The US IRS today issued final regulations requiring large US parented mulitnational corporations to file annual country-by-country (CbC) reports consistent with OECD/G20 base erosion profit shifting (BEPS) project guidance, though taxpayers that wish to file voluntary reports for the 2016 tax year with the IRS will still need to wait for further IRS guidance.
The regulations, which finalize proposed regs issued in December 2015, confirm that the IRS will accept and exchange CbC reports that are voluntarily filed by US MNEs for taxable years beginning on or after January 1, 2016, but before the effective date of the final regulations.
The IRS is still working with other nations to ensure that constituent entities of US MNEs will not be required to file a report with foreign jurisdictions even if there is voluntary filing through the US, though. The procedure will be outlined in forthcoming guidance, the Service said.
Separately, the OECD today released guidance sanctioning such “surrogate filing” of CbC reports, providing that if specified requirements are met, countries should not require additional local filing by constituent entities.
The final regs did not adopt commentator’s requests to allow filing of CbC reports 12 months from the end of the ultimate parent entity’s taxable year or annual accounting period, as suggested in the final OECD report. Commentators argued such a change was needed to facilitate the taxpayer’s ability to use statutory accounts or tax records of constituent entities to complete the CbC report.
Instead, existing rules are retained that require the CbC report to be filed with the ultimate parent entity’s income tax return for the taxable year by the filing due date (including extensions).
After consulting with the US department of defense, the IRS decided to not provide a national security exception to CbC reporting.
The final US regulations provide further clarifications regarding the definition of “constituent entity.” Though the language on variable interest entities was not changed, the definition of permanent establishment is modified to provide greater clarity and consistency with the final BEPS report, the Service said.
The regulations also clarify language in the proposed regulations concerning when a business entity is considered resident in a tax jurisdiction. The proposed regs were not intended to exclude the possibility of a country with a purely territorial tax regime from being at tax jurisdiction of residence, the IRS said. Rather, the intent was to say that a business entity will not have a tax jurisdiction of residence merely by virtue of being liable to tax in the jurisdiction on fixed determinable, annual, or periodical income from sources or capital in the jurisdiction, the Service said.
The final regs also explicitly exclude grantor trusts with only individual owners, decedents’ estates, and individuals’ bankruptcy estates from the definition of business entity.
The final regulations expressly provide that foreign insurance companies that elect to be treated as domestic corporations under section 953(d) are US business entities that have their tax jurisdiction of residence in the United States.
Clarifications are also provided regarding reporting with respect to partnerships and stateless entities.
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