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Selva Ozelli: U.S. struggles to balance tax transparency and national security

On March 12, President Trump issued an executive order blocking the biggest tech merger in history for fear that Broadcom Ltd “might take action that threatens to impair the national security of the United States.”

The plan had been for Broadcom Ltd., a Singaporean chipmaker, to acquire San Diego’s Qualcomm Inc., the leading maker of cellphone modems, for $117 billion.  

Mirroring the U.S. President’s national security concerns, on March 30 the Treasury Department and the U.S. Internal Revenue Service via Notice 2018-31  announced that it is amending its guidance on country-by-country reporting requirements for large multinational groups with annual revenue of $850 million or more that are considered “specified national security contractors” to prevent tax transparency reporting that jeopardizes national security interests.

Such contractors are those where more than 50 percent of the U.S. large multinational group’s annual revenue in the preceding reporting period is attributable to contracts with the Department of Defense or other U.S. government intelligence or security agencies.

Country-by-country reporting implements the OECD erosion profit shifting scheme, agreed to by 68 nations to prevent large multinational groups tax avoidance through transfer pricing or other means. The country-by-country reportings are exchanged via tax treaties, tax information exchange agreements, and multilateral competent authority agreements with countries where the large multinational’s foreign subsidiaries are located.

The European Commission proposed to publicly disclose country-by-country reporting on company websites and a central directory for a period of five years for all large multinationals that have any business footprint (whether an office, branch or subsidiary) in the EU.

In the United States, aerospace and defense companies were obligated to file country-by-country reporting via IRS Form 8975 on Oct 16, 2017 for the first time.

According to Notice 2018-31, a specified national security contractor that has already filed Form 8975 and Schedules A for a prior reporting period may file an amended return and attach an amended Form 8975 and Schedules A.

To prevent the original country-by-country reports from being exchanged, the amended forms should be filed by April 20, 2018, if filing on paper, or May 25, 2018, if filing electronically. The guidance applies to country-by-country reports and amended reports filed after March 30, 2018.

For these purposes, a specified national security contractor may complete/amend Form 8975, country-by-country reporting and Schedules A, by identifying itself as a specified national security contractor.

The Schedule A for the Tax Jurisdiction of the United States is completed with the aggregated financial and employee information for the entire U.S.large multinational group in Part I, Tax Jurisdiction Information, and only the ultimate parent entity’s information in Part II, Constituent Entity Information.

Another Schedule A is completed with the word “Stateless” and zeroes in Part I and only the ultimate parent entity’s information in Part II. No other Schedules A or additional information is required.


Selva Ozelli, Esq., CPA, pictured above, is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.

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