Action 13: Country-by-Country Reporting

Introduction

Country-by-Country Reporting (‘CbCR’) is one of four minimum standards under the OECD Base Erosion and Profit Shifting (BEPS) project that aims to improve transparency between multinational businesses and tax authorities, and to help identify aggressive tax avoidance.

Under CbCR, multinational groups ("MNE group") with consolidated group revenue of EUR 750 million or more are required to report specified data on their international operations to their tax authority annually. That tax authority will in turn automatically exchange CbCR information to jurisdictions in which the MNE group operates and has an appropriate international agreement to exchange such information.

A multinational group having consolidated group revenue of less than EUR 750 million is known as an "excluded MNE group".

For the purposes of clarity, the definition of "excluded MNE group" contained in the regulations will apply in a manner consistent with the OECD guidance on currency fluctuations in respect of an MNE Group whose Ultimate Parent Entity is located in a jurisdiction other than the Isle of Man.

For further guidance on this matter see Question IV. 1. Impact of currency fluctuations on the agreed EUR 750 million threshold (June 2016) of the Guidance on the implementation of country-by-country reporting.

Note: In February 2020 the OECD released a consultation document on the review of the CbCR. Relevant documents can be found on the OECD website.

The consultation closed on 6 March 2020 and public consultation meetings were held virtually on 12-13 May 2020.

Isle of Man Regulations and Competent Authority Agreements

The Income Tax (Country-by-Country Reporting) Regulations 2017 (‘CbCR Regulations’) were approved by Tynwald on 21 March 2017.

The CbCR Regulations set out matters discussed in this guide, including the definition of certain terms, filing and notification obligations and the format for CbCR reporting.

The automatic exchange of CbCR reports is also subject to agreements between competent authorities.

There are two forms of competent authority agreement: the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country reports (‘CbC MCAA’) and a bilateral competent authority agreement on the exchange of Country-by-Country reports (‘BCAA’).

Competent Authority Agreements:

For the purposes of clarity, the interpretation of terms in the CbCR Regulations, the MCAA or BCAA shall be consistent with guidance published by the OECD on the implementation of CbC report under BEPS Action 13. This includes;

Clarification on the definition of Related Parties that shall be in accordance with guidance published in April 2017, which confirms a related party (to be included in the third column of table 1 of the model template for CbC Report), which are defined as 'associated enterprises' in the BEPS Action 12 report, are interpreted as the Constituent Entities (‘CE’) listed in table 2 of the model template of the CbC Report
In respect of Regulation 7(2) of the CbCR Regulations, the CbC report is based on the standard template set out at Annex III of the OECD’s Transfer Pricing Documentation and Country-by-Country Report. This explains that 'Revenues – Unrelated Party' should be read as referring to revenues arising from transactions between independent parties and 'Revenues – Related Party' should be read as referring to revenues arising from associated enterprises. In addition, interpretative guidance issued by the OECD in April 2017, explains that “for the third column of Table 1 of the CbC report, the related parties, which are defined as 'associated enterprises' in the Action 13 report, should be interpreted as the Constituent Entities listed in Table 2 of the CbC report.' These terms are to be interpreted in a manner that is consistent with the OECD Guidance on the implementation of country-by-country reporting'

CbCR Jurisdictions

View the CbCR Activations page for more information.

Guidance

Guidance on the implementation of CbCR reporting

Updates regarding CbCR reporting (including a copy of the Action 13 Report).

OECD/G20 Base Erosion and Profit Shifting Project Action 13: Country-by-Country Reporting Implementation Package.

Version	OECD	Isle of Man	All Submissions Effective
1.0	OECD XML Schema and Guide 1.0	CbCR Validation Notice - February 2018	Until 30 November 2020
2.0	OECD XML Schema and Guide 2.0	CbCR Validation Notice - October 2020	From 1 December 2020

BEPS 2015 Final Reports.

Who is responsible for submitting CbC reports – the reporting entity

The term constituent entity ("CE") is defined in the CbCR Regulations. CE’s include, for example, the parent and/or any wholly owned subsidiary. If an entity is unsure whether it is a CE it should contact its parent entity or ultimate parent entity ("UPE").

A CE of the MNE group resident in the Isle of Man is the reporting entity if:

it is the UPE of the MNE group; or
the UPE of the MNE group is resident in a non-CbCR jurisdiction; or
it is a surrogate parent entity (‘SPE’) appointed by the MNE group to file CbC reports, where the UPE of the MNE group is resident in a non-CbCR jurisdiction

A CE resident in the Isle of Man is not a reporting entity if:

there is more than one Isle of Man resident CE required to file CbC reports under '2.' above, and the MNE group designates one of the Isle of Man CEs to file the CbC report on behalf of the group; or
the MNE group has appointed an SPE in a CbCR jurisdiction to file a CbC report on behalf of the group.

Notifications

Reporting Entities

A Reporting Entity must notify the Assessor that it is a reporting entity no later than 6 months following the last day of the first "reporting fiscal year" of the MNE group (see ‘first year for reporting’ below). This notification is satisfied by completing the registration form for the Income Tax Division’s online Information Provider Service.

This notification is only required once, however reporting entities should notify the Assessor in the event there is a change – for example the reporting entity is being dissolved and another CE is appointed by the MNE group as the reporting entity.

Constituent Entities

A CE, which is not the reporting entity, is required to notify the Assessor of the identity and tax residence of the reporting entity. This notification is to be made no later than one year and a day following the last day of the "reporting fiscal year" of the MNE group.

The CE will notify the Assessor using the CE’s income tax return.

The company income tax return includes a declaration as to whether the company is a member of a group. If the company declares it is a member of a group, the company will be required to state two things, whether it is:

the UPE (and if not, the name of the UPE and tax reference number if that company is an Isle of Man company); and
a CE of an MNE group for CbCR purposes (and if so, the name and tax residence of the reporting entity).

Where the reporting fiscal year of the MNE group and the accounting period of the CE are different, and the CE’s income tax return is subject to a later filing date, then CE should contact the Assessor.

Penalties

The CbCR Regulations set out various penalties that may be imposed where a person fails to comply with any obligation under those regulations or where inaccurate information is provided.

Failure to Comply

Failure to comply with any obligation under the CbCR Regulations could result in a penalty of £300.

Daily Default Penalty

Where the £300 ‘Failure to Comply’ penalty has been imposed and the failure in question continues after the person has been notified by the Assessor, that person may be liable to a further £60 per day penalty until such time as the failure is rectified.

If the failure continues for more than 30 days, and subject to the condition the person is informed first, the Assessor may make an application to the Income Tax Commissioners for an increased daily penalty to be imposed.

Upon application, the Income Tax Commissioners will then decide if an increased penalty should be applied and how much the penalty should be (the maximum is £1,000 per day).

Penalties for Inaccurate Information

A person may be liable to a penalty of up to £3,000 if the person provides inaccurate information and one of the following three conditions is also met:

the inaccuracy is deliberate
the person knows the inaccuracy at the time the information is provided but does not inform the Assessor or
the person discovers the inaccuracy sometime later and fails to take reasonable steps to inform the Assessor

Appeals

A person may appeal the imposition of both ‘Failure to Comply’ and ‘Daily Default’ penalties if there is a reasonable excuse for the failure.

A reasonable excuse does not include:

insufficiency of funds to do something or
relying upon another person to do something

An appeal must be made in writing to the Assessor, stating the grounds for the appeal, within 30 days of the penalty being issued.

An appeal may be referred to the Income Tax Commissioners who may:

confirm the penalty imposed
overturn the penalty imposed or
substitute another penalty that the Assessor has the power to impose

Examples

The following examples illustrate when a company is required to notify the Assessor it is a reporting entity or it is a CE of MNE Group. As discussed in the previous section, penalties can be imposed when a company fails to notify the Assessor or the notification is received late.

ABC Limited is an Isle of Man resident company and is the UPE of an MNE group with a reporting fiscal year ending 31 December 2017.

ABC Limited is therefore an Isle of Man reporting entity and is required to notify the Assessor that it is a reporting entity on or before 30 June 2018, by completing the registration form for the Information Provider Service; following which the service will be activated, so that ABC Limited can file its first CbC report no later than 1 January 2019.

LMN Limited is an Isle of Man resident company. It is a CE of an MNE group, but not the UPE. The UPE is resident in Utopia, a non-CbCR jurisdiction. The MNE group has a reporting fiscal year ending 30 June 2018.

LMN Limited is therefore an Isle of Man reporting entity and is required to notify the Assessor that it is a reporting entity on or before 31 December 2018, by completing the registration form for the Information Provider Service; following which the service will be activated, so that LMN Limited can file its first CbC report no later than 1 July 2019.

DEF Limited is an Isle of Man resident company. It is a CE of an MNE group, but not the UPE. The UPE is resident in Utopia, a non-CbCR jurisdiction, and DEF Limited has been appointed as the SPE for CbC reporting. The MNE group has a reporting fiscal year ending 31 March 2018.

DEF Limited is therefore an Isle of Man reporting entity and is required to notify the Assessor that it is a reporting entity on or before 30 September 2018, by completing the registration form for the Information Provider Service; following which the service will be activated, so that DEF Limited can file its first CbC report no later than 1 April 2019.

XYZ Limited is an Isle of Man resident company. It is a CE of an MNE group, but not the UPE. The UPE is resident in Guernsey, a CbCR jurisdiction and it is the reporting entity for the MNE group. XYZ Limited and the MNE group have a reporting fiscal year ending 30 September 2018.

XYZ Limited is not a reporting entity but is required to notify the Assessor of the name of its reporting entity and that its reporting entity is tax resident in Guernsey by completing the relevant section on its income tax return, which should submitted no later than 1 October 2019.

QRS Limited is an Isle of Man resident company. It is a CE of an MNE group, but not the UPE. The UPE is resident in Utopia, a non-CbCR jurisdiction. GH Limited, a Guernsey resident CE of the MNE group has been appointed SPE under Guernsey law. The MNE group has a reporting fiscal year ending 31 August 2018.

QRS Limited is not a reporting entity but is required to notify the Assessor of the name of the Reporting Entity and that the Reporting Entity is tax resident in Guernsey by completing the relevant section on its income tax return, which should submitted no later than 1 September 2019.

First year for reporting

In the Isle of Man the first reporting fiscal year is that beginning on or after 1 January 2017.

A reporting entity may voluntarily submit a CbCR report to the Assessor for fiscal years beginning on or after 1 January 2016.

Voluntary filing recognises a particular transitional issue that may arise due to the fact the Isle of Man’s first reporting fiscal periods begin on or after 1 January 2017, which is a year later than some other CbCR jurisdictions.

Isle of Man UPEs may wish to consider voluntary filing where they have CEs resident in jurisdictions implementing CbC reporting from reporting fiscal years commencing on or after 1 January 2016.

Format required for CbCR reporting

CbCR reports must be made electronically using the Online Information Providers Service and using the XML schema published by the OECD.

CbCR reports will be subject to validation checks at the point they are uploaded to the Information Providers Service, full details of which will be published in due course.