The Faroe Islands, an autonomous territory within the Kingdom of Denmark, have adopted Country-by-Country Reporting (CbCR) regulations in alignment with OECD’s Base Erosion and Profit Shifting (BEPS) Action 13. The Faroese Tax Authority (Taks) is responsible for overseeing compliance with these requirements.

This guide provides CFOs and tax directors of multinational enterprises (MNEs) operating in the Faroe Islands with a detailed overview of their CbCR obligations, including criteria for applicability, reporting requirements, filing processes, penalties, and resources.

Applicability of CbCR in the Faroe Islands

Criteria for Reporting:
CbCR requirements in the Faroe Islands apply to MNE groups that:

• Have a consolidated annual revenue exceeding DKK 5.6 billion (Danish kroner, approximately €750 million) in the preceding fiscal year.
• Include a Faroese tax-resident entity as either:
  • The Ultimate Parent Entity (UPE), or
  • A subsidiary or permanent establishment.

Local Filing Obligations:

• A Faroese entity may be required to file the CbC report if:
  • The UPE is not subject to CbCR in its jurisdiction.
  • There is no effective information exchange agreement between the UPE’s jurisdiction and the Faroe Islands.

Relevant Legislation:

• The Faroe Islands’ CbCR framework is derived from Danish legislation under the Tax Control Act (Skattekontrolloven), adapted for the territory.

Reporting Requirements

Content of the CbC Report:

• MNE groups must provide aggregated financial and tax data for each jurisdiction in which they operate, including:
  • Total revenue (related and unrelated party transactions),
  • Profit or loss before income tax,
  • Income tax paid and accrued,
  • Stated capital and retained earnings,
  • Number of employees,
  • Tangible assets other than cash and cash equivalents.

Notification Requirement:

• Local entities in the Faroe Islands must annually notify Taks of the identity and jurisdiction of the reporting entity (UPE or surrogate parent entity).

Submission Platform:

• Reports must be submitted electronically via systems provided by Taks, using the OECD-prescribed XML format.

Resource:
For specific details on submission, visit the official Taks website: Taks Website.

Filing Deadlines

• CbC Reports must be filed within 12 months following the end of the MNE group’s fiscal year.
  • Example: For a fiscal year ending 31 December 2023, the report must be filed by 31 December 2024.
• Notification of the reporting entity must be provided before the end of the fiscal year.

Penalties for Non-Compliance

Consequences of Non-Compliance:
Failure to comply with CbCR obligations may result in:

• Financial penalties imposed by Taks for late filing, failure to file, or inaccuracies in the report.
• Increased scrutiny of the MNE’s tax affairs and potential audits.

Mitigating Circumstances:

• Taks may consider reasonable explanations for non-compliance and reduce penalties where justified.

Confidentiality and Data Exchange

Confidentiality Assurance:

• CbC reports are protected under Faroese and Danish confidentiality laws and are used solely for:
  • Assessing transfer pricing risks,
  • Improving tax compliance.
• The Faroe Islands exchange CbC reports with jurisdictions that have effective exchange agreements, ensuring proper use of data and safeguarding confidentiality.