USA: Draft Country-by-Country Reporting (CbCR) forms

​Published on January 12, 2017

The Internal Revenue Service (IRS) released early drafts of Forms 8975 and 8975A on December 8, 2016 for public comment in advance of country-by-country (”CbC”) reporting requirements for certain U.S. multinational enterprise (”U.S. MNE”) groups beginning in 2017. The final regulations for CbC reporting, set forth in Treasury Regulation § 1.6038-4, were effective June 30, 2016. Note that draft forms released by the IRS are not considered final and will likely include changes before the release of final forms.

To align the United States with international efforts to combat base erosion and profit shifting (”BEPS”), § 1.6038-4 requires CbC reporting by certain United States persons that are the ultimate parent entity of a multinational enterprise group in IRS Tax Forms 8975 and 8975A (”Schedule A”). The CbC reporting requirements are based on the Organization for Economic Cooperation and Development (”OECD”)’s Action 13 Report "Transfer Pricing Documentation and Country-by-Country Reporting" designed to combat BEPS.

Overview of Reporting Requirements

The reporting requirements outlined in § 1.6038-4 apply to U.S. MNE groups with annual revenue for the preceding annual accounting period of $850.0 million or more. Forms 8975 and 8975A are required to be filed with the ultimate parent entity’s income tax return. The reporting period covered by Form 8975 is the period of the ultimate parent entity's applicable financial statement prepared for the 12-month period that ends with or within the ultimate parent entity's taxable year. The CbC reporting requirements apply for taxable years that begin on or after June 30, 2016. All financial amounts reported are required to be in U.S. dollars.

Form 8975 requires information about the ultimate U.S. parent entity and Schedule A requires information on each consitituent entity. The draft form of Schedule A states that a separate form must be completed for each tax jurisdiction of the U.S. MNE group.

The contents of Form 8975 and the accompanying Schedule A include the following:

1. Constituent entity information for each constituent entity of the U.S. MNE group:

• The complete legal name of the constituent entity;
• The tax jurisdiction, if any, in which the constituent entity is resident for tax purposes;
• The tax jurisdiction in which the constituent entity is organized or incorporated (if different from the tax jurisdiction of residence);
• The tax identification number, if any, used for the constituent entity by the tax administration of the constituent entity's tax jurisdiction of residence;
• The main business activity or activities of the constituent entity.

2. Tax jurisdiction of residence information:

• Revenues generated from transactions with other constituent entities;
• Revenues not generated from transactions with other constituent entities;
• Profit or loss before income tax;
• Total income tax paid on a cash basis to all tax jurisdictions, and any taxes withheld on payments received by the constituent entities;
• Total accrued tax expense recorded on taxable profits or losses, reflecting only operations in the relevant annual period and excluding deferred taxes or provisions for uncertain tax liabilities;
• Stated capital, except that the stated capital of a permanent establishment must be reported in the tax jurisdiction of residence of the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes;
• Total accumulated earnings, except that accumulated earnings of a permanent establishment must be reported by the legal entity of which it is a permanent establishment;
• Total number of employees on a full-time equivalent basis; and
• Net book value of tangible assets, which, for purposes of this section, does not include cash or cash equivalents, intangibles, or financial assets.

U.S. entities meeting the CbC reporting requirements should begin preparations in advance of the release of the final IRS forms to prepare for the filing of their fiscal 2016 tax returns. Rödl & Partner’s U.S. transfer pricing experts are available to assist clients in determining whether they meet CbC reporting requirements and if they are in compliance with U.S. transfer pricing rules.