IRS proposed regulations on country-by-country reporting – Implications for U.S. owned multinational enterprise groups

On December 21, 2015, the Internal Revenue Service (IRS) announced proposed country-by-country reporting rules (REG-109822-15), consistent with the rules recommended by the Organisation for Economic Co-operation and Development (OECD) in its final base erosion and profit shifting (BEPS) measures.

Under the proposed regulations, U.S. persons that are the ultimate parent entity of a multinational enterprise (MNE) group earning at least $850 million in annual consolidated group revenue for the preceding annual accounting period will be required to report to the IRS information including the amount of revenue, profit or loss, income tax paid, capital, accumulated earnings and employment for each tax jurisdiction in which one or more constituent entities of the MNE group is resident. The proposed regulations include a template for the required country-by-country reports. The reports are to be filed with the U.S. parent company’s federal tax return, including extensions. The IRS will exchange the reports with U.S. treaty partners under information exchange agreements.

Potential elective filing with IRS in 2016

The proposed rules would apply for the taxation year beginning on or after the rules are made final. As such, the rules are not expected to take effect before 2017. However, the U.S. Treasury is currently evaluating whether to allow certain U.S. MNE groups to file country-by-country reports with the IRS in 2016, given that several foreign jurisdictions, including France, Mexico and Australia, require country-by-country reports for the 2016 taxation year.

The IRS has invited comments from the public on all aspects of the proposed rules within 90 days of the December 23rd publication date.

Preparing your business

U.S. owned MNE groups should ensure the information technology and related reporting systems for all group constituents are capable of producing the necessary information in an appropriate form for the country-by-country reporting.

Canadian businesses operating internationally should be prepared for the introduction of similar country-by-country reporting requirements by tax administrations, as these may affect their current and future business operations and tax arrangements.

Currently, Canadian legislation does not require country-by-country reporting; however, Canada does follow the guidance provided by the OECD, and so a change is expected, pursuant to the recommended BEPS measures. Canadian tax authorities have not indicated whether and/or when this legislative change will take place.

How we can help

Richter can assist by:

  • Assessing the implications of the proposed country-by-country reporting requirements on your business, including accounting, tax and information systems considerations;
  • Identifying inconsistencies between current practices and proposed requirements and providing related recommendations;
  • Preparing required documentation and advising on international tax matters that may arise as a result of the new changes; and
  • Analyzing possible opportunities for tax and operational efficiencies related to the MNE’s global corporate organizational structure and operations.

For more information, contact one of our tax professionals today.

Expert Showcase