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U.S. multinational companies with more than $850 million in annual consolidated gross income now have draft instructions for filing IRS reports on their global tax and profits.
The Internal Revenue Service added instructions to the draft Form 8975 and accompanying draft Schedule A it released in December 2016, companies that are the “ultimate parent” of global groups must report information including the amount of revenue, profit or loss, capital and accumulated earnings for each country of operation. The IRS noted that the instructions are a “draft as of February 23, 2017.”
The draft form is based on guidance from the Organization for Economic Cooperation and Development, which developed the recommendation for global tax and profit reporting, or country-by-country reporting, under its massive rewrite of global tax rules undertaken in 2013. The OECD’s recommendations for country-by-country reporting, finalized in 2015, have been the most widely adopted aspect of the project.
The U.S. issued final rules requiring country-by-country reporting in June 2016. The first required reporting period is the 12 months beginning on or after the first day of a tax year of the ultimate parent entity that begins on or after June 30, 2016.
The Feb. 23 draft instructions require an “ultimate parent” company of a global group to file a separate Schedule A for each tax jurisdiction in which the group has a resident constituent entity.
If a constituent entity doesn’t have a tax jurisdiction of residence—that is, the constituent entity is “stateless"—then the parent company must fill out a Schedule A for the entity indicating that the tax jurisdiction is stateless and describe the entity’s business activity. The company must report “the financial and employee information in the aggregate with respect to those stateless constituent entities.”
However, if a constituent entity owns another constituent entity in the group that is stateless, “then the owner’s share of such stateless entity’s revenues and profits should be aggregated with the information for the owner’s tax jurisdiction of residence.”
According to the draft instructions, at each level, the owner entity includes its share of the stateless entity’s revenue and profits in the owner’s tax jurisdiction of residence only if the owner has a tax jurisdiction of residence. “The amount of revenue of the top-tier stateless entity from which the owner entity calculates its share should include any allocations from stateless entities owned, directly or indirectly, by the top-tier stateless entity, even if such allocations are excluded from the intermediate stateless entity’s revenue and profit,” the draft instructions said.
The draft also provides an example involving a U.S. multinational group whose constituent entities include stateless partnerships.
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