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13.4.3. Documentation Requirements

Standard Documentation

Master File & Local File

HMRC simply requires that transfer pricing documentation be retained to support the arms-length pricing, and that such documentation should be proportionate to the size and complexity of the transactions or business involved and should be the same as that specified in Annexes I and II (Master file and Local file) of the Action 13 report.

Beyond this, the latest CbC guidance (published 15 August 2017) only references the HMRC guidelines on transfer pricing documentation, which currently does not mention Master/Local file. It is possible that additional updates to the guidance will be published to reflect the new Master/Local file requirement.

Country-by-Country Reporting

UK has adpoted a CbC reporting requirement, applying to accounting periods beginning on or after 1 January 2016. Note that CbC reporting requirements extend to partnerships in the UK that are parent entities of MNEs.

The CbC reporting requirements are in line with the guidelines developed as part of Action 13 of the OECD BEPS Project. The CbC report format is in accordance with the OECD template, with multinational groups required to provide information for each tax jurisdiction in which they do business, including:

  • The amount of revenue, profit before income tax, and income tax paid and accrued;
  • Total employment, capital, retained earnings and tangible assets; and
  • Identification of each entity within the group doing business in a particular tax jurisdiction with an indication of business activities within a selection of broad areas that each entity engages in.

CbC Reporting Threshold

The CbC reporting threshold is annual consolidated group revenue of EUR 750 million or more in the preceding period as shown in the MNE group's consolidated financial statements, or would be shown had an enterprise of the MNE group been required to produce them due to being listed on a stock exchange.

In determining if the EUR 750 million threshold is met, the exchange rate is the average rate for the relevant accounting period. If the accounting period is less than 12 months, the revenue threshold is reduced proportionately.

Reporting Entity

When the Ultimate Parent Entity (UPE) of the MNE group is tax resident in the UK, the Parent is required to file the CbC report within 12 months after the end of the accounting period concerned. If the Ultimate Parent Entity is not resident in the UK, the CbC report is to be filed with the Parent's jurisdiction of residence and exchanged with the UK.

A UK non-parent entity of the group (Constituent Entity) or permanent establishment (PE) in the UK of a Constituent Entity of the group outside the UK will be required to file the CbC report if:

  • The Ultimate Parent Entity is not required to file in its jurisdiction of residence (or jurisdictions of residence if tax resident in multiple jurisdictions);
  • The jurisdiction of residence of the Ultimate Parent Entity has not entered into arrangements with HMRC for the exchange of CbC reports for the period concerned; or
  • Arrangements for exchange have been entered into, but HMRC has notified the Ultimate Parent Entity or Constituent Entity that the arrangements are not operating effectively.

If multiple UK Constituent Entities or PEs exist, only one is required to file a CbC report.

The Ultimate Parent Entity of an MNE Group may also authorize a UK Constituent Entity to file a CbC report on behalf of the Group if one of the above conditions is met.

An exemption applies if a Constituent Entity of the MNE Group in another jurisdiction has filed a CbC report (or equivalent) for the period concerned that includes the information required by HMRC. For the exemption to apply, the other jurisdiction must have entered into arrangements with HMRC for the exchange of CbC reports for the period concerned, and HMRC must have not notified the UK entity that the arrangements are not operating effectively.

Notification Requirements

UPEs and top UK entities (UKEs) of MNE groups are required to notify HMRC for each period covered by a CbC report on:

  • Which entity (including the unique taxpayer reference or equivalent) in the MNE group will file the CbC report and where;
  • Whether exception A or B applies for a UK entity that would otherwise be required to file: exception A applies when the required CbC information is included in a CbC report already received by HMRC, and B applies when information is included in a report filed in a jurisdiction that will exchange with HMRC; and
  • The names and unique taxpayer references for all of the MNE group’s entities that are resident in the UK, are UK permanent establishments, or are UK partnerships.

To avoid duplication UPEs and UKEs will not have to notify if another UPE or UKE of the MNE group has provided a notification that contains all the information that would have been required and it has provided HMRC with the identity of the UPE or UKE that has notified and the date that took place by the deadline. The deadline for notification is the later of the end of the period to which the report relates or 1 September 2017 (after 2017, the deadline is the end of the reporting period for each peirod covered by a CbC report).

Submission Methods

CbC reports submitted in the UK must be filed online through a secure HMRC portal using the prescribed XML schema (OECD format) (the registration service will be available soon).

HMRC prefers the notification to be on a spreadsheet and sent to the dedicated mailbox which has been set up for this purpose – notification.cbcrfiling@hmrc.gsi.gov.uk, although a paper notification may be sent to: HMRC CbCR Notifications, Room 806, 8th Floor Dorset House, Stamford Street, London, SE1 9PY.

Additional Information

HMRC may request additional information to confirm the accuracy of the information in a CbC report. Such information should be provided within 14 days of the request.

Penalties and Anti-Avoidance

Failure to comply with the CbC reporting obligation or provide additional information when requested will result in an initial penalty of GBP 300, plus GBP 60 per day until in compliance. In addition, the filing of CbC report that includes inaccurate information will result in a penalty of up to GBP 3,000.

Also included is the provision that if an arrangement is entered into in order to avoid any obligation under the CbC reporting regulations, such arrangements may be disregarded.