Preamble
United Arab Emirates committed to the implementation of ‘minimum standards’ to prevent Base Erosion Profit Shifting (BEPS) by joining OECD’s Inclusive Framework on BEPS on 16th May 2018.
Minimum Standards on BEPS & UAE’s progress
- Action 5: Countering Harmful Tax Practices More Effectively, Considering Transparency and Substance.
- UAE Progress: Application of a VAT system including setting up of a central administrative authority for taxation, i.e. Federal Tax Authority, has allowed UAE to make progress in this area.
- Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
- UAE Progress: UAE Signed Multilateral Convention (MLI) on June 27, 2018 to implement Tax treaty related measures to prevent BEPS. On May 29, 2019, the UAE deposited its instrument of ratification for the MLI to OECD.
- Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)
- UAE Progress: By implementing Cabinet Decision no. 32 on CBCR, in the month of July, the UAE has made significant progress in this area.
- Action 14: Making Dispute Resolution Mechanisms More Effective
- UAE’s approach remains to be seen.
Introduction of Country by Country Reporting in UAE
Implementation of Cabinet Decision no. 32 on County by Country Reporting is an important step for the implementation of Action 13 which is one of the four minimum standards. Through this resolution, the Ministry of Finance (MOF) has instructed Multinational companies, operating in the United Arab Emirates, to submit CBCR reports.
After Saudi Arabia and Qatar, UAE is the third country in the region to introduce CBCR in GCC. This step shall further enhance international confidence in the UAE’s financial sector.
Reporting Responsibility
The implementing regulation has specified responsibility of CBCR reporting or notification for the following entities as per the prescribed format and timelines:
- The Ultimate Parent Entity of a Multinational Group which is a UAE resident for Tax purposes
- The Constituent Entity of a Multinational Group which is Resident in UAE for Tax purposes
Reporting Threshold
A consolidated revenue of the Multinational Group, equal or above AED 3.15 Billion, is required to report under this regulation.
Mechanism
- If the threshold is met, then either the Ultimate Parent Entity or the Constituent Entity must submit a report to the Ministry of Finance in the specified format.
- The above threshold will be applied at the end of the Fiscal Year of the Multinational Group.
- The Ultimate Parent entity or its surrogate for Tax purposes will submit the CBC report within 1 year of the end of its Fiscal year.
- Where the Constituent Entity in UAE is not the Ultimate Parent Entity or the Surrogate Entity, it shall notify the Ministry, the identity and Tax Residence of the Reporting Entity. This notification must be done before the end of the fiscal year of assessment.
- The first reporting obligation has taken effect from January 1, 2019.
- The submission will be done considering the format and definitions specified by Chapter 5 of the OECD guidelines.
Penalties
| Violations | Penalty |
| Failure to retain documentation for 5 years from the year of reporting | AED 100,000 |
| Failure to provide specified information to the Ministry | AED 100,000 |
Failure to:
| AED 1,000,000 plus AED 10,000 for each day of delay up to a maximum of AED 250,000 |
| Failure to accurately report information | AED 50,000 to AED 500,000 |
Affiniax at your service
We can:
- conduct a detailed study whether your business shall be assessed under this resolution by the Ministry;
- compile CBC report or Notification to the Ministry; and
- assess your compliance of the general requirements of the regulation.
Why Affiniax
‘Affiniax Partners’ has been providing Professional Advisory Services to its clients for over 25 years. We have a team of Specialists in the region who can assist you for the optimization of your Business Processes. For more information, please contact us at mail@affiniax.com
