Country-by-Country Reporting (CbCR) is a key element of international tax transparency and compliance for multinational enterprises (MNEs). In the United Kingdom, HM Revenue & Customs (HMRC) has established detailed guidelines for CbCR, in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Action 13. This article provides Chief Financial Officers (CFOs) and financial executives with a thorough understanding of the CbCR requirements in the UK, including applicability, filing procedures, and penalties for non-compliance.

Applicability of CbCR in the United Kingdom

Criteria for Reporting:

• MNE groups with consolidated group revenue of €750 million or more in the preceding fiscal year are required to file a CbC report.
• The reporting entity is usually the ultimate parent entity of the MNE group that is a tax resident in the UK, but other entities within the group may be required to file if certain conditions are met.

Relevant Legislation:

• The primary legislative framework for CbCR in the UK is outlined in the Finance Act 2016, Schedule 17.

Reporting Requirements

Information to be Reported:

• The CbC report must include aggregate data by tax jurisdiction on income, profit before tax, taxes paid, taxes accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents.
• It must also include a list of all the constituent entities for which financial information is reported, indicating the tax jurisdiction of each entity and the main business activities.

Form and Submission:

• MNEs must complete and submit the CbC report using the designated HMRC XML schema.
• Reports must be filed electronically via the HMRC Online Service.

Filing Deadlines

• The CbC report must be submitted within 12 months after the end of the reporting fiscal year. For instance, if the fiscal year ends on 31 December 2023, the report must be submitted by 31 December 2024.

Penalties for Non-Compliance

Penalties:

• Failure to file the CbC report by the deadline can result in a penalty of up to £3,000.
• Additional penalties may apply for inaccurate information, non-compliance, or failure to keep adequate records.

Defences:

• HMRC may waive or reduce penalties if the entity can demonstrate that there was a reasonable excuse for the failure to comply.

Confidentiality and Use of Information

Data Protection:

• The information in the CbC report is treated as confidential and is only exchanged with tax authorities in jurisdictions with which the UK has a competent authority agreement.
• The data is used to assess high-level transfer pricing and other BEPS-related risks.