United States signs first CbC competent authority agreements
TAX ALERT |
The IRS has confirmed that it has signed two competent authority agreements allowing for the bilateral exchange of country-by-country (CbC) reporting information. As part of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting Action Plan 13, multinational entities will be required to provide CbC financial documentation to local tax authorities. CbC regulations require companies with annual revenue of at least $850 million to report financial information such as revenue, profit or loss and accumulated earnings for each operating country. Once filed, CbC documentation will then be exchanged between countries with proper exchange agreements in place.
The United States, rather than signing onto the OECD’s multilateral agreement, is currently in the process of independently negotiating approximately 100 bilateral competent authority agreements in order to enable the exchange of CbC information. These bilateral exchange agreements would allow U.S. multinational companies to file their first CbC reports with the IRS at the time their tax returns are due, including extensions. This year’s extended due date for calendar filing taxpayers is Oct. 16.
As of May 1, 2017, the United States entered into competent authority agreements with the Netherlands and another unidentified country. The IRS will update their CbC reporting webpage as to which jurisdictions have reached agreements with the United States as more agreements are concluded.
As the IRS continues their pursuit of negotiating and concluding competent authority agreements, it is important that companies understand the implications of these arrangements. Multinational companies are facing deadlines for notifying the country in which they have a constituent entity, about which entity will be filing the CbC report. If the competent authority agreements are not in place, then companies may not be able to give effective notification, even though they anticipate that an agreement will be in place by the time the CbC reports are due to be exchanged. An argument can be made that companies could give notification to a country based on the understanding that an exchange agreement will be in place by the due date of the exchange. Because there is risk to this approach, companies that currently meet the CbC reporting thresholds should meet with their tax advisors to decide whether this approach fits their needs. Guidance from the OECD should be forthcoming discussing the timing of country notifications in situations where agreements are not in place.