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published on 6 August 2018
As part of Action 13 of the Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting Action Plan, the IRS implemented Country-by-Country (CbC) reporting requirements for certain U.S. business entities that are the ultimate parent entity of a U.S. Multinational Enterprise (MNE) group. The ultimate U.S. parent entity of MNE groups with annual revenue for the preceding annual accounting period of 850 million US-Dollar or more is required to comply with the CbC reporting requirements for fiscal years beginning on or after June 30, 2016.
On May 18, 2018, the IRS issued a bulletin with updated content for CbC reporting. The bulletin covered the following topics:
The IRS continually updates a Frequently Asked Questions (FAQ) site to assist taxpayers with the new CbC reporting requirements. Topics covered include general questions, data format and structure, the exchange of information, and reporting requirements.
CbC reporting data collected by the IRS will be automatically shared with foreign tax authorities under Competent Authority Arrangements (CAAs) for the exchange of CbC reports. The IRS maintains a Jurisdiction Status Table to update taxpayers on countries where CAAs have been signed or are currently in negotiations. Without a CAA in place, a U.S. MNE may be responsible for filing CbC reports in foreign tax jurisdictions.
Form 8975, the IRS tax form used for CbC reporting, includes Schedule A, which is a report for each tax jurisdiction in which the MNE has an entity. Reporting requirements on Schedule A include financial results in the tax jurisdiction, total number of employees, and constituent entity information, including the main business activities of each entity.
Instructions to Form 8975 state that a taxpayer must attach at least two Schedules A (Form 8975) to Form 8975 for each tax jurisdiction in which the MNE group operates, and a Schedule A (Form 8975) to report ”stateless” entities and information, if any. At least one Schedule A should be for the United States.
”Stateless” entities include U.S. LLCs that do not elect to be treated as corporations for federal income tax purposes. Their financial and employee information should be provided on a Schedule A (Form 8975) for stateless entities.
Taxpayers who do not correctly file either a U.S. or stateless Schedule A (Form 8975) will have to file an amended return.
Paper returns are accepted; however, in order to ensure the timely automatic exchange of the CbC reports, U.S. ultimate parent entities are encouraged to file their returns electronically. If a U.S. MNE files Form 8975 and Schedule A (Form 8975) on paper, the MNE should mail a copy of only page 1 of Form 8975 to the IRS field office in Ogden, Utah, to notify the IRS that Form 8975 and Schedules A (Form 8975) have been filed with a paper return. If a U.S. MNE files Form 8975 and Schedules A (Form 8975) electronically, the filer should not mail a copy of page 1 of Form 8975 to the Ogden, Utah mailbox.
If a U.S. MNE needs to amend a previously filed Form 8975 and Schedules A (Form 8975), the taxpayer must file an amended Form 8975 and all Schedules A (Form 8975), including any that have not been amended, with an amended tax return. The taxpayer should use the amended return instructions for the return with which Form 8975 and Schedules A was originally filed and check the amended report checkbox at the top of Form 8975.
The IRS also requires that the amended return (with the amended Form 8975 and all Schedules A) must be filed using the same method (electronically or by paper) as the original submission.
U.S. entities subject to the country-by-country reporting requirements should be aware of their compliance burden outlined under the U.S. CbCR regime. Rödl & Partner's U.S. transfer pricing experts are available to assist clients in determining whether they meet the U.S. CbC reporting requirements and if they are generally in compliance with the U.S. transfer pricing rules.
Brad Pittman
Partner
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