OECD's Country-by-Country Reporting Nets U.K. Partnerships

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing. 

By Penny Sukhraj

Aug. 4— Partnerships in the U.K. will be in scope for compliance with country-by-country rules, Her Majesty's Revenue and Customs has said, in line with the OECD's base erosion and profit shifting plans.

The Aug. 2 clarification was issued by the tax authority, but only with a short note to confirm that partnerships will indeed be netted by the BEPS plan's Action 13, which centers on jurisdictional reporting of tax, financial figures and staff numbers.

While several professional services firms—law firms, accountants and architects, among them—will be affected by the rules, they only apply if firms consolidate their accounts. 

The largest accounting firms, for example, operate through a network agreement but don’t produce global consolidated accounts. They wouldn't be affected unless an individual member firm in a country has revenues in excess of the 750 million-euro ($836 million) turnover threshold.

OECD Guidance

Partnerships were among the concerns addressed in the Organization for Economic Cooperation and Development's June 29 guidance on country–by-country reporting—others included investment funds, options for parent surrogate filing for multinational companies and impacts of currency fluctuations in relation to the 750 million-euro threshold (25 Transfer Pricing Report 341, 7/14/16).

For each of the territories in which they operate, all partnerships with global income in excess of 750 million euros will need to disclose revenues, profit, number of employees, tangible assets, capital, accumulated earnings and tax paid and accrued for each territory. This will be required in all territories where the country–by-country rules have been implemented.

The OECD also expects partnerships to disclose details such as whether a partnership has a tax residence. Where it is considered a “stateless entity,” partnerships are expected to indicate the jurisdiction under which laws the partnership is formed.

Practitioners Unsurprised

Tax practitioners were expecting partnerships to be included in the country-by-country reporting requirements, but Malcolm Joy—BDO U.K.'s lead partner in the Transfer Pricing Team—said “the original guidance was not specific on this.”

The information gleaned by tax authorities through the reports is expected to be used by tax authorities to help them risk assess global businesses. “For example, if 90 percent of the profits of a global partnership are reported as arising in one territory, but only a small proportion of their head count are based in that territory, then this will raise alarm bells with tax authorities,” Joy said.


The allocation of profits within an international partnership can be a complex task, Joy said.

“There are difficulties around charging for partners who are building business in new territories—valuation of intangibles and allocating profits on projects that are won and delivered across multiple jurisdictions,” Joy said.


The OECD's guidance remains unclear on how to report tax paid for a partnership in a territory. 

“For a partnership, the tax liabilities generally lie with the partners and the amount of tax paid will be hard to trace and it will also vary greatly according to the individual circumstances of the partners. There is an argument for not including details of tax paid by partners,” Joy said, adding that ultimately, partnerships will “want to be confident that what is shown in their reports reflects a robust tax and transfer pricing policy.”

RSM U.K.'s head of transfer pricing, Ken Almand, described HMRC's announcement as a reaffirmation of its commitment to tackling tax avoidance by big business, with the U.K. “simply following the lead of the OECD” on the issue.

“What it does confirm is that large partnerships will have to comply with a potentially onerous new compliance obligation that could lead to a greater risk of tax administration challenge in countries where they operate,” Almand said.

HMRC said it will propose amendments to existing country-by-country regulations in the fall, which will be applicable to periods beginning on or after Jan. 1, in line with the OECD's recommendations as well as previous commitments from the U.K. government.

To contact the reporter on this story: Penny Sukhraj in London at psukhraj@bna.com

To contact the editor responsible for this story: Rita McWilliams at rmcwilliams@bna.com

For More Information

The OECD's guidance is at http://src.bna.com/hqz.

HMRC's announcement is at http://src.bna.com/hqB.

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