Countries across the globe banded together a few years ago to put in place a mechanism for tracking the income of multinational companies in each country in which they operate. The effort came under the umbrella of the very bureaucratic sounding initiative, the Organisation of Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Action 13. Under the plan, large multinational enterprises must file a report with information about their all of their worldwide business activities, deemed “Country-by-Country (CbC) Reporting.” The tax authorities in OECD member countries will share this information with other members under Competent Authority Arrangements. This global information exchange is intended to provide tax administrators with companies’ financial data for assessment of transfer pricing and other profit-shifting and for economic and statistical analysis, according to the IRS.
IRS Tools for U.S. CbC Reporting
As part of the United States’ CbC Reporting, U.S. parent entities of multinational enterprise groups with $850 million or more of revenue must file Form 8975 and Schedule A (Form 8975) with their annual income tax return. Reporting begins in 2017 for most taxpayers. To facilitate this reporting, the IRS has launched a new CbC Reporting website with important information for affected entities. The website provides an up-to-date Country-by-Country Reporting Jurisdiction Status Table that lists the countries with which the U.S. has signed information exchange agreements. In addition, the CbC Reporting pages also provide:
- A list of CbC Reporting frequently asked questions (FAQs) and a link that allows for the submission of comments and questions to the IRS CbC Reporting Mailbox (email@example.com).
- A link to sign up for the CbC Reporting Newsletter, which will be sent out periodically with CbC Reporting-related updates.
Exchanged Information Confidential
The OECD Action 13 plan requires that exchanged information be kept confidential and that each country have safeguards in place to prevent unauthorized disclosure. The IRS has included in its CbC Reporting website instructions for taxpayers to Report Unauthorized Use for suspected unauthorized disclosure or misuse of information exchanged under an international agreement. The IRS also has promised to suspend information exchanges with any tax jurisdiction that is not in compliance with the confidentiality requirements and use restrictions required under the information exchange agreements.
Country-by-country reporting affects not only multinational corporations but also other multinational entities, such as LLCs and large partnerships. It also is important to realize that not only the IRS, but other tax authorities around the world will be reviewing your CbC information returns, so careful preparation is a must.
Failure to file the required forms carries stiff penalties, starting at $10,000, and the timing of the new reports are subject to complex transition rules over the next two years. Thus, it is important to clarify when your company must begin filing. While the IRS webpages give good basic information on the new filing requirements, it is important to consult your Frazier & Deeter tax advisor to do a careful analysis of your filing mandate.
The OECD, in its own words
The OECD’s origins date back to 1960, when 18 European countries plus the United States and Canada joined forces to create an organisation dedicated to economic development.
Today, our 35 Member countries span the globe, from North and South America to Europe and Asia-Pacific. They include many of the world’s most advanced countries but also emerging countries like Mexico, Chile and Turkey.
We also work closely with emerging economies like the People’s Republic of China, India and Brazil and developing economies in Africa, Asia, Latin America and the Caribbean. Together, our goal continues to be to build a stronger, cleaner and fairer world.