By Abdulrahman Bucheeri & Raman Ohri, Keypoint Solutions, Manama, Kingdom of Bahrain
On 4 February, Bahrain’s Ministry of Industry, Commerce, and Tourism (MoICT) issued ministerial resolution 28 of 2021, introducing country-by-country reporting requirements.
In May 2018, Bahrain signed up to follow the OECD’s base erosion and profit shifting (BEPS) framework. Bahrain is committed to co-operating with other tax jurisdictions on activities undertaken by multinational group entities in Bahrain (which is predominantly a no tax jurisdiction).
The stated aim of the BEPS framework is to improve international tax transparency and impose minimum standards. One of the minimum standards is Action 13 on country-by-country reporting. The country-by-country report, aligned with OECD reporting requirements, must contain information for each jurisdiction in which an MNE operates. This information includes revenue, profit (loss) before tax, income tax paid and accrued, share capital, accumulated retained earnings, number of employees, tangible assets, and cash and other liquid assets.
Tax authorities can review the reported data to evaluate transfer pricing and BEPS risks posed by multinational entities.
Bahrain’s country-by-country reporting rules
With effect from the financial year commencing on or after 1 January 2021, all Bahrain-resident entities or branches that are part of a multinational entity whose consolidated revenue was at least BHD 342 million (approximately Euro 760 million or USD 907 million) in the preceding financial year must file a notification with the MoICT on or before the last day of the group’s financial year, setting out whether or not the Bahrain entity is the group’s ultimate parent entity or has been nominated as the surrogate parent entity.
Where the entity is neither the ultimate parent entity nor the surrogate parent entity, it must identify the country-by-country reporting entity and its tax residence.
A country-by-country report must be filed by the ultimate parent entity or the surrogate parent entity within twelve months of the group’s financial year-end (for the fiscal year ended 31 December 2021, the report must be submitted by 31 December 2022). We expect further guidance from the MoICT in relation to the format of the country-by-country reporting notification and report – as well as the submission process.
The country-by-country reporting requirements follow ratification by Bahrain in January 2021 of the multilateral competent authority agreement (MCAA) on the exchange of country-by-country reports (Bahrain became a signatory to the MCAA in December 2019). Bahrain currently has bilateral exchange relationships with nearly 50 jurisdictions for the automatic exchange of country-by-country reports.
With the exception of entities operating in the oil & gas sector, Bahrain does not impose corporate income taxes. As such, the introduction of CbC reporting requirements is a welcome development as the OECD is focused on enhancing transparency for tax administrations through increased international cooperation, especially with regards to the activities of MNEs in low or no tax jurisdictions.
Consequences of non-compliance
The ministerial resolution sets out potential penalties for failing to file country-by-country notifications or reports by the due dates. These include suspension of the commercial registration for six months, as well as administrative penalties of up to BHD 100,000 (approximately USD 265,000).
Next steps
Multinational entities with business activities in Bahrain should assess if they are subject to Bahrain’s country-by-country reporting rules and initiate any necessary procedures to ensure compliance with the reporting obligations.
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