Country-by-Country Reporting

Publication
September 12, 2023

Country-by-country reporting is a mechanism that requires Multinational Enterprises (MNEs) to provide detailed information about their operations, revenues, profits, taxes paid and other indicators in the jurisdictions where they operate. This data is then shared with tax authorities. The primary objective of Country-by-Country reporting (CbCR) is to enable tax authorities to identify potential tax avoidance strategies and ensure that profits are taxed where economic activities occur.

Which entities are required to perform CbCR?

The Regulations apply to MNEs with consolidated group revenue of at least €750m (or the equivalent in local currency) during the fiscal year immediately preceding the reporting year. An MNE Group with consolidated group revenue below the €750m threshold is considered an “excluded MNE group”.

The term “MNE Group” refers to any group that includes two or more enterprises the tax residences of which are in different jurisdictions, or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax concerning the business carried out through a permanent establishment in another jurisdiction and is not an excluded MNE group.

The Regulations require the ultimate parent entity (UPE) of an MNE group that is resident for tax purposes in Malta (or another group company as may be designated by the group, as explained further below), to file with the Commissioner for Tax and Customs (the “Commissioner”) a County-by-Country Report (CbCR) concerning its reporting fiscal year.

The MNE Group may appoint a Surrogate Parent Entity (SPE), as a sole substitute for the UPE, to file the CbCR in that SPE’s tax residence jurisdiction on behalf of the MNE Group.

The Regulations also require the Maltese entity, which is not the UPE or SPE, to file a CbCR if the entity is resident for tax purposes in Malta and if one of the below conditions is satisfied (referred to as the ‘secondary mechanism’):

the (non-Maltese) UPE of the MNE Group is not obliged to file a CbCR in its jurisdiction of tax residence;
the (non-Maltese) UPE of the MNE Group is obliged to submit the CbCR in its jurisdiction of tax residence, but no agreement with Malta allows the automatic exchange of CbCR; or
the (non-Maltese) UPE of the MNE Group is obliged to submit a CbCR and there is an agreement with Malta that allows the automatic exchange of CbCRs, but such automatic exchange has been suspended or there is a persistent failure to automatically exchange CbCRs (also referred to as “Systemic failure”).

Contents of a CbCR

A CbCR must contain the following information concerning the MNE Group:

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 concerning each jurisdiction in which the MNE Group operates;

an identification of each constituent entity (CE) of the MNE Group setting out the jurisdiction of tax residence of such CE, and where different from such jurisdiction of tax residence, the jurisdiction under the laws of which such CE is organised, and the nature of the main business activity or activities of such CE.

The CbCR needs to be submitted by the Maltese UPE, SPE or CE, where applicable, within 12 months from the last day of the fiscal year of the MNE Group.

Notification requirements and filing dates

A notification requirement applies to all CEs who are tax residents in Malta. Any CE of an MNE Group that is resident for tax purposes in Malta which is either a UPE or an SPE must notify its status to the Commissioner. Furthermore, the other CEs (i.e. non-UPE and non-SPE) must notify which entity is the UPE or SPE. In both cases, the notification must be submitted to the Commissioner annually no later than the last day for filing a tax return of that CE for the preceding fiscal year.

Late notifications may be considered a failure to report information required in terms of the applicable rules and are subject to a maximum penalty of €5,000.

The upcoming deadline for the CbCr notification (for CEs that have a 31st December year-end) to be submitted with the Commissioner is 30th September 2023, covering the financial year ending 31 December 2022.

Conclusion

CbCR in Malta represents a paramount step towards enhancing tax transparency and combating tax avoidance globally. By providing tax authorities with comprehensive information on the operations and activities of MNE Groups, Country-by-Country reporting should contribute to equitable and more effective taxation.