What is Country by Country Reporting (CbCR)?

Description: Businesses should be aware of the Country by Country Reporting and which businesses should comply with CbCR.

Transparency is a very important keyword in today’s world.  It is very important for a business to be transparent with investors. This not only considers the businesses in a jurisdiction but also the businesses having a global reach. Businesses all over the world are now stressing over compliance and transparency. There have been visible examples of companies that are transparent in conducting their business, and such business is most liked by people all over.

The Middle East has now become a hotbed for registering and conducting business. such businesses need to take care of transparency with the customers and investor and should share all the details about the income, their economic activities the taxes paid and much other business and economic activities of the company.

Let us understand what CbCR is and what impact it has had on businesses in the United Arab Emirates (UAE).

What is CbCR (Country by Country Reporting)?

The Auditing and Accounting Services provided a lot of information of the company to the management but as the time passes there have been an increase in frauds regarding the reporting. With this in mind, the Government of United Arab Emirates introduced the requirements for Country by Country Reporting (CbCR) which are applicable to businesses that are members of a Multi-National Enterprise (MNE) which has an annual turnover of more than AED 3.15 billion and the business has a branch or a legal entity in the jurisdiction.

The CbCR is part of the Action 13 of the BEPS (Base Erosion and Profit Sharing) initiative which is led by OECD (Economic Co-operation and Development) and the G20 countries. This reporting was introduced in the country in 2019 via Cabinet Resolution No. 32 of 2019 which was later on replaced by Cabinet Resolution No. 44 of 2020.

What does one mean by MNE (Multi-National Enterprise)?

An MNE or a Multi-National Enterprise can be defined as a business entity that fulfils the following criteria:

  1. The business entity comprises of two or more tax residences in different areas, or the business entity includes an enterprise, which is considered as a resident of an area but is subject to tax in another jurisdiction.
  2. The business entity has a total revenue of AED 3.15 (Three billion and hundred and fifty million) in the Fiscal year coming before the Reporting Year.

What is the Purpose of CbCR?

The CbCR was introduced in the United Arab Emirates, seeing the increasing requirement of transparency on the business operations which are being conducted by the businesses on a global scale. The Country by Country Reporting will be applicable to the companies which fulfil the criteria’s mentioned in the Cabinet Resolution.

According to the resolution the business has to provide all the information relating to the financials of the business such as income generated by the company on a global scale, the total taxes paid or any other indicator related to the economic activities of the business on a global scale.

This type of reporting will remove any chances of the gap in the information provided to the taxpayers and all the tax administrators generated by the Multi-National Entity Group. The MNE entity will also need to be clear and transparent about the taxes paid by the company as well as the profits on a global scale.

Penalties of Non-Compliance under UAE CbCR

All the business entities which fulfil the criteria need to comply with the Country by Country Reporting (CbCR). The non-compliance of such may result in fines or penalties for the business. The penalties which will be applicable to a company are mentioned below:

  1. If the companies fail to retain information and documents of the business for a minimum of 5 years, then the penalty levied on the business is AED 100,00
  2. If the business fails to provide the necessary information to the Ministry of Finance (MoF), then the penalty levied on the business is AED 100,00
  3. If there is a delay or the business fails to submit CbCR within 12 months of the end of the reporting period, then the penalty levied on the business will be 1,000,00 and an additional 1000 per day. The extra penalty per day can go up to a maximum of 250,000.
  4. If the company fails to provide accurate or incomplete information, then the penalty levied on the business is AED 50,000 to 500,000.