UAE has published Cabinet Resolution 32, the introduction of new country by country reporting ("CbC reporting") obligations that multinationals will be required to comply with starting 2020.
UAE's BEPS Journey
In 2017, European Union council announced a list of non-cooperative jurisdictions for tax purposes. UAE was added to the list along with other 17 jurisdictions. However, the list was revised, and UAE was later removed from the blacklist and moved to the grey list. Although added to the grey list, European Union confirmed that countries moved to grey list will be observed closely.
In 2018, Organization of Economic Development ('OECD'), announced that the UAE has become a member of the Base Erosion Profit Shifting inclusive framework ('BEPS IF'). Being a BEPS member, UAE was required to commit to the BEPS minimum standards i.e UAE would be required to commit to all the Actions listed in the BEPS IF.
On 12th March 2019, European Union list was further revised which included UAE in the blacklist. This was primarily due to UAE supporting offshore structures and arrangements aimed at attracting profits without any real economic substance.
UAE's CbC Requirements
Considering the above developments, and in line with OECD's recommendations, (Action 13 – guidance on the implementation of Transfer pricing), Multinational groups whose group gross consolidated turnover exceeds threshold of AED 3.15 billion (US$857 million) will be required to file a CbC report.
At this stage, multinationals would not be required to file Disclosure forms, local files or master files.
All Subsidiaries, affiliates and branches within Multinational Groups will be required to notify the MOF of the group entity with filing responsibility. The CbC report should include the following details:
- Profits (losses) before income tax;
- Income tax paid;
- Income tax payable;
- Declared capital;
- Accrued profits;
- Number of employees; and
- Non-cash or cash-equivalent assets for each country.
Deadline for Submission
CbC reports should be submitted with the MOF within 12 months of the end of a Multinational Group's financial year, starting from 1 January 2019.
The Multinationals will be required to submit CbC reports during 2020. There are some implementation steps which would be required by companies in the UAE to determine their CbC documentation and filing requirements.
Fines and Penalties
The Resolution grants MOF significant access powers to business records and there are hefty fines for non-compliance with the CbC requirements which are capped at AED1 million in any financial year.
What you need to do now and how Grant Thornton can help
It is clear this is just the start of wider tax reforms in the UAE and all businesses operating in the UAE, including the Freezones, need to review business management and transfer pricing policy (if you have one) and we would recommend a top-level review in the form of a Health Check on the implications of these new reforms.
We would review your tax policy position including review of intercompany and overseas supplies to related parties, substance and transparency requirements and also the income generating activities made by your business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.