Int'l Tax News

Unilateral adoption of transfer pricing regulations may have a negative impact on real investment by multinational corporations (MNCs). This paper uses a quasi-experimental research design, exploiting unique panel data on domestic and multinational companies in 27 countries during 2006-2014, to find that MNC affiliates reduce their investment by over 11 percent following the introduction of transfer pricing regulations. There is no significant reduction in total investment by the MNC group, suggesting that these investments are most likely shifted to affiliates in other countries. The impact of transfer pricing regulations corresponds to an increase in the ``TPR-adjusted'' corporate tax rate by almost one quarter.

Grover Norquist tweeted it, so it must be true: "Tariffs are taxes."with that inspiration,we devote thisweek's column to discussing the respective pros and cons of slapping high taxes on imported steel and aluminum. Spoiler alert: The damage outweighs the gains.we also take a stab at understanding President Trump's apparent fixationwith taxing imports,which manifests itself in his criticism of other countries' border adjustments.

China's newly appointed finance minister said March 25 that Chinawill continue to optimize its tax systemwhile paying close attention to international tax reform.

Unless it is part of a globally coordinated effort, the introduction or tightening of transfer pricing rules by one country may significantly reduce local investment, according to an IMFworking paper.

Richard Collier of Oxford's Centre for Business Taxation considerswhether the arm's length principle is a principle, andwhether it is arm's length, in his blog post "THE ARM's LENGTH PRINCIPLE ("ALP") – IS IT A PRINCIPLE AND IS IT ARM's LENGTH?"and includes citations to relevant publications of the CBT on the topic.

The Norwegian Government has begun a consultation on proposed new reporting requirements for online platforms in the sharing economy.

The proposal,which follows up the publication of recommendations by the Government's sharing economy committee in 2017,would require online platforms enabling the provision of sharing economy services and the rental of property to provide "tax relevant" information about the service provider or landlord to the tax administration.

The Organisation of Eastern Caribbean States (OECS), a grouping of 15 Caribbean territories, says it isworking hard through its Brussels embassy to address EU concerns,which have led to a number of its members being included on a tax blacklist.

The European Commission is to take steps to ensure that EU external development and investment funds cannot be channelled or transited through entities in countries included on the EU's "blacklist" of non-cooperative tax jurisdictions.

The Commission has published guidelineswhich set out the applicable legislation on how EU funds should be treatedwhen it comes to tax avoidance and non-cooperative jurisdictions. The guidelines are intended to ensure that the rules are interpreted and applied consistently.

The Swiss Federal Council has approved tax proposal 17, the package of reforms designed to bring Swiss tax rules more closely into linewith international standards.

On March 21, the Council adopted the dispatch on TP17. It said that the packagewill make a decisive contribution to Switzerland's competitiveness, and that itwishes to quickly improve matters for domestic and foreign companies.

The Swiss Government haswarned against the introduction of short-term measures targeted at tackling the problems of taxing the digital economy.

The Government said that it had made clear during thisweek's meeting of G20 finance ministers and central bank governors that the digital economy should be appropriately taxed. However, the Government recommended that the existing tax rules and possible options for reform should be discussed in the OECD. It stressed that in order to guarantee legal certainty, avoid over- and double taxation, and to combat high administrative burdens, governments should avoid the introduction of short-term measures.

The OECD plans to achieve an international consensus by 2020 on taxing the digital economy, but this ambitious timeline is unrealistic, say experts. The OECD's David Bradbury defends the organisation's approach in an exclusive conversationwith International Tax Review.

German media group Bertelsmann haswarned that European Commission plans to impose a digital tax on internet companies such as Google, Apple and Facebook could hit European businesses harder than the US technology groups.

The U.S. is firmly opposed to any proposals that single out digital companies for taxation, the Treasury Department's international tax counsel said. Short-term or interim proposals, such as those put forward by the European Union, create the risk of double taxation, and could discourage innovation and harmworkers and consumers, said Treasury's Douglas Poms.

A new German law closing tax loopholes for royalty payments on patent licenses and other potentially harmful practices could spur a backlash from poorer EU nations already resistant to bloc harmonization measures, attorneys told Bloomberg Tax.

Foreign companieswith Indian subsidiaries aren't required to file country-by-country reports in India by March 31, according to a government notification released days ahead of the anticipated deadline. The March 31 deadline for country-by-country reporting now only applies to India-headquartered multinationals.

Beijing has announced taxwaivers for foreign investors in the country's new crude oil futures contracts due to launch March 26, bringing them in linewith international practices. Similar taxwaivers are expected for Chinese commodities futures launches likely to begin in the coming months.

European Union officials insist that most EU member nations agree large internet companies pay an unacceptably low amount of tax and U.S. President Donald Trumpwill block any solution from the OECD to resolve the issue.

The European Union may add the U.S. to its blacklist of tax havens if an OECD panel concludes its new tax law breaks bloc rules. Earlier this month the EU asked the OECD Forum for Harmful Taxation to conduct a "fast-track" review of the tax changes.

The Spring Statement confirmed the U.K. government's commitment to introducing an extension of corporation tax for digital businesses. The statement included an updated version of the consultative document on the taxation of digital companies. The proposed form of the tax is, however, far from clear as are the means bywhich the technical complexities in framing a tax on the value created by digital business tax can realistically be overcome. The proposed solution to this difficulty in the short-term is to propose a temporary turnover based tax. This proposal has already been criticized.

Investors are scratching their heads aboutwhy a key measure of distress in financial markets is at its highest level since the financial crisis in 2009, even though there isn't any panic about banks' health. The answer may be the U.S. tax bill, and how it has penalized U.S. branches of foreign lenders for borrowing cash from their headquarters.

A new tax aimed at overseas income earned by U.S. technology and pharmaceutical firms is hitting unexpected places, includingKansas City Southern,a U.S. railroad company. The new minimum tax on foreign earningswill cost Kansas City Southern $25 million a year, according to the company,whichwarns the measure also encourages it to borrow money outside the U.S.

Evidence of the impact of tax incentives in developing countries is scarce, and more analysis is needed for better policymaking, according to researchers at the Institute for Fiscal Studies (IFS).

New York budget negotiators could decidewithin the nextweekwhether the state and New York City business tax lawswill decouple from specific foreign-source income provisions of the federal Tax Cuts and Jobs Act.

In the BEPS action plan, the OECD emphasized that the projectwas focused on multinationals' tax avoidance, and "not directly aimed at changing the existing international standards on the allocation of taxing rights on cross-border income." But that artificially narrow focus on tax avoidance,which ignored larger changes in the conduct of global business that facilitated multinationals' using rules to achieve lower tax rates, meant the project's recommendations addressed only the most superficial problems facing an international tax regime thatwas developed early in the last century.

EU governmentswant EU-wide equalization taxes, like the ones that the Italian and Hungarian governments have enacted. The OECD doesn'twant them to have these taxes ÔøΩ and if they do have them, they should be temporary and narrowly targeted. The OECD Centre for Tax Policy and Administration and the European Commission are battlingwith dueling reports on the merits of an equalization tax for Europe and expansion of the permanent establishment standard beyond physical presence. The OECD is losing those battles but prevailed in skirmishes over the details.

In this article, the authors discuss the recent increase in the Korean corporate tax rate and the government's reaction to the country's appearance on the EU blacklist of noncooperative tax jurisdictions.

In this article, the author examines India's new goods and services tax to determinewhether it has, in practice aswell as under theworld Bank's measurement system, helped ease the process of doing business in India.

The multilateral instrument, a key outcome of the OECD's base erosion and profit-shifting project,will enter into force on July 1 after the OECD received the requisite fifth instrument of ratification from Slovenia.

Forthcoming regulations on the Tax Cuts and Jobs Actwill focus on allowing the foreign tax credit towork aswell as possible given damage caused by the TCJA, according to an IRS official.

The OECD has released additional guidance on the attribution of profits to permanent establishments created as a result of a broader PE definition. The OECD announced on March 22 a report clarifying the application of the rules on attribution of profits to PEs under article 7 of the OECD model tax convention to PEs resulting from the changes to article 5 of the model recommended in the final action 7 report of the base erosion and profit-shifting project. The guidance focuses on high-level concepts and the application of the authorized OECD approach ("the AOA," as contained in article 7 of the 2010 version of the OECD model) to PEs arising from articles 5(4) and 5(5).

A top House Republican saidwednesday that Republicans are considering a second tax-reform package later this year, boosted by "optimism" about the GOP tax plan passed at the end of 2017.

Lastweek, Ohio-based Dana Inc. announced that it is planning on moving its headquarters to the United Kingdom. In Thewall Street Journal, the CFO said that "evenwith the new tax legislation, there is a benefit for us." The company expects that even under the Tax Cuts and Jobs Act (TCJA), this movewill reduce its tax liability by around $600 million over several years.

European leaders are scheduled to gather at a summit March 22-23 for a first discussion on the European Commission's proposals to tax the digital economy, but agreement seems unlikely. Irish Prime Minister Leo Varadkarwas the first EU leader to go on the record about the commission's plans. He told his national Parliament on March 21 that hewould "be making clear my views that any such measurewill be ill-judged."

New guidelines released by the European Commissionwill limit the transmission of EU funds through countries on the EU's list of noncooperative tax jurisdictions. The commission released new guidelines March 21 in the form of a communication that incorporates the goal of tackling tax avoidance in rules governing the use of EU external development and investment funds so those funds cannot be routed through entities in countries on the EU's blacklist.

The Swiss Federal Council approved a compromise tax reform bill thatwould require patent box beneficiaries to pay tax on at least 30 percent of their profits and limit reductions in tax on dividends.

No European companieswould be hit by the digital tax proposed by the European Commission because the proposal's turnover thresholdwould exempt all but the most obvious American tech giants, tax observers argue.

Sweden's government proposed to tighten corporate interest rate deductions to prevent profits from leaving the country, combinedwith a cut to the overall corporate tax rate in bid to boost competitiveness.

The New Jersey Tax Court didn't find reason to reverse its earlier ruling that the state couldn't impose a corporate business tax on foreign source income that isn't taxable at the federal level.

Germany has cooled on ambitious EU plans for a turnover tax that hits big US digital companies, dealing a blow to a policy championed by President Emmanuel Macron of France. As the European Commission unveiled its proposals for a pan-EU tax to raise ÔøΩ5bn annually, Berlin qualified its initial support for the idea, expressing skepticism about the principle of a narrow levy targeting digital earnings.

Ireland is resisting EU plans for a provisional 3 percent tax on the revenues of digital giants such as Google, saying Brussels should insteadwait two years for a global tax measures from the OECD.

The European Union's justification for a new tax on technology companies hinges on a novel view of how profits are generated, one that the U.K. Treasury has espoused. European officials say that means value is generatedwhere users are locatedÔøΩand the tax system should change to reflect that. The European Commission onwednesday proposeda tax set at 3% of revenueson some of the digital activities of a small cadre of tech superpowers, including FacebookInc.andAlphabetInc.'sGoogle.

The U.S. is open to participating in a global discussion of how to adapt the international tax system to the modern economy, including how to allocate profitsÔøΩas long as the discussion is about the broader economy and not just about digital businesses, a Treasury official said. "I'd say that U.S. tax reform has addressed, in our view, many of the concerns that existed about digital business models," Chip Harter, Treasury's deputy assistant secretary of international tax affairs, told Bloomberg Tax March 20.

Finance Minister Bill Morneau said Canada recognizes the potential disruption major technology companies can have on government revenue andwill studywhether a new tax regime is required for the industry.

Nancy McLernon of the Organization for International Investment has expressed support for Treasury's plan to remove the documentation rules under reg. section 1.385-2 and has suggested that Treasury alsowithdraw the reg. section 1.385-3 per se recast rule and the reg. section 1.385-4 U.S. consolidated group rules, saying that the Tax Cuts and Jobs Act (P.L. 115-97) addressed Treasury's policy concerns underlying those rules.

The pace of policy reforms to boost productivity is lagging among G-20 countries, but some bold tax policies stand out, and progress is being made to limit tax avoidance by multinationals, according to the OECD.

This chapter evaluates the recent OECD Base Erosion and Profit Shifting (BEPS) initiative directed at global digital income, and concludes that tax planningwill not be inhibited by any significant extent. Tax planners and academics nevertheless should take into account prospective reforms surrounding permanent establishments, hybrid entities, treaty shopping, transfer pricing and controlled foreign corporations,which may challenge certain practices.

Despite divergent views among countries on how to tax highly digital businesses, the OECD's interim report attempts to guide countries contemplating further unilateral action,while laying the foundation for reaching a consensus-based solution by 2020.