It's mostly people just rating their own lives, which leaves it open to people in different cultures reporting the same actual happiness differently. In some cultures, saying you're happy is bragging, so people understate. In others, rating it low is complaining, so people report overly happy.

I see World Happiness Report as primarily a measure of what's considered the most socially acceptable way to discuss happiness across cultures. In the USA, people often brag about how miserable they are, for example.