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Final IRS Regulations on Country-by-Country Reporting Are in Line with the OECD's BEPS Plan

Internal Revenue Service|International|Tax

By Michael Leopold

The Internal Revenue Service (IRS) recently finalized (TD 9773) proposed regulations on the Country-by-Country (CbC) reporting of financial information for large international businesses. This brings U.S. tax reporting in line with Action 13 of the Organization for Economic Cooperation and Development’s (OECD) Base Erosion Profit-Shifting (BEPS) plan. With global trade becoming more interconnected and U.S. businesses operating in multiple countries, there has been a concentrated push by international taxing authorities to have a more transparent picture of where businesses operate and how much is earned in each location. The goal is to better ensure that a multinational enterprise (MNE) properly reports revenues and pays taxes where they are earned and not look to aggressively shift them to jurisdictions with lower tax rates. A new IRS Form 8975 (currently released in draft form) will be required for filing in fiscal years beginning on or after June 30, 2016 (so for a calendar-year business that starts on January 1, the current 2017 fiscal year will be the first one requiring this form).

On a global scale, in 2015 the OECD proposed a series of 15 Articles dealing with international taxation under their BEPS plan. Member countries around the world have started to review and implement the various Actions. Action 13, “Transfer Pricing Documentation and Country-by-Country Reporting,” set guidelines for how MNEs with global revenues over $750 million Euros (approx. $835 million USD) should report their earnings (for a more in-depth review of Action 13, please refer our 2016 summer/fall OnPoint Magazine article). A number of foreign countries have set compliance effective from January 1, 2016.

The new IRS regulations will affect U.S.-based head corporations with fiscal years from 6/30/2016 and onwards. There is also a voluntary reporting period from 1/1/16 – 6/30/2016 to cover dates that may be required by other nations and their CbC rules. According the IRS, “The tofinal regulations affect United States persons that are the ultimate parent entity of a multinational enterprise group that has annual revenue for the preceding annual accounting period of $850,000,000 or more.” From feedback and review of the proposed regulations, the finalized ones closely follow the OECD’s suggestions. The new Form 8975 will be due along with an entity’s regular tax return. These rules are in effect for corporations. There are different rules for partnerships and MNEs with headquarters based in another country.

Form 8975 details a business’ business activities in each country in which it operates. For each country, an MNE will need to report:

  • Revenue, both from related and outside parties

  • Profits and losses before tax

  • Income taxes paid and income taxes withheld

  • Total accumulated earnings

  • Total number of employees

  • New book value of tangible assets

So, what does this mean for you? The IRS has stated that as of September 1, 2017, Form 8975 may be filed for early reporting periods. If your business meets the above thresholds, it is time to review both the requirements and your information collection systems now so that you will be in compliance with the upcoming rules, rather than waiting for a later date.

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