Preparing for country-by-country reporting, your questions answered
TAX BLOG |
Shortly after the United States released its guidance for the new country-by-country reporting (CbCR) standards, RSM and Bloomberg BNA got together for a webcast to explore what these regulations mean for businesses operating in the USA and abroad.
Participant questions highlighted the confusion over who must comply with CbCR and how much attention companies need to give towards getting it right the first time. Here are some of their questions and our answers (edited for length):
Q: Can the company change the data source in year two or three? Is a penalty expected if there is a change?
A: A consistent approach is required for reporting the number of employees under section 1.6038-4(d)(3)(iii). Taxpayers should take care when accounting for independent contractors and when using rounding or approximation to report employee averages. Further, consistent approaches should be applied from year to year and across entities.
The proposed regulations preamble seemed to suggest changes would be permissible, however the final preamble contained no such language. Similarly, the final regulations are silent as to specific penalties for not using consistent data sources.
Q: If a U.S. entity is a subsidiary of an ultimate parent in a foreign jurisdiction, will any U.S. entity be required to file the Form 8975?
A: No, the ultimate parent in the foreign jurisdiction is responsible and required to file the form in its foreign jurisdiction. The form will likely have a different name or number in the foreign jurisdiction, but will have the same content as Form 8975.
Note, there may be some exceptions and circumstances when the U.S. entity may have to file the form as a substitute (or surrogate) on behalf of its ultimate foreign parent.
Q: If a U.S. parent led group has worldwide revenues of $800 million and is below the U.S. threshold, but because of existing fluxes in currency rates the revenue exceeds the EUR 750 million EU threshold, does the U.S. company have to file CbC reports in all EU countries where it has foreign subsidiaries?
A: The reporting multinational entity (MNE) is the ultimate parent of the MNE group. In this case, a U.S. parent led group files (or does not file) a CbC report according to the parent jurisdiction’s CbC reporting requirements. If no report is required to be filed in the United States, then there are no reporting requirements in any other countries. On a related matter, the OECD guidance issued in June confirmed that where the EUR 750 million threshold was applied correctly at inception as of January 2015, there is no need to adjust for currency fluctuations.
See our BEPS resource center for more RSM insights on CbCR and the Base Erosion and Profit Shifting (BEPS) initiative, including 6 steps to solving the country-by-country reporting challenge.