In a good sign for U.S.-based MNEs concerned about the potential disclosure issues that surround the filing of country by country reports (CbCR), the IRS confirmed on April 28th that it has concluded two competent authority agreements for CbCR, one with the Netherlands and the other with a country that Douglas O’Donnell, the U.S. Competent Authority who confirmed the signings to Bloomberg BNA, did not name.
The Netherlands agreement was posted on the IRS.gov web page on May 17, and it appears that it is nearly identical to the Model Agreement. The only difference between the Model and the Netherlands agreement is the definition of “constituent entity.” The Model included a multi-part definition that sought to separately describe separate business units that are included in consolidated financial statements, separate business units that are excluded from consolidated financial statements and permanent establishments. The agreement simply defines “constituent entity” as it is defined in the respective domestic laws of the Netherlands and the United States. Given the complexity of the original definition it is likely that the approach taken in the Netherlands agreement will be taken in all the other agreements. It is still an open question which other country has signed an agreement with the United States or whether the other country is also in Europe or in some other region of the world. Nevertheless, it is good news that the IRS is getting some agreements in place in advance of the first exchange of CbCRs, which under the CbC MCAA signed by 57 countries (and counting) are anticipated to be exchanged in early 2018.
U.S. Model CbC CAA Consistent With Multilateral CbC CAA
On April 6, 2017, the IRS posted on IRS.gov the U.S. Model Competent Authority Arrangement for the exchange of Country by Country Reports (CbCR), for both double tax treaties and tax information exchange agreements (TIEAs). As anticipated, the model arrangement follows closely the language of the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA) that has been signed by 57 countries, but not the United States. Because the United States is not a party to the multilateral agreement, the IRS must reach bilateral agreements with individual treaty and TIEA partners in order to establish an automatic exchange of the CbCR when such exchanges are expected to begin, sometime between December 31, 2017 and June 30, 2018.
Exchanges Allowed for Voluntary Filings
Although the U.S. Model CbC CAA is consistent in both format and content with the multilateral agreement, several points should be noted. First, the model arrangement explicitly states that a CbC Report is intended to be first exchanged “with respect to Fiscal Years of MNE Groups commencing on or after January 1, 2016.” Yet the final U.S. regulations requiring the preparation of the CbCR on Form 8975 apply to “reporting periods of ultimate parent entities of U.S. MNE groups that begin on or after the first day of a taxable year of the ultimate parent entity that begins on or after June 30, 2016.”
India Steps to the Front of the Line
April 11, 2017
The report to Congress outlining the results of the APA program for 2016, released by the Advance Pricing and Mutual Agreement Program (“APMA”) on March 27th, shows a drop in both the number of requests filed and the number of agreements executed, with executed agreements dropping below 100 for the first time since 2012, when APMA was formed by the merger of the Competent Authority office and the Advance Pricing Agreement program. The drop bears watching over the next few years (i.e., as the effects of the BEPS initiative begin to play out and taxpayers face additional audit activity around the world), but the most noteworthy change in 2016 was the large number of bilateral applications involving India.