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The IRS and Country by Country Report

The IRS has updated the FAQ’s for Country by Country Reporting which should help multinational enterprises to better understand the Country by Country Reporting itself and the filing and deadline requirements. (link)

Next to this, the IRS has updated the list of countries for which a signed bilateral competent authority arrangement (CAA) is in place.

Country by Country Reporting data will be exchanged by the IRS with other tax authorities when a signed CAA is in place. For the complete list check here

The ultimate parent entity of a large MNE group, with sales over EUR 750 Mio or USD 850 Mio, is required to file a Country by Country Report with the tax authority in their residence jurisdiction.
The Country by Country Report requires aggregate tax jurisdiction-wide information relating to the global allocation of the income, the taxes paid and certain indicators of the location of economic activity among tax jurisdictions in which the MNE group operates. The report also requires a listing of all the Constituent Entities for which financial information is reported, including the tax jurisdiction of incorporation, where different from the tax jurisdiction of residence, as well as the nature of the main business activities carried out by that Constituent Entity.

Do know that Country by Country Report information may only be used for the purposes of high level transfer pricing risk assessment, assessing other BEPS-related risks and, where appropriate, for statistical and economic analysis. The information in the Country-by-Country Report on its own does not constitute conclusive evidence that transfer prices are or are not appropriate. It should not be used by tax administrations to propose transfer pricing adjustments based on a global formulary apportionment of income.

However, keep in mind that the Country by Country Report will provide the tax authorities ample ammunition to challenge taxpayers’ tax and transfer pricing structures.

We already see that most tax authorities adopt an aggressive approach towards corporate taxpayers – where “double/triple” tax on the same profit might become the new standard. Next to this also the reputation of the company and its management board are at stake.

We can help you to reduce these risks. Interested how? Give us a call.