Country-by-country reporting | law of the free man

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In recent years, tax authorities around the world have adopted a number of OECD-led initiatives aimed at limiting the ability of Multi-national companies to engage in what is known as base erosion and profit shifting (BEPS) (i.e. the artificial shifting of profits, for tax purposes, to jurisdictions with low tax or no tax). The OECD has won considerable buy-in from tax authorities, touting the need to update international tax rules, which have (it says) largely failed to keep up with the twin phenomena of globalization and increasingly digital economies. Country-by-country (CbC) reporting has played a key role in its efforts.

US Treasury regulations require US multinational enterprises (MNEs) to provide country-by-country (CbC) reports. The CbC Annual Report on Form 8975 broadly implements OECD country-by-country reporting requirements aimed at combating base erosion and profit shifting.

On June 30, 2016, the Department of Treasury and the Internal Revenue Service (IRS) issued final regulations (CbC Reporting Rules) that require certain U.S. business entities that are the ultimate parent entity of a business group American multinationals file Form 8975 every year. with the taxman. See §1.6038-4.

Country-by-country reporting is part of Action 13 of the OECD Action Plan on Base Erosion and Profit Shifting (BEPS), an effort to promote tax transparency, by particularly with regard to transfer pricing.

Under the CbC structure, multinational enterprise groups (MNEs) must provide annual CbC reports. A competent authority exchanges these country-by-country reports with a reporting entity in its jurisdiction, as long as that jurisdiction is party to a legal instrument allowing the automatic exchange of information (for example, the double taxation agreement (DTC) or the Tax Information Exchange Agreement (TIEA) ) and has a Competent Authority Agreement (CAA) for the exchange of country-by-country reports.

Who is required to file CbC reports?

The ultimate parent entity of a U.S. multinational enterprise group with revenues of $850 million or more during the relevant preceding annual reporting period is required to file Form 8975 and attachments A (i.e. the “CbC report”) with his annual tax return.

The ultimate parent entity of a U.S. multinational enterprise group is a U.S. business entity that:

  1. Directly or indirectly owns a sufficient interest in one or more other business entities, at least one of which is organized or tax resident in a tax jurisdiction other than the United States, such that the U.S. business entity is required to consolidate the accounts of other business entities that have their own accounts under US GAAP (or would if they were publicly traded); and
  2. Is not directly or indirectly owned by another business entity that consolidates that U.S. business entity’s accounts with its own GAAP accounts in the other business entity’s tax jurisdiction of residence (or would be if it were listed on the stock exchange in his tax jurisdiction of residence).

What is an American multinational company?

A U.S. multinational enterprise group includes the ultimate parent entity of a U.S. multinational enterprise group and all business entities required to consolidate their accounts with the accounts of the ultimate parent entity under U.S. GAAP ( or which would be if they were listed on a stock exchange), regardless of the fact that these business entities could be excluded from consolidation solely for reasons of size or materiality.

What is a “constituent entity”? With respect to a U.S. multinational enterprise group, a constituent entity is any business entity separate from the U.S. multinational enterprise group, but does not include a foreign corporation or foreign partnership for which it is not otherwise required to provide information under section 6038(a) (determined without with respect to sections 1.6038-2(j) and 1.6038-3(c)) of the Regulations or any a permanent establishment of the foreign corporation or foreign partnership.

For these purposes, the term “permanent establishment” (PE) includes:

  • A branch or business establishment of a Constituent Entity in a tax jurisdiction that is treated as a permanent establishment under a tax treaty to which that tax jurisdiction is a party,
  • A branch or business establishment of a Constituent Entity which is subject to tax in the tax jurisdiction in which it is located under the domestic law of that tax jurisdiction, or
  • A branch or business establishment of a Constituent Entity that is treated the same for tax purposes as a separate entity from its owner by the owner’s tax jurisdiction of residence.

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