Corporate tax functions within U.S.-based multinational corporations take note: Two different U.S. Department of Treasury officials recently have said that both Treasury and the IRS intend to adopt country-by-country (CbC) regulations by the end of this year – despite questions within Congress as to whether Treasury has the authority to do so.
During an Oct. 7 PwC webcast, U.S. Treasury Financial Economist Michael McDonald said that “the U.S. will be implementing [CbC reporting], and we’re preparing regulations to implement the CbC template in a manner very similar to what was released by the OECD for tax year 2016.”
Two days later, in a Deloitte webcast, U.S. Treasury Deputy Assistant Secretary for International Affairs Bob Stack noted, “...[W]e have been saying all along that we expect the [CbC reporting] regulations to track very closely to the OECD guidance so that companies could get a head start on that, and we still intend to put out regulations before the end of the year to do that.”
As we have noted, CbC Reporting poses significant data management challenges to multinationals. Apparently, Stack and the U.S. Treasury have gotten similar feedback. In the webcast, he explained:
[W]e were working a lot with the business community about designing rules that would not require the creation of extensive new accounting software and mechanisms to be able to find your income on a geographic, country by country basis and, for example, tie it back into your GAAP financial statements. The OECD approach left a great deal of flexibility. Remember this is a high level risk management tool for tax administrators and they are trying to get a picture, a broad picture of where the profits are, the revenues, the profits, the tax, the people, etc.
Given these public statements, U.S. based multinational’s should begin preparing for the filing of the CbC template. This preparation should include:
- An overall assessment of their enterprise resource planning (ERP) landscape;
- The identification of the source data that will be needed;
- A plan for how the source data will be aggregated and mapped to the CbC report; and
- Thorough review of, and planning for, the various reconciliations that (although not required under the model legislation for CBC reporting) likely will be requested in future audits conducted by relevant taxing authorities.
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.