IRS provides guidance on early adoption of CbC reporting

The IRS issued final regulations (TD 9773) on June 29, 2016, that will require U.S. multinationals with more than $850 million in revenue to report specific information on a country-by-country (CbC) basis. The final regulations generally apply beginning with a U.S. multinationals’ tax year that begins on or after June 30, 2016.

This raised concerns for many taxpayers because the Organisation for Economic Co-operation and Development set standards recommending that jurisdictions implement requirements starting in 2016, and for most taxpayers, the final regulations would not be effective until 2017. Because legislation in many jurisdictions includes secondary mechanisms that require local reporting if the parent entity’s jurisdiction doesn’t require CbC reporting, this created the so-called gap year. Without a voluntary submission alternative, many U.S. multinationals would be forced to comply with CbC requirements at various local levels (or by selecting a “surrogate parent”) during this gap year.

To address this concern, the IRS released Rev. Proc. 2017-23, which describes the process for voluntarily filing Form 8975, Country-by-Country Report, and accompanying Schedules A, Tax Jurisdiction and Constituent Entity Information, by ultimate parent entities of U.S. multinationals for reporting periods beginning on or after Jan. 1, 2016, but before the applicability date of Treas. Reg. Sec. 1.6038-4 (i.e., the gap year).

Beginning on Sept. 1, 2017, Form 8975 may be voluntarily filed for a period occurring before the applicability date of Treas. Reg. Sec. 1.6038-4. Form 8975 should be attached to the income tax return or other return as provided in the instructions to Form 8975 for the taxable year of the ultimate parent entity of the U.S. multinational with or within which the gap year ends. If a return has already been filed for such a period, the taxpayer may file an amended income tax return and attach Form 8975 within 12 months of the close of the taxable year that includes the gap year. Filing an amended income tax return solely to attach Form 8975 in accordance with Rev. Proc. 2017-23 will have no effect on the statute of limitations for the income tax return.

An ultimate parent entity that files its return electronically must file Form 8975 through the IRS Modernized e-File system in XML format, not as a binary attachment (e.g., PDF file). In the Rev. Proc., the IRS also encouraged all other taxpayers to file their returns and the Forms 8975 electronically to ensure timely automatic exchange of the country-by country reporting information.

Contact David Sites
Partner, Washington National Tax Office
+1 202 861 4104

Cory Perry
Experienced Manager, Washington National Tax Office
+1 202 521 1509

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