Tax & Accounting Blog

U.S. IRS Publishes More Bilateral CbC Report Exchange Information

BEPS, Blog, Global Tax Planning, International Reporting & Compliance September 14, 2017

On September 13, 2017, the U.S. IRS published the bilateral competent authority arrangement (CAA) that it signed with Lithuania on August 30, 2017, on the exchange of country-by-country (CbC) reports. This CAA is based on the 1998 income tax treaty  in effect with Lithuania.

Article 27 (Exchange of Information) of the U.S.-Lithuania tax treaty (the “Convention”) authorizes the exchange of information for tax purposes. Pursuant to section 2 of the Lithuania CAA, each Competent Authority intends to exchange with the other Competent Authority annually on an automatic basis the CbC report received from each reporting entity that is resident for tax purposes in its jurisdiction, provided that, based on the  information  in the CbC report, one or more constituent entities of the reporting entity’s MNE group are resident for tax purposes in the other Competent Authority’s jurisdiction, or are subject to tax with respect to the business carried out through a permanent establishment  in the other Competent Authority’s jurisdiction.

According to section 3 of the Lithuania CAA, CbC reports should first be  exchanged with respect to MNE group fiscal years commencing on or after January 1, 2016. These CbC reports should be exchanged as soon as possible and no later than 18 months after the last day of the group’s fiscal year to which the CbC report relates. CbC reports with respect to group fiscal years commencing on or after January 1, 2017, should be exchanged as soon as possible, and no later than 15 months after the last day of the group’s fiscal year to which the CbC report relates. The Competent Authorities intend to exchange the CbC reports automatically through a common schema in Extensible Markup Language (XML).

CbC Reporting CAA Negotiations

On August 29, 2017, the U.S. IRS updated its CbC reporting jurisdiction status table to include jurisdictions that are negotiating bilateral CAAs with the U.S. to exchange CbC information. The table also includes jurisdictions that have signed a CAA with the U.S. to exchange CbC reports.

As of September 13, 2017, the IRS is negotiating bilateral CAAs with the following jurisdictions:

  • Bermuda – CAA is based on tax information exchange agreement (TIEA).
  • Colombia – CAA is based on TIEA.
  • Czech Republic – CAA is based on income tax treaty.
  • Finland – CAA is based on income tax treaty.
  • France – CAA is based on income tax treaty.
  • Germany – CAA is based on income tax treaty.
  • Hungary – CAA is based on income tax treaty.
  • India – CAA is based on income tax treaty.
  • Israel – CAA is based on income tax treaty.
  • Italy – CAA is based on income tax treaty.
  • Jersey – CAA is based on TIEA.
  • Liechtenstein – CAA is based on TIEA.
  • Luxembourg – CAA is based on income tax treaty.
  • Mauritius – CAA is based on TIEA.
  • Mexico – CAA is based on TIEA and income tax treaty.
  • Poland – CAA is based on income tax treaty.
  • Portugal – CAA is based on income tax treaty.
  • Slovenia – CAA is based on income tax treaty.
  • Spain – CAA is based on income tax treaty.
  • Sweden – CAA is based on income tax treaty.

Background on U.S. CbC Reporting Regs

On June 29, 2016, the IRS and Treasury released the Final CbC Regulations (T.D. 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 at least $850 million.

On October 28, 2016, IRS Large Business & International (LB&I) Commissioner Douglas O’Donnell said at an ABA Tax Section panel event in Washington, D.C., that U.S. taxpayers should be consistent in their CbC reporting filings as IRS intends to analyze with foreign tax authorities information in U.S. and foreign CbC filings. Even slight differences in the CbC reporting filings could raise IRS scrutiny.

On November 15, 2016, Commissioner O’Donnell reiterated his October 28th comments at an AICPA National Tax Conference that the IRS intends to analyze CbC reporting filings with foreign tax authorities. The information would allow the IRS to determine which multinationals pose the largest audit threat.

On August 11, 2017, the IRS issued Bulletin 2017-2 on its acceptance of CbC report filings on IRS Form 8975 (Country by Country Report). Ultimate parent entities of U.S. MNE groups with $850 million or more of revenues in a previous annual reporting period can now file Form 8975 and attached Schedule A with their annual U.S. corporate income tax return.