Stack: U.S. Country-by-Country Rules Expected by June 30

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Molly Moses

The U.S. expects to finalize its rules on country-by-country reporting by June 30, Treasury Deputy Assistant Secretary for International Tax Affairs Robert Stack told Bloomberg BNA, adding that he hopes other countries will be flexible about the effective date of their own rules.

“We fully expect” to finalize the regulations by June 30 so that companies meeting the threshold level of sales would be required to file with their tax return a country-by-country report “for all tax years that begin after that date, including years beginning on July 1, 2016, and September 1, 2016,” the Treasury Department official said in an e-mail.

The rules will require U.S. parent companies with at least $850 million in annual revenue for the preceding annual accounting period to file a uniform template, which includes such items as revenue, profit or loss, capital and accumulated earnings, number of employees and other items for each country in which the company operates, as well as maintain a master file and a local file for each country of operation .

The July 1 effective date is six months earlier than was expected under the proposed rules (REG-109822-15), issued in December.

Stack said the new target date addresses concerns raised by some foreign officials that the U.S. might delay the country-by-country reporting requirements indefinitely if it failed to issue final rules before the next administration takes office.

He also said the new effective date won't require as many as half of the companies that would have been required to file reports in 2017 to do so in 2016, because most companies have a calendar year. Still, “we will pick up some” that wouldn't have had to file until 2017, Stack said.

Stack Urges Flexibility

“We know that countries are grappling with how to handle the fact that there will be some variation in effective dates,” Stack said. “We hope that countries will smooth the way for the successful long term implementation of country by country reporting and not cause unnecessary confusion and complexity in the start up phase by requiring a single year of local filing for companies resident in countries in the process of putting the rules in place, such as the U.S.”

Aside from the issue of whether the local companies possess information on global operations of their parent and are able to file that locally, he said, “there is also the issue of companies and countries having to switch gears from one approach to another after just a single year.”

Some U.S. treaty partners—for example, Canada and Japan—haven't yet set an effective date for country-by-country reporting rules, Stack noted.

Comments

Treasury and the Internal Revenue Service continue to receive comments on the country-by-country proposal, he said. The deadline is March 23, three months after they were published in the Federal Register.

The BEPS Monitoring Group, which represents several nongovernmental organizations including the Tax Justice Network, wrote to praise the proposed country-by-country reporting rules, saying a “strong and effective” reporting program “will provide the IRS with an important tool to identify situations not only involving potential transfer pricing issues, but also potential application of judicial concepts and other laws, such as determining whether income is effectively connected with a trade or business being conducted in the U.S.”

The March 2 letter said, “Often, the real business of some low- or zero-taxed foreign group members is being conducted by group members located within the U.S.” and that in these cases, “the IRS can choose to impose tax through recharacterization under judicial concepts, through transfer pricing adjustments or through application of the effectively connected income rules.”

The group also questioned the need for an exception based on national security concerns, saying it saw “no valid reason” for an exception and adding that if real concerns exist, the criteria for the exception “should be spelled out much more clearly, and the explanatory material accompanying the final regulations should make clear that it is expected that instances of such exemptions will be exceedingly rare.”

The letter said that if the U.S. makes an issue of this, other countries may follow suit, making the U.S. “the likely loser with respect to relevant information” that would help it identify foreign multinationals that should be paying additional U.S. taxes.

To contact the reporter on this story: Molly Moses in Washington at mmoses@bna.com

To contact the editor on this story: Rita McWilliams at rmcwilliams@bna.com

For More Information

The letter from the BEPS Monitoring Group is at http://src.bna.com/c1B.