US Outbound: US issues proposed CbCR regulations
On December 21 2015, the US Treasury Department and Internal Revenue Service (IRS) released proposed regulations that are designed to coordinate with the model country-by-country reporting (CbCR) template and instructions set forth in Action 13 of the OECD/G20 BEPS Project.
However, some aspects of the proposed regulations represent a more detailed or slightly different approach from the approach delineated in Action 13. The preamble notes that the proposed regulations, while generally consistent with international standards, are tailored to be consistent with the information reporting requirements applicable to US persons under the relevant Code sections pursuant to which they were issued (sections 6001, 6011, 6012, 6031, and 6038).
The proposed regulations provide that US persons that are the ultimate parent entity of a multinational enterprise (MNE) group with annual revenue of $850 million or more for the immediately preceding annual accounting period would be required to file a country-by-country (CbC) reporting form. The CbC reporting form will be based on the Action 13 model template CbC report. The proposed regulations contain the operative provision, relevant definitions, the reporting period, contents of the return, method for reporting financial amounts, time and manner for filing, maintenance of records, exceptions to furnishing information, and effective/applicability dates.
The regulations are proposed to be applicable to tax years of ultimate parent entities of MNE groups beginning on or after the date of publication of the final regulations. Given the late publication date for the proposed regulations, final regulations would not be expected until sometime during 2016, pushing the first reportable period for calendar year MNE groups to 2017. The CbC reporting form is expected to be filed with the ultimate parent entity's timely filed income tax return. This is one year later than the anticipated reporting period. It is important to note that as each local jurisdiction adopts CbCR and issues local legislation/regulations, US MNE groups may have CbCR obligations for 2016 under various local rules, even though there might be no such obligation under US law. This could present important challenges to US MNEs.
The preamble to the proposed regulations echoes language in the OECD's BEPS Action 13 regarding the goals and limitations of CbCR, indicating that while the reports will help the IRS to perform high-level transfer pricing risk identification and assessment, transfer pricing adjustments will not be based solely on a CbC report. The preamble also addresses US taxpayer concerns regarding the confidentiality of information provided on the CbC reports shared around the globe, indicating that for US purposes, information reported pursuant to the proposed regulations constitutes return information under section 6103, which imposes strict confidentiality requirements, and allows the IRS to exchange information only to the extent provided in, and subject to the terms and conditions of, an information exchange agreement.
The preamble notes that the IRS and Treasury enter into such agreements only when they are satisfied with respect to the legal safeguards, enforcement, and penalties provided by the counterparty to the agreement, and that the US competent authority will not enter into a reciprocal automatic exchange of information relationship with another jurisdiction unless it has reviewed that jurisdiction's policies and procedures. Moreover, the IRS and Treasury will pause the automatic exchange of CbC reports with tax jurisdictions that are not meeting their obligations under the applicable information exchange or competent authority agreement.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.
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