US HQ MNEs who need to file a CbC report have to complete Form 8975 and Form 8975 Schedule A. Companies that file their US tax return electronically need to attach an XML version of these forms and companies that do not file electronically must attach a PDF version of these forms to their US tax return.
Whilst the US CbC rules apply to tax years beginning on or after June 30, 2016 with the report due at the time of the tax return filing date, US HQ MNEs with tax years starting in 2016 and prior to June 30, 2016 (early reporting period) can opt for voluntary filing under the Parent Surrogate Filing Option. For these MNEs, Form 8975 and Form 8975 Schedule A can be filed from September 1, 2017 with the tax return for the tax year that includes an early reporting period or with an amended return if a return has already been filed without Form 8975.
Best practice will call for both the PDF version and the XML version to be generated from the OECD CbC table templates after applying the roll up for branches and partnerships and reclass to stateless logic. However, there are several data elements that are required in Form 8975 and Form 8975 schedule A that are not captured in the OECD CbC template. As such, a comprehensive design should be available to automate how this additional data is being captured (and reused in future years), including all additional information that should be included in part II of Form 8975 and part III of Form 8975 schedule A.
In this regard, a great feature will be an automatic note that indicates to the IRS which jurisdictions listed in the CbC report should and should not be entitled to receive a copy of Form 8975 and Form 8975 schedule A. Clearly, US MNEs do not want the CbC report to be exchanged with jurisdictions that are not entitled to it, and given the complexity of the rules, may not want this to be at the discretion of the IRS. Automating this is challenging since it requires that:
- The jurisdiction has implemented CbC rules effective for tax years that correspond to the tax year of the US MNE (also recognizing that some jurisdictions provide a one year deferral for non-resident HQ companies);
- The jurisdictions has a bilateral CbC competent authority agreement with the US in effect (to date there are none);
- The jurisdiction has agreed to accept CbC reports filed under parent surrogate filing;
- The US HQ MNE has met the jurisdiction’s notification requirements.
As alluded to above, to date there are no bilateral CbC competent authority agreements in effect, or even signed, between the US and other jurisdictions, raising the possibility that US HQ MNEs may have to file locally in a jurisdiction or use a surrogate. In this regard, the first jurisdiction expecting a CbC report form US HQ MNEs is Brazil, which has produced a form called block W that will need to be generated in a .txt format using advanced software and attached to the Brazilian tax return by July 31, 2017 for calendar year taxpayers. Best practices will call for the software solution to use the same data that was used to populate Form 8975 and Form 8975 schedule A to automatically produce Block W in the .txt format.
Similarly, Australia wants the CbC report to be in XML and submitted to the ATO via a machine to machine transmittal. Best practices will call for the software solution to complete both these steps automatically, and again, from the same data source used to populate Form 8975 and Form 8975 schedule A.
The ideal solution will generate every jurisdiction’s CbC report in the country specific format and provide options for transmitting the report to the local tax authority. Given that the BEPS inclusive framework currently includes 96 countries[i] (and growing), this is not a small undertaking. However, it is almost a must given that US HQ MNEs may have to file locally in one or more of these BEPS inclusive framework member jurisdictions.
It is worth mentioning that irrespective of the US negotiating bilateral CbC competent authority agreements in time with Brazil and Australia, US HQ MNEs will need to file notifications in both these countries and in Brazil the notification is included in Block W and in Australia the notification is part of the Australia Local File, which must be produced in XML and transmitted to the ATO using advanced software. Also, Japan and Slovakia appear to require advanced software to produce the local notification forms. Best practices will call for the software solution to complete all these requirements leveraging as much of the data that was inputted to complete Form 8975 and Form 8975 schedule A.
[i] BEPS Inclusive framework member countries have committed to implementing the BEPS minimum standards which includes CbC reporting requirements.
 China and Chile have earlier CbC filing requirements but they do not have a local filing requirement for non resident HQ MNEs.