Background and Purpose
On 30 April 2019, the United Arab Emirates (“UAE”) Ministry of Finance (“ MoF ”) issued ‘Cabinet Resolution No. 32 of 2019 concerning Regulation of the Submission of Reports by Multinational Companies’, setting out CbCR compliance obligations for multinational entity groups (“MNE groups”) based in the UAE.
Almost simultaneously with the introduction of economic substance regulations, the UAE further implements international tax standards and joins around 80 other countries which have implemented the CbC reporting. The impact of this reporting on international corporations in the UAE cannot be understated.
In the Framework of the Base Erosion and Profit Shifting (“BEPS”) project of the OECD and the G20, countries agreed, amongst others, to implement BEPS action 13 in order to tackle the shortcomings of the international tax system.
This action prescribes that countries implement legislation requiring multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business certain relevant tax related information and exchange this information with other countries.
Effective for fiscal years beginning on or after 1 January 2019 (“FY19”).
Applies to multinational entity groups (“MNE group”) tax resident in the UAE with annual consolidated revenues exceeding AED 3.15 billion in the preceding fiscal year.
To qualify as an MNE group, the group must have at least two or more entities resident for tax purposes in different jurisdictions.
Notifications are due on/before fiscal year-end.
CbCreport is due 12 months after fiscal year-end.
All filing deadlines are aligned with the MNE group’s fiscal year-end.
MNE groups with UAE-based UPEs must submit notifications and file the CbCreport in the UAE.
The UAE presently has 491exchange relationships with other tax jurisdictions, which should mitigate the need for secondary filings in other jurisdictions (but this should be monitored).
Currently, UAE has active exchange relationships with 49 jurisdictions, all of which are non-GCC jurisdictions. Additionally, UAE does not have an active exchange relationship with the Kingdom of Saudi Arabia (“KSA”) or Qatar.
MNE groups with ultimate parent entities (“UPE”) outside the UAE must submit a notification to the UAE MoF.
Penalties for non compliance
Failure to comply with the CbCR obligations set out in the resolution may result in penalties being levied on the Reporting Entity as follows:
Penalty of AED100,000 for failure to retain supporting documentation and information
Penalty of AED100,000 for failure to provide the competent authority with requested information
Initial penalty of AED1m and AED10,000 to be applied daily until a maximum of AED250,000 for failure to file the CbCR notification or CbC report
Minimum penalty of AED50,000 to a maximum of AED500,000 for failure to report complete and accurate information
The UAE’s legislation very much mirrors the standards imposed by the OECD which have been adopted in countries which have already implemented CbC reporting. The UAE is the third GCC country to implement CbCr reporting after Qatar and KSA had done so previously. The context of the UAE is slightly different, given the current absence of Federal Corporate Income Tax. Both Qatar and KSA have a form of corporate income tax
The Federal Tax Authority may be interested in the file for VAT purposes and ask tax payers to reconcile the amounts in the CbC report, as it can do today already with audited financial statements.
The importance of the introduction of CbC reporting cannot be understated. The UAE’s important neighbour, Saudi Arabia, will be very keen to examine the information in the CbC reports filed by UAE companies to verify whether it is receiving the right end of the tax portion.
How MSATC can help
- Assistance in CbCR notification and reporting
-Assessment of parameteres to CbCR
-Advisory on bridging the Gaps and;
- Compliance Services