Regulation of the Submission of Reports by Multinational Companies
The Cabinet Ministry of the UAE has enacted the Cabinet of Ministers Resolution No. 32 of 2019 concerning the Regulation of the Submission of Reports by Multinational Companies (“Resolution”). The focus of this Resolution is to improve tax coordination and transparency between countries by implementing new reporting requirements applicable to multinational groups and their constituent entities operating in the UAE (“MNGs”). The filings required to be made by the MNGs revolve around Financial information related to the amount of revenues, profits/losses before income tax, income tax paid and accrued, stated capital, number of employees, number of assets, details of business activities in each jurisdiction of operation etc. (“Report”).
In order to understand on whom the obligation of filing a Report lays on, we must first peruse the definitions of MNGs and their related entities as given in Article 1 of the Resolution:
A Multinational Group is defined as a group which:
- includes two or more enterprises, the tax residence for which is in different jurisdictions or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction; and
- has a total consolidated group revenue equal to or more than AED 3,150,000,000 (UAE Dirhams Three Billion One Hundred and Fifty Million only) during the Fiscal Year immediately preceding the Reporting Fiscal Year as reflected in its Consolidated Financial Statements for such preceding Fiscal Year.
A Constituent Entity is defined as any of the following:
- any separate business unit of an MNE Group that is included in the Consolidated Financial Statements of the MNE Group for financial reporting preparation purposes, or would be so included if equity interests in such business unit of an MNE Group were traded on a public securities exchange;
- any business unit that is excluded from the MNE Group’s Consolidated Financial Statements solely on size or materiality grounds;
- any permanent establishment of any separate business unit of the MNE Group referred to in paragraphs a) and b) above, provided the business unit prepares a separate financial statement for such permanent establishment for financial reporting preparation, regulatory, tax reporting, or internal management control purposes.
An Ultimate Parent Entity is defined as a Constituent Entity of an MNE Group that meets the following criteria:
- it owns directly or indirectly a sufficient interest in one or more other Constituent Entities of such MNE Group such that it is required to prepare Consolidated Financial Statements under accounting principles generally applied in its jurisdiction of tax residence, or would be so required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence; or
- there is no other Constituent Entity of such MNE Group that owns directly or indirectly an interest described in subsection (a) above in the first mentioned Constituent Entity.
To whom does the obligation to file a report apply?
As per Article 2 of the Resolution, the obligation to file a report lies on the following:
- The Ultimate Parent Entity of an MNE Group that is resident for tax purposes in the UAE; and
- A Constituent Entity which is not the Ultimate Parent Entity of an MNE Group, provided that:
- the Ultimate Parent Entity of the MNE Group is not obligated to file a Report in its jurisdiction of tax residence; or
- the jurisdiction in which the Ultimate Parent Entity is resident for tax purposes has a current International Agreement to which the UAE is a party but does not have a Qualifying Competent Authority Agreement in effect to which the UAE is a party for filing the Report for the Reporting Fiscal Year; or if
- there has been a Systemic Failure of the jurisdiction of tax residence of the Ultimate Parent Entity that has been notified by the Competent Authority to the Constituent Entity resident for tax purposes in the UAE.
A Constituent Entity qualifying to file the Report under the aforementioned conditions is termed as a ‘Surrogate Parent Entity’.
(Where there are more than one Surrogate Parent Entities of the same MNE Group that are residents for tax purposes in the UAE, the MNE Group may designate one of such Surrogate Parent Entities to file the Report)
As per Article 3 of the Resolution, the UAE based resident of an MNE Group which meets the threshold of reporting requirements is required to notify the Ministry of Finance, UAE (“Competent Auhtority”) if it is the Ultimate Parent Entity or the Surrogate Parent Entity appointed by the MNE Group to file the Report.
If such entity based in the UAE, is neither an Ultimate Parent Entity nor a Surrogate Parent Entity, it is required to notify the Competent Authority of the identity of the entity submitting the Report and its tax residence, no later than the last day of the financial reporting year of such MNE.
Contents of the Report
The Report is to be filed in accordance with the template given in Annex III of Chapter V of the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines. The contents of the Report include:
- Aggregate information relating to the amount of revenue, profit (loss) before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash or cash equivalents with regard to each jurisdiction in which the MNE Group operates; and
- An identification of each Constituent Entity of the MNE Group setting out the jurisdiction of tax residence of such Constituent Entity, and where different from such jurisdiction of tax residence, the jurisdiction under the laws of which such Constituent Entity is organized, and the nature of the main business activity or activities of such Constituent Entity
Deadline to File the Report
The Report has to be filed by the Ultimate Parent Entity or the Surrogate Parent Entity by or before 31stDecember of every year commencing from 2019.