Late last month, the NAM sent a letter to Rep. Charles Boustany (R-LA), a member of the House Ways and Means Committee, endorsing legislation (H.R. 4297) he recently introduced. The aptly named Bad Exchange Prevention (BEPS) Act addresses some of manufacturers’ concerns with the recommendations in the Base Erosion and Profit Shifting (BEPS) project spearheaded by the G-20 and the Organisation for Economic Co-operation and Development.
The BEPS recommendations—which were approved in November by the G-20 leaders—include a new proposal on transfer-pricing documentation that takes a three-tiered approach to information sharing and disclosure. Specifically, it recommends a master file to provide a complete picture of a company’s global operations; a local file of more detailed information relating to specific intercompany transactions impacting a tax jurisdiction; and a country-by-country report (CbCR) with aggregated financial and tax data.
The CbCRs that companies file with their own country would impose an additional administrative burden on companies. These reports, however, would be submitted to foreign countries under bilateral treaties and information exchange agreements with protections to ensure confidentiality, consistency and appropriate use of the information by foreign countries. If a country fails to abide by these conditions, Treasury has stated its intent to suspend the information exchange.
Unfortunately, this is not the case with the master file, which could be required directly by any country where a company does business. Moreover, unlike CbCRs, the master file information generally is not subject to any confidentiality, consistency or appropriate use conditions beyond those that may apply locally.
H.R. 4297 clearly describes potential abuses of the master file requirements. Moreover, by requiring the federal government to withhold CbCRs from countries abusing master file documentation requirements or failing to keep master file information confidential, H.R. 4297 ensures the federal government will protect U.S. businesses from being forced to disclose sensitive and confidential taxpayer information to foreign tax authorities. The legislation also helps reduce the compliance burden of the new CbCRs by delaying Treasury’s implementation of the reporting requirements.
When it comes to tax policy, manufacturers believe a fair and transparent tax climate in the United States—including competitive business tax rates and modern international tax rules—will boost economic growth worldwide. At the same time, an appropriate balance needs to be struck between transparency and confidentiality of the proprietary information that enables companies to compete and prosper in a global economy. By protecting manufacturers’ sensitive and confidential commercial information, H.R. 4297 helps achieve that balance.