Country-by-Country Reporting
The Council of the European Union adopted EU Council Directive 2016/881/EU that extended the cooperation between EU tax authorities to the automatic exchange of country-by-country reports.
The EU Council Directive 2016/881/EU has been transposed into Maltese legislation on 26th November 2016, by virtue of Legal Notice 400 of 2016 (Cooperation with Other Jurisdictions on Tax Matters (Amendments) Regulations (“The Regulations”)). The Regulations introduced the requirement for Country-by-Country Reporting (“CbCR”) for certain entities forming part of a multinational group.
The first CbCR is due for fiscal years starting on or after 1 January 2016.
Which MNE groups fall within the scope of the CbCR Regulations?
For the purpose of the Regulations, the term Multinational Enterprise Group (“MNE Group”) is defined as any group that includes two or more enterprises (including any permanent establishments) the tax residence of which falls in two different jurisdictions.
The Regulations apply for MNE Groups having a total consolidated group revenue of at least EUR 750 million (or an equivalent amount in local currency) during the fiscal year immediately preceding the reporting year.
Which entity is responsible to file the CbCR?
The Regulations require the Ultimate Parent Company (“UPE”) of an MNE Group that is resident for tax purposes in Malta (or another group company as may be designated by the group – see below) to file with the Commissioner for Revenue a CbCR with respect to its fiscal year commencing on or after 1 January 2016.
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 on the MNE Group.
The Regulations also require a Constituent Entity (“CE”) which is tax resident in Malta and which is not the UPE or SPE to submit the CbCR itself (the so-called ‘secondary mechanism’), if one of the following conditions is satisfied:
- 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 there is no agreement with Malta which allows automatic exchange of CbCRs;
- the (non-Maltese) UPE of the MNE Group is obliged to submit a CbCR and there is an agreement with Malta which allows 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”).
What information is included in the CbCR?
A CbCR must contain the following information with respect to the MNE Group:
(i) 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;
(ii) 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 organised, and the nature of the main business activity or activities of such Constituent Entity.
The CbCR needs to be submitted by the Maltese UPE, SPE or CE, where applicable, within nine months from the last day of the fiscal year of the MNE Group.
Where a CE (not being the UPE or the SPE) is required to submit the CbCR to the Commissioner for Revenue in terms of the secondary mechanism, the CbCR Regulations are applicable in respect of fiscal years starting on or after 1 January 2017.
Notification
A notification requirement applies for all CEs which are tax resident in Malta.
CEs which are either UPEs or SPEs must notify their status to the Maltese tax authorities.
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 Maltese tax authorities annually by not later than the last day for filing a tax return of that CE for the preceding fiscal year.
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