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Country-by-Country Reporting Regulations Finalized

Affecting

The Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) finalized Treasury Regulations under Internal Revenue Code (“IRC”) Section 6038 (the “Finalized Regulations”) that require large United States (“U.S.”) parent companies of multinational enterprise (“MNE”) groups to report certain information to the Service on a country-by-country (“CbC”) basis. The Finalized Regulations apply to taxable years beginning on or after June 30, 2016.

Background

On December 23, 2015, Treasury and the Service released proposed regulations on CbC reporting, which were largely based off the Organization for Economic Co-operation and Development (“OECD”) recommendations for CbC reporting in Action Item 13 of the Base Erosion and Profit Shifting Action Plan (“BEPS”) Final Report.

The proposed regulations on CbC reporting provide that U.S. parent companies of MNE groups with annual revenue of $850 million or more for the immediately preceding annual accounting period would be required to file a CbC return listing certain information such as revenue, profit, or loss before income tax, total income tax paid, total number of employees, total accumulated earnings, along with other items, on a CbC basis.

Essentially, these reporting requirements are supposed to provide transparency to tax authorities around the world to identify situations where companies may be improperly shifting profits to low or no tax jurisdictions, a possible sign of tax avoidance.

Details

The Finalized Regulations largely follow the proposed regulations on CbC reporting, but some changes were made to take into account comments received by Treasury and the Service relating to the proposed regulations. Certain key developments and clarifications in the Finalized Regulations and the preamble to the Finalized Regulations (“Preamble”) are discussed below.

1. Form 8975, Country-by-Country Report

The Finalized Regulations amend the proposed regulations to reflect the official number of the form, Form 8975, Country-by-Country Report, (“Form 8975” or “CbCR”). Form 8975 is still being developed.

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