The Treasury Department and the Internal Revenue Service have proposed regulations setting out a new requirement for certain U.S. persons that are the ultimate parent of a multinational group (a “U.S. MNE group”) having annual revenue of at least $850 million to file an annual report (the “CbC report”). The CbC report would contain information on a country-by-country basis related to the U.S. MNE group’s income and taxes paid, together with certain indicators of the location of economic activity within the U.S. MNE group. The CbC report helps to accomplish the goals of the Organisation for Economic co-operation and Development’s (OECD) Action Plan on Base Erosion and Profit Sharing (BEPS).
It is anticipated that the CbC reports would be exchanged under the automatic exchange of information exchange agreements to which the United States is a party. Treasury and the IRS also anticipate that, under the arrangements for the exchange of CbC reports, the tax authorities of the United States and other jurisdictions would limit the permissible uses of exchanged CbC reports to assessing high-level transfer pricing and other tax risks, and for economic and statistical analysis. Treasury and the IRS also intend to review closely the legal framework for maintaining confidentiality of taxpayer information and its track record of complying with that legal framework for each jurisdiction with which information would be exchanged.
Because the proposed regulations would apply to a number of companies performing work on defense and intelligence matters, Treasury and IRS have recognized that national security matters may be implicated by the information contained in the CbC report:
[C]consideration has been given to the possible need for an exception to filing some or all of the information required . . . [by the CbC Report] for national security reasons. Requests by a U.S. person otherwise subject to the requirements to file . . . [the CbC Report] for an exception would require the Treasury Department and affected U.S. persons to coordinate with other federal agencies, such as the Department of Defense, to determine whether such an exception is warranted. The Treasury Department and the IRS request comments with respect to the procedures that a U.S. person should be required to follow in order to demonstrate a national security reason to receive an exception from filing some or all of the information otherwise required . . . .
Comments on the proposed regulations, including the potential national security exception to reporting, are due on March 22, 2016.