jurisdiction will need to reconsider whether such practices can continue going forward.
Foreign headquartered MNEs may also need to re-evaluate their CbC reporting strategy, which should now include UAE considerations.
This publication is of a general nature only. Specific professional advice must be obtained before making a decision. Our publication should not be considered legal advice or a substitute for seeking local legal advice. Laws and regulations in the UAE are changing constantly. The information contained within this publication is based on facts available as of 11 July 2019 and is subject to change.
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