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Spotlight

The US government issued eagerly anticipated final regulations (TD 9773) on country-by-country (CbC) reporting on 29 June. The final regulations apply to reporting periods of ultimate parent entities of US multinational enterprise (MNE) groups that begin on or after the first day of a tax year of the ultimate parent entity that begins on or after 30 June 2016.

The final regulations make note of so-called voluntary filing. According to the preamble, Treasury and the IRS intend to allow ultimate parent entities of US MNE groups to file CbC reports for reporting periods that begin on or after 1 January 2016, but before the applicability date of the final regulations, under a procedure to be provided in separate, forthcoming guidance. In addition, the preamble states that Treasury is working to ensure that foreign jurisdictions implementing CbC reporting requirements will not require constituent entities of US MNE groups to file a CbC report with the foreign jurisdiction if the US MNE group files a CbC report with the IRS under this yet-to-be released procedure and the CbC report is exchanged with that foreign jurisdiction under a competent authority arrangement. An ITS Alert provides more information; a more detailed ITS Alert on the US CbC reporting regulations is forthcoming. (The OECD issued additional CbC guidance on the same day, discussed below.)

House Ways and Means Committee Republicans on 28 June wrote to Treasury Secretary Jacob Lew to express "grave concerns" over the potential impact of proposed Section 385 debt-equity regulations and to request that the public comment period be extended until at least 5 October, from the current 7 July deadline. The lawmakers expressed concern about the broad applicability of the regulations to a wide array of ordinary business transactions, "creating unacceptably high levels of uncertainty and adverse collateral consequences for non-tax motivated business activity."

The letter also said Treasury should, at a minimum, "withdraw any provisions currently included within the proposed regulations that would significantly impact capital structuring and ordinary business transactions/operations." The letter was signed by House Ways and Means Committee Chairman Kevin Brady (R-TX), Tax Policy Subcommittee Chairman Charles Boustany (R-LA), and every Republican Member of the Ways and Means Committee.

The Administration's response was immediate: A Treasury spokesperson issued the following statement to the press: "Treasury will follow the normal 90-day comment period on the proposed earnings stripping regulations, and we will carefully consider all comments before finalizing the rules as swiftly as possible." A hearing on the proposed Section 385 regulations is scheduled for 14 July.

Finally, the Congressional Joint Committee on Taxation (JCT) will hold a member briefing and discussion of issues related to the Section 385 proposed regulations on 6 July. The briefing, announced by Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways and Means Committee Chairman Kevin Brady (R-TX) as well as the JCT Chairman and Vice Chairman, is closed to the public. Mark Mazur, Assistant Secretary of the Treasury for Tax Policy, and Robert Stack, Deputy Assistant Secretary for International Tax Affairs, will be present at the briefing.

House Ways and Means Committee Chairman Kevin Brady (R-TX) this week confirmed that the House tax reform blueprint released last week should be viewed as a work in progress that will be dynamically scored once more details are developed over the coming months. Democrats in Congress have already come out in opposition to the blueprint.Ways and Means Committee Ranking Member Sander Levin (D-MI) released a statement saying that while the blueprint lacks specificity, "the general direction is clear: huge, unpaid for tax cuts mostly directed to the wealthy."

And, the OECD on 29 June released additional guidance to assist with the consistent global implementation of country-by-country (CbC) reporting under Action 13 of the BEPS Action Plan. The guidance addresses four topics:

— Transitional filing options for MNEs that voluntarily file in the Parent jurisdiction;
— Guidance on the application of CbC reporting to investment funds;
— Guidance on the application of CbC reporting to partnerships; and
— The impact of exchange rate fluctuations on the agreed €750 million filing threshold for MNE groups.

In regard to transitional filing, the OECD explains that if a jurisdiction is unable to implement CbC reporting with respect to the fiscal period commencing on or from 1 January 2016, the jurisdiction may put forward voluntary filing for the ultimate parent entities resident in their jurisdiction. This alternative would be referred to as "parent surrogate filing." The guidance notes that Japan, Switzerland and the United States have confirmed that they will have parent surrogate filing. The OECD guidance recommends that where surrogate filing (including parent surrogate filing) is available, and certain conditions are met, no local filing obligation would be required.