How US country-by-country reporting came to be

The Organisation for Economic Co-operation and Development (OECD) issued a form of consensus guidance in February 2015, calling for country-by-country (CbC) reporting, which countries have been free to adopt under their local laws. The U.S. responded by issuing its own proposed regulations on Dec. 15, 2015. Those are expected to be finalized by June 30, according to the Treasury Department.

The guidance stems from the OECD’s initiative on base erosion and profit shifting, a 15-point action plan meant to curb tax strategies that shift profits to low- or no-tax locations. The OECD targeted 2016 as the first year for CbC reporting, yet the United States delayed the effective date. Reporting generally would apply to U.S. multinational entities (MNEs) for tax years beginning in 2017. Even if a U.S. MNE parent company isn’t required to report in 2016 in the United States, its foreign subsidiaries may be required to report 2016 information in local jurisdictions under secondary mechanisms. This had led to concern and made some taxpayers wonder: If the United States does not require reporting information in 2016, but a non-U.S. tax authority does require it and posts it, isn’t the cat out of the bag?
The Treasury Department’s Deputy Assistant Secretary for International Affairs Robert Stack addressed some of these concerns during a transfer pricing conference on April 28 at the University of San Diego Law School. Stack said Treasury wants to “move toward permitting voluntary submissions for the 2016 year,” with the caveat that “there’s no victory in accepting voluntary filings if the other countries that are partners in the [CbC] plan are not going to accept them as good filings and therefore obviate the need for local filings.” Stack said the United States is making efforts to ensure foreign jurisdictions accept voluntary 2016 reports from U.S. MNEs. Among other comments, he said, “the gap year problem is real, and we feel we have a responsibility to solve it.” He hopes to know more in the coming weeks.

For a plunge into CbC reporting and its impact, see Massaging the knots of country-by-country reporting and Preparing for the new world of tax transparency.

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