Purpose of the Act
The Multinational Entities Financial Reporting Act, 2018 (the “Act”) came into force on 1 January, 2018. The Act was enacted, along with other pieces of legislation, in response to the European Union’s inter-governmental Code of Conduct Group (Business Taxation) guidance for determining substance when considering whether a tax measure is harmful or ‘fair’ and the Organization for Economic Co-Operation and Development’s Base Erosion Profit Shifting (BEPS) Project.
The Act provides for the country-by-country reporting of profit or losses attributed to entities incorporated or resident within The Bahamas that are a part of a multinational entities group.
Multinational Entities Group
A multinational entities group (“MNE Group”), is defined under the Act as two or more enterprises for which the tax residence 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 with respect to any fiscal year of the group a total consolidated group revenue of USD$850,000,000.00 during the fiscal immediately preceding the reporting fiscal year as reflected in its consolidated financial statements for such preceding year.
Under the Act, the ultimate parent of an MNE group is a constituent entity of an MNE Group that: (i) owns directly or indirectly a sufficient interest in one or more other constituent entities of the MNE Group such that 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 public securities exchange in its jurisdiction of tax residence; and (ii) there is no other constituent entity of the MNE Group that owns directly or indirectly an interest described in (i) above in the first mentioned constituent entity.
Filing Obligation
The ultimate parent of an MNE Group that is resident in The Bahamas must file with the Minister of Finance (the “Authority”) a country-by-country report with respect to its reporting fiscal year on or before twelve months after the last day of the reporting fiscal year of the MNE Group (“Country-by-Country Report”) except that the country-by-country report required with respect to the reporting fiscal year that began on or before 31 May, 2018 shall be filed no later than 31 March, 2019.
The Country-by-Country Report must be filed in the prescribed form and must contain the following information:
- aggregate information relating to the amount of revenue, profit (or 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.
The ultimate parent of an MNE Group may appoint one constituent entity of the MNE Group to file the country-by-country report in that constituent entity’s jurisdiction of tax residence on behalf of the said MNE Group (the “surrogate parent entity”) where:
(1) the entity is resident in The Bahamas; and
(2) one of the following conditions applies:
(aa) the ultimate parent entity of the MNE Group is not obligated to file a country-by-country report in its jurisdiction of tax residence; or
(bb) the jurisdiction in which the ultimate parent entity is resident for tax purposes has a current international agreement (provides legal authority for the exchange of tax information between jurisdictions including the automatic exchange of such information) to which The Bahamas is a party but does not have a qualifying component authority agreement ((i) between authorised representatives of those jurisdictions that are parties to an international agreement; and (ii) requires the automatic exchange of country-by-country reports between the party jurisdictions) and in effect to which The Bahamas is a party by the time specified above for filing the report for the reporting fiscal year; or
(cc) there has been a systemic failure of the jurisdiction of tax residence of the ultimate parent entity that has been notified by the Authority to the constituent entity resident in The Bahamas.
Notification Obligation
Any constituent entity that is resident in The Bahamas must notify the Authority of whether it is the ultimate parent entity or the surrogate parent entity no later than the last day of the reporting fiscal year of the MNE Group except that such notification must be filed by 31 May, 2019 with respect to the reporting fiscal year of the MNE Group that began during 2018.
Where a constituent entity that is resident in The Bahamas is not the ultimate parent entity nor the surrogate parent entity, it must notify the Minister of Finance of the identity and tax residence of the reporting entity no later than the last day of the reporting fiscal year of such MNE Group.
Compliance with Notification and Filing Obligations
Notification and filing obligations are to be complied with through the use of an electronic portal (the Authority’s electronic portal for the automatic exchange of information) or such other method as may be prescribed by the Authority. The Authority must notify constituent entities of the method of compliance with the notification and filing obligations by (i) a post on an official website providing information generally; or (ii) a notice given to a particular constituent entity.
Arrangement to Avoid Obligation
Any arrangement entered into, the main purpose of which is to avoid an obligation under the Act, the arrangement, for the purposes of the Act will be deemed to be one which was not entered into and the Act will have effect as if the arrangement had never been in existence.
Conclusion
Each constituent entity of an MNE Group must either file a Country-by-Country Report with the Authority or notify the Authority of whether it is the ultimate parent entity, surrogate parent entity or the identity and tax residence of the reporting entity no later than the last day of the reporting fiscal year of the MNE Group except that such notification must be filed by 31 May, 2019 with respect to the reporting fiscal year of the MNE Group that began during 2018.
For further information, please contact any Partner in the Commercial Transactions or Financial Services practice groups.
The information contained in this bulletin is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This bulletin can in no way serve as a substitute in such cases.
