IRS to Allow Voluntary Reporting of Global Tax, Profit
An IRS official said the agency is continuing its work on a mechanism to allow voluntary filings of country-by-country reports for companies required to comply with both the U.S. rules and those in a foreign country with an earlier effective date.
“Actually being able to accept CBC reports for the IRS is more complicated than people might think,” Jeffery Mitchell, chief of Branch 2 in the Internal Revenue Service Office of the Associate Chief Counsel (International), said July 28.
“The information technology people are working on what the procedure will be,” he told those at a luncheon sponsored by Bloomberg BNA and hosted by Buchanan Ingersoll & Rooney PC. “Once they have got the procedure established, then we can write a revenue procedure that tells people what to do,” Mitchell added.
The final regulations (T.D. 9773), issued June 29, require companies with annual revenue of at least $850 million to report information including the amount of revenue, profit or loss, capital and accumulated earnings for each country of operation, consistent with OECD recommendations designed to combat tax base erosion and profit shifting (25 Transfer Pricing Report 306, 7/14/16).
Mitchell said the IRS currently is working on a country-by-country reporting form—Form 8975. The form and instructions will be consistent with the model template from the OECD guidance, released in final form in October 2015 (24 Transfer Pricing Report 756, 10/15/15).
Mitchell reminded practitioners that the model legislation from the Organization for Economic Cooperation and Development requires local entities to notify the local tax authority that their country-by-country report will be filed by the parent. “That local notification may be due by the end of this calendar year. Don’t forget that not only do you have to file your CBC report with the U.S. under the voluntary filing process, you may also have to notify the local country.”
The final rules on country-by-country reporting contain few changes from regulations proposed in December.
Misuse of Information
Mitchell said the IRS also is working on setting up a reporting mechanism for U.S. multinationals where the companies think that another country has misused the information in the country-by-country report, or has breached the confidentiality rules. The IRS Large Business and International Division “thinks that is important and they are working on this issue,” he said.
In addition to requiring a multinational company to file a country-by-country report, the IRS will have to exchange the report with the local country under a competent authority agreement. Mitchell said the IRS is working to finalize a U.S. model competent authority agreement.
“We are committed to having the competent authority agreements in place in time to exchange country-by-country reports for the years that began after the effective date” of the regulations, which is June 30, 2016.
