The French tax administration has officially indicated this morning that subsidiaries and PEs in France of foreign MNEs, including US groups, do not have to file a CbCR in France before the end of 2017, regarding FY open on or after January 1st, 2016, as long as the CbC report has been voluntary filed in the jurisdiction were the ultimate parent company is a resident and that this jurisdiction meets some criteria; the US do meet those criteria.
Under OECD recommendations, jurisdictions should require, in a timely manner, the filing of country-by-country declarations by the ultimate parent companies of MNE group resident in their countries and exchange this information, on an automatic basis, with the jurisdictions in which the MNE group operates and in which subsidiaries meet the requirements for filing Country-by-Country reporting (CbCR). France has introduced this requirement by article 223 quinquies C of the French Tax Law; a 2017, July 6th Finance Minister decision (arrêté) has listed the countries which will send the CbCR to France and be recipient of the CbCR filed in France. This list does not include the United-States.
However, the OECD recommendations include two derogatory procedures, when a jurisdiction does not exchange that CbCR report or does not implement the declaration for fiscal years beginning on or after January 1st, 2016 but has its legislation in place (as in the United States):
- Parent Surrogate Filing: to accommodate voluntary CbCR filing by a constituent entity in a different jurisdiction that allows filing of CbC Reports by Surrogate Parent Entities. The country of substitution will bear the CbCR’s filing procedure and dissemination obligations to other jurisdictions to which it is bound by bilateral agreements.
- Ultimate Parent Surrogate Filing: to accommodate voluntary filing for Ultimate Parent Entities resident in their jurisdiction. This would allow the Ultimate Parent Entities of an MNE Group resident in those jurisdictions to voluntarily file their CbC report for the fiscal periods commencing on or from January 1st, 2016 in their jurisdiction of tax residence.
Where such a surrogate filing (including ultimate parent surrogate filing) is available, no other local filing obligation is needed for the subsidiaries of the MNE group in any jurisdiction which has an agreement with the ultimate parent entity jurisdiction of residency, as the CbCR will be automatically provided.
France and the United-States have started to negotiate a specific CbCR agreement to design the way the two tax administrations will exchange the CbCRs filed in their territory. However, it is not signed yet. That is the reason why the US are not on the list of the July 6th Finance Minister decision.
However, the French tax administration has officially made clear this morning, by comments released on its web site, that during this transitional period, the voluntary filing of the CbCR declaration in the USA will lead to consider that French subsidiaries have fulfilled their obligation under the French Law. This official position is based on this transitional exception provided by the OECD: according to the French tax administration analysis, even though the bilateral agreement between France and the United States providing for the automatic exchange of CbC reports is not signed yet, the bilateral tax treaty (signed on August 31, 1994, lastly amended on January 1, 2009) allows the United States to spontaneously exchange with France the CbCRs as requested by the BEPS recommendations and the French Tax Law.
On their side, the United States have formally indicated that they accept to implement the Ultimate Parent Surrogate Filing procedure, thereby committing themselves to voluntarily send CbCRs spontaneously filed in the US to the French tax administration.
Groups seeking for greater legal security may choose to send to the French tax administration, before the end of 2017, a hard copy of the CbCR filed to the IRS, so that they will ensure the French tax administration has the information expected from the IRS.
Moreover, in order to ensure that the French tax administration will not disseminate this CbC report automatically, considering that this declaration has been filed with the French tax administration, this CbCR hard copy may be sent to the French tax administration with a cover letter highlighting to the French administration that this report is only shared for information and should not be seen as the OECD’s Surrogate Filing.