Tax & Accounting Blog

CbC Reporting in Countries without a BCAA with the US-Surrogate or Local Filing

BEPS, Blog, ONESOURCE December 5, 2017

The IRS has announced that they will not be able to execute bilateral competent authority agreements (BCAA) with all countries expecting a CBC report for 2016. Should impacted US Multinational Enterprises (MNEs) file locally or use a surrogate?

At play are four countries, France, Indonesia, Jersey, and Spain [1] — all of whom are parties to the MCAA. (France and Spain are also covered by the EU CbC Exchange Directive and can exchange reports with any other EU country.)

Therefore, US MNEs have two options:

1. Appoint a Surrogate Jurisdiction

For example, one could use a jurisdiction that will exchange CbC reports under the CbC MCAA. This could include countries such as the UK, the Netherlands, Canada, and Ireland. With the latter having extended the deadline for the 2016 CbC report to February 28, 2018, a question arises as to whether Ireland should receive the CbC report by December 31, 2017 to meet the surrogate reporting requirements.

Even with the CbC MCAA, there is also an open question as to whether the exchange relationships between the signatories of the MCAA have even been activated. In many cases, they have not. Of course, if you use an EU country as a surrogate, all EU country reporting obligations will be covered via exchange under the EU directive.

One downside of using a surrogate is that there is no way to limit which countries the surrogate jurisdiction can exchange the CbC report with. For example, you don’t want the UK to exchange your CbC report with China because absent using the UK as a surrogate, China would not get your CbC report as the US and China have not yet executed a BCAA. And China (like the US) does not expect local filing. (China does reserve the right to ask the local Chinese constituent entity for the CbC report directly, but this is only if under examination.)

Another open item is what happens if you already filed a notification in any of these four jurisdictions maintaining that the CbC report will be submitted by the IRS. Can you amend the notification to now show the surrogate jurisdiction as the one exchanging the CbC report or are you forced to file locally.

There is also an open question about whether any surrogate jurisdiction can exchange with Indonesia since Indonesia is non-reciprocal in their MCAA, meaning they will not accept CbC reports from any other jurisdiction through exchange.

2. File Locally

This option will avoid most of the issues highlighted above but will require MNEs to file in each of the four jurisdictions individually, depending on how many of these jurisdictions they have constituent entities in.


MNEs should be looking for a software solution that can reuse the data already used to prepare US form 8975 and automatically create country compliant CbC forms for the chosen surrogate jurisdiction or in each of the four countries if one decides to file locally.

In addition, MNEs need to be mindful of upcoming 2017 CbC notification deadlines and be aware that there could be a lot more jurisdictions where notifications must be filed by December 31, 2017 compared to a year earlier. This includes countries that had extended their notification deadlines for the first year (e.g. the UK), countries that implemented CbC reporting for 2016, but postponed the first year for non-resident MNEs (e.g. Denmark), and countries implemented CbC reporting from 2017 (e.g. Malaysia). Also keep in mind that for some of these notification requirements advanced software will be needed to produce the notification forms including Australia, Belgium, Brazil, and Japan.

MNEs should be actively looking for an automated solution that can generate and lodge CbC reports in multiple jurisdictions, automatically populate CbC notification forms, and run analytics including the 19 risk factors that the OECD highlighted to tax authorities in their implementation guide.

[1] Israel and Turkey have proposed CbC rules effective from January 1, 2016 but these rules are not yet effective.

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