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Budget reaction: Country by country reporting

The UK has confirmed its support for the OECD/ G20 effort to reform international tax rules by making them more cohesive and transparent.

In the upcoming Finance Bill there will be provision to bring in regulations requiring multinational enterprises to make an annual country-by-country report to HM Revenue and Customs showing the amount of revenue, profit before tax, tax paid and accrued, plus data on the number of employees, capital and tangible assets in each place.

The new disclosures will come in with effect from accounting periods beginning on or after 1 January 2016, hence the first reports will be filed in 2017. There will be an exemption for smaller multinational businesses. Some details, such as how these reports will be shared with other tax authorities, are still being worked on by the OECD.

Wendy Nicholls, Tax Partner, Grant Thornton UK LLP commented:

“HMRC has indicated the disclosure rules will apply where “a” parent company is in the UK, so that UK subsidiaries may still be required to file if their parent is in a country that does not enact these rules quickly. The report is intended to be used only as a risk assessment tool by tax authorities. However, we are hearing very real concerns from business that the administrative burden will be high, some countries may not fully respect taxpayer confidentiality, and others may “cherry pick” this information selectively to seek extra tax for themselves, to the detriment of countries like the UK.

“Nevertheless, unlike the diverted profits tax, which has been badly received  by the UK’s international trading partners as “jumping the gun” before international agreement is reached, this measure is seen as being in line with the international consensus, and more as the UK “leading from the front” on international tax reform.”