The US Treasury and IRS are working toward allowing optional country-by-country (CbC) reporting for 2016 to address the "gap year" issue, but more engagement by multinational companies (MNCs) is needed — according to comments by a senior Treasury official, as reported by Tax Analysts (2016 TNT 83-9).

Background

The OECD's final report on Action 13 (Transfer Pricing Documentation and Country-by- Reporting) of the Base Erosion and Profit Shifting (BEPS) project recommended implementing required CbC reporting for MNCs with more than €750 million in global revenue for years beginning on or after January 1, 2016. Such reporting with respect to the MNC group would generally be required in the ultimate parent's country of residence. If the country of residence of the ultimate parent does not require CbC reporting, however, countries in which subsidiaries of the MNC operate may impose a "secondary reporting" requirement that could result in local filing in that foreign jurisdiction or designating a surrogate foreign entity to file on behalf of the MNC.

The US Treasury and IRS issued proposed regulations on CbC reporting on December 21, 2015 (see Tax Alert 2015-2442). The regulations are generally proposed to apply to tax years beginning on or after publication of final regulations. Accordingly, for calendar-year filers, assuming final regulations are issued in 2016, the regulations would generally apply for the year beginning January 1, 2017.

Because some countries have implemented CbC reporting for years beginning January 1, 2016, there is a "gap year" for US multinationals. In this gap year, US multinationals (not yet subject to required US CbC reporting) may find their subsidiaries subject to secondary reporting requirements.

Treasury comments

Speaking at an April 28 transfer pricing symposium held by the University of San Diego School of Law, Robert Stack, US Treasury Deputy Assistant Secretary (International Tax Affairs) addressed the "gap-year" issue arising from the implementation of CbC reporting in some jurisdictions for tax years beginning on or after January 1, 2016, before US rules have taken effect. In this context, he stated that the Treasury and IRS are working towards a solution that would allow optional CbC reporting for 2016. Stack noted, however, that more work would be needed to ensure that allowing optional filing for 2016 in the US would be effective in obviating the need for local filing. With that in mind, Stack encouraged US MNCs to engage in the global debate to ensure optional CbC reporting will be enough to protect US MNCs from becoming subject to secondary reporting requirements.

Implications

Without a CbC filing requirement in the US for 2016, many US headquartered companies are concerned that they will need to undertake secondary reporting for 2016, such as the requirement to file in jurisdictions where subsidiaries are located. Such requirements could impose administrative burdens as well as additional compliance costs. In addition, there is a risk that information that is required to be filed locally may not be subject to the confidentiality safeguards that would exist when the information is exchanged by the US with another country under a tax treaty or tax information exchange agreement. Optional CbC filing for 2016 in the US could alleviate those concerns assuming, of course, that other countries that have implemented CbC reporting requirements are willing to accept them as good filings for 2016.

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