Country-by-Country Reporting (CbCR) and Its Growing Importance for MENA Multinationals

BEPS, Pillar Two, and Global Minimum Tax

Introduction

Over the past decade, transparency has become one of the core pillars of international tax policy. As part of the OECD’s BEPS Action 13, Country-by-Country Reporting (CbCR) has emerged as one of the most powerful tools used by tax authorities to understand how multinational enterprises (MNEs) allocate income, taxes, functions, and employees across jurisdictions.

Today, CbCR is not just a compliance requirement it is a global indicator of risk, a starting point for transfer pricing audits, and a critical measure of transparency.
For multinationals operating in the Middle East and North Africa (MENA), CbCR is becoming increasingly important as regional tax authorities align with global standards.

1. What Is Country-by-Country Reporting (CbCR)?

CbCR is a mandatory annual filing for large multinational groups that exceed a certain consolidated revenue threshold (typically €750 million or equivalent).
It requires the ultimate parent entity to disclose, for each jurisdiction:

  • Revenues (related and unrelated party)

  • Profit or loss before tax

  • Income taxes paid and accrued

  • Stated capital

  • Retained earnings

  • Number of employees

  • Tangible assets

  • List of constituent entities and their activities

This information gives tax authorities a high-level map of where a group’s value is created and where profits are declared.

2. Why CbCR Matters Globally

2.1 Increases Transparency Across Borders

CbCR allows tax authorities to compare:

  • Profit allocation

  • Headcount

  • Functions performed

  • Tax paid vs. income generated

This helps identify profit shifting, artificial structures, or mismatches.

2.2 Supports BEPS Enforcement

Although CbCR does not adjust taxes directly, it acts as a trigger for:

  • Transfer pricing audits

  • Permanent establishment assessments

  • Challenges to low-tax structures

  • Requests for Master File / Local File

CbCR is effectively the starting point for deeper questions.

2.3 Used in Risk Assessment Models

Many tax authorities use CbCR data to feed automated risk models that classify MNEs into:

  • Low-risk

  • Medium-risk

  • High-risk

This determines whether a group will face increased scrutiny.

3. Why CbCR Is Becoming Crucial for MENA Multinationals

The MENA region is rapidly adopting OECD-aligned regulations:

  • Saudi Arabia (ZATCA) requires CbCR notifications and filings

  • UAE mandates CbCR for qualifying groups

  • Qatar, Egypt, and Jordan are strengthening TP and transparency frameworks

  • Many free-zone entities are now within scope of BEPS reporting

Key reason:

Authorities in the region are increasingly focused on base protection, substance, and fair taxation.

4. How CbCR Helps MENA Tax Authorities

4.1 Detecting Misalignment Between Profit and Substance

Tax authorities quickly identify if:

  • A low-tax country declares large profits

  • While the real functions and employees are elsewhere

This has become especially critical as nations adopt Pillar Two and Global Minimum Tax.

4.2 Identifying High-Risk Structures

CbCR highlights:

  • Service center hubs with limited substance

  • IP entities receiving large royalties

  • Principal structures lacking decision-making capacity

  • Financing entities with minimal functional activity

4.3 Supporting Audits with Clear Patterns

Trend data from CbCR helps authorities understand:

  • Year-on-year changes

  • Sudden profit drops or spikes

  • Shifts in intra-group transactions

This provides the basis for targeted audit questions.

5. Common Errors MENA Multinationals Must Avoid

1. Misaligned Employee vs. Profit Ratios

Declaring large profits in jurisdictions with minimal staff is a red flag.

2. Inconsistent Activity Descriptions

Entities classified as “holding companies” but performing real operations may attract scrutiny.

3. Conflicts Between CbCR and Transfer Pricing Documentation

Values must be consistent across CbCR, Master File, Local File, and statutory accounts.

4. Incorrect Revenue Segmentation

Mixing related and unrelated party revenues leads to audit queries.

5. Missing or Late Notifications

Many MNEs still forget required CbCR notifications, not just filings.

6. The Future of CbCR in the MENA Region

CbCR will play a stronger role as MENA countries adopt:

  • Pillar Two (15% Global Minimum Tax)

  • Advanced transfer pricing enforcement

  • Economic substance regulations

  • Digital tax administration and risk analytics

In the next 3–5 years, CbCR will be a primary determinant of TP audit risk in the Middle East.

Conclusion

CbCR is no longer an administrative burden it is a strategic tool used by tax authorities to evaluate risks, assess substance, and identify potential BEPS concerns.
For MENA multinationals, being proactive in CbCR compliance is essential to avoid escalated audits and ensure alignment with global transparency standards.

The companies that treat CbCR as a strategic compliance pillar rather than a box-ticking requirement will be best positioned to navigate the new global tax environment with confidence.

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