Interested in MNEs’ reactions to countries CbCR requirements to date?

  • April 19, 2016

The reactions by multinational enterprises (MNEs) to countries’ adoption of the country-by-country (CbC) reporting template filing together with concerns that it will not be kept confidential are starting to surface and some of these reactions may surprise you… “Can I adopt early and I’ll take my penalty please.” It will be interesting to keep your eye on continued reactions by MNEs in a post BEPS/CbC reporting world.

Many U.S. MNEs, realizing that a delay in the U.S. adoption of the final CbC regulations requiring the CbC information effective 1/1/16 is not beneficial for them have asked the IRS to allow an early adoption of the filing requirements effective 1/1/16 at the taxpayer’s request. Although the IRS has allowed other examples of early adoption, there appears to be no flexibility in allowing it here as they are stating they will just not be ready to accept filings. Currently, it appears that the U.S. is attempting to finalize their regulations by 6/30/16 with an effective date of 7/1/17. This helps some fiscal year MNEs but not others and certainly not calendar year 2016 U.S. MNEs.

Why? If a U.S. MNE operates in any one of the other 15+ countries that have adopted the CbC report effective for 1/1/16, then they must file the report via a surrogate parent entity in a second jurisdiction for all countries requiring the filing or, alternatively, submit the information directly to each country requesting it. This will increase the administrative complexity to prepare and file the CbC reporting template. In addition the U.S. treaty-based information-sharing network would not apply. As a result, since early adoption in the U.S. may not be the answer, U.S. MNEs are evaluating their surrogate parent entity country options and assessing the risk of filing in each alternate country based on the countries appetite to make the report public and/or require additional information from that prescribed by the OECD. Only Australia’s CbC reporting guidance to date addresses that exemptions will most likely be granted for the first year of reporting if a parent jurisdiction has not yet implemented the CbC requirement. Other jurisdictions that have issued language on their requirements haven't included such exemptions. Thus, gap year issues for U.S. MNEs and other countries persist.

What else are we hearing? In contrast to the U.S. MNEs, there was a recent report indicating that Australia MNE’s may strategically decide not to file the CbC reporting template in Australia and take their penalties instead. Concern over the fact that the CbC template information may be made public in Australia has MNE’s concerned as well. So, when completing their “cost/benefit analysis” some may actually be concluding that it might be better to not file.

Stay tuned as MNEs in a post BEPS/CbCR world are just beginning to react!

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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