Strategizing Multinational Tax Risks

The US Treasury has released proposed Regulations setting forth details for country-by-country (CbC) reporting by US-based multinationals.  A link to the proposed Reg’s is provided:

Click to access 2015-32145.pdf

The proposed Reg’s have been issued for comment, and two significant timing issues arise in the current version:

1. Final Regulations would not take effect until tax years beginning after publication in the Federal Register, which would be 2017 for calendar-year taxpayers.
2. The CbC report would be submitted to IRS with the US corporate income tax return, due Sept. 15.

Although the proposed Reg’s are conformed to the OECD model and have been purposeful in its comments on confidentiality and the exchange of information provisions for CbC reporting, the timing mismatch for the 2016 tax year presents a complexity that hopefully will be overcome in the Final Regulations.  If no changes are made to the effective date, the 2016 tax year would be a dysfunctional method of reporting around the world, based on whom are considered surrogate entities or determining which countries have rules that provide for direct submission to their tax authorities absent a US requirement.  

Additionally, the submission of the CbC report by Sept. 15 accelerates the year-end timing envisioned by the OECD.  This acceleration should be expected by multinationals, thereby leaving less time to coordinate and review the information via developing an efficient and sustainable CbC reporting process.