| The Washington, D.C.-based Financial Accountability and Corporate Transparency (FACT) Coalition last week filed a letter with the U.S. Treasury Department objecting to a recent notice from the IRS that granted an arbitrary and capricious “national security” exemption to a number of large businesses from important rules to help ensure that large multinational corporations do not game the tax code.
The IRS on March 30 issued Notice 2018-31, creating a national security exception to rules that require all U.S. multinational corporations with annual revenues exceeding $850 million to privately disclose to the IRS their taxes, revenues and profits on a country-by-country basis.
The FACT Coalition’s letter notes in part:
Notice 2018-31 announces that Treasury and the IRS have determined to create a national security exception to the CbC reporting requirement for corporations that are federal contractors where “more than 50 percent of the U.S. MNE [multinational enterprise] group’s annual revenue, as determined in accordance with U.S. generally accepted accounting principles, in the preceding reporting period is attributable to contracts with the Department of Defense or other U.S. government intelligence or security agencies.” The notice gives the new exception immediate effect and states that it applies to “CbC reports and amended CbC reports filed after March 30, 2018.” The notice characterizes its creation of the national security exception as providing interpretative “guidance,” rather than exercising federal rulemaking authority.
The notice does not contain any factual explanation or reasoned analysis justifying creation of the national security exception. Nor does the Notice acknowledge that the 2016 CbC rulemaking explicitly solicited public comment on the creation of a national security exception, reviewed multiple responsive comments on that matter, and explicitly decided against creating the exception, in part because the “Department of Defense concluded that [CbC] information reporting generally does not pose a national security concern.” The notice does not provide any facts, data, other information, or reasoned analysis that would justify reversing that rulemaking determination, made just two years ago after a public comment process. Nor does the notice explain why creating the national security exception was previously considered to be part of a rulemaking but is now treated as a matter of guidance.
The notice also fails to cite any facts, data or other information justifying the 50 percent of annual revenues threshold for granting an exception to the CbC reporting disclosures. Nor does it explain the contours and membership of the multinational enterprise group whose revenues will determine the exception’s application. Nor does the notice provide any data or estimates on the number or percentage of corporations which are expected to be excused from providing key CbC reporting elements due to the exception.
Given the failure of the notice to provide a factual basis or reasoned explanation justifying its determinations, as well as its failure to respond to significant public comments related to this matter, the notice’s creation of an immediate national security exception to the CbC reporting requirement is arbitrary and capricious. We respectfully request that Treasury and the IRS withdraw Notice 2018-31, reconsider the matter and consult with interested parties. If a decision is made to proceed with the national security exception, we respectfully request issuance of a proposed rule with a detailed justification and 90-day public comment period.
The full letter can be viewed on FACT’s website.
