Attachment to supporting statement

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§ 243.8

Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations
[Amended]

■

15. In § 243.8(a), remove ‘‘$5000.00’’
and add in its place ‘‘$5,893’’.

collection of information in these
regulations will be reflected in the OMB
Form 83–1, Paperwork Reduction Act
Submission, associated with Form 8975.

PART 249—OFF-RESERVATION
TREATY FISHING

Background

16. The authority citation for part 249
is revised to read as follows:

■

Authority: 25 U.S.C. 2, and 9; 5 U.S.C. 301;
and Sec. 701, Pub. L. 114–74, 129 Stat. 599,
unless otherwise noted.
§ 249.6

[Amended]

17. In § 249.6(b), remove ‘‘$500’’ and
add in its place ‘‘$1,250’’.

■

Dated: June 24, 2016.
Lawrence S. Roberts,
Acting Assistant Secretary—Indian Affairs.
[FR Doc. 2016–15534 Filed 6–29–16; 8:45 am]
BILLING CODE 4337–15–P

DEPARTMENT OF THE TREASURY

Summary of Comments and
Explanation of Revisions

Internal Revenue Service

1. United States Participation in CbC
Reporting

26 CFR Part 1
[TD 9773]
RIN 1545–BM70

Country-by-Country Reporting
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:

This document contains final
regulations that require annual countryby-country reporting by certain United
States persons that are the ultimate
parent entity of a multinational
enterprise group. The final regulations
affect United States persons that are the
ultimate parent entity of a multinational
enterprise group that has annual
revenue for the preceding annual
accounting period of $850,000,000 or
more.

SUMMARY:

Effective Date: These regulations
are effective June 30, 2016.
Applicability Date: For dates of
applicability, see § 1.6038–4(k).
FOR FURTHER INFORMATION CONTACT:
Melinda E. Harvey, (202) 317–6934 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
DATES:

Paperwork Reduction Act
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This document contains amendments
to 26 CFR part 1. On December 23, 2015,
a notice of proposed rulemaking (REG–
109822–15) relating to the furnishing of
country-by-country (CbC) reports by
certain United States persons (U.S.
persons) was published in the Federal
Register (80 FR 79795). A public
hearing was requested and was held on
May 13, 2016. Comments responding to
the notice of proposed rulemaking were
received. After consideration of the
comments, the proposed regulations are
adopted as amended by this Treasury
decision. The public comments and
revisions are discussed below.

The IRS intends that the information
collection requirements in these
regulations will be satisfied by
submitting a new reporting form, Form
8975, Country-by-Country Report, with
an income tax return. For purposes of
the Paperwork Reduction Act, the
reporting burden associated with the

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Multiple comments expressed support
for the implementation of CbC reporting
in the United States. However, one
comment recommended that the
Treasury Department and the IRS
decline to implement CbC reporting
because, according to the comment, U.S.
multinational enterprise (MNE) groups’
direct costs of compliance will exceed
the United States Treasury’s revenue
gains, and there will be high,
unanticipated costs from inadvertent
disclosures of sensitive information.
This recommendation is not adopted.
U.S. MNE groups will be subject to CbC
filing obligations in other countries in
which they do business if the United
States does not implement CbC
reporting. Thus, a decision by the
Treasury Department and the IRS not to
implement CbC reporting will result in
no compliance cost savings to U.S. MNE
groups. In fact, failure to adopt CbC
reporting requirements in the United
States may increase compliance costs
because U.S. MNE groups may be
subject to CbC filing obligations in
multiple foreign tax jurisdictions. U.S.
MNE groups might also be subject to
varying CbC filing rules and
requirements in different foreign tax
jurisdictions, such as requirements to
prepare the CbC report using the local
currency or language.
In addition, CbC reports filed with the
IRS and exchanged pursuant to a
competent authority arrangement
benefit from the confidentiality
requirements, data safeguards, and
appropriate use restrictions in the
competent authority arrangement. If a

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foreign tax jurisdiction fails to meet the
confidentiality requirements, data
safeguards, and appropriate use
restrictions set forth in the competent
authority arrangement, the United States
will pause exchanges of all reports with
that tax jurisdiction. Moreover, if such
tax jurisdiction has adopted CbC
reporting rules that are consistent with
the 2015 Final Report for Action 13
(Transfer Pricing Documentation and
Country-by-Country Reporting) of the
Organisation for Economic Co-operation
and Development (OECD) and Group of
Twenty (G20) Base Erosion and Profit
Shifting (BEPS) Project (Final BEPS
Report), the tax jurisdiction will not be
able to require any constituent entity of
the U.S. MNE group in the tax
jurisdiction to file a CbC report. The
ability of the United States to pause
exchange creates an additional incentive
for foreign tax jurisdictions to uphold
the confidentiality requirements, data
safeguards, and appropriate use
restrictions in the competent authority
arrangement.
2. Form 8975, Country-by-Country
Report
At the time of publication of the
proposed regulations, the country-bycountry reporting form described in the
proposed regulations had not been
officially numbered and was referred to
in the proposed regulations as Form
XXXX, Country-by-Country Report. The
country-by-country reporting form
remains under development but has
been officially numbered. The final
regulations amend the proposed
regulations to reflect the official number
of the form, Form 8975, Country-byCountry Report, (Form 8975 or CbCR).
3. Constituent Entities and Persons
Required To File Form 8975
In the preamble to the proposed
regulations, the Treasury Department
and the IRS requested comments
regarding whether additional guidance
was needed for determining which U.S.
persons must file Form 8975 or which
entities are considered constituent
entities of the filer. Specifically, the
Treasury Department and the IRS
requested comments on whether
additional guidance on the definition of
a U.S. MNE group was necessary to
address situations where U.S. generally
accepted accounting principles (GAAP)
or U.S. securities regulations permit or
require consolidated financial
accounting for reasons other than
majority ownership, as well as
situations, if any, where U.S. GAAP or
U.S. securities regulations permit
separate financial accounting with
respect to majority-owned enterprises.

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A. Variable Interest Entities
Multiple comments addressed the
inclusion of variable interest entities
(VIEs) as constituent entities that are
part of the U.S. MNE group. In general,
a VIE may be consolidated with another
entity for financial accounting purposes,
even though that other entity may not
control the VIE within the meaning of
section 6038(e). Some comments
recommended against expanding the
definition of a U.S. MNE group to
include VIEs and further recommended
that, if those entities are nonetheless
included, an exception should apply in
cases in which the U.S. MNE group is
unable to obtain the necessary
information from a VIE. Other
comments expressed concern that
entities like VIEs would be part of the
MNE group for purposes of foreign law
relating to CbC reporting and, for
consistency with such law,
recommended that U.S. MNE groups be
permitted to include such entities. Still
other comments recommended that the
definition of constituent entity should
not be limited to majority-owned
entities and should be expanded to
include entities in which the ultimate
parent entity owns, directly or
indirectly, a 20-percent or greater equity
interest.
The final regulations do not modify
the definition of constituent entity in
the proposed regulations. Because the
final regulations are promulgated under
the authority of section 6038, the
definition of control in section 6038(e)
limits the foreign business entities for
which U.S. persons can be required to
furnish information. Thus, the
information described in § 1.6038–
4(d)(1) and (2) is not required for foreign
corporations or foreign partnerships for
which the ultimate parent entity is not
required to furnish information under
section 6038(a) (determined without
regard to §§ 1.6038–2(j) and 1.6038–3(c))
or any permanent establishment of such
foreign corporation or foreign
partnership.

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B. Permanent Establishments
Under proposed § 1.6038–4(b)(2), a
business entity includes a business
establishment in a jurisdiction that is
treated as a permanent establishment
under an income tax convention to
which that jurisdiction is a party, or that
would be treated as a permanent
establishment under the OECD Model
Tax Convention on Income and on
Capital 2014 (OECD Model Tax
Convention), and that prepares financial
statements separate from those of its
owner for financial reporting,
regulatory, tax reporting, or internal

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management control purposes. One
comment recommended that the
reference to the OECD Model Tax
Convention be revised to account for
changes to the definition of permanent
establishment that will be incorporated
into the OECD Model Tax Convention as
a result of work under Action 7
(Preventing the Artificial Avoidance of
Permanent Establishment Status) of the
BEPS Project.
Upon further consideration, and
taking into account the comment
received, the Treasury Department and
the IRS have determined it would be
more appropriate for the final
regulations to modify the proposed
regulations’ reference to a permanent
establishment in the definition of
business entity for greater clarity and
consistency with the intended meaning
of the Final BEPS Report. Accordingly,
the final regulations provide that the
term permanent establishment includes
(i) a branch or business establishment of
a constituent entity in a tax jurisdiction
that is treated as a permanent
establishment under an income tax
convention to which that tax
jurisdiction is a party, (ii) a branch or
business establishment of a constituent
entity that is liable to tax in the tax
jurisdiction in which it is located
pursuant to the domestic law of such tax
jurisdiction, or (iii) a branch or business
establishment of a constituent entity
that is treated in the same manner for
tax purposes as an entity separate from
its owner by the owner’s tax jurisdiction
of residence. This approach is more
consistent with the Final BEPS Report
and generally would avoid the need for
a U.S. MNE group that has already
determined under applicable law
whether it has a permanent
establishment or a taxable business
presence in a particular jurisdiction to
make another determination under the
OECD Model Tax Convention solely for
purposes of completing the CbCR.
C. Grantor Trusts and Decedents’ Estates
Proposed § 1.6038–4(b)(2) defines a
business entity as a person, as defined
in section 7701(a)(1), that is not an
individual. Under this definition, a
grantor trust with an individual owner
or owners would be a business entity
that could be subject to CbC reporting,
notwithstanding that the individual
owner or owners are generally treated as
the owner of the grantor trust’s property
for federal income tax purposes and
would not be subject to CbC reporting
if they owned the property directly.
Similarly, under the proposed
regulations, a decedent’s estate would
be a business entity that could be
subject to CbC reporting,

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notwithstanding that during the
decedent’s lifetime, he or she was an
individual exempt from CbC reporting.
Additionally, under the proposed
regulations, an individual’s bankruptcy
estate would be a business entity that
could be subject to CbC reporting,
notwithstanding that before entering
bankruptcy, the individual debtor
would not be subject to CbC reporting.
In light of the nature of grantor trusts,
decedents’ estates, and individuals’
bankruptcy estates and their close
connection to individual grantors,
decedents, and individual debtors, the
Treasury Department and the IRS have
determined that it is not appropriate to
include grantor trusts with only
individual owners, decedents’ estates,
and individuals’ bankruptcy estates in
the definition of business entity.
Accordingly, the final regulations
exclude decedents’ estates, individuals’
bankruptcy estates, and grantor trusts
within the meaning of section 671, all
the owners of which are individuals,
from the definition of business entity.
D. Deemed Domestic Corporations
The proposed regulations define a
U.S. business entity as a business entity
that is organized, or has its tax
jurisdiction of residence, in the United
States. One comment requested that the
final regulations clarify whether
companies that elect to be treated as
domestic corporations under section
953(d) will be treated as U.S. business
entities resident in the United States. In
response to this comment, the final
regulations expressly provide that
foreign insurance companies that elect
to be treated as domestic corporations
under section 953(d) are U.S. business
entities that have their tax jurisdiction
of residence in the United States.
4. National Security Exception
The preamble to the proposed
regulations requested comments on the
need for a national security exception
for reporting CbC information and on
procedures for a taxpayer to
demonstrate that such an exception is
warranted. Multiple comments stated
that the information provided on a
CbCR does not present a national
security concern. Other comments
recommended that the final regulations
include a national security exception
but did not recommend an appropriate
scope of the exception or procedures to
demonstrate that an exception is
warranted in a particular case. One
comment recommended that no
information should appear on a CbCR
with respect to activities performed by
a constituent entity of a U.S. MNE group
under a U.S. government contract with

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certain agencies. Other comments
recommended a bright-line test whereby
U.S. MNE groups that conduct a
majority of their business with the U.S.
Department of Defense or U.S.
government intelligence or security
agencies could claim an automatic
exception from reporting any
information other than identifying
information, such as company names,
jurisdictions of incorporation, tax
identification numbers, and addresses.
These comments also recommended
that U.S. MNE groups that conduct a
significant amount (for example, more
than 25 percent) of their business with
the U.S. Department of Defense or U.S.
government intelligence or security
agencies should be allowed, with the
approval of the IRS, to claim a similar
exemption from reporting.
The Treasury Department and the IRS
have consulted with the Department of
Defense regarding the information
collected on the CbCR. The Department
of Defense concluded that such
information reporting generally does not
pose a national security concern.
Accordingly, the final regulations do not
provide a general exception for
information that may relate to national
security. Nonetheless, the Department of
Defense continues to consider the
national security implications of the
CbCR in particular fact patterns, and
future guidance may be issued to
provide procedures for taxpayers to
consult with the Department of Defense
regarding the appropriate presentation
of CbC information in such fact patterns.
5. Partnerships and Stateless Entities
A business entity that is treated as a
partnership in the tax jurisdiction in
which it is organized and that does not
own or create a permanent
establishment in that or another tax
jurisdiction generally will have no tax
jurisdiction of residence under the
definition in proposed § 1.6038–4(b)(6)
other than for purposes of determining
the ultimate parent entity of a U.S. MNE
group. Under the proposed regulations,
tax jurisdiction information with respect
to constituent entities that do not have
a tax jurisdiction of residence, or
‘‘stateless entities,’’ would be aggregated
and reported in a separate row of the
CbCR. The preamble to the proposed
regulations indicates that partners of a
partnership that is a stateless entity
would report their respective shares of
the partnership’s items in their
respective tax jurisdiction(s) of
residence.
A comment requested clarification as
to whether the partnership or its
partners, or both, should report the
partnership’s CbC information. In

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response, the final regulations provide
that the tax jurisdiction of residence
information with respect to stateless
entities is provided on an aggregate
basis for all stateless entities in a U.S.
MNE group and that each stateless
entity-owner’s share of the revenue and
profit of its stateless entity is also
included in the information for the tax
jurisdiction of residence of the stateless
entity-owner. This rule applies
irrespective of whether the stateless
entity-owner is liable to tax on its share
of the stateless entity’s income in the
owner’s tax jurisdiction of residence. In
other words, the stateless entity-owner
reports its share of the stateless entity’s
revenues and profits in the owner’s tax
jurisdiction of residence even if that
jurisdiction treats the stateless entity as
a separate entity for tax purposes. In the
case in which a partnership creates a
permanent establishment for itself or its
partners, the CbC information with
respect to the permanent establishment
is not reported as stateless, but instead
is reported as part of the information on
the CbCR for the permanent
establishment’s tax jurisdiction of
residence.
A comment requested clarification
regarding whether distributions from
partnerships and other fiscally
transparent entities should be excluded
from owners’/partners’ reported
revenue. In response, the final
regulations clarify that distributions
from a partnership to a partner are not
included in the partner’s revenue.
Additionally, the final regulations
provide that remittances from a
permanent establishment to its
constituent entity-owner are not
included in the constituent entityowner’s revenue.
6. Clarification of Terms
The preamble to the proposed
regulations requested comments on the
manner in which the proposed
regulations require the reporting of
information on taxes paid or accrued by
U.S. MNE groups and their constituent
entities on taxable income earned in the
relevant accounting period. One
comment requested that ‘‘total accrued
tax expense’’ in proposed § 1.6038–
4(d)(2)(v) be revised to read ‘‘accrued
current tax expense’’ in order to reflect
only operations in the current year and
not deferred taxes or provisions for
uncertain tax liabilities. The proposed
regulations clearly state that the relevant
taxes to be reported relate only to the
annual accounting period for which the
CbCR is provided and exclude deferred
taxes and provisions for uncertain tax
liabilities. Therefore, the comment is
not adopted.

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The preamble to the proposed
regulations also requested comments on
whether the descriptions of any of the
other items in § 1.6038–4(d)(2)(i)
through (ix) regarding tax jurisdiction of
residence information should be further
refined or whether additional guidance
is needed with respect to how to
determine any of these items. One
comment requested that the definition
for tangible assets be revised to clarify
that intangibles and financial assets are
excluded consistent with the Final
BEPS Report. In response, the final
regulations expressly provide that
tangible assets do not include
intangibles or financial assets.
A comment noted that the term
revenue excludes dividends from other
constituent entities and recommended
that this exclusion be extended to all
forms of imputed earnings or deemed
dividends. The Treasury Department
and the IRS agree that imputed earnings
and deemed dividends that are taken
into account solely for tax purposes
should be treated the same as dividends
for purposes of the CbCR. Accordingly,
the final regulations incorporate this
recommendation.
Multiple comments recommended
that the wording ‘‘total income tax paid
on a cash basis to all jurisdictions’’ in
proposed § 1.6038–4(d)(2)(iv) should be
modified to read ‘‘total income tax paid
on a cash basis to each tax jurisdiction’’
to avoid misinterpretation of the ‘‘all tax
jurisdictions’’ language to require taxes
paid by entities that are tax residents of
different tax jurisdictions to be
aggregated rather than reported on a
country-by-country basis as intended.
The Treasury Department and the IRS
interpret the language of the proposed
regulation to require the total income
tax paid on a cash basis to any tax
jurisdiction by constituent entities that
have a tax residence in a particular tax
jurisdiction to be reported on an
aggregated basis for that particular tax
jurisdiction of residence but not the
aggregation of taxes paid by constituent
entities that have different tax
residences. For instance, if a constituent
entity pays income tax in its tax
jurisdiction of residence on its earnings
from operations in that country and is
subject to withholding taxes on royalties
received from licensees in another
country, taxes paid with respect to the
income and the taxes withheld with
respect to the royalties should be
reflected on an aggregated basis on the
CbCR in the row for the constituent
entity’s tax jurisdiction of residence.
The Treasury Department and the IRS
are concerned that the alternative
language proposed in the comments
could be misinterpreted to require

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amounts paid to different tax
jurisdictions by constituent entities
resident in a single tax jurisdiction to be
reported on a disaggregated basis.
Accordingly, this comment is not
adopted.
Multiple comments also
recommended the inclusion of two
additional items, deferred taxes and
provisions for uncertain tax positions,
in the information required to be
reported on a tax jurisdiction-by-tax
jurisdiction basis. This recommendation
has not been adopted in the final
regulations because it would impose an
additional reporting burden beyond the
information described in the Final BEPS
Report.
Multiple comments recommended
that the final regulations clarify that the
information listed in proposed § 1.6038–
4(d)(2)(i) through (ix) is reported in the
aggregate for all constituent entities
resident in each separate tax
jurisdiction. Although the language in
the proposed regulations does indicate
that the information is to be provided
with respect to each tax jurisdiction in
which one or more constituent entities
of the U.S. MNE group are resident and
in the form and manner that Form 8975
prescribes, the final regulations provide
additional language to clarify that the
information is to be presented for each
tax jurisdiction as an aggregate of the
information for all constituent entities
resident in that tax jurisdiction.
Multiple comments requested that the
final regulations clarify whether the
information must be provided for only
the constituent entities in each tax
jurisdiction or whether the information
must also be provided for U.S. MNE
group members that are not constituent
entities, for instance VIEs. The Treasury
Department and the IRS have
determined that additional language is
unnecessary because § 1.6038–4(d)(1) of
the proposed regulations expressly
requires reporting of information only
with respect to constituent entities of
the U.S. MNE group.
The final regulations provide that, for
a constituent entity that is an
organization exempt from taxation
under section 501(a) because it is an
organization described in section 501(c),
501(d), or 401(a), a state college or
university described in section
511(a)(2)(B), a plan described in section
403(b) or 457(b), an individual
retirement plan or annuity as defined in
section 7701(a)(37), a qualified tuition
program described in section 529, a
qualified ABLE program described in
section 529A, or a Coverdell education
savings account described in section
530, the term revenue includes only
revenue that is included in unrelated

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business taxable income as defined in
section 512.
7. Other Form or Information
Modifications
Multiple comments recommended
that additional information be included
on the CbCR, such as identification of
constituent entities as ‘‘pass-through’’
and a legal entity identifier for each
constituent entity using a standard
international system for identifying
individual business entities. The final
regulations do not adopt these
recommendations because they would
impose an additional reporting burden
beyond the information described in the
Final BEPS Report.
8. Voluntary Filing Before the
Applicability Date
Other countries have adopted CbC
reporting requirements for annual
accounting periods beginning on or after
January 1, 2016, that would require
reporting of CbC information by
constituent entities of MNE groups with
an ultimate parent entity resident in a
tax jurisdiction that does not have a CbC
reporting requirement for the same
annual accounting period. The proposed
regulations generally require U.S. MNE
groups to file a CbCR for taxable years
beginning on or after the date the final
regulations are published.
Consequently, U.S. MNE groups that use
a calendar year as their taxable year
generally will not be required to file a
CbCR for their taxable year beginning
January 1, 2016, and constituent entities
of such U.S. MNE groups may be subject
to CbC reporting requirements in foreign
jurisdictions. Comments expressed
concern about this possibility and
recommended various approaches for
dealing with this issue. Most comments
requested that the IRS accept and
exchange CbCRs voluntarily filed for
taxable years beginning on or after
January 1, 2016.
Consistent with the proposed
regulations, the final regulations are not
applicable for taxable years of ultimate
parent entities beginning before June 30,
2016, the date of publication of the final
regulations in the Federal Register.
Specifically, the final regulations apply
to reporting periods of ultimate parent
entities of U.S. MNE groups that begin
on or after the first day of a taxable year
of the ultimate parent entity that begins
on or after June 30, 2016. The Treasury
Department and the IRS intend to allow
ultimate parent entities of U.S. MNE
groups and U.S. business entities
designated by a U.S. territory ultimate
parent entity to file CbCRs for reporting
periods that begin on or after January 1,
2016, but before the applicability date of

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the final regulations, under a procedure
to be provided in separate, forthcoming
guidance. The Treasury Department is
working to ensure that foreign
jurisdictions implementing CbC
reporting requirements will not require
constituent entities of U.S. MNE groups
to file a CbC report with the foreign
jurisdiction if the U.S. MNE group files
a CbCR with the IRS pursuant to this
procedure and the CbCR is exchanged
with such foreign jurisdiction pursuant
to a competent authority arrangement.
9. Time and Manner of Filing
The proposed regulations provide that
the CbCR for a taxable year must be filed
with the ultimate parent entity’s income
tax return for the taxable year on or
before the due date, including
extensions, for filing that person’s
income tax return. Multiple comments
requested that taxpayers be permitted to
file a CbCR up to one year from the end
of the ultimate parent entity’s taxable
year or annual accounting period to
facilitate the taxpayer’s ability to use
statutory accounts or tax records of
constituent entities to complete the
CbCR. After considering the flexibility
allowed for sources of information for
completing the CbCR, the IRS
information technology resources
necessary to facilitate a filing separate
from the income tax return, and the
IRS’s concern that CbCRs be linked to
an income tax return, the Treasury
Department and the IRS have not
adopted this recommendation.
However, the final regulations do
provide that Form 8975 may prescribe
an alternative time and manner for
filing.
10. Employees
The proposed regulations provide that
the CbCR must reflect the number of
employees for each tax jurisdiction of
residence of the U.S. MNE group. The
proposed regulations also provide that
independent contractors participating in
the ordinary course of business of a
constituent entity may be included in
the number of full-time equivalent
employees. Multiple comments asked
for further clarification with respect to
the determination of the number of fulltime equivalent employees and the
treatment of independent contractors,
including some recommending that
independent contractors not be
included as employees. The final
regulations do not provide additional
guidance with respect to the meaning of
full-time equivalent employee or with
respect to independent contractor
situations and continue to allow for
independent contractors that participate
in the ordinary operating activities of a

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constituent entity to be included in the
number of full-time equivalent
employees. U.S. MNE groups may
determine the number of employees of
constituent entities on a full-time
equivalent basis using any reasonable
approach that is consistently applied.
The Treasury Department and the IRS
believe permitting this flexibility in
determining the number of full-time
equivalent employees of each
constituent entity appropriately
balances the burden of completing the
CbCR with the anticipated benefits to
tax administration and is consistent
with the Final BEPS Report.
The proposed regulations specify that
employees should be reflected on the
CbCR in the tax jurisdictions in which
the employees performed work for the
U.S. MNE group. Comments indicated
that this methodology is inconsistent
with the Final BEPS Report, which
provides that employees of a constituent
entity should be reflected in the tax
jurisdiction of residence of such
constituent entity, and that determining
the work location of employees would
be burdensome for U.S. MNE groups
and would present issues regarding
certain employment situations with
traveling employees. The comments
recommended that the final regulations
follow the approach of the Final BEPS
Report. In response to these comments,
the final regulations do not include the
phrase ‘‘in the relevant tax jurisdiction’’
from proposed § 1.6038–4(d)(2)(viii).
Accordingly, under the final
regulations, employees of a constituent
entity are reflected in the tax
jurisdiction of residence of such
constituent entity.
A comment requested clarification
about the tax jurisdiction in which
employees of partnerships should be
reflected on the CbCR. As discussed in
section 5 of this preamble, a partnership
may be considered a stateless entity. If
the partnership creates a permanent
establishment for itself or its partners,
then the permanent establishment itself
may be a constituent entity of the U.S.
MNE group. Employees of the
permanent establishment-constituent
entity should be reflected in the tax
jurisdiction of residence of the
permanent establishment. Any other
employees of the partnership should be
reported on the stateless jurisdiction
row under the tax jurisdiction of
residence information portion of the
CbCR.
11. Source of Data and Reconciliation
The proposed regulations provide that
the amounts furnished in the CbCR
should be furnished for the annual
accounting period with respect to which

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the ultimate parent entity prepares its
applicable financial statements ending
with or within the ultimate parent
entity’s taxable year, or, if the ultimate
parent entity does not prepare
applicable financial statements, then the
information may be based on the
applicable financial statements of
constituent entities for their accounting
period that ends with or within the
ultimate parent entity’s taxable year.
Multiple comments expressed concern
that the description of the period
covered by the CbCR in the proposed
regulations may limit the flexibility of
U.S. MNE groups to choose to use
consolidated financial statements or
separate accounting, regulatory, or tax
records prepared for the constituent
entities. To mitigate this concern, the
final regulations remove the restrictions
imposed by the proposed regulations
with respect to providing information
for the applicable accounting period of
the ultimate parent entity or for the
applicable accounting period of each
constituent entity. The final regulations
provide that the reporting period
covered by Form 8975 is the period of
the ultimate parent entity’s annual
applicable financial statement that ends
with or within the ultimate parent
entity’s taxable year, or, if the ultimate
parent entity does not prepare an annual
applicable financial statement, then the
ultimate parent entity’s taxable year.
The final regulations do not limit the
constituent entity information to
applicable financial statements of the
constituent entity but, rather, provide
that the source of the tax jurisdiction of
residence information on the CbCR must
be based on applicable financial
statements, books and records,
regulatory financial statements, or
records used for tax reporting or internal
management control purposes for an
annual period of each constituent entity
ending with or within the reporting
period.
The proposed regulations provide that
the amounts provided in the CbCR
should be based on applicable financial
statements, books and records
maintained with respect to the
constituent entity, or records used for
tax reporting purposes. The term ‘‘books
and records’’ was intended to be broad
enough to include all sources of
information that the Final BEPS Report
allows. In order to clarify this intent, the
final regulations provide that the source
of data may also include regulatory
financial statements and records used
for internal management control
purposes.
The proposed regulations state that it
is not necessary to have or maintain
records that reconcile the amounts

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provided on the CbCR to the
consolidated financial statements of the
U.S. MNE group or to the tax returns
filed in any particular tax jurisdiction or
to make adjustments for differences in
accounting principles applied from tax
jurisdiction to tax jurisdiction. Multiple
comments recommended that
reconciliation to tax accounts be
required and that ultimate parent
entities maintain records of the
reconciliation, while other comments
supported the approach in the proposed
regulations, which does not require
reconciliation. The Treasury
Department and the IRS considered
these comments, and, consistent with
the proposed regulations, the final
regulations do not require the ultimate
parent entity to create and maintain
records to reconcile the information
reported in the CbCR to consolidated
financial statements or to tax returns.
This approach provides flexibility for
U.S. MNE groups to use the available
data for each constituent entity without
imposing the potential burden of a need
to reconcile information on the CbCR
with accounts that may not even be
finalized when the CbCR is compiled,
and it is consistent with the Final BEPS
Report. The affirmative statement in the
final regulations that an ultimate parent
entity is not required to create and
maintain information to support a
reconciliation does not, however, affect
the requirement to maintain records to
support the information provided in the
CbCR.
12. Expanding Scope and Surrogate
Parent Entity Filing
The proposed regulations generally
require a U.S. business entity that is an
ultimate parent entity of a U.S. MNE
group to file a CbCR with respect to
business entities that are or would be
consolidated with the ultimate parent
entity. A CbCR is not required for an
MNE group that does not have a U.S.
business entity as its ultimate parent
entity. Multiple comments requested
that reporting be required for any U.S.
entity that exercises the ‘‘mind and
management function’’ of an MNE
group, the foreign parent entity of which
is tax resident in a jurisdiction that does
not require a report similar to the CbCR,
despite the fact that the foreign entities
of such MNE group are not controlled
foreign corporations. This
recommendation, which is not adopted,
is beyond the scope of the Final BEPS
Report and could not be implemented
under the authority provided in section
6038 to collect information on foreign
business entities owned by U.S.
persons.

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One comment recommended that the
final regulations allow a foreignparented MNE group with a U.S.
business entity to designate that U.S.
business entity as a surrogate parent
entity and allow that entity to file a
CbCR with the IRS for purposes of
satisfying the MNE group’s country-bycountry reporting obligations in other
tax jurisdictions. In light of the IRS
resources that would be required to
adopt this recommendation, the final
regulations do not permit surrogate
parent entity filing in the United States
by foreign corporations as a general
matter. However, the final regulations
provide that a U.S. territory ultimate
parent entity may designate a U.S.
business entity that it controls (as
defined in section 6038(e)) to file on the
U.S. territory ultimate parent entity’s
behalf the CbCR that the U.S. territory
ultimate parent entity would be
required to file if it were a U.S. business
entity. A U.S. territory ultimate parent
entity is a business entity organized in
a U.S. territory or possession of the
United States that controls (as defined
in section 6038(e)) a U.S. business entity
and that is not owned directly or
indirectly by another business entity
that consolidates the accounts of the
U.S. territory ultimate parent entity with
its accounts under GAAP in the other
business entity’s tax jurisdiction of
residence, or would be so required if
equity interests in the other business
entity were traded on a public securities
exchange in its tax jurisdiction of
residence.
13. Tax Jurisdiction of Residence and
Fiscal Autonomy
The proposed regulations provide
rules for determining the tax
jurisdiction of residence of a constituent
entity. Under those rules, a business
entity is considered a resident in a tax
jurisdiction if, under the laws of that tax
jurisdiction, the business entity is liable
to tax therein based on place of
management, place of organization, or
another similar criterion. The proposed
regulations further provide that ‘‘a
business entity will not be considered a
resident in a tax jurisdiction if such
business entity is liable to tax in such
tax jurisdiction solely with respect to
income from sources in such tax
jurisdiction, or capital situated in such
tax jurisdiction.’’ Multiple comments
requested that the final regulations
clarify that this language in the
proposed regulations is not intended to
exclude the possibility of a country with
a purely territorial tax regime being a
tax jurisdiction of residence. The
Treasury Department and the IRS did
not intend for the proposed regulations

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to be interpreted to treat all entities in
tax jurisdictions with territorial tax
regimes as stateless entities. The
language in question was intended to
indicate that a business entity will not
have a tax jurisdiction of residence in a
jurisdiction solely by reason of being
liable to tax in the jurisdiction on fixed,
determinable, annual or periodical
income from sources or capital situated
in the jurisdiction. For greater clarity,
the final regulations provide that ‘‘[a]
business entity will not be considered a
resident in a tax jurisdiction if the
business entity is only liable to tax in
such tax jurisdiction by reason of a tax
imposed by reference to gross amounts
of income without any reduction for
expenses, provided such tax applies
only with respect to income from
sources in such tax jurisdiction or
capital situated in such tax
jurisdiction.’’
The proposed regulations provide that
a tax jurisdiction is a country or a
jurisdiction that is not a country but that
has fiscal autonomy. Multiple
comments requested that the final
regulations address the meaning of
fiscal autonomy. In light of the need for
consistency of CbC reporting
requirements across tax jurisdictions,
the Treasury Department and the IRS do
not believe it would be helpful to
provide a general definition of fiscal
autonomy in the final regulations absent
international consensus on the meaning
of the term. However, the final
regulations clarify that a U.S. territory or
possession of the United States, defined
as American Samoa, Guam, the
Northern Mariana Islands, Puerto Rico,
or the U.S. Virgin Islands, is considered
to have fiscal autonomy for purposes of
CbC reporting.
Under the proposed regulations, if a
business entity is resident in more than
one tax jurisdiction and there is no
applicable income tax treaty, the
business entity’s tax jurisdiction of
residence is the tax jurisdiction of the
business entity’s place of effective
management determined in accordance
with Article 4 of the OECD Model Tax
Convention. One comment noted that
the ‘‘effective place of management’’ test
under the OECD Model Tax Convention
can be uncertain and ‘‘subject to second
guessing.’’ The comment recommended
that an alternative, bright-line tiebreaker rule be considered to address
such situations. The determination of
tax jurisdiction of residence in the
proposed regulations is based on the
Final BEPS Report, and the final
regulations do not create a new tiebreaker rule but add that, in addition to
the OECD Model Tax Convention, Form
8975 may provide guidance.

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Although certain entities may not
have a tax jurisdiction of residence, the
Treasury Department and the IRS have
determined that an entity regarded as a
corporation should not be considered
stateless merely because it is organized
or managed in a jurisdiction that does
not impose an income tax on
corporations. Accordingly, the final
regulations provide that in the case of a
tax jurisdiction that does not impose an
income tax on corporations, a
corporation that is organized or
managed in that tax jurisdiction will be
treated as resident in that tax
jurisdiction, unless such corporation is
treated as resident in another tax
jurisdiction under another provision of
the final regulations.
14. Reporting Threshold
The revenue threshold at or above
which a U.S. MNE group is required to
file the CbCR (reporting threshold) is
expressed in United States dollars
(USD) in proposed § 1.6038–4(h).
Foreign jurisdictions that are enacting
CbC reporting requirements based on
the Final BEPS Report may express the
reporting threshold in a foreign
currency. Multiple commenters
expressed concern that U.S. MNE
groups may be required to file a CbC
report in a foreign country, even if the
USD reporting threshold in § 1.6038–
4(h) is not exceeded, because the U.S.
MNE group’s revenues exceed the local
law reporting threshold as expressed in
the foreign currency. The comments
recommended various approaches to
address the possibility of a reporting
threshold in the final regulations that is
inconsistent with local law reporting
thresholds. The reporting threshold of
$850,000,000 in the proposed regulation
was determined by reference to the USD
equivalent of Ö750,000,000 on January
1, 2015, as provided in the Final BEPS
Report. The Treasury Department and
the IRS anticipate that other countries
will acknowledge that it would be
inconsistent with the Final BEPS Report
for a country to require local filing by
a constituent entity of a U.S. MNE group
that has revenue of less than
$850,000,000.
Multiple comments requested that the
reporting threshold be reduced to the
USD equivalent of Ö40,000,000 in order
to subject a greater number of U.S. MNE
groups to CbC reporting requirements.
Because the reporting threshold in the
proposed regulations is based on the
Final BEPS Report, it is consistent with
the agreed international standard with
respect to CbC reporting. The Treasury
Department and IRS weighed the
potential benefit of obtaining CbC
information on a larger number of U.S.

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MNE groups against the additional
administrative burden that would be
imposed on the IRS and the burden that
would be imposed on U.S. MNE groups
that would not otherwise be required to
file the CbCR. Based on these
considerations, the final regulations
maintain the reporting threshold in the
proposed regulations.
15. Confidentiality and Use of the CbCR
Multiple comments expressed
concerns regarding the confidentiality of
the CbCR. Some comments
recommended public disclosure of
CbCRs. These comments requested that
the CbCR be treated as a Treasury
report, referencing as an example the
Treasury Department’s Financial Crimes
Enforcement Network Report of Foreign
Bank and Financial Assets, rather than
tax return information, so that the CbCR
would not be subject to the
confidentiality protections under
section 6103. Other comments
supported the decision to treat CbCR as
return information.
The Treasury Department and the IRS
have determined that the information
provided on the CbCR is return
information subject to the
confidentiality protections of section
6103. This approach is consistent with
the purpose of CbC reporting as well as
the confidentiality standards reflected
in the Final BEPS Report. CbC reporting
was designed and established as part of
an international effort to standardize
transfer pricing documentation. This
standardized documentation is intended
to provide an efficient and effective
means for tax administrations to
conduct high-level transfer pricing risk
assessment. Accordingly, the Treasury
Department and the IRS are collecting
the CbCR under the authority of sections
6001, 6011, 6012, 6031, and 6038 to
assist in the better enforcement of
income tax laws. The CbCR is a return,
and the information furnished to the
Treasury Department and the IRS on the
CbCR is return information subject to
the confidentiality protections provided
under section 6103. In addition, the
Final BEPS Report provides that tax
administrations should take all
reasonable steps to ensure that there is
no public disclosure of confidential
information in CbC reports and that they
be used for tax risk assessment
purposes.
The preamble of the proposed
regulations indicates that the
information reported on the CbCR will
be used for high-level transfer pricing
risk identification and assessment, and
that transfer pricing adjustments will
not be made solely on the basis of a
CbCR, but that the CbCR may be the

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basis for further inquiries into transfer
pricing practices or other tax matters
which may lead to adjustments. Some
comments supported the limitations on
use of the CbCR information, while
other comments expressed concern that
a prohibition on disclosure of the CbCR
for non-tax law purposes is too
restrictive. Consistent with the proposed
regulations, the final regulations do not
contain specific limitations on the use
of CbCR information. However,
consistent with the Final BEPS Report,
the Treasury Department and the IRS
intend to limit the use of the CbCR
information and intend to incorporate
this limitation into the competent
authority arrangements pursuant to
which CbCRs are exchanged.
One comment recommended that
CbCR information not be provided to
state or local jurisdictions and that a
statement to that effect be provided in
the final regulations. Under section
6103(d), return information may be
provided to state agencies, but only for
the purposes of, and only to the extent
necessary in, the administration of such
state’s tax laws. The Treasury
Department and the IRS believe the
circumstances under which this
standard would be met for the CbCR are
rare, but the final regulations do not
preclude the disclosure of CbCRs to
state agencies, subject to the restrictions
of section 6103 that apply to other
returns and return information.
16. Exchange of Information With
Foreign Jurisdictions
The United States intends to enter
into competent authority arrangements
for the automatic exchange of CbCRs
with jurisdictions with which the
United States has an income tax treaty
or tax information exchange agreement.
Multiple comments expressed concern
that review of the confidentiality
safeguards and framework of the other
jurisdictions would prevent the
Treasury Department and IRS from
concluding such arrangements on a
timely basis. Comments also requested
that the Treasury Department and IRS
publish a list of jurisdictions with
which the United States exchanges
CbCRs. The Treasury Department is
committed to entering into bilateral
competent authority arrangements with
respect to CbCRs in a timely manner,
taking into consideration the need for
appropriate review of systems and
confidentiality safeguards in the other
jurisdictions. The Treasury Department
and the IRS anticipate that information
about the existence of competent
authority arrangements for CbCRs will
be made publicly available, but the
manner in which such information

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would be made publicly available has
not yet been determined.
A comment recommended that the
final regulations provide a mechanism
for reporting suspected violations of the
limitations on the use of information by
foreign jurisdictions. While the final
regulations do not provide procedures
for reporting suspected violations, the
Treasury Department and the IRS are
aware of the concern and intend to
establish a procedure to report
suspected violations of confidentiality
and other misuses of CbCR information.
A comment requested that
information transmitted under the
competent authority arrangements
include the ‘‘Additional Information’’
table in the model CbC report template
provided in the Final BEPS Report. It is
expected that such information will be
collected on Form 8975 and transmitted;
however, there may be limits to the
amount of information that can be
transmitted in any field. Such
constraints, if any, will be noted in the
Instructions to Form 8975.
17. Penalties
One comment requested that penalties
with respect to the CbCR be waived for
reports filed for the 2016 tax year and
that the Treasury Department should
advocate that other countries also waive
penalties for the 2016 tax year. The final
regulations apply to reporting periods of
ultimate parent entities that begin on or
after the first day of a taxable year of the
ultimate parent entity that begins on or
after publication of the final regulations
in the Federal Register. U.S. MNE
groups whose ultimate parent entity’s
taxable year begins before the
applicability date will not have a CbCR
filing requirement for their tax year
beginning in 2016. The final regulations
do not provide a specific waiver of
penalties for U.S. MNE groups whose
ultimate parent entity’s taxable year
begins on or after the applicability date.
The penalty rules under section 6038
generally apply, including reasonable
cause relief for failure to file.
Special Analyses
Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory impact assessment is not
required. It also has been determined
that section 553(b) and (d) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these
regulations.
It is hereby certified that this
regulation will not have a significant
economic impact on a substantial

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