UAE country-by-country reporting rules published

By Saumitra R. Bhagwat & George German, Deloitte Middle East

The UAE Ministry of Finance on 30 April issued new tax rules setting out country-by-country reporting compliance obligations for multinational corporation groups effective for financial years beginning on or after 1 January 2019.

The UAE’s decision to formalize the country-by-country rules is an important development which sends a strong signal to the international tax community about the UAE’s commitment to cement its position as a global hub for foreign investment and to distance itself from being perceived as a ‘tax haven’ jurisdiction.

All qualifying MNE groups should certainly aim to comply, particularly given hefty penalties for non-compliance. That being said, there is still sufficient time for MNE groups to prepare before the first country-by-country reports are due.

We note that the UAE country-by-country reporting regulations have been a work in progress since 21 May 2018 and 24 June 2018, when the UAE approved the Convention on Mutual Administrative Assistance and signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, respectively. 

Qualifying MNE groups

Under the new UAE country-by-country reporting rules, Cabinet Resolution No. 32 of 2019 on Organizing the Reports Submitted by Multinational Corporations,” a qualifying MNE group is defined as one with:

• two or more entities, where the tax residence of each is in a different country, or where an entity is resident for tax purposes in a country but is subject to tax levied on the business it carries on through a permanent establishment located in any other country; and
• total consolidated revenues equal to or more than AED 3.15 billion (~ USD 857 million) in the financial year immediately preceding the reporting year as shown in its consolidated financial statements for the prior financial year (i.e., FY18).

Filing considerations

In our view, the most significant impact of the new rules will likely be felt by qualifying UAE-headquartered MNE groups that will be required to prepare and file a country-by-country report for the first time.

In our view, the most significant impact of the new rules will likely be felt by qualifying UAE-headquartered MNE groups that will be required to prepare and file a country-by-country report for the first time.

MNE groups with a UAE-based ultimate parent entity may submit their country-by-country report directly to the UAE Ministry of Finance. It is unclear from our reading of the ministerial decision whether this is compulsory for such groups to file the country-by-country report in the UAE or whether they could nominate an alternate parent entity to file the country-by-country report in a foreign jurisdiction. However, in line with standard practice, it is possible that the use of an alternative parent entity may be allowed if the entity’s country of tax residence has the necessary automatic exchange agreements in place.

For MNE groups with ultimate parent entities and/or alternate parent entities outside the UAE, the new rules introduce an additional notification requirement for constituent entities based in the UAE

If, for an MNE group, the UAE-based constituent entity is not the group’s ultimate parent entity or alternative parent entity, then such a constituent entity must file a notification with the UAE Ministry of Finance, disclosing the respective jurisdiction where the group’s UAE country-by-country report will be filed by the last day of the reporting period (i.e., 31 December 2019).

For financial years commencing on or after 1 January 2019, the country-by-country report must be submitted by 31 December 2020 (i.e., 12 months after the end of the reporting period).

We expect the UAE Ministry of Finance to release further guidance in the coming months on several key areas, such as details of an online filing portal, notifications, and country-by-country reporting filing process, and final XML specifications, if different from the OECD XML schema.

Content and format of the CbC report

The country-by-country report content and format is essentially aligned with OECD guidance. The country-by-country report should include:

• Revenues (related and unrelated party);
• 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 shall be reported for each country in which the MNE Group engages in its activities including in the form of permanent establishment.

Penalties and powers of the UAE MoF

 The UAE country-by-country reporting rules include significant penalties for non-compliance, as summarized below. These penalties are material and should warrant due attention from qualifying taxpayers to ensure compliance.

 Table 1: Summary of penalties under the UAE country-by-country reporting rules

Non-compliance criteria	Penalty (in AED)	Penalty (in USD)
Failure to retain the documents and information for at least five years from the date on which the country-by-country report is submitted to the UAE Ministry of Finance	100,000	27,000
Failure to provide information to the UAE Ministry of Finance in accordance with the regulations	100,000	27,000
Failure to report the country-by-country report within 12 months of the end of the reporting period or failure to notify where the country-by-country report is being filed	1,000,000 + 10,000 per day up to a maximum of AED 250,000	270,000 + 2,700 per day up to a maximum of 68,000
Failure to ensure the information in the country-by-country report is accurate and complete	50,000 to 500,000	13,500 to 135,000

 Additionally, the UAE country-by-country reporting rules afford broad powers to the UAE Ministry of Finance such that the ministry may request additional information from any reporting entity (i.e., the entity filing the country-by-country report) or enter its place of business to determine the completeness and accuracy of the information provided.

In case of any missing information, the UAE Ministry of Finance is authorized to initiate further lines of inquiry.

Exchange of country-by-country reports

In the second peer review report of OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes, released in October 2018, the UAE received an overall rating of ‘largely compliant’.

The report considers the implementation of the legal and regulatory framework for the exchange of information in practice. The UAE was ranked as ‘compliant’ for confidentiality, rights and safeguards, and availability of banking information. However, on quality and timeliness of response, the UAE was rated ‘non-compliant’, and received a ‘partially compliant’ rating for the availability of accounting information, access to information, and exchange of information request mechanism.

Given current timelines, we expect the UAE Ministry of Finance to have all necessary systems and processes in place, to accept notifications by the end of this year, and to electronically receive and exchange country-by-country reports by the end of next year (i.e., FY20). However, the results of such peer reviews may certainly influence the decision of MNE groups on whether to file their country-by-country reports in the UAE.