The Internal Revenue Service (IRS) and the Treasury Department (Treasury) released proposed regulations (REG-109822-15) on country-by-country (CbC) reporting on 21 December 2015. The Proposed Regulations are modeled on the Organization for Economic Co-operation and Development (OECD) recommendations for country-by-country reporting. As per the proposed regulations REG-109822-15, US persons that are the ultimate parent entity of a multinational enterprise (MNE) group with annual revenue of $850 million or more for the immediately preceding annual accounting period would be required to file a CbC Reporting. The CbC reporting rules will apply to taxable years of ultimate parent entities of U.S. MNE groups that begin on or after the date of publication of the Treasury decision adopting the rules as final regulations in the Federal Register.

The Country by-Country Report will contain the following information with respect to each tax jurisdiction in which one or more constituent entities of a U.S. MNE group is resident, in the form prescribed:

(i) Revenues generated from transactions with other constituent entities;

(ii) Revenues not generated from transactions with other constituent entities;

(iii) Profit or loss before income tax;

(iv) Total income tax paid on a cash basis to all tax jurisdictions, and any taxes withheld on payments received by the constituent entities;

(v) Total accrued tax expense recorded on taxable profits or losses, reflecting only operations in the relevant annual accounting period and excluding deferred taxes or provisions for uncertain tax liabilities;

(vi) Stated capital of all the constituent entities, except that the stated capital of a permanent establishment must be reported by the legal entity of which it is a permanent establishment unless there is a defined capital requirement in the permanent establishment tax jurisdiction for regulatory purposes;

(vii) Total accumulated earnings, except that accumulated earnings of a permanent establishment must be reported by the legal entity of which it is a permanent establishment;

(viii) Total number of employees on a full-time equivalent basis in the relevant tax jurisdiction; and

(ix) Net book value of tangible assets other than cash or cash equivalents.

The Treasury Department and the IRS have determined that the information required under these proposed regulations will assist in better enforcement of the federal income tax laws by providing the IRS with greater transparency regarding the operations and tax positions taken by U.S. MNE groups.