On October 27, 2017, a U.S. Internal Revenue Service (IRS) Large Business and International (LB&I) official, Theodore Setzer (Assistant Deputy Commissioner – International), said during an ABA Tax Section conference in Washington, D.C. that the IRS may not be able to sign some bilateral competent authority agreements (CAAs) in 2017 with its treaty partners on the exchange of country-by-country (CbC) reports. However, the IRS LB&I division continues to make negotiating and concluding CbC CAAs its top priority.
Mr. Setzer said that the IRS is prioritizing concluding CAAs with jurisdictions that have a local CbC reporting filing requirement for tax year 2016. For these CAAs, although the IRS cannot say with certainty where things will stand at the end of the 2017 calendar year, dialogue with these jurisdictions remains active, and the IRS is continuing to make progress.
Mr. Setzer did not identify any treaty partners with which the IRS may not be able to sign the CAAs in 2017. As of November 6, 2017, the IRS is negotiating CAAs on the exchange of CbC reports with the following jurisdictions:
- Bermuda
- France
- Germany
- Hungary
- India
- Israel
- Jersey
- Liechtenstein
- Mauritius
- Poland
- Slovenia
- Spain
Editor’s Note: U.S.-parented multinational (MNE) groups that intend to file their CbC report with the IRS for the 2016 tax period should check whether any of the Constituent Entities listed in their CbC report are located in any of the jurisdictions listed above (or in one that the IRS has not included on its CbC reporting jurisdiction status table), to determine whether a CbC report may need to be filed in the jurisdiction(s) by a Surrogate Parent Entity or by a local Constituent Entity resident in the jurisdiction(s).
Background on Surrogate Filings
In general, if surrogate CbC report filing is available, there should not be any local filing obligations for the particular MNE group in any jurisdiction that otherwise would require local filing in which the MNE has a Constituent Entity, subject to all the following conditions:
- The ultimate parent entity has made available a CbC report, conforming to the requirements of BEPS Action 13, to the tax authority of its jurisdiction of tax residence by the filing deadline (i.e., 12 months after the last day of the reporting fiscal year of the MNE Group).
- By the first filing deadline of the CbC report, the jurisdiction of tax residence of the ultimate parent entity must have laws in place requiring CbC reporting (even if filing of a CbC report for the reporting fiscal year in question is not required under those laws).
- By the first filing deadline of the CbC report, a Qualifying Competent Authority Agreement (QCAA) must be in effect between the jurisdiction of tax residence of the ultimate parent entity and the Constituent Entity’s jurisdiction.
- The ultimate parent entity’s jurisdiction of tax residence has not notified the local jurisdiction’s tax administration of a systemic failure.
- The required notifications have been provided.
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 LB&I Commissioner Douglas O’Donnell said that U.S. taxpayers should be consistent in their CbC reporting filings as the IRS intends to coordinate with foreign tax authorities regarding information in U.S. and foreign CbC filings. Even slight differences could raise scrutiny.
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.
All of the information exchange agreements to which the U.S. is a party require the information exchanged to be treated as confidential by both parties. Under the contemplated CAAs for the exchange of CbC reports, the Competent Authorities of the U.S. and other tax jurisdictions intend to further limit the permissible uses of exchanged CbC reports to assess high-level transfer pricing and other tax risks and, when appropriate, for economic and statistical analysis.
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