Taxand USA discusses some practical aspects related to the introduction of country-by-country (CbC) reporting by the Internal Revenue Service and the audit risks large and mid-sized companies may face following the submission of their CbC reports.
The IRS published further instructions for voluntary CbC report filings on 1 March. Revenue Procedure 2017-23 provides guidance for United States headquartered multinational groups wishing to voluntarily file CbC reports for the 2016 “gap period” not covered under existing U.S. regulations, but widely required in other jurisdictions. This Revenue Procedure follows the adoption of Treasury Regulation 1.6038-4 on 30 June 2016, which implemented CbC reporting rules in the US for tax years beginning on or after 30 June 2016.
As numerous countries adopted CbC reporting requirements for periods starting on or after 1 January 2016, there was concern about how US multinational groups would be able to meet the international reporting guidelines during the resulting six-month gap period. This Revenue Procedure outlines how multinationals can meet their international obligations, while still submitting the report to the IRS (as opposed to a foreign tax authority).
The biggest taxpayers are not the only ones who should be concerned about IRS audits regarding cross-border transactions. The IRS has recently indicated that a larger emphasis will be placed on monitoring US mid-sized companies, particularly inbound distributors. The concern is that these companies are not compensated adequately by their foreign subsidiaries for the functions and risks assumed.