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US and France issue Joint Statement on Spontaneous Exchange of CbC Reports

US and France issue Joint Statement on Spontaneous Exchange of CbC Reports

Auteurs : Terence WILHELM. Terence Wilhelm is an Attorney at Law, PhD, and the managing partner of CARA Avocats, a law firm dedicated to tax and transfer pricing in France
Publié le : 29/01/2018 29 janvier Janv. 2018
On January 12, the IRS announced on its webpage that the US and French Competent Authorities are about to sign a Joint Statement to spontaneously exchange country-by-country reports filed by their respective taxpayers. This statement is one of the practical effect of the OECD and G20 initiatives to tackle base erosion and profit shifting (the BEPS action plan) that both countries publicly announced to adhere to. As such, the Joint Statement reflects the willingness of both countries to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which multinational enterprise groups operate.

Although well anticipated, this Statement presents two specifics that are worth being noted.

First, this Statement finds its legal roots in the US and France tax treaty signed in August 1994 and more particularly, its article 27 that authorizes exchange of information for tax purposes. Indeed, whereas France, the US have not yet signed the Multilateral Competent Authorities Agreement on Automatic Exchange which provides a standardized and efficient mechanism to facilitate the automatic exchange of information in tax matters (the “MCAA”). Yet, the Competent Authorities preferred not to wait for the negotiation’s conclusion of the MCAA and instead expressed their willingness to immediately start exchanging CbC Reports.

Second, this Joint Statement comes into play a couple weeks after most French taxpayers submitted their CBC reports. As a matter of fact, the French CbC requirement starts applying to MNEs fiscal years starting on or after January 1, 2016, whereas the US requirement starts applying as of June 30, 2016. Most French entities falling within the ambit of the CbC requirement therefore were expected to submit their file before December 31, 2017. The postponed adoption of the CbC requirement by the US caused rift in France as it could have triggered the application of penalties for failure to provide a complete CbC report to French affiliates being part of US Groups falling within the scope of the requirement. Based on a strict reading of the French rule, such affiliates should have indeed filed a CbC report in France, unless they can demonstrate that another entity of that same group and established in a partner country mentioned on the list drawn by the French tax administration submitted the CbC on their own.

To address this situation, the US Treasury Department and the IRS indicated in mid-2017 that US ultimate mother companies could spontaneously submit a CbC report, even though the US requirements started applying to the next fiscal year. This was to address the situation where failure to adopt CbC reporting requirements in the United States would very likely increase compliance costs because U.S. MNE groups may be subject to CbC filing obligations in multiple foreign tax jurisdictions. In turn, the French tax administration announced that by doing so, French entities being part of that same group would be relieved from submitting the CbC report and by the same token, would not be subject to the Euros 100,000 penalty for failure to provide a complete CbC report on time.

This Joint Statement therefore is a positive step toward more transparency and legal safety. Coincidentally, it occurs a week before both Competent Authorities meet to discuss mutual agreement procedures (“MAP”) common cases.

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