Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)
Introduction
The United Arab Emirates (“UAE”) joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) on 16 May 2018, bringing the total number of participating jurisdictions to 116.
By joining the Inclusive Framework, the UAE has committed to implement the following four BEPS minimum standards:
- Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance;
- Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances;
- Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”);
- Action 14: Making Dispute Resolution Mechanisms More Effective
Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)
Action 13 is relevant to multinational groups headquartered in the Middle East, since the requirement to prepare a group Master file, Local files and a CbCR may exist due to operational presence in other jurisdictions that have adopted Action 13.
- Master File: A report which provides a high-level overview of the multinational enterprises (“MNEs”) group business i.e. global business operations, transfer pricing policies, and its global allocation of income and economic activities.
- Country-by-country report (CbCR): A report which provides aggregate tax jurisdiction, wide information relating to the global allocation of income, taxes paid, and certain indicators of economic activity in which the MNE operate. Further, this report will include list of all entities, branches and Permanent Establishments (PE’s) as well as assumptions and narrative to support and explain the data.
- Local File: A report which provides detailed information relating to specific intra-group transactions and assures the tax authority that the local entity has complied with the arm’s length principle for its material intra-group transactions.
Applicability:
Action 13 will be applicable on multinational enterprises (“MNEs”) with annual consolidated revenues of AED 3.15 billion or higher (750 million EUR / 800 million USD).
Action points for UAE-based entity of MNE Group:
- UAE-based entity of an MNE group should notify the UAE Ministry of Finance of their intent to satisfy to the CbCR filing requirements. If multiple entities of the group are UAE-based, each entity is required to notify.
- The CbCR should be electronically filed within 12 months after the last day of FY 2019.
Applicable Penalties:
- For the failure
- To report the information required to be reported under the Resolution
- To notify the MoF, on or before the required reporting date, of the intention to file a report in respect of a certain accounting period;
- Penalty: Up to AED 1,250,000 (AED 1M + AED 10K for every day during which the failure continues (maximum of AED 250K))
- For the failure to report the information in a complete and accurate manner;
Penalty: Up to AED 500,000 (from AED 50,000 to AED 500,000)
- For the failure to provide the MoF with any information requested in accordance with the Resolution and for the failure to retain documentation and information required to be collected with regards to the Resolution for minimum five years from the date of reporting to the MoF.
Penalty: AED 100,000
