New reporting regulations for US parent companies
The US application of OECD country-by-country reporting requirements.
On 5 October 2015, the OECD issued final recommendations for combating aggressive tax planning and increasing tax disclosure in its Base Erosion and Profits Shifting 2015 Final Report. Action 13 of the report encourages OECD member countries to adopt country-by-country (CbC) reporting standards for collecting and sharing information on income, activities, and taxes paid by multinational companies conducting business within their country. In response to the OECD mandate, the US Treasury and Internal Revenue Service (IRS) issued final regulations for CbC reporting effective for tax years beginning on or after 30 June 2016.
Filing Form 8975
Under these regulations, a US entity, which is the ultimate parent entity of a multinational enterprise group with revenue for the preceding annual accounting period of US$850m or more, must file a CbC report with the IRS using Form 8975 . Form 8975 must be filed with the ultimate parent entity’s income tax return on or before the due date, including extensions. Form 8975 and the accompanying instructions are still under development.
Once finalized, Form 8975 is expected to require affected US parent companies to disclose the following items with respect to their constituent (greater than 50% owned) entities:
- complete legal name
- tax jurisdiction of residence
- tax jurisdiction of organization
- tax identification number
- main business activities.
In addition, US parent companies are likely to need to disclose, on an aggregate basis, the following items for each tax jurisdiction in which one or more constituent entities have a tax residence:
1) Revenues generated from transactions with constituent and non-constituent entities
2) Profit or loss before income tax
3) Total income tax paid on a cash basis to all tax jurisdictions, and any taxes withheld on payments received by the constituent entities
4) Total accrued tax expense recorded on taxable profits or losses
5) Stated capital
6) Total accumulated earnings
7) Total number of full-time employees
8) Net book value of tangible assets
Failure to comply with CbC disclosure requirements may result in substantial penalties.
A US entity that is the ultimate parent entity of a multinational enterprise group may be affected by these regulations, and should assess the need to update internal financial reporting processes, and consider how CbC disclosures will be interpreted by the IRS. Companies affected by these regulations may need assistance with developing Form 8975 reporting templates and analyzing metrics to evaluate areas at risk of tax audit.
For more information, contact:
Michael C. Smith
CliftonLarsonAllen LLP, US
T: +1 704-816-8449
David W. Springsteen
CliftonLarsonAllen LLP, US
T: +1 813-384-2724