January 23, 2017 IRS issues guidance on Country-by-Country Reports for early reporting periods In Revenue Procedure 2017-23 (the "Revenue Procedure"), the IRS issued guidance for the process for voluntarily filing Form 8975, Country-by-Country Report, and Schedule A, Tax Jurisdiction and Constituent Entity Information (CbC report), for reporting periods beginning on or after January 1, 2016, but before the applicability date in Reg. Section 1.6038-4 (early reporting periods). The draft CbC report and accompanying draft Schedule A were posted on the IRS website on 8 December 2016. Under Reg. Section 1.6038-4 (the CbC regulations), ultimate parent entities (UPEs) of certain US multinational enterprise (MNE) groups are required to file CbC reports for reporting periods that begin on or after the first day of the taxable year of the UPE that begins on or after June 30, 2016. This differs from the Organization for Economic Co-operation and Development (OECD) recommendation that CbC reporting applies to fiscal years beginning on or after January 1, 2016. This difference creates the potential for constituent entities of US MNE groups with taxable years beginning January 1, 2016 through June 30, 2016 to be subject to secondary CbC reporting requirements in some foreign jurisdictions. To address this issue, in the preamble to the CbC regulations, the IRS and US Treasury announced their intention to allow voluntary filing of CbC Reports for early reporting periods. The Revenue Procedure provides guidance on the process for such filings. According to the Revenue Procedure, beginning on September 1, 2017, Form 8975 may be filed for an early reporting period with the income tax return or other return as provided in the Instructions to Form 8975 for the taxable year of the ultimate parent entity of the U.S. MNE group with or within which the early reporting period ends. A UPE that files an income tax return for a taxable year that includes an early reporting period without a Form 8975 attached must file an amended income tax return and attach Form 8975 to the amended return within twelve months of the close of the taxable year that includes the early reporting period. Filing an amended income tax return solely to attach Form 8975 will have no effect on the statute of limitations for the income tax return. US UPEs are encouraged to file Forms 8975 electronically through the IRS Modernized e-File system in Extensible Markup Language (XML) format, and not as a binary attachment (such as a PDF file). The IRS intends to provide specific electronic filing information on Form 8975 to the software industry in early 2017 so that developers will be able to make Form 8975 available in their software ahead of the September 1, 2017, implementation date. A paper version of Form 8975 will also be available before September 1, 2017, for UPEs that are not eligible to file their income tax returns through the Modernized e-File system. Implications The Revenue Procedure follows on from the CbC regulations finalized in June 2016, whereby the IRS committed to allow US MNE groups to voluntarily file CbC reports in the United States for the so called "gap" year period before the applicability date of the regulations. This latest release by the IRS provides instructions on how to comply with such voluntary filing and will be welcomed by many US MNE groups that have determined to undertake voluntary filing rather than be subject to secondary reporting requirements in certain foreign jurisdictions. The final CbC regulations also indicated that the US is committed to entering into bi-lateral 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 is expected that the US is moving to enter those bilateral arrangements in order to facilitate the exchange of the CbC reports. ———————————————
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