United States to Adopt Country-by-Country Reporting in 2017

Large multinational enterprises operating in the United States may soon face a significant addition to their transfer pricing compliance requirements. According to the U.S. Treasury Office of International Tax Counsel, the Internal Revenue Service (“IRS”) plans to implement the guidance provided in the recent Organisation for Economic Cooperation and Development (“OECD”) publication, “Guidance on Implementing Documentation, Country-by-Country Reporting under Action 13 [dated 2/6/2015]” (“Guidance”). The Guidance recommends an approach to implementing Action 13 of the OECD/G20 “Base Erosion and Profit Shifting” (“BEPS”) project by calling for participating states to require multinational enterprises with more than €750 million (US$840 million) in annual consolidated group revenue to file a “country-by-country report” based n a template provided by the OECD.

This template requires countries to report, among other things, revenue, operating income, income tax paid, capital, employees, and assets by jurisdiction. Although much of this information must already be reported by U.S. multinationals on Form 5471, the template would require foreign-controlled U.S. subsidiaries (including U.S. subsidiaries of multinationals previously resident in the United States that have undergone inversions) to provide significantly more information than is currently required by Form 5472. Currently, Form 5472 does not require foreign multinationals to report information regarding their subsidiaries located outside the United States.

The OECD recommends that countries participating in the BEPS project implement the country-by-country reporting requirement for the tax year ending December 31, 2017, or, for those countries with fiscal years ending after that date, by the 2018 fiscal year. The IRS takes the position that it currently has the legislative authority to implement these reporting requirements under sections 6001 and 6038(a) of the Internal Revenue Code, and, therefore, no additional legislation is necessary. In accordance with the recent OECD Guidance, the IRS intends to share the country-by-country reports with other countries’ tax administrations under U.S. bilateral tax treaties and tax information exchange agreements. But the IRS—well aware of the compliance difficulties created by implementation of the Foreign Account Tax Compliance Act (FATCA)—may take a cautious approach when issuing the new rules.

The transfer pricing experts at True Partners Consulting—together with our affiliated firms in the True Partners Consulting International Network—are closely monitoring the implementation of the OECD Guidance throughout the world. Our professionals are available to advise clients on the progress of the country-by-country rules, as well as other tax and economic issues involving the arm’s-length standard under Section 482 of the Internal Revenue Code. 

Dan Falk
True Partners Consulting, LLC
Managing Director - Transfer Pricing
+1 646 356 7222