United States

IRS considers voluntary 2016 country-by-country report submissions

U.S. responds to pressure to bridge the CbC reporting gap for 2016

TAX ALERT  | 

The IRS and Treasury are exploring opportunities to allow U.S. multinational taxpayers to voluntarily file a country-by-country (CbC) report a year earlier than required. For many taxpayers, including those with a calendar year end, this could allow a taxpayer to file their 2016 CbC report (e.g., for the year ended Dec. 31, 2016) with the IRS, rather than a foreign tax authority. The 2016 CbC report would presumably be filed with a taxpayer’s timely-filed tax return in 2017, although timing of the voluntary filing has yet to be confirmed. In the United States, the CbC report will only be required for taxpayers with global consolidated revenue over $850 million. Similar thresholds exist in other countries per the Organisation for Economic Co-operation and Development’s suggested threshold of €750m.

This is potentially a very helpful development for U.S.-headquartered multinationals as it could eliminate the need to file a 2016 CbC report with multiple foreign tax authorities or having to select a surrogate country with which to file.

Currently, proposed regulations will require U.S. multinational taxpayers with annual revenue over $850 million to file a CbC report for periods beginning after the proposed regulations are finalized (anticipated to be before July 1, 2016). However, many countries have enacted legislation requiring a CbC report for periods beginning Jan. 1, 2016. As such, the United States is generally considered to be a year behind a number of other countries in its CbC report filing requirements (at least for companies with fiscal years beginning from January to June).

Previously, the IRS and Treasury had indicated that it would not be possible for the United States to accept a 2016 CbC report. This led to many questions and concerns for U.S.-headquartered multinationals. Where would a U.S. multinational have to file a 2016 CbC report? Would it have to adopt a surrogate country? How would information be exchanged between taxation authorities? How would the transition be made to the 2017 CbC filing?

Robert Stack, Deputy Assistant Secretary (International Tax Affairs) at the U.S. Department of the Treasury, commented on the issue during a transfer pricing conference at the University of San Diego Law School on April 28, 2016. His comments suggested the IRS and Treasury are working on allowing voluntary 2016 CbC reports in response to concerns raised by business groups and tax and transfer pricing commentators, and that Treasury should have a better sense on whether this will be successful in six to eight weeks.

If the IRS and Treasury can move forward with allowing 2016 CbC filings, this would be a welcome option for many U.S. multinational taxpayers. Administratively, it would likely be far easier for a U.S. company to file its 2016 report with the IRS, rather than having a subsidiary determine whether a foreign tax authority would accept a surrogate filing and whether this would be acceptable to all other countries of the multinational taxpayer. In addition, the U.S. has committed to maintaining taxpayer confidentiality and only exchanging CbC reports via formal exchange mechanisms under its competent authority arrangements.

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