US IRS issues draft instructions to Form 8975 relating to ‘early’ country-by-country reporting by multinationals

by JP Canavan

The US IRS on 23 February released draft instructions to Form 8975 and Schedules A (Form 8975), applicable to US-parented multinational groups that are required to file annual country-by-country reports disclosing the tax affairs of the group.

The country-by-country reporting requirements, established under 2015 OECD/G20 base erosion profit shifting (BEPS) agreements, apply to MNEs with annualised consolidated revenue in the previous reporting period of $850 million or more.

Form 8975 and Schedules A (Form 8975) should be filed with the US ultimate parent entity’s tax return for the period following the end of the country-by-country reporting period.

IRS Form 8975 requirements

A separate Schedule A (Form 8975) is required for each tax jurisdiction the MNE has a resident constituent entity in.

Where a constituent entity is regarded as ‘stateless’ this fact must be disclosed in the relevant Schedule A form, along with a description of the business activity carried on by the entity.

Furthermore, where a stateless entity is owned by a group constituent entity, a proportionate share of the stateless entity’s’ revenue and profits should be aggregated and reported in the owner’s Form 8975, in line with its ownership stake.

The draft instructions provide an example where a US MNE group has a number of stateless partnerships within its group structure.

Early country-by-country reporting

The US country-by-country reporting requirements apply to reporting periods beginning on or after 30 June 2016.

The draft instructions specifically deal with the scenario where a US-parented MNE wishes to file a country-by-country report in the US for a reporting period commencing prior to the US required reporting period, characterised as ‘early’ country-by-country reporting.

This will be the case for a number of MNEs with reporting periods beginning prior to 30 June 2016, but on or after 1 January 2016.

Under Action 13 of the BEPS project, participating jurisdictions agreed to implement country-by-country reporting regimes in respect of fiscal periods commencing on or after 1 January 2016. This mismatch has led to a number of jurisdictions having to accommodate voluntary filing procedures for ultimate parent entities resident in their tax jurisdiction, the US being one of the most notable.

US Qualified Competent Authority Agreements

Where a US ultimate parent entity group wishes to file an early country-by-country report with the IRS, it will be critical that the IRS has successfully negotiated and finalised the legal instruments necessary for the exchange of country-by-country reports with the relevant foreign jurisdictions.

Currently, the IRS is in the process of making arrangements to effect approximately 90 Qualifying Competent Authority Agreements that allow for the automatic exchange of taxpayer information between tax authorities.

Without these agreements in place, under BEPS Action 13 guidance a secondary reporting obligation would be triggered, requiring a constituent entity of the MNE group to file the country-by-country report in another jurisdiction because the tax jurisdiction of the ultimate parent entity (i.e., the US) cannot exchange the country-by-country report with the foreign jurisdiction.

It will be essential, therefore, that the IRS finalise the appropriate arrangements for the timely entrance of Qualified Competent Authority Agreements to alleviate secondary reporting obligations on US-parented MNEs that seek early US country-by-country filings.

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JP Canavan

JP advises on international direct tax matters. He has particular experience with pre-sale restructuring, international corporate structuring, intellectual property planning, transfer pricing, foreign direct investment proposals, tax treaties, and withholding taxes.

His experience includes work in various sectors, such as FinTech, renewable energy, media, e-commerce, technology, and pharma industries. He has significant experience in import/export and acquisition/dispatch of goods, statistical reporting, customs procedures and e-commerce services.

JP previously specialised in Irish and EU VAT within a Big Four practice, working with a wide range of clients in various industries.

JP Canavan

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