As a follow-up to regulations issued last June, the Internal Revenue Service (IRS) has issued Revenue Procedure 2017-23, which sets forth the process for filing Form 8975, Country-by-Country (CbC) Report, and accompanying Schedules A, Tax Jurisdiction and Constituent Entity Information (collectively, Form 8975), by ultimate parent entities of US multinational enterprise (MNE) groups for reporting periods beginning on or after January 1, 2016, but before the applicability date of §1.6038-4 (early reporting periods).
The Treasury Department and the IRS published final regulations on June 30, 2016 –Treas. Reg. 1.6038-4– that require ultimate parent entities of US MNE groups to report CbC information about the group’s income, taxes paid and location of economic activity. The impacted taxpayers must report this information annually via Form 8975. The CbC reporting regulations apply to reporting periods of ultimate parent entities of US MNE groups that begin on or after the first day of the first taxable year of the ultimate parent entity that begins on or after June 30, 2016.
For annual accounting periods beginning on or after January 1, 2016, some jurisdictions have adopted CbC reporting that would require an entity in that jurisdiction to report CbC information if it is part of an MNE group in which the ultimate parent resides in a jurisdiction without CbC reporting requirements for the same annual accounting period. This can result in constituent entities of a US MNE group being subject to various local CbC filing requirements for early reporting periods unless the ultimate parent entity files a Form 8975 in the US, or reports CbC information through surrogate filing in another jurisdiction.
The preamble to the US CbC reporting regulations addressed this issue by indicating that the Treasury Department and the IRS would provide a procedure for ultimate parent entities of US MNE groups to file Form 8975 for early reporting periods; Revenue Procedure 2017-23 is the resulting procedure.
The Revenue Procedure provides that, beginning on September 1, 2017, taxpayers may file Form 8975 for an early reporting period with their income tax return or other return as provided in the Instructions to Form 8975 for the taxable year of the ultimate parent entity of the US MNE group with or within which the early reporting period ends. Taxpayers can amend an income tax return for a taxable year that includes an early reporting period without a Form 8975 attached if they follow the normal procedures for filing an amended return, and attach the Form 8975 to the amended return within twelve months of the close of the taxable year that includes the early reporting period. Filing an amended return for the sole purpose of attaching Form 8975 will have no effect on the statute of limitations. Ultimate parent entities are encouraged to file their returns and Forms 8975 electronically through the IRS Modernized e-File system in Extensible Markup Language (XML) format. The IRS plans to provide information on the Form 8975 to the software industry to allow time for developers to make Form 8975 available in their software prior to the September 1, 2017 implementation date.
Practice point: CbC reporting requirements are continuing to evolve in the US and abroad, and the IRS has provided welcome guidance through the new Revenue Procedure. MNEs are well-advised to continue to monitor developments in this area closely to ensure their compliance programs are up-to-date.