United States

IRS releases Canada-U.S. competent authority agreement

TAX ALERT  | 

The IRS has recently released a competent authority agreement with Canada, (The Agreement), which allows for the exchange of country-by-country (CbC) reporting information between Canada and the U.S. The Agreement entered into force June 7, 2017 but was not released publicly until October 2017, and will facilitate the rapid exchange of information collected under each country’s CbC reporting rules. The IRS and the Canadian Revenue Authority will use this information to more effectively identify targets for audit so taxpayers should expect an uptick in scrutiny by the IRS and CRA.

The exchange of reports is part of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan 13, which requires certain multinational entities (MNEs) to disclose specified financial information on a country-by-country basis. However, instead of entering into the OECD’s multilateral agreement, which allows jurisdictions to implement BEPS Action Plan items, the U.S. has instead decided to negotiate CbC competent authority agreements with jurisdictions independently. To date, the U.S. has entered into competent authority agreements with a number of jurisdictions, and taxpayers can find an up-to-date listing on the IRS CbC reporting webpage.

Under The Agreement, the first CbC report exchange will take place for the fiscal years of MNE groups beginning on or after Jan. 1, 2016, with exchanges happening no later than 18 months after the last day of the MNE’s fiscal year to which the report relates. For CbC reports related to fiscal years beginning on or after Jan. 1, 2017, exchanges must happen no later than 15 months after the last day of the MNE’s fiscal year to which the report relates.

U.S. MNE’s should continue to keep track of the jurisdictions with which the U.S. has executed bilateral competent authority agreements. Under the U.S. CbC reporting rules, MNE’s are required to, among other things, provide timely notice to countries in which they have a constituent entity, and the competent authority agreements can affect the disclosures required to be made in these notices.

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