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.”
Through a revenue procedure, Rev. Proc. 2017-23, I.R.B. 2017-7 (February 13, 2017), the IRS stated that, beginning on September 1, 2017, Form 8975 may be filed for an early reporting period (defined as a reporting period beginning on or after January 1, 2016), with the income tax return or other return as provided in the Instructions to Form 8975 for the taxable year of the ultimate parent entity of the U.S. MNE group with or within which the early reporting period ends. Despite this guidance, taxpayers were not sure whether these “early reporting period” forms would be exchanged with treaty or TIEA partners, or whether U.S. parented MNEs might be subject to local filing requirements in countries with such requirements. The model arrangement confirms that the IRS plans to exchange such forms, thereby avoiding local filing requirements for those countries where the arrangement is in place.
The question remains whether the IRS will succeed in obtaining bilateral agreements with treaty or TIEA partners before the first automatic exchanges would begin, but the model’s similarity to the CbC MCAA should make treaty partners that have signed the CbC MCAA more willing to enter into the separate bilateral agreements with the United States. And the wording of the Model CAA gives U.S. taxpayers comfort that where arrangements are signed the confidentiality protections of the applicable treaty or TIEA will apply to Forms 8975, including voluntarily filed forms, in the hands of the treaty or TIEA partner.