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IRS Issues Final Regulations On US CbC Reporting

by Mike Godfrey, Tax-News.com, Washington

01 July 2016


On June 30, 2016, the Internal Revenue Service (IRS) issued final regulations in the Federal Register to require annual country-by-country (CbC) reporting by the ultimate parent entities of US multinational enterprise (MNE) groups that have annual revenues in their preceding annual accounting periods of USD850m or more.

The regulations require a US parent to report, in a master file, financial information for each tax jurisdiction in which a constituent entity of the MNE group is resident. The IRS intends that the information collection requirements will be satisfied by MNE groups submitting a new reporting form, Form 8975, Country-by-Country Report, with an income tax return.

The information to be provided will include the profit (or loss) before income tax, income tax paid on a cash basis, accrued tax expense recorded on taxable profits (or losses), number of employees on a full-time equivalent basis, and the net book value of tangible assets (other than cash or cash equivalents), in each jurisdiction.

The CbC information will subsequently be exchanged by the IRS with foreign jurisdictions under confidentiality requirements, pursuant to bilateral treaties and tax information exchange agreements, and under competent authority arrangements.

In particular, the IRS has recognized the need for it to accept CbC reports for tax years beginning on or after January 1, 2016, even though, as is usual, the final regulations are applicable to the taxable years of US MNE groups that commence on or after the date of their publication in the Federal Register.

Under the OECD's base erosion and profit shifting project, if a particular country does not require MNEs headquartered in its jurisdiction to submit CbC reports, then local reporting by a foreign subsidiary may still be required. US MNEs could have therefore found themselves subject to multiple CbC report filing obligations in local jurisdictions, as the OECD has recommended (and a number of countries have implemented) CbC reporting beginning on January 1, 2016.

In that respect, the Treasury Department and the IRS have confirmed that they will allow US MNE groups to file CbC reports for reporting periods that begin on or after January 1, 2016, and therefore before the applicability date of the final regulations, on a voluntary basis and under a procedure to be provided in a separate, forthcoming guidance.

The Treasury Department has further indicated that it is working to ensure that foreign jurisdictions implementing CbC reporting requirements will not require constituent entities of US MNE groups to file a CbC report with the foreign jurisdiction, if the US MNE group voluntarily files such a CbC report with the IRS, and that report is exchanged with the foreign jurisdiction pursuant to a competent authority arrangement.

TAGS: compliance | tax | business | tax information exchange agreement (TIEA) | tax compliance | law | Internal Revenue Service (IRS) | ministry of finance | tax authority | agreements | multinationals | transfer pricing | United States | financial reporting | regulation | BEPS

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