United States

IRS issues proposed regulations on country-by-country reporting


On Dec. 21, 2015, the IRS issued proposed regulations that would require annual country-by-country reporting by U.S. taxpayers that are the ultimate parent of a multinational enterprise (MNE) group. These proposed regulations affect U.S. parent companies of an MNE with $850 million or more in global group revenues for the preceding year to the taxable year beginning on or after the date these rules are final.

The IRS is following suit with other members of the Organisation for Economic Co-operation and Development (OECD) and non-member countries with this new requirement pursuant to the base erosion and profit shifting project final report on Action 13,  Transfer Pricing Documentation and Country-by-Country Reporting, which contains revised standards for transfer pricing documentation and a template for country-by-country reporting of income, taxes paid, and certain measures of the location of economic activity within the MNE group.

The IRS is currently developing a new form for this purpose and such form is yet to be officially numbered. However, it is referred to as Form XXXX, Country-by-Country Report (CbC report). The categories of information required to be reported on the form were developed in coordination with other member countries of the Group of Twenty (G20) and the OECD, i.e., the model template reflects an agreed international standard across tax jurisdictions.

The proposed regulations state that the Treasury and the IRS have determined that the information required under these regulations will assist in better enforcement of federal income tax laws by providing the IRS with greater transparency regarding the operations and tax positions taken by U.S. MNE groups. In addition, pursuant to income tax conventions and bilateral agreements related to the exchange of tax information, a U.S. CbC report filed with the IRS may be exchanged by the United States with other tax jurisdictions in which the MNE group operates. In exchange, foreign governments will provide the IRS with CbC reports filed in their jurisdiction by foreign MNE groups that have operations in the United States. In particular, it is expected that CbC reports filed by both U.S. MNE groups and foreign MNE groups will help the IRS perform high-level transfer pricing risk identification and assessment. However, the information in a CbC report will not itself constitute conclusive evidence that transfer pricing practices are or are not at arm’s-length.

Accordingly, the proposed regulations state that the information in a CbC report will not be used as a substitute for an appropriate transfer pricing analysis as required by the regulations under section 482, and transfer pricing adjustments will not be based solely on a CbC report. However, a CbC report may be used as the basis for making further inquiries into the transfer pricing practices or other tax matters in the course of an examination of a member of an MNE group.



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