Robert Stack, deputy assistant secretary, International Tax Affairs at the Department of Treasury, recently said that the IRS is working to accept voluntary country-by-country (CbC) reports for the 2016 tax year. His spoke at a transfer pricing symposium held at the University of San Diego School of Law and sponsored by Grant Thornton LLP.
Stack previously announced that Treasury expects to issue final regulations requiring CbC reporting by June 30. This raised concerns for many taxpayers, because the Organisation for Economic Cooperation and Development (OECD) set standards recommending that jurisdictions implement requirements starting in 2016, and for most taxpayers, the U.S. regulations would not be effective until 2017. Many of these jurisdictions require local reporting if the parent entity's jurisdiction does not require CbC reporting, effectively creating what some have called a "gap year." Without a voluntary submission alternative, many U.S. multinationals would be forced to comply with CbC requirements at various local levels during this gap year.
Stack said the IRS and Treasury want to move toward permitting voluntary submissions for the 2016 year. However, Stack cautioned that "there's no victory in accepting voluntary filings if the other countries that are partners in the country-by-country plan are not going to accept them as good filings, and therefore obviate the need for local filings." Stack further noted that U.S. officials are working to ensure that foreign jurisdictions will accept the "voluntary" submissions.
Taxpayers concerned about gap-year filings should carefully monitor Treasury's activity in this area. Although voluntary filings may be a welcome solution, many practitioners believe the government needs to ensure that local country law would permit a voluntary filing in lieu of a required local filing during the gap year. If Treasury does not provide a voluntary submission alternative, U.S. companies may consider designating a "surrogate parent" in another country to distribute the reports. However, careful review is needed so that a filing from a surrogate parent is acceptable in the respective foreign jurisdictions where the company has foreign operations and so that the treaty network in the surrogate parent's country has sufficient confidentiality safeguards.
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