The BEPS Monitoring Group, an expert body (backed by TJN and others) that works on international corporate tax issues, has published its comments on draft US Treasury Regulations on Country by Country Reporting (CbCR, for an explanation for newcomers, see here). Given the large number of multinational enterprises (MNEs) headquartered in the US, it is crucial for the US to adopt the scheme, if it is to work at all.
Tax Analysts has picked up an important point about this (unfortunately, behind a paywall). It notes that companies should be able to provide a reconciliation of the data in the CbCR with the actual tax accounts submitted in a country, on demand by the tax authority. However, the U.S. proposed regulations and explanatory information make it clear that there is no such requirement. Our BMG reports states:
“It is simply not acceptable that the proposed regulation gives [multinational enterprises] an effective carte blanche to provide numbers that cannot be reconciled and then allows no easy audit trail for relevant U.S. and other country tax authorities to understand differences and question the information provided.”
The BMG comments also regret the delay in US implementation. However, on the same day Bob Stack of the US Treasury was reported (also in Tax Analysts) as saying that they expect to finalise the Regulations by the end of June, so that they would take effect for tax years beginning 1st July. He explicitly said that he hoped that this would dissuade states from implementing a local filing requirement for US-based MNEs.
It’s clearly the other way around: the threat of local filing, and indeed the growing pressure for public CbCR, is the providing the main pressure on states such as the US to implement the limited OECD scheme for CbCR.
The BMG report also points to the important contribution CbCR would make to the ability of the IRS to enforce U.S. tax laws. Recent estimates by Kimberly Clausing suggest that profit shifting likely cost the U.S. government between $77 and $111 billion in corporate tax revenue in 2012, estimated to have increased to a range of $94 to $135 billion for 2016.