U.S. Treasury Proposes Country-by-Country Tax Reporting

The U.S. Treasury Department has issued proposed regulations that would establish U.S. reporting requirements for multinational companies regarding their tax obligations in other countries.

The proposed regulations would require the ultimate parent entity of multinational enterprises to report to Treasury annually on a country-by-country basis. Companies would be required to provide information related to the multinational entity’s income and taxes paid in each tax jurisdiction along with certain indicators of the location of economic activity within the group. The information would be shared with other countries under an information exchange agreement.

Treasury is proposing the new reporting as part of the recommendation by Organization for Economic Co-operation and Development to the Group of Twenty nations on how to tie off gaps and loopholes that enable companies to shift taxable income to lower-tax jurisdictions. OECD’s Base Erosion and Profit Shifting proposal provides coordinated actions that would be undertaken by a number of countries to try to address erosion of the global tax base by such corporate maneuvers.

The proposed reporting requirements would apply to entities that report revenues of at least $850 million. Treasury is relying on U.S. GAAP guidance around consolidation of entities, especially Accounting Standards Codification Topic 810-10-15, for determining who might be required to report which entities. The form that would be used for such reporting is still in development, Treasury says.

With plenty of attention brought to the concerns around U.S. companies diverting income to avoid U.S. tax rates, even the Securities and Exchange Commission has joined the scrutiny by calling on companies to explain to investors where earnings are permanently reinvested offshore. Some U.S. tax experts say Congress is likely to protest the OECD’s proposal, especially whether Treasury has the legal authority to require entities to provide country-by-country reporting. 

The proposed regulations are open for public comment, and Treasury says it will schedule a public hearing if requested. Treasury and the Internal Revenue Service especially invite comment on any guidance that would be necessary to make the reporting requirements clear.