Country by Country Reporting Marches Ahead
Country by Country (CbC) Reporting continues to move forward on a number of fronts as more rules, regulations and forms are issued by the various jurisdictions that have requirements to report and share this type of summary tax and economic information on large multinational entities (MNEs). There is also a movement to make this type of information (at least on a limited basis) public, in spite of push back from businesses who have feared this would happen, contrary to the assurances from the OECD that this was not the goal.
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This initiative by the OECD is part of Action 13 of the Base Erosion and Profit Shifting (BEPS) project, which is intended to enhance transparency for tax administrations by providing them with information to conduct high-level transfer pricing risk assessments. US groups with $850 million or more (€750 million for European and OECD jurisdictions) of revenue will have to file annual reports. Many speculate that this will eventually become a requirement at a much lower level of turnover as tax administrators try to efficiently gather information for audits.
US Reporting Requirements
Required US MNEs will file a Form 8975 and Schedule A (Form 8975) with their annual income tax return. The IRS recently launched a CbC page on irs.gov to provide background information on reporting, frequently asked questions (FAQ) and a list of jurisdictions that have concluded Competent Authority Arrangements (CAA) with the US. These agreements are separate from the FATCA IGA concluded by the IRS, and to date there are very few countries on the list. Because of the EU’s push to publicly disclose some of this type of information (see next section), there may be an issue with exchanging this information. The CCAs are to be concluded on if the US determines that the country has in place appropriate safeguards with respect to confidentiality and use of the information exchanged. The information is only to be exchanged with a country where the US MNE group is a “constituent entity”.
The IRS CbC Reporting web pages contain helpful information and a link to the following Guidance and Resources chart:
Updated on IRS Website July 3, 2017
EU Committees Clear Report to Require Public CbC Reporting
The Economics and Legal Affairs Committees of the European Parliament voted to make large MNEs publicly report their activities, structures and tax payments on a CbC basis. The draft report was approved 38-9, with 36 abstentions.
The result, if approved by the Parliament, would require MNEs to publicly disclose how much tax they pay, and where, including outside the European Union (EU). Members of the Parliament (MEPs) have previously rejected the European Commission’s proposal to exclude non-EU jurisdictions from the CbC legislation.
Commercially sensitive exception
An amendment was passed that would let EU members grant exclusions for multinationals that would allow them to avoid disclosing certain information.
In part, the amendment says:
"In order to protect commercially sensitive information and to ensure fair competition, Member states may allow, that one or more specific information listed in […] this directive, be temporarily omitted as regards activities in one or more specific tax jurisdictions when its nature is such that it would be seriously prejudicial to the commercial position of the undertakings … to which it relates. The omission shall not prevent a fair and balanced understanding of the tax position of the undertaking."
It’s understood that MEPs didn’t get the two-thirds majority required to be able to begin negotiations with EU members and the European Commission to implement the draft report. The draft report will now be sent to the European Parliament plenary for final consideration.
Even if the CbC rules do not presently apply to your company, it would be prudent to start collecting this type of information as it may well be requested upon audit. Also, if you are part of a group that meets the reporting thresholds, you will have to provide it to your parent even if your operations are in a start-up mode, or you are an immaterial part of the group for most financial disclosure purposes. MSDM can help advise you on what type of information is needed.
James J. Miesowicz, CPA
Jim Miesowicz has significant experience in helping foreign-owned U.S. entities with a variety of inbound international issues and working with foreign nationals. He offers assistance with structuring international business operations and investments. Jim provides guidance with international inbound and outbound transactions, as well as assisting U.S. companies with establishing operations outside the U.S. Contact Jim at email@example.com or 248.244.3115.