Int'l Tax News

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International Tax News Edition 40 June 2016

  • By PwC
by PWC
International Tax News is designed to help multinational organisations keep upwith the constant flow of international tax developmentsworldwide. Among the topics featured in this month's edition are:
  • Changes to Brazil's capital gains tax rates
  • The US Treasury's proposed Section 385 regulations on related party financing
  • The French Supreme Court's final decision on remuneration of cash funding from a branch to its head office
  • The UK Court of Appeal upholds High Court decision regarding taxation of foreign portfolio dividends
To read more go here

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The key to stopping inversions is tax reform, not political rhetoric

Politicians continue to rail against corporate inversions at every opportunity. Presidential candidates repeatedly have called for a government crackdown to prevent businesses from moving overseas. Unfortunately, most of their populist rhetoric misses the mark.

To read more go here

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Proposed Section 385 Regulations and S Corporations: Borrower Beware!

by Horacio Sobol & Sam Starr
PwC's Horacio Sobol and Sam Starr of Bloomberg BNA look at the effects proposed tax code Section 385 regulations (REG-135734-15) could have on S corporations if they are finalized. The authorswrite that "if S corporation owners and practitioners aren't careful, they may find S corporation status has terminated due to debt being recharacterized into a second class of stock."
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The Increasing Relevance of Transfer Pricing in M&A

by Patrick Tijhuis and Marcel van den Heuvel
The authors address the transformation of tax laws and regulations currently taking place under the OECD/G-20 initiative to combat tax avoidance, base erosion and profit shifting, and how it impacts the capital structure, strategic goals and priorities of an M&A transaction.
To read more go here Subscription Required

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Section 367 Adrift: Old Statute, New Applications, Part 2

by Peter M. Daub

The first partof this two-part report showed that, beginningwith its original enactment in 1932 and through the 1980s,when the statute effectively took its current form, Congress, the courts, and the IRS understood section 367 to apply onlywhen the unmodified application of a subchapter C provision specified in section 367 to a cross-border or foreign-to-foreign transactionwould thwart a basic tax policy or provision other than one reflected in a specified provision.This part of the report shows how the IRS has began to pursue other goals such as subjecting to U.S. income tax funds or other property transferred from a foreign subsidiary to its U.S. parent, even if the property does not represent income or gain in any conventional sense, and expanding the reach of U.S. taxing jurisdiction over income earned by foreign subsidiaries that has not been repatriated.

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EU Competition Arm to Stick to OECD Transfer Pricing Guidelines

by Stephanie Soong Johnston
Despite concerns that the European Commissionwants to reinvent the OECD's transfer pricing guidelines, EU Competition Commissioner Margrethe Vestager recently reassured the OECD that the EUwill continue to follow the guidelines.
To read more go here Subscription Required

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In Transfer Pricing, Control' Defined By Power, Not Ownership

Bloomberg
by Doloresw. Gregory
The definition of "control" in federal transfer pricing regulations doesn't turn on ownership, but onwhether any one individual or party can "move or influence" a related entity, the IRS said in recent internal guidance.
In training materials for IRS examinersÔøΩISI/9422.09_02(2013)ÔøΩthe agency set out the fundamental requirements of tax code Section 482.
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Proposal for a New Institutional Framework for Mandatory Dispute Resolution

by Jeffrey Owens, Arno E. Gildemeister, and Laura Turcan
Jeffrey Owens, Arno E. Gildemeister, and Laura Turcan propose a new provision based on article 25 (alternative B) of the U.N. model double taxation convention that contains several amendments and additions, such as proposed alternative dispute resolution and mandatory dispute settlement clauses.
To read more go here Subscription Required

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Video: Exclusive interview with Pascal Saint-Amans (1)

Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD, sat downwith International Tax Review reporter Amelia Schwanke to discuss the most prominent topics in tax because although "tax isn't fun, it's absolutely fundamental if youwant to have services to the population".

To read more go here

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EU Financial-Transaction Tax Push May Soon Grind to a Halt

The European Union's plan to implement a financial-transaction tax may be called off soon if more countries back out, Austrian Finance Minister Hans Joerg Schelling said.

To read more go here

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Options for Reforming America's Tax Code

  • By Tax Foundation

by Tax Foundation

There is awidespread consensus among Americans across the political spectrum that the U.S. tax system is overly complex, inefficient, uncompetitive, and due for an overhaul. As a result, many U.S. policymakers have expressed a desire for comprehensive tax reform in the near future.

To assist lawmakers in assembling tax reform bills over the coming months, and to help the American public in understanding the tax changes being proposed,we've assembled this book: a collection of 86 commonly proposed changed to the U.S. tax code that might be part of a future tax reform bill.

To read more go here

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New book explains tradeoffs of tax proposals to lawmakers

by Naomi Jagoda

The Tax Foundation released a book on Monday to help explain to lawmakers the tradeoffs involved in various tax-reform ideas.

The book from the free-market group analyzes 86 commonly proposed changes to the tax code and estimates their effects on revenue, the economy, jobs and the distribution of the tax burden across income groups.

To read more go here

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G-20 Finance Ministers to Focus on Tax Certainty

by Kevin A. Bell
The next meeting of the Group of Twenty finance ministersÔøΩon July 23 and 24 in Chengdu, ChinaÔøΩwill focus onwhat can be done to increase tax certainty in order to foster inclusive growth among theworld's economies, an OECD official said.
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EU Competition Arm to Stick to OECD Transfer Pricing Guidelines (1)

by Stephanie Soong Johnston
Despite concerns that the European Commissionwants to reinvent the OECD's transfer pricing guidelines, EU Competition Commissioner Margrethe Vestager recently reassured the OECD that the EUwill continue to follow the guidelines.
To read more go here Subscription Required

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Agreement on EU Financial Transaction Tax Elusive as Deadline Nears

by Amanda Athanasiou
As proponents of an enhanced cooperation agreement on a financial transaction tax face a June 30 deadline, disagreement continues to plague central components of the plan, according to a June 3 statement by the European Council.
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The Perfect Tax Storm! Full Disclosure of All Topics to All Stakeholders in Real Time

by Steef Huibregtse, Maria Grigoryeva and Margie van der Valk
Recommendations on disclosing tax arrangementswere published as part of the final reports on all 15 base erosion and profit shifting actions in the context of the G-20/OECD BEPS initiative. TPA Global's Steef Huibregtse, Maria Grigoryeva and Margie van der Valk examine OECD and EU activity in this field and consider how multinational enterpriseswill be forced to disclose tax arrangements to multiple stakeholders in real time.
To read more of the Bloomberg story, go here Subscription Required

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OECD Developing Binding MAP Provision for Multilateral Instrument

by Alexander Lewis
An OECD discussion draft raises questions regarding the development of a mandatory binding mutual agreement procedure (MAP) provision that could be included in the multilateral instrument to implement treaty-related base erosion and profit-shifting measures.
For the TNT story, go here. (subscription required)

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Why McDonalds and Google are in trouble in Europe

by Renea Merle

Across Europe, just how much - or little - U.S. multinational firms are paying in taxes is coming under intense scrutiny.

To read more of thewashington Post story, go here

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G-7 leaders pledge to steadily adopt BEPS international tax measures

  • By MNE Tax
by Multinational Tax & Transfer Pricing News
Leaders of the G-7 nations of the US, UK, Canada, France, Japan, Germany, and Italy, following their meeting in Ise-Shima, Japan, vowed to "lead by example" by implementing the OECD/G20 base erosion profit shifting (BEPS) package in a "steady, consistent, and concerted manner."
To read more of the MNE Tax story, go here

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OECD: New Cop on the Block

by Cina Corner
The new global financial sheriff these days is not a bank president or the CEO of a security company. Appearing more and more in the headlines, the Organization for Economic Co-operation and Development (OECD) seems to be all over the place, issuingwarnings of impending economic doom and heading up major campaigns on the tax front.
To read more of the Daily Forex story, go here

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The Puzzling Policy of Foreign Tax Credits

by Alan Cole
This month, the Australia Institute released a report that argues persuasively that a substantial portion of Australia's corporate income tax cutswill simply end up resulting in increased revenue for the U.S. Treasury.
To read more go here

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China postpones cross-border sales tax over fears of e-commerce slowdown

by Qian Chen (CNBC)
China's tax authorities have rolled back on their new cross-border sales tax program in an attempt to avoid a pile of problems.
To read more go here

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ICC urges consideration of broader trade implications of tax policies in response to BEPS recommendations

by Dawn Chardonnal (International Chambers of Commerce)
The International Chamber of Commerce recognizes the efforts of an increasing number of tax authorities to revise their tax policies in response to the international guidelines outlined in the G20 mandated OECD BEPS project. ICC urges national governments to seriously consider the broader implications of their proposed measures and strongly recommends an alignmentwith existing guidelines thatwould facilitate greater consistency internationally and incentivise cross-border trade, investment and economic growth.
To read more go here

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Taxing Multinational Enterprises as Unitary Entities

Tax Analysts

by Sol Picciotto
Sol Picciotto explores the international tax questions raised by treating multinational enterprises as single or unitary entities.
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Changing Tides: Wading Through the BEPS Implementation Waters

Tax Analysts

by Stephanie Soong Johnston
At the May 19-20 IFA Mauritius chapter's 10th annual Asia/Africa Conference 2016 in Balaclava, Mauritius, hundreds of practitioners, government officials, academics, and civil society representatives gathered to discuss the BEPS project implementation phase and its effects on African and Asian countries, financial centers, and tax planning.
To read more go here Subscription Required

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News Analysis: Debt-Equity Regs -- Treasury's Options

Tax Analysts

Mindy Herzfeld previews the battle that the U.S. governmentwill face in finalizing its recently proposed section 385 regulations and outlines some options Treasurywill have in that process.
For the TNI article, gohere. (Subscription required)

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Section 367 Adrift: Old Statute, New Applications

Peter M. Daub is a partner at Morgan, Lewis & Bockius LLP. In this report,which is the first of two parts, Daub traces the development of section 367 policy and addresses how in recent antiabuse guidance the IRS has altered the application of section 367 to cross-border and foreign-to-foreign transactions.

To read more go here Subscription Required

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News Analysis: The Path to Fragmented Tax Reform

by Marie Sapire (Tax Notes)
The Tax Reform Act of 2014, introduced by former Houseways and Means Committee Chair Dave Camp,was misnamed -- at least regarding the year. A more accurate titlewould have been "A Compendium of Tax Reform Acts for 2015 and Beyond," because that iswhen some of its provisionswill come to fruition.
To read more go here Subscription Required

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BRT Letter to Congress on Treasury Department's Proposed Debt/Equity Regulations

by Kevin Brady (Business Roundtable)
The Business Roundtable has strong concerns about the potential business disruption, significant breadth of impact, and adverse consequences caused by the proposed Section 385 regulations.
To read more go here Subscription Required

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The New U.S. Model Treaty is OUt

Bloomberg

by James J Tobin
James J. Tobin of Ernst & Young looks at changes included in the new U.S. Model Treaty.while the author applauds modifications to the mutual agreement procedure to require mandatory binding arbitration, he questions denials of treaty benefitswhere a "special tax regime" is in play and for payments made by expatriated entities, aswell as changes tightening the limitation on benefits.
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Lawmakers Provide Details on Tax Reform Blueprint

by Kat Lucero (Tax Notes)
An upcoming House tax reform blueprintwill be a future guide for international, business, and individual reform and may contain some tax proposals thatwere considered during a few rounds of member day hearings hosted by theways and Means Committee, according to committee memberswho spoke to Tax Analysts May 26.
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Earnings-Stripping Rules Threaten the Money Business: Banks

Bloomberg

by Alison Bennett
Controversial earnings stripping rules could deal a harsh and unintended blow to the financial industry.
Bankswith thousands of transactions crossing the globe daily say the rules could derail some of the most routine movements of cash in an industrywhose function is to move money around theworld.
To read more go here Subscription Required

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Tax-Writers Press on with Tax Reform Proposals; Treasury to HaveIntense Comment Period on Section 385 Regulations - See more at: http://www.natlawreview.com/article/tax-writers-press-tax-reform-pro

by Brandon C Roman& Stephanie L. Shaker (The National Law Review)
In light of intense scrutiny and pushback from industry, Treasury Deputy Assistant Secretary Bob Stack acknowledged that Treasury "may have missed things" in its latest rulemaking targeting corporate inversions and the ability of multinational corporations to engage in so-called "earnings-stripping" practices.
For the National Law Review article, gohere.

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ECOFIN Adopts CbC Reporting, Postpones Vote on Antiavoidance Directive

Tax Analysts

by JP Finet
The EU Economic and Financial Affairs Council on May 25 approved the implementation of country-by-country reporting for multinational companies and extended through 2017 the 15 percent minimum standard VAT rate.
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How the Proposed Section 6038A Regulations

Bloomberg

by John C. Dworkin
John C. Dworkin of John C. Dworkin P.C. looks at how proposed regulations under Section 6038A affect common ownership structures for foreign investment in U.S. real property.
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Debt-Equity Regs Won't Solve Larger U.S. Tax Problems

by Andrew Velarde (Tax Notes)
Against the backdrop of Treasury's proposed related-party debt-equity regs, practitioners and an officialwith the Joint Committee on Taxation on May 25 explored alternatives for addressing U.S. corporate tax shortcomings,with much of the discussion focusing on the need to follow examples set in the rest of theworld.
For the TNT story, gohere. (Subscription required)

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Inversion Rules Aren't Long-Term Solution: JCT Official

Bloomberg

by Allyson Versprille
Proposed regulations to limit corporate tax inversionswon't provide a lasting solution to the problem, Viva Hammer, legislative counsel for the Joint Committee on Taxation, said.
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Canada continues moving forward with OECD transparency agenda

  • By PwC

PwC

Canada recently announced two measures alignedwith the OECD base erosion and profit shifting (BEPS) project. Effective April 1, 2016, the Canada Revenue Agency began sharing selected Canadian tax rulingswith certain countries in accordancewith BEPS Action 5, and on May 12, Canada signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports.
To read more go here

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Raise more from corporations: Opposing view

Inverted companies remain headquartered in the United States, retaining access to our infrastructure and educatedworkforcewithout paying U.S. corporate income taxes.

Itwould, of course, be best to craft a comprehensive solution to this problem rather than have Treasury playwhac-A-Molewith insufficient tools.

For the USA today article, gohere.

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Private equity funds in Mexica: application for treaty benefits and concerns arising from BEPS Action 6

International Tax Review

by Alfredo Sanchez Torrado and Eduardo Garcia Ruiz
Alfredo Sánchez Torrado and Eduardo García Ruiz examine theway inwhich investments are currently structured in Mexico via private equity funds, the application of treaty benefits by them, aswell as how BEPS Action 6 may affect such application.
To read more go here Subscription Required

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Stack: Debt-Equity Regs Aren't a Very Complicated Sea Change

by Amy S. Elliott (Tax Notes)
While many in the tax bar may be interested in drawing attention to the trauma thatwould be caused by the section 385 debt or equity regulations, Robert Stack, Treasury deputy assistant secretary (international tax affairs),was quick to downplay the impact they'd have on multinationals if they're swiftly finalized.
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'Winning the Tax Wars': Mobilizing Public Revenue, Preventing Tax Evasion

by Christopher Colford (Theworld Bank)
"It is long overdue that Congress restore Subpart F to its original power and end the tax haven drain on our revenues," former Sen. Carl Levin said in May 23 remarks at theworld Bank regarding reducing tax avoidance and secrecy and international tax competition.
To read more go here

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Incentives Key in Developing Countries' Tax Reform Efforts, OEDC Official Says

Tax Analysts

by Alexander Lewis
In the fight against harmful tax competition, the number one issue for developing countries is tax incentives, said Grace Perez-Navarro, deputy director of the OECD's Centre for Tax Policy and Administration.
To read more go here Subscription Required

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Countering Base Erosion Is Impossible Within Current Framework, Panel Says

Tax Analysts

by Ryan Finley
The basic principles of the current international tax regime are fatally flawed and antiavoidance measures that fall short of a complete overhaul are doomed to fail, according to a panel of academics, reform advocates, and other experts.
To read more go here Subscription Required

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European Commission Explains Review of Tax Rulings

Tax Analysts

bywilliam Hoke
Afterweeks of defending itself against criticisms for state aid cases targeting rulings granted to U.S. multinationals, the European Commission has published a detailed paper explaining the criteria for determiningwhether benefits provided by a member state are in violation of EU law.
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Senators Continue to Argue Against EU State Aid Investigations

Tax Analysts

by Kat Lucero
A bipartisan group of Senate taxwriters urged the Treasury Department on May 23 to put pressure on the European Commission to keep it from issuing tax regulations thatwould single out U.S. multinational companies in ongoing state aid investigations.
To read more go here Subscription Required

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Debt-Equity Regs' Contemporaneous Documentation Rules in Context

Tax Analysts

by Amy S. Elliott
Are the documentation requirements in the proposedsection 385debt or equity regulations strict in comparison to those of other countries or do they only seem onerous because U.S. multinationals have historically been lax in achieving the gold standard of contemporaneous documentation?
To read more go here Subscription Required

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Hatch, Wyden: EU State Aid Probe Violates Rule of Law

  • By Alex M. Parker

Bloomberg

by Kevin A. Bell and Alex M. Parker
A bipartisan group of senators, including the chairman and ranking member of the Senate Finance Committee,wrote to the Treasury Department blasting recent European Union "state aid" investigations as violating the rule of law.
For the DTR story, gohere. (subscription required)

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EU Lays Down Law on Tax Deals as Apple Probe Continues

The European Union, locked in a tax battlewith the likes of Apple Inc. and McDonald's Corp., laid down the law in its bid to rein in governments thatwoo multinationalswith special deals allowing them to reduce their fiscal liability by booking profits abroad.
For DTR story, go here Subscription Required

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Boustany: I'll Be Ready With Innovation Box Proposal


Houseways and Means Committee member Charles Boustany Jr. (R-La.) said that although hewasn't happywith the innovation-box draft proposal he released last year, hewill be readywith a revamped plan if there is any Capitol Hill movement on international tax measures.
For the DTR story, go here. (subscription required)

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