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Multinationals to report worldwide profit structures to HMRC

Last week, the Organisation for Economic Co-operation and Development (OECD) unveiled a new country-by-country reporting template for multinational companies.  Apparently, the UK is the first of 44 countries to formally commit to its implementation.

UK-based multinationals will have to report to HM Revenue & Customs (HMRC) where they make profits and pay taxes around the world, as (according to the Treasury) “Britain takes the lead to clamp down on international tax avoidance”.

The template is designed to “help tax authorities gather information on multinational companies’ global activities, profits and taxes, enabling them to better assess where risks lie and where their efforts to counter tax avoidance should be focused”.  It forms part of a wider OECD project to strengthen international standards on Base Erosion and Profit Shifting (BEPS).

Perhaps the important point to stress at this stage is that HMRC already have wide powers to tax UK companies on profits which, in HMRC’s view, should be taken in the UK according to normal commercial standards.  These new measures will, if you like, force companies to provide information which will effectively blow the whistle on their own non-compliance in this area.

So for those who, for whatever reason, do not yet have fully compliant transfer pricing policies in place, maybe now is the time to visit the subject, before the reporting requirements kick in.

The Treasury has suggested that standardisation will also minimise the additional administration burden on business.  That seems unlikely, but remains to be seen as the detail emerges.

Certainly, those organisations operating in multiple jurisdictions (either through branches or as groups of companies) will be expected to jump through new hoops in terms of how they collect and report on details of profits taken in each country, and the underlying commercial rationale for their internal pricing structures.  It is to be hoped that the move will be accompanied by much more generic commercial information being made available by the taxing authorities, to help such organisations develop transfer pricing structures which match those authorities’ expectations.

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