Press Room: Tax Release

July 28, 2016

IRS Issues Final Regulations on Country-by-Country Reporting

As expected, IRS issued final regulations regarding new Country-by-Country Reporting (CbCR) requirements for U.S. Multinational Enterprise (MNE) groups effective June 30, 2016. These final regulations formally implement guidelines published by the Organisation for Economic Co-operation and Development (OECD) last October in connection with its highly publicized initiative to combat Base Erosion and Profit Shifting (BEPS).

Highlights of new Reg. 1.6038-4 include:

New Form: MNE groups will use Form 8975 to provide both quantitative data (e.g., revenue from related parties, revenue from unrelated parties, etc.) and descriptive information as to where various business functions are performed (e.g., R&D, holding of IP, purchasing, manufacturing, marketing, sales, etc.).

Reporting Threshold: MNE groups must submit Form 8975 if they have global revenue of $850 million or more. This threshold is based on revenue, not taxable income.

Due date: Form 8975 must be provided when a MNE group files its annual U.S. income tax return – i.e., for tax years beginning after June 30, 2016.

Voluntary Filings: Because OECD guidelines require CbCRs for tax years beginning on or after January 1, 2016, IRS will allow voluntary filings of Form 8975, which will provide taxpayers with confidentiality protections during the gap period. (Note: per the OECD final Action 13 report, the CbCR isn’t due until December 31, 2017. However, for calendar year-end tax years the CbCR isn’t due in the U.S. until September 15, 2018. Hence, there is a gap period from December 31, 2017 to September 15, 2018 for calendar year end taxpayers.). Additional information will be forthcoming in separate guidance.

Confidentiality: Information provided in Form 8975 is covered by IRS confidentiality protections as tax return information.

Exchange of information with Foreign Jurisdictions: IRS will undertake steps to ensure adequate protections are in place before sharing CbC reports with any taxing authority. Should a jurisdiction fail in providing such safeguards, the U.S. will pause exchanges of all CbC reports with that jurisdiction.

Penalties: Failure to file penalties start at $10,000.

The Takeaway

The new CbCR requirements formally implement in the U.S. the guidelines outlined in Action 13 of the Final BEPS Reports. The new regulations take effect immediately and may directly impact your global tax reporting requirements. Andersen Tax professionals are ready to help assess your company's risk profile and identify any concrete steps appropriate to ensure compliance with these new rules.