On August 22, 2016, Treasury published a notice in the Federal Register seeking comments on IRS Form 8975 (Country-by-Country Report), which ultimate parent entities of U.S. multinational enterprise (MNE) groups will use for country-by-country (CbC) reporting purposes. Written comments are due by September 21, 2016.
The notice says that “businesses or other for-profits” are to be affected by the new CbC reporting requirement, which Treasury estimates will take 4,680 hours to comply with each year.
On July 28, 2016, Jeffrey Mitchell, IRS Associate Chief Counsel Chief of Branch 2, said during a luncheon in Washington, D.C., that the IRS is developing Form 8975 and the mechanism to allow voluntary filing of early CbC reports for 2016. He also said that taxpayers should notify other jurisdictions in which they have operations before the end of 2016 that they will be filing the voluntary early CbC report with the IRS.
CbC Reporting Regs.
On June 29, 2016, IRS and Treasury released the CbC final reporting Regulations (TD 9773), which apply to tax years of ultimate parent entities of U.S.MNE groups that begin on or after June 30, 2016, when the MNEs have revenue for the preceding annual accounting period of $850 million or more. Notably, the final Regulations do not address master and local files.
The final Regulations say that the following information must be included on Form 8975 (in the form and manner to be prescribed by the IRS) with respect to each constituent entity of the U.S. MNE group, as required:
- The complete legal name of the constituent entity.
- The tax jurisdiction, if any, in which the constituent entity is resident for tax purposes.
- The tax jurisdiction in which the constituent entity is organized or incorporated (if different from the tax jurisdiction of residence).
- The tax identification number, if any, used for the constituent entity by the tax administration of the constituent entity's tax jurisdiction of residence.
- The main business activity or activities of the constituent entity. (Reg. 1.6038-4(d)(1)).
In addition, Form 8975 must contain the following information for each tax jurisdiction in which one or more constituent entities of a U.S. MNE group is resident, presented as an aggregate of the information for the constituent entities resident in each tax jurisdiction:
- Revenues generated from transactions with other constituent entities.
- Revenues not generated from transactions with other constituent entities.
- Profit or loss before income tax.
- Total income tax paid on a cash basis to all tax jurisdictions, and any taxes withheld on payments received by the constituent entities.
- Total accrued tax expense recorded on taxable profits or losses, reflecting only operations in the relevant annual period and excluding deferred taxes or provisions for uncertain tax liabilities.
- Stated capital, except that the stated capital of a PE must be reported in the tax jurisdiction of residence of the legal entity of which it is a PE unless there is a defined capital requirement in the PE tax jurisdiction for regulatory purposes.
- Total accumulated earnings, except that accumulated earnings of a PE must be reported by the legal entity of which it is a PE.
- Total number of employees on a full-time equivalent basis—see Reg. 1.6038-4(d)(3)(iii) for the treatment of independent contractors and other details.
- Net book value of tangible assets, which does not include cash or cash equivalents, intangibles, or financial assets. (Reg. 1.6038-4(d)(2))
The reporting period covered by IRS Form 8975 is the period of the ultimate parent entity's applicable financial statement prepared for the 12-month period (or a 52-53 week period described in Section 441(f)) that ends with or within the ultimate parent entity's tax year. If the ultimate parent entity does not prepare an annual applicable financial statement, the reporting period covered by Form 8975 is the 12-month period (or a 52-53 week period described in Section 441(f)) that ends on the last day of the ultimate parent entity's tax year. (Reg. 1.6038-4(c)).
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