OECD BEPS Action 13 in UAE: Country-by-Country Reporting Guide

The UAE is implementing OECD BEPS Action 13 Country-by-Country (CbC) reporting, which creates country specific transparency obligations for multinational enterprises with consolidated group revenues in excess of AED 3.15 billion. With over 7,500 multinational groups lodging CbC reports globally, and tax authorities conducting risk assessment and audit selection processes using CbC reporting data, it is easy to see how an error in compliance could lead to intense scrutiny in a multitude of jurisdictions.

Groups that are headquartered in the UAE have additional complications, including complicated free zone structures, regional holding structures, and diverse operational footprint, all of which require highly sophisticated reporting strategies. A relatively common compliance failure for CbC reporting can lead to enforcement action beyond the UAE, and in fact, enforcement action that involves coordinated audits in several dozen jurisdictions at a time.

Introduction: Understanding BEPS Action 13 Impact on UAE Business

The Base Erosion and Profit Shifting (BEPS) Action 13 project is one of the most important changes in requirements with respect to international tax transparency we have seen in decades. For most organizations in the UAE, BEPS Action 13 means it is time to adjust to new reporting requirements that provide unprecedented insight into multinational group operations and tax strategies for tax authorities in jurisdictions across the globe.

The origins of BEPS Action 13 are based on global concerns of tax avoidance by large multinational enterprises. Each of the G20 countries, along with members of the OECD, attempted to develop rules to help combat aggressive tax planning by large organizations to artificially shift profits to low or zero tax jurisdictions, eroding tax bases in countries with a significant presence of actual economic activity.

UAE took its first step towards these requirements in late-2020 after Cabinet Resolution No. 44 of 2020 fully adopted Action 13 and encouraged further commitment to international standards while retaining its position as a business-friendly jurisdiction. This has created a fine line of balancing transparency reporting requirements with elements of the competitive advantage of operating multinationals in the UAE.

Key Components of UAE BEPS Action 13:

• Country-by-Country reporting providing jurisdiction-specific financial and tax information
• Master File requirements offering comprehensive group-wide operational overviews
• Local File obligations detailing entity-specific transfer pricing information
• Automatic exchange mechanisms sharing CbC reports with relevant tax authorities globally

The implementation affects UAE businesses differently depending on their role within multinational structures. UAE ultimate parent entities have the most intensive obligations while UAE constituent entities of foreign-parented groups have different but still significant compliance obligations.

Recognising these distinctions is important because the implications of non-compliance are not limited to the UAE. CbC reports are shared automatically with tax authorities of the jurisdictions in which the multinational group has operations, which opens the question of compliance risks making their way to dozens of tax authorities at the same time.

Filing Requirements for Multinational Enterprises in the UAE

The UAE’s CbC reporting requirements apply to multinational enterprise groups based on specific revenue thresholds and structural characteristics. These requirements establish tiers of obligations with respect to CbC reporting and take account of the fact the UAE entity may or may not act as the ultimate parent entity or as a constituent entity within a foreign-parented group of entities.

Revenue Threshold Requirements: The principal “trigger” for CbC reporting obligations is consolidated group revenue: you must have consolidated group revenue for the fiscal year immediately before the reporting fiscal year of AED 3.15 billion (or approximately EUR 750 million) or more. It is reasonable that this revenue threshold is in line with international OECD guidance and aligned to the largest multinational groups with operations around the world.

UAE Filing Obligation Categories:

• Ultimate parent entities headquartered in UAE with qualifying consolidated revenue
• Surrogate parent entities when ultimate parent jurisdiction lacks CbC reporting requirements
• Constituent entities of foreign groups meeting revenue thresholds in specific circumstances
• Secondary reporting obligations when primary reporting mechanisms fail

Ultimate Parent Entity Obligations: UAE entities serving as ultimate parent entities of qualifying multinational groups must file comprehensive CbC reports covering all constituent entities worldwide. This includes detailed financial information, tax data, and business activity descriptions for each jurisdiction where the group operates.

Constituent Entity Requirements: UAE constituent entities of foreign-parented groups typically rely on their ultimate parent entity’s home jurisdiction filing. However, they must notify the UAE Federal Tax Authority about their group’s CbC reporting arrangements and may face secondary filing obligations if primary reporting fails.

Filing Timeline and SubmissionRegimes: CbC reports will need to filed with the FTA within 12 months of the end of the reporting economic year. In addition to filing CbC Reports, UAE entities will need to file notification forms last day of the reporting economic year and notify the FTA of their CbC reporting arrangements and which entity will be filing the group CbC reports on its behalf.

UAE authorities being a participant in international automatic exchange processes means CbC reports filed with the FTA will be sent to the tax authorities in each jurisdiction in which the multinational group has constituent entities, subject to suitable confidentiality protections and limitations on what the pertinent authorities can do with these filings/returns.

Local File vs Master File Obligations: Understanding the Differences

The transfer pricing documentation obligations in the UAE are closely related to BEPS Action 13 and create two different documentation obligations that are intended for different purposes and audiences. It is important for multinational enterprises operating in the UAE to understand these differences to achieve compliance from all angles.

Master File Purpose and Scope: The purpose of the Master File is to give tax authorities an overview of the multinational group’s business and operational activities, organization, and transfer pricing policies. The Master File is a higher-level transfer pricing document and is not about the specific company conducting the transaction. Rather, it provides tax authorities with a broad overview of how the multinational group operates, the factors affecting their business, and where transfer pricing risks might arise.

Master File Key Components:

• Organizational structure including legal ownership charts and operational structure diagrams
• Business descriptions covering principal markets, key competitors, and important service operations
• Intangible property including development strategy, important agreements, and transfer pricing policies
• Intercompany financial activities describing pricing arrangements and central financing functions

Local File Purpose and Focus: The Local File zeroes in on the specific UAE entity’s controlled transactions and transfer pricing arrangements. While the Master File provides the big picture, the Local File delivers detailed analysis supporting the arm’s length nature of the UAE entity’s specific intercompany transactions.

Local File Essential Elements:

• Detailed entity information including management structure and business strategy
• Controlled transaction specifications including amounts, terms, and related party identification
• Transfer pricing method analysis with benchmarking studies and comparable data
• Supporting financial information and documentation

Preparation and Maintenance Differences: Master Files are typically prepared at the group level and shared across jurisdictions, while Local Files must be tailored to each jurisdiction’s specific requirements and the particular entity’s operations. UAE entities may need to adapt global Master Files to address local regulatory preferences and business context.

Differences in submission and update requirements: Both documents need to be kept current and provided to the UAE FTA within 30 days of being requested. Master files are generally affected by less frequent updates than Local Files, which should be able to reflect the current operations of the business and/or transfer pricing position of the business.

Surrogate Parent Entity Rules: When UAE Entities Must Step Up

Surrogate parent entity rules represent one of the most complex aspects of BEPS Action 13 implementation, creating situations where UAE constituent entities must assume CbC reporting responsibilities normally handled by ultimate parent entities. These rules ensure global CbC reporting coverage even when ultimate parent jurisdictions lack adequate reporting requirements.

Surrogate Parent Trigger Conditions: A UAE constituent entity becomes obligated to file as a surrogate parent when the ultimate parent entity’s jurisdiction either lacks CbC reporting legislation, has incompatible reporting requirements that prevent automatic exchange, or fails to have qualifying competent authority agreements enabling information sharing.

Surrogate Parent Scenarios:

• No reporting legislation in ultimate parent jurisdiction despite meeting OECD commitments
• Incompatible reporting requirements that don’t align with OECD Action 13 standards
• Missing exchange agreements preventing automatic sharing of CbC information
• Systemic filing failures by ultimate parent entities in qualifying jurisdictions

UAE entity assessment process: UAE constituent entities must monitor their ultimate parent’s reporting status in its jurisdiction of residency, and evaluate whether surrogate parent obligations arise for them. There is a level of complexity to this issue focused on international CbC reporting and it will be important to stay up to date on the legal developments and changes out there internationally.

Surrogate parent obligations: When surrogate obligations arise, the UAE entity must file CbC reports which are comprehensive of their constituent entities around the globe and not just limited to its UAE operations. This vastly increases the scope of reporting and would require access to global financial and operating data that ultimately resided with ultimate parent entities.

Coordination challenges: There are some coordination challenges that arise with surrogate parent filing within multinational groups, and those would be around collecting data, consistency of reporting processes, and ensuring that alternate filings do not happen with alternate jurisdictions. UAE entities facing these obligations need robust internal coordination mechanisms.

Notification and Election Procedures: UAE surrogate parent entities must notify the FTA of their surrogate status and file comprehensive CbC reports following the same timeline requirements as ultimate parent entities. This includes both the annual notification form and the detailed CbC report itself.

Dividend Distribution Recognition Requirements in CbC Reporting

The treatment of dividend distributions in Country-by-Country reporting should be considered carefully to ensure proper representation of profit allocation and taxation responsibilities between countries. UAE entities should be aware of how dividend recognition intersects with the accuracy of their CbC reports and compliance with international transparency expectations.

Dividend Recognition Principles: CbC reporting requires constituent entities to report financial information that reflects their actual business activities and profit generation rather than simply legal distributions. This means dividends received should generally reflect the underlying economic activity that generated the distributed profits.

Dividend Reporting Challenges:

• Timing differences between profit generation and dividend distribution creating reporting period mismatches
• Multiple distribution layers in complex holding structures affecting profit attribution accuracy
• Tax jurisdiction impacts where dividend taxation differs from underlying profit taxation
• Elimination requirements preventing double-counting of profits within the multinational group

UAE Free Zone Considerations: UAE free zone entities often serve as regional holding companies receiving dividends from multiple jurisdictions. CbC reporting must accurately reflect whether these dividends represent genuine UAE economic activity or merely pass-through distributions that should be attributed to underlying profit-generating activities.

Inter-jurisdictional Dividend Flows: When UAE entities receive dividends from foreign subsidiaries, CbC reporting must consider whether the UAE entity performed genuine economic functions justifying profit recognition or simply acted as an intermediate holding vehicle. This determination affects both revenue recognition and profit attribution in the CbC report.

Documentation Requirements: UAE entities must maintain comprehensive documentation supporting their dividend recognition positions in CbC reporting. This will consider the underlying business activities, the substance requirements, and the economic rationale for profit attribution across the tax jurisdictions within the multinational group.

Coordination with Transfer Pricing: Recognition of dividends within CbC reporting should be consistent with the transfer pricing position and documentation. Divergence between CbC reporting dividend and transfer pricing analyses poses a risk of potential audit by a tax authority in various jurisdictions.

Permanent Establishment Reporting Requirements for Constituent Entities

The process of identifying and reporting permanent establishments in Country-by-Country reports creates additional complication for multi-national groups operating in the UAE. Proper permanent establishment reporting is vital in order for profit to be attributed correctly and for tax authorities to recognize the scale of multi-national operations within a jurisdiction.

Defining Permanent Establishment: For CbC report purposes, permanent establishment includes traditional permanent establishments under definitions in tax treaties as well as any other taxable presence that creates filing obligations in jurisdictions. This broader definition includes other forms of business presence which may not meet permanent establishment thresholds traditionally applied.

UAE Permanent Establishment Scenarios:

• Branch operations of foreign entities conducting business activities in the UAE
• Construction projects meeting duration thresholds under applicable tax treaties
• Representative offices with expanded activities beyond pure liaison functions
• Digital presence creating taxable nexus under evolving international tax rules

Identification Challenges: UAE entities must carefully evaluate their global operations to identify all permanent establishments that require separate reporting in CbC returns. This includes analyzing physical presence, employee activities, contract conclusion authority, and revenue generation activities across all operating jurisdictions.

Separate Reporting Requirements: Each permanent establishment must be reported separately in CbC returns, showing the jurisdiction where it operates, the nature of business activities, and relevant financial information. This creates additional data collection and reporting burdens for multinational groups with extensive permanent establishment networks.

Attribution Methodology: CbC reporting requires appropriate profit attribution to permanent establishments based on functions performed, assets used, and risks assumed. This attribution should align with OECD guidance on permanent establishment profit attribution and relevant tax treaty provisions.

Documentation and Support: UAE entities must maintain detailed documentation supporting permanent establishment identification and profit attribution decisions. This documentation should align with broader transfer pricing policies and permanent establishment studies prepared for other tax compliance purposes.

Ongoing Monitoring: Permanent establishment status can change based on evolving business activities, regulatory developments, and tax authority interpretations. UAE entities need ongoing monitoring processes to ensure CbC reporting remains current and accurate as business operations evolve.

UAE-Specific Implementation Challenges and Solutions

The business environment in the UAE is unique in the potential implementation challenges it poses for BEPS Action 13 compliance that warrant bespoke solutions. Part of our work to help multinational enterprises deploy a successful compliance strategy is to understand these challenges and ensure they are able to meet UAE regulatory requirements while fulfilling international obligations.

Complex Free Zones: The UAE has over 40 free zones that can lead to complex entity structures that may complicate CbC reporting. Free zone entity will have various tax treatments, operational restrictions, and reporting requirements that will need to be accurately presented in Country-by-Country reports.

Common UAE Implementation Challenges:

• Multiple entity types including mainland companies, free zone entities, and branch operations requiring different treatment
• Regional hub functions where UAE entities coordinate activities across multiple jurisdictions
• Substance requirements for free zone entities affecting profit attribution and reporting accuracy
• Currency and accounting considerations for entities operating across multiple jurisdictions

Regional Holding Structures: Many UAE entities serve as regional headquarters or holding companies for Middle East and Africa operations. CbC reporting must accurately capture whether these entities perform genuine management functions or primarily serve as intermediate holding vehicles.

Substance Documentation: UAE free zone entities intending to benefit from favorable tax treatment must have sufficient substance, as previously mentioned. CbC reports must incorporate the requisite substance documentation as part of CbC reporting, and accurately reflect business activities and respective profit allocations across compliance structures.

Technology and Data Management: To accurately capture and centralize financial information from a number of constituent entities in multiple jurisdictions will involve significant data management systems. UAE entities should attempt to ensure that technology solutions are compatible with multiple accounting standards, currency tolerances, and reporting requirements. Sufficient technology needs to support reasonable accuracy and security of data to accommodate the risk of data errors.

Professional Support Needs: The technical complexity of CbC reporting can be cumbersome and routinely requires professional support that includes proficient technical proficiency in tax, competence in technology systems, and project management capabilities. UAE entities should reflect on their own capabilities and assess where they may require support from external parties.

Best Practices for UAE BEPS Action 13 Compliance

Successful BEPS Action 13 compliance requires systematic approaches that integrate CbC reporting obligations with broader transfer pricing and tax compliance strategies. UAE entities can adopt proven best practices to ensure accurate, timely, and defensible Country-by-Country reporting.

Early Planning and Preparation: Begin CbC reporting preparation well before filing deadlines, allowing adequate time for data collection, analysis, and quality review. Early preparation also enables identification and resolution of data gaps or inconsistencies that could affect reporting accuracy.

Compliance Best Practices Framework:

• Integrated planning connecting CbC reporting with transfer pricing documentation and tax planning strategies
• Data governance establishing reliable processes for collecting, validating, and maintaining reporting information
• Quality assurance implementing review procedures to ensure reporting accuracy and consistency
• Documentation maintenance preserving supporting evidence and rationale for reporting positions

Cross-functional Coordination: CbC reporting affects multiple business functions including tax, finance, legal, and operations. Establish clear coordination mechanisms ensuring all relevant teams understand their roles and responsibilities in the reporting process.

Template Standardization: Develop standardized templates and procedures for collecting constituent entity information. This reduces compliance burden across the multinational group while ensuring consistent data quality and formatting for CbC reporting purposes.

Regular Updates and Monitoring: Implement processes for monitoring changes in business operations, entity structures, and regulatory requirements that could affect CbC reporting obligations. Regular updates ensure reporting remains accurate as business circumstances evolve.

Professional Development: Invest in training and professional development for personnel responsible for CbC reporting compliance. The complexity and evolving nature of these requirements demands ongoing education and skill development.

Technology Investment: Consider technology solutions that can automate data collection, validation, and reporting processes. While initial investment may be significant, technology can reduce ongoing compliance costs and improve reporting accuracy over time.

Conclusion

OECD BEPS Action 13 implementation in the UAE represents a fundamental shift toward tax transparency that affects multinational enterprises across all industries and business models. Success requires understanding not just the technical compliance requirements, but also how these obligations integrate with broader international tax strategies and business operations.

Regarding global tax transparency, the enterprises located in the UAE that invest in BEPS Action 13 compliance, are well positioned to succeed in this rapidly growing international tax compliance environment of transparency, by committing to CbC reporting.

The key to succeeding in global tax transparency, is recognizing CbC reporting as part of a holistic approach to tax risk management and international business strategy. If the CbC reporting is integrated into the business enterprise, it will support compliance in conjunction with other business objectives, and to help manage internal and external stakeholder relationships.

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