Wednesday, 26 October 2016

UK May Require Country-by-Country Reports to be Made Public

On September 5th, the House of Commons approved an amendment to the 2016 Finance Bill that would enable the inclusion of public country-by-country (“CbC”) reports in companies’ published tax strategies. The UK is the first country to propose enabling legislation allowing the possibility for a future requirement on multinationals publicly to reveal where they earn revenue and how much tax they pay. The government’s acceptance of the proposal to include CbC reporting in the published tax strategy took some observers by surprise, as the UK was not expected to embrace measures that might risk putting its business at a competitive disadvantage following the vote in favor of leaving the EU. However, the government has made clear that the introduction of public CbC reporting is dependent on its adoption on an effective multilateral basis. The amendment, which originated with a cross-party group of politicians from eight separate parties led by opposition Labour member Caroline Flint, follows widespread lobbying for increased tax transparency.

Public CbC reporting was introduced as part of broader legislation requiring multinational groups to publish their tax strategies. The broader tax strategy legislation requires companies with turnover above £200 million or a balance sheet over £2 billion to publish a document explaining their company’s tax arrangements. This does not include amounts or commercially sensitive information. There remains a lack of clarity on how far the amendment with respect to CbC reporting could be made to bind multinationals that are not UK-headquartered.

Making CbC reports public goes beyond the recommendations that the Organization for Economic Cooperation and Development (“OECD”) set out in Action Point 13 of its BEPS plan. The OECD’s approach recognizes concerns of multinationals around the confidentiality of sensitive information, but the UK’s steps follow the path already set by the European Commission, which is also demanding public CbC reporting in EU Member States. However, while the UK’s recent actions may come as a surprise to some taxpayers and practitioners, there are few immediate consequences for business. No date has been set for introduction of public CbC reporting regulations in the UK and no unilateral action is to be expected. Earlier in April, the European Commission proposed an EU Directive that would require public CbC reporting, but no further progress has come from the proposition.

A copy of the amended bill is available here.

Source: Transfer Pricing Times: Volume XIII, Issue 7