With a commitment to implement the minimum standards to prevent Base Erosion and Profit Shifting (BEPS), UAE became the 116th jurisdiction to join the OECD’s Inclusive Framework (IF) on BEPS on 16-May-2018. Such minimum standards include the following:
- Action 5: Countering harmful tax practices;
- Action 6: Countering tax treaty abuse;
- Action 13: Transfer pricing documentation and country-by-country (CbC) reporting; and
- Action 14: Improving dispute resolution mechanisms.
After joining the IF on BEPS, the UAE signed the Multilateral Convention (‘MLI’) on June 27, 2018 to implement tax treaty-related measures to prevent BEPS. On 29th May 2019, the UAE deposited its instrument of ratification for the MLI with the OECD’s Secretary-General, thus underlining its strong commitment to prevent the abuse of tax treaties and BEPS by multinational enterprises.
Introduction of Country-by-Country Reporting (CbCr) guidelines in the UAE
Although the businesses in the UAE are not required to prepare transfer pricing studies by the UAE’s Tax Procedures Law (TPL), the UAE Ministry of Finance (‘MoF’) by way of a Cabinet of Minister’s Resolution No 32 of 2019 (‘the Resolution’) has recently issued a regulation in the month of July 2019 with respect to submission of reports by multi-national companies i.e. on Country-by-Country Reporting (‘CbCr’).
The UAE is the third GCC country to implement CbCr following the introduction of transfer pricing by- laws in Saudi Arabia and CbCr implementation in Qatar. The introduction of this regulation can be said to be in line with the UAE’s commitment of implementing the BEPS minimum standard of Action 13 (as mentioned above) on Transfer pricing documentation and country-by-country reporting.
Who shall have the filing obligation?
As per this resolution, broadly the following entities shall have an obligation to file a notification or required report with the prescribed contents within the specified timelines:
- Each Ultimate Parent Entity of a multinational enterprise (‘MNE’) group which is resident for tax purposes in the UAE; or
- Constituent Entity resident for tax purposes in the UAE, which is not the Ultimate Parent Entity of an MNE Group
Revenue threshold for applicability of this reporting
The ultimate parent entity of MNE or the constituent entity of an MNE group as above, with consolidated group revenue equal to or more than AED 3,150,000,000 (3.15 billion) (approx. USD 855 million) during the fiscal year immediately preceding the reporting fiscal year is required to undertake the said compliance.
What is required to be done?
The Resolution requires the UAE based tax resident entity of an MNE group to notify the Competent Authority which is defined as the UAE MoF, the following:
- Whether it is an ultimate parent entity or will be acting as a surrogate parent entity for the purposes of undertaking the required CbC reporting;
- Where the constituent entity is not the ultimate parent entity or surrogate parent entity, notify MoF the identity and tax residence of the actual reporting entity and its tax jurisdiction
The above notification is required to be sent to the MoF before the end of the financial reporting year of the MNE group.
The CbC report obligation is required to be filed within 12 months from the end of the financial reporting year of the MNE group. The first reporting obligation shall take effect from January 1, 2019.
Required CbC report is required to be filed in a form identical to and applying the definitions and instructions contained in the standard template set out at Annex III of Chapter V of the OECD Transfer Pricing Guidelines.
Penalties for non-compliance
Yes, in case of failure to comply with the obligations set out in the Resolution, there shall be a levy of administrative penalty as follows:
|Failure to retain documentation and information for minimum five years from the date of reporting||AED 100,000|
|Failure to provide MoF with any requested information||AED 100,000|
|Failure to:||AED 1,000,000 (plus AED 10,000 everyday for which the failure continues to amaximum of AED 250,000)|
|Failure to report the information in a complete and accurate manner||From AED 50,000 to AED 500,000|
- Identify whether your business group can be said to be falling under the definition of MNE Group;
- In case the business is categorized as MNE Group, whether you are required to undertake the compliances under this Resolution?
- What shall be the reporting requirements for your MNE Group?
- What are timelines within which the said reporting requirements are required to be complied with? [Source: UAE Ministry of Finance]
How can PKF help?
- PKF can help you get a clear understanding of the Resolution and its requirements;
- PKF can conduct a study of whether your business shall be covered under the provisions of the resolution;
- PKF can assist in relevant compliances under the new regulations
You may email us or can contact any of our team members relating to your queries on this subject:
Director – Tax Services
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