Recently issued Revenue Procedure 2017-23 addresses the process for voluntarily filing a Form 8975, Country-by-Country Report (CbC report), for early reporting periods. As a reminder, according to the final CbC regulations released in June 2016 (see Tax Alert 2016-1166), the US CbC filing requirement applies to reporting periods of ultimate parent entities of US MNE groups that begin on or after the first day of the tax year of the ultimate parent entity that begins on or after June 30, 2016. Because a number of countries have implemented CbC reporting for fiscal periods beginning on or after January 1, 2016 (in line with the recommendation of the Final BEPS Report) and have also chosen to introduce certain secondary reporting obligations, however, it is expected that many US MNE groups would voluntarily file a CbC report with the IRS for reporting periods beginning as early as January 1, 2016 to avoid having to file a CbC report with one or more foreign jurisdictions. Revenue Procedure 2017-23 provides guidance for filing CbC reports for such early reporting period.

US-headquartered law firms may have constituent entities in jurisdictions that have adopted CbC reporting for fiscal years beginning on or after January 1, 2016. These jurisdictions, which include Canada, China, France, Ireland, the Netherlands and the United Kingdom, have secondary CbC reporting requirements that would require local filing of CbC reports for US headquartered law firms for the 2016 reporting period, unless such a law firm voluntarily files a CbC report with the IRS that covers an early reporting period (i.e., reporting periods beginning on or after January 1, 2016). Law firms that choose to file a CbC report for an early reporting period will be able to file Form 8975 with their tax returns (or other return as provided in the Instructions to the From 8975) on or after September 1, 2017.

The final CbC regulations indicated that the United States is committed to entering into bilateral competent authority arrangements for the automatic exchange of CbC reports with jurisdictions with which the US has an income tax treaty or tax information exchange agreement, and it that the US is expected to move forward and enter those bilateral arrangements to facilitate the exchange of the CbC reports. To the extent a law firm operates in a foreign jurisdiction that has implemented CbC reporting, and has a treaty or TIEA with the United States but no bilateral arrangements to facilitate the exchange of the CbC reports have been agreed to, however, the law firm should consider whether any secondary filing might be required as there may be no mechanism in place for the US to exchange the CbC report with that country. As such, it will be important to monitor future developments in this area.

For more on Revenue Procedure 2017-23, see Tax Alert 2017-143.

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