Tax authorities around the globe have begun the process of setting up internal systems for the acceptance and automatic exchange of the Country by Country Reports (“CbC Reports”) developed as part of Action Item 13 of the BEPS project. To facilitate the automatic exchange, most of the BEPS participants have signed on to a Multilateral Competent Authority Agreement (“CbC MCAA”) that was developed under the Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”), which in turn was an agreement written jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010. By signing the CbC MCAA the country agrees to automatically exchange CbC Reports with any other signatory that complies with the terms of the CbC MCAA (e.g., exchanges information within the designated time frame, applies confidentiality standards to the exchanged information, uses the CbC Report for the stated purposes, etc.). In this way countries can avoid the tedious exercise of entering into separate bilateral agreements with all of their treaty partners (or all other signatories of the Convention).
The United States, however, has not signed the MCAA but rather has announced that it will, in fact, pursue separate bilateral agreements with all of its treaty and TIEA partners. Why this is the case is at the same time simple and complicated. The simple reason is that, although the United States signed the original Convention in 1989, ratified it in 1991, and it entered into force in 1995, the United States has signed but not ratified the 2010 Protocol. Therefore, the United States cannot be a party to the MCAA because it has not agreed to its current provisions. The reason why the Protocol has not been ratified is a more complicated issue, involving the inevitable politics of Washington, and the inability of the Senate to ratify any international agreement that requires its approval since Senator Rand Paul began placing holds on all such agreements in 2010, allegedly as a protest against the Foreign Account Tax Compliance Act (otherwise known as “FATCA”). The Senate Finance Committee voted the Protocol (and seven other treaties that have been held up) out of committee during one of Senator Paul’s absences in late 2015, but there has been no move to get a vote of the full Senate on any of the treaties since then.
In light of this, the IRS is forced to engage in the tedious exercise described above under the existing treaties and TIEAs, and enter into separate bilateral agreements for the automatic exchange of CbC Reports as a specific type of tax information allowed to be exchanged under these treaties/TIEAs. The IRS has released the language of the Model CbC CAA that it is presenting to treaty partners, and recently announced that it has reached a bilateral agreement with Netherlands and one other as-yet-unnamed country. The IRS has not indicated, however, exactly which treaty partners have been given the Model, which treaty partners are on the top of the list for automatic exchange, or even whether it would consider a case-by-case exchange of CbC Reports under the general Exchange of Information article of its existing treaties. Stay tuned.