US issues country-by-country reporting requirements

Please note: This item is from our archives and was published in 2015. It is provided for historical reference. The content may be out of date and links may no longer function.

To conform its procedures with the Organisation for Economic Co-operation and Development’s base erosion and profit shifting (BEPS) project to prevent multinational companies from shifting profits to low- or no-tax jurisdictions, the US government issued proposed rules governing country-by-country reporting by any US person that is the “ultimate parent entity” of a multinational enterprise (MNE) group (REG-109822-15). The rules would require the ultimate parent entity of an MNE group with revenue of $850 million or more in the preceding accounting period to file with the Internal Revenue Service (IRS), the US tax agency, an as-yet-unreleased form, to be called Country-by-Country Report, starting with tax years beginning after the regulations are published as final.

An ultimate parent entity of a US MNE group is defined as a US business entity that controls a group of business entities, at least one of which is organised or tax resident outside of the US, that are required to consolidate their accounts for financial reporting purposes under US GAAP, or that would be required to consolidate their accounts if equity interests in the US business entity were publicly traded on a US securities exchange.
 
A business entity would be considered resident in a tax jurisdiction if, under the jurisdiction’s laws, the business entity is liable to tax based on place of management, place of organisation, or other similar rules, but not just because it is liable to tax on income or capital located there. The proposed regulations also prescribe how to determine the tax jurisdiction of residence of a business entity that is resident in more than one tax jurisdiction or that is a permanent establishment.

The rules require reporting the MNE group’s income and taxes paid, together with certain indicators of the location of economic activity within the MNE group, for each constituent entity. A constituent entity is defined as any separate business entity of the US MNE group, except for a foreign corporation or partnership whose parent is not required to report under Internal Revenue Code (IRC) Sec. 6038(a), which requires US persons who control foreign business entities to file information returns.

The IRS has stated that it will not use the information in the report to replace a transfer-pricing determination based on a best-method analysis, and transfer-pricing adjustments will not be based solely on a country-by-country report. However, a country-by-country report may be used as the basis for making further inquiries into transfer-pricing practices or other tax matters in the course of an examination of a member of an MNE group.

The types of information that will be reported on the IRS form are consistent with the OECD’s model template for country-by-country reporting adopted under its BEPS project, with some modifications to reflect differing US reporting requirements. A sample template is provided in the preamble to the proposed regulations.

The preamble explains that, because the information to be reported on the new form is return information subject to the confidentiality rules of IRC Sec. 6103, the information provided will be exchanged only under information exchange agreements with other jurisdictions that require the other jurisdictions to maintain confidentiality. If the IRS later determines that another jurisdiction is not maintaining those privacy standards, it will suspend the information exchange with that jurisdiction until it is satisfied the problem has been fixed.

Sally P. Schreiber (sschreiber@aicpa.org) is a CGMA Magazine senior editor.

Up Next

With greenhouse gas reporting, sizable gaps persist

By Bryan Strickland
September 5, 2025
Large companies in the UK are making progress as more sustainability reporting requirements approach, but they could face significant challenges when seeking assistance from smaller companies in their supply chain.
Advertisement

LATEST STORIES

With greenhouse gas reporting, sizable gaps persist

Accountability: Inescapable, challenging, and valuable

US business outlook brightens somewhat despite trade, inflation concerns

Elevating productivity through strategic business partnering

Mark Koziel Q&A: Talent, sense of community, profession opportunities

Advertisement
Read the latest FM digital edition, exclusively for CIMA members and AICPA members who hold the CGMA designation.
Advertisement

Related Articles

UK budget: National Insurance rate to increase for employers