U.S.-based multinational enterprises (MNEs) are not the only group scrambling to respond to the OECD’s far-reaching BEPS initiative and its country-by-country (CbC) reporting template requirements. The U.S. Department of Treasury and some notable U.S. legislators are also responding – sometimes in dramatic fashion – to the OECD’s initiatives to restructure the international tax system.
On August 27, in response to the U.S. Treasury's announced plans to prioritize work next year on "regulations under §§6011 and 6038 relating to the CbC reporting of income, earnings, taxes paid, and certain economic activity for transfer pricing risk assessment," U.S. Senator Orrin Hatch (R-Utah) and U.S. Representative Paul Ryan (R-Wis.) submitted a second letter to Treasury Secretary Lew again questioning Treasury’s authority to implement the OECD’s CbC reporting template.
Representative Kevin Brady (R-Tx) went a step further declaring on September 22, 2015 that the Treasury Department does not have the authority to require CbC reporting by U.S. multinationals to share employee, revenue and tax data with foreign countries. Brady, a senior member of the House Ways and Means Committee, said Congress has the authority to approve—or reject—the disclosure program that is a key tenet of the OECD's BEPS project that seeks to increase transparency between companies and tax authorities.
While it can be difficult to distinguish between political posturing and substantive legal issues, these communiqués clearly demonstrate that U.S. lawmakers want more information on BEPS and CbC reporting. In addition to the first letter sent to Treasury, Senator Hatch also requested that the U.S. Government Accountability Office (GAO) analyze BEPS recommendations, including CbC reporting, for “possible effects, including costs and risks for U.S. businesses and their workers and effects on the U.S. economy, including employment, investment, and federal revenue.”
As a practical matter, whether there is anything behind Treasury's lack of authority to adopt CbC reporting may be a moot point to U.S.- based MNE's. Even if CbC reporting is not adopted in the U.S., but it's adopted in countries where subsidiaries of U.S. MNE's are tax resident, they will be required to file the template, under the backup filing provisions of the CbC Reporting Model domestic legislation1.
There is also the very real potential for those countries not participating in the OECD/G20 BEPS initiative to unilaterally adopt CbC reporting in whatever format they choose for MNE subsidiaries that are tax resident in their countries. Worst case scenario – this could require foreign-based subsidiaries of U.S. MNC's to file separate CbC reports in each of their resident countries.
Whether or not the debate becomes more controversial will likely be revealed once the G20 leaders approve the final BEPS package later this month. Regardless of the outcome, MNEs should continue to keep tabs on the adoption of BEPS, including CbC reporting, since the proposed deadlines are looming and MNE's will need a material amount of lead time to address the systems, data sources, congruency and cross-border consistency of the information called for in the CbC reporting template.
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1as contained in the OECD's June 8, 2015 Action 13 Country by Country Implementation Package.