The IRS recently introduced its new Country-by-Country reporting website pages and published frequently asked questions related to the reports.
The IRS CbC website includes a CbC reporting guidance page (http://bit.ly/2v3lxin) that contains links to the final CbC Treasury Regulations on filing for early reporting periods, model competent authority arrangements, OECD guidance, and forms and instructions.
CbC reporting is part of Action 13 of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan, which is intended to promote greater transparency by providing tax administrations with relevant and reliable information to conduct high-level transfer pricing risk assessments.
To accomplish this, a competent authority will automatically exchange CbC reports prepared by multinational enterprise (MNE) groups with a reporting entity in its jurisdiction with partner jurisdiction competent authorities in all jurisdictions in which the MNE group operates. This will occur only if:
- A legal instrument allowing for the automatic exchange of information (for example, double taxation convention (DTC) or tax information exchange agreement (TIEA)) is in force, and
- A competent authority arrangement (CAA) for the exchange of CbC reports is operative with such second-mentioned jurisdictions.
The ultimate parent entity of a U.S. MNE Group with $850 million or more of revenue in the relevant preceding annual reporting period will file Form 8975, “Country-by-Country Report,” and Schedules A, “Tax Jurisdiction and Constituent Entity Information,” with its annual income tax return.
Here’s an edited version of the most commonly asked questions on this issue. The full FAQs can be found here: http://bit.ly/2vCrQ9K.
- Does the IRS intend to follow the OECD schema as part of electronically filing Form 8975?
For U.S. reporting, Form 8975 and Schedules A will be filed using an IRS-approved eXtensible Markup Language (XML) schema that’s compatible with the Modernized e-File (MeF) system. However, when the IRS conducts international exchanges with partner jurisdictions under a double taxation treaty or tax information exchange agreement and a competent authority arrangement, the IRS will use the approved OECD XML schema. The MeF schemas and business rules are now available through the Registered User Portal and your e-Services mailbox.
- How will the IRS use CbC data?
The data will be used by the IRS in conjunction with other taxpayer data for high-level assessment of transfer pricing, and other BEPS tax risks, and for economic and statistical analysis. The assessments and analyses will be done in accordance with the OECD guidance on appropriate use of CbC reporting information (.pdf) and in accordance with our DTC and TIEA obligations and CAA commitments.
- Which tax jurisdictions does the IRS have CAAs with for the automatic exchange of CbC reports?
The U.S. competent authority is committed to entering into CAAs with those jurisdictions within the Inclusive Framework that have a legal instrument allowing for the automatic exchange of information with the United States. In addition, the United States will need to determine that the jurisdictions have appropriate safeguards to ensure that the information received remains confidential and is used solely for tax purposes, and that they have the infrastructure for an effective exchange relationship.
- When will the United States start exchanging CbC reports with other tax jurisdictions?
Consistent with the OECD guidance, the United States intends to begin exchanging CbC reports no later than June 2018.
- How do I report instances (or suspicions) of unauthorized disclosure or misuse of exchanged tax information?Visit http://bit.ly/2vCKChn for guidance. When reporting such instances, you shouldn’t include information that could identify a taxpayer, such as a taxpayer identification number or Social Security number.
- When can I file Form 8975?
Beginning on September 1, 2017, Form 8975 and Schedules A may be filed for a reporting period with the income tax return for the taxable year of the ultimate parent entity of the U.S. MNE group with or within which the reporting period ends. Form 8975 and Schedule A are now available on IRS.gov.
- Is the United States allowing transitional filing options for MNE groups with an ultimate parent entity in a tax jurisdiction that requires Country-by-Country reports for periods that begin after January 1, 2016, or “parent surrogate filing”?
Yes. And an ultimate parent that files (or has filed) an income tax return for a taxable year without a Form 8975 attached and wishes to file a Form 8975 for an early reporting period must follow the procedures for filing an amended income tax return and attach Form 8975 and Schedules A to the amended return. Those doing so for an early reporting period must do so within twelve months of the close of the taxable year that includes the early reporting period. More information is available in IRS Revenue Procedure 2017-23.
- How are U.S limited liability companies (LLCs) reported on Form 8975?
Generally, U.S. LLCs that don’t elect to be treated as corporations for federal income tax purposes are treated as “stateless,” and their financial and employee information should be provided on a Schedule A (Form 8975) for stateless entities.
However, such an LLC that’s wholly and directly owned by a business entity, which is organized and has its tax jurisdiction of residence in the United States, will be considered to have its tax jurisdiction of residence in the United States. If such an LLC owns another LLC, that entity also will be considered to be a U.S. business entity with its tax jurisdiction of residence in the United States.
For additional information about CbC reporting, consult your tax advisor.