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Guidance Issued for Country-by-Country Reports for Early Reporting Periods

Summary

In Revenue Procedure 2017-23, the Internal Revenue Service (“IRS”) issued guidance for voluntarily filing Form 8975, Country-by-Country Report and accompanying Schedule A, Tax Jurisdiction and Constituent Entity Information (collectively, Form 8975), for early reporting periods.
Details

On June 30, 2016, the Department of the Treasury and the IRS published final regulations (T.D. 9773) (the “CbC reporting regulations”) that require certain U.S. business entities that are the ultimate parent entity of a U.S. multinational enterprise (“MNE”) group to file Form 8975 annually with the IRS.  Form 8975 requires the ultimate parent entity of a U.S. MNE group with revenue for the preceding annual accounting period of $850 million or more to report information, on a country-by-country basis, related to the group’s income and taxes paid, together with certain indicators of the location of the group’s economic activity.  Ultimate parent entities with the ability to file their returns and the Form 8975 electronically are encouraged to do so to ensure timely automatic exchange of the information for an early reporting period.  If Form 8975 is filed electronically, it must be filed through the IRS Modernized e-File system in Extensible Markup Language (“XML”) format, not as a binary attachment, such as a PDF file.  A paper version of Form 8975 will be available before the September 1, 2017, implementation date for filers that are ineligible to use Modernized e-File.

Other countries have adopted country-by-country reporting requirements for annual accounting periods beginning on or after January 1, 2016, that require reporting of country-by-country information by constituent entities of MNE groups with an ultimate parent entity resident in a tax jurisdiction that does not have a country-by-country reporting requirement for the same annual accounting period.  The CbC reporting regulations are not applicable for tax years of ultimate parent entities before June 30, 2016.  Specifically, the CbC reporting regulations apply to reporting periods of ultimate parent entities of U.S. MNE groups that begin on or after the first day of a taxable year of the ultimate parent entity that begins on or after June 30, 2016.

For additional details regarding the CbC reporting regulations see our Tax Alert, Country-by-Country Reporting Regulations Finalized” 

However, in the preamble to the CbC reporting regulations, the Department of the Treasury and the IRS stated that they planned to allow ultimate parent entities of U.S. MNE groups and U.S. business entities designated by a U.S. territory ultimate parent entity to file country-by-country reports for reporting periods that begin on or after January 1, 2016 but before June 30, 2016.

Revenue Procedure 2017-23 provides that beginning on September 1, 2017, Form 8975 may be filed for an early reporting period with 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. MNE group with or within which the early reporting period ends.

In order to file Form 8975 for an early reporting period, an ultimate parent entity that files (or has filed) an income tax return for a taxable year that includes an early reporting period without a Form 8975 attached must follow the procedures for filing an amended income tax return and attach Form 8975 to the amended return within twelve months of the close of the taxable year that includes the early reporting period.  Filing an amended income tax return solely to attach Form 8975 in accordance with Revenue Procedure 2017-23 will have no effect on the statute of limitations for the income tax return.

Early release drafts instructions, draft Form 8975 and draft Schedule A (Form 8975) have also been published. The draft instructions and forms may not be used for filing and are being provided by the IRS for informational purposes.

Insights

We can assist with preparing and filing Form 8975 and assist U.S. MNE groups to voluntarily file country-by-country reports for early reporting periods rather than being subject to secondary country-by-country reporting requirements in certain foreign jurisdictions.


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