Int'l Tax News

The Treasury Department should rework its anti-inversion rules to require a foreign acquirer to conduct substantial business activities in the countrywhere it is a tax resident, rather thanwhere it is organized, the New York State Bar Association Tax Section said.

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The U.S. business community has lost the global public relations battle on international tax planningÔøΩand should considerwhether a proposed global minimum taxwould be better for their interests than continuingwith the status quo, a top Treasury Department official said.

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The OECD is actively looking at three provisions in the newly released U.S. model treatyÔøΩincluding those on special tax regimes, limitations on benefits, and an anti-abuse provision involving permanent establishmentÔøΩas talks go forward on its own model treaty and a multilateral instrument, a top official told Bloomberg BNA.
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The Treasury Department doesn't plan to renegotiate tax treaties currently before the Senate even though it recently published a new model treaty, a top official said.
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U.S. multinationals are losing the public debate on international tax reform by continuing to play games and shift income between low-tax jurisdictions, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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A senior Treasury official on February 25 remained noncommittal regarding a recently published proposal inTax Notescalling on Treasury to expand the anti-hopscotch rule enunciated in 2014's anti-inversion guidance beyond the inversion context.
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Amid questions aboutwhy the IRSwaited nearly two decades to release guidance under section 721(c) on cross-border partnership transfers, an IRS official on February 25 cited an unlikely source as providing the necessary "momentum" to issue the new notice announcing the coming regs: 2014's anti-inversion notice.
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As other countries gear up to protect their tax bases, U.S. taxpayerswith foreign income need to seriously considerwhat may happen to their foreign tax credits, according to Bretwells, a professor in international tax at the University of Houston Law Center.
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The Senate's top Democratic taxwriter on February 25 announced that he isworking on an international tax reform package, offering it in explicit contrast to Republican visions of reform for attendees of an Urban-Brookings Tax Policy Center conference inwashington.
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We don't often agreewith President Obama's chief economist, Jason Furman, but he got it exactly rightwhen he noted earlier this month that the U.S. treatment of international business income is a "stupid territorialtaxsystem."
His point is simple. On paper, the U.S. has aworld-widetaxsystem that imposes two layers oftaxon overseas business income -- an initial foreigntaxwhen the money is earned and a second U.S.taxwhen the money is repatriated. In practice, however, companies actively avoid the U.S.taxby various means, including inversions (moving their headquarters abroad by mergingwith foreign corporations), shifting profits to foreign subsidiaries, and hoarding the cash overseas. The result is, in effect, a territorial system, but one that produces less revenue for theU.S. Treasuryand less growth for the U.S. economy.
For thewall Street Journal article, go here.

A robustworkforce and ample investment are the main ingredients of a growing economy. But the alchemy that produces truly booming economies often lies in technological breakthroughs. To foster these leaps in innovation, nations (the United States included) provide funding for basic research patent protections and tax incentives. Innovation or patent "boxes" are a growing feature of many nations' research support policies that attract research-intensive investment. Patent boxes offer preferential tax treatment of income derived from intellectual property, often patent-related income.
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Developing countrieswill be invited by G20 governments to join talks aimed at stopping multinationals dodge taxes in a bid to defuse tensions over their limited role in global tax reform.

Finance ministers meeting in Shanghai later thisweek are expected to endorse proposals to open up talks on stopping "base erosion and profit shifting" (BEPS) to all countrieswilling to implement them.

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Separate but parallel plans to establish a more territorial tax system for U.S. companies' overseas profits and end double taxes on corporations are advancing, according to their chief champions in Congress.
Both plans should lessen pressures pushing businesses to relocate abroad for tax purposes, Houseways and Means Committee Chairman Kevin Brady (R-Texas) and Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said.
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Philip Morrison of McDermottwill & Emerywrites that the European Commission's state aid cases against U.S. multinational enterprises have potential implications for some of the standard structures used by U.S. MNEs in Europe. He says the Commission's rulings are as much a political attack as a legal one.
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Proposals to cut taxes on intellectual property could cost as much as $236 billion or as little as $5 billion over a decade, according to an analysis from the American Action Forum.
The range reflects differences inwhat may be considered intellectual property for the purposes of the lower tax rate, aswell aswhether the changewould happen as part of a broad reshaping of the U.S. tax code.
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Astudy by advocacy groupsTransnational Institute and Global Justice Now says a free trade deal proposed between the European Union and U.S.would hamper efforts to fight tax evasion by making it easier for corporations to challenge tax rulings before investor-state dispute settlement (ISDS) tribunals.
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An international tax reform draft from a Houseways and Means subcommittee should be ready by the end of March, the subcommittee's chair said February 24.
"For international,we are hoping to get something done this first quarter,"ways and Means Tax Policy Subcommittee Chair Charlesw. Boustany Jr., R-La., told reporters after a full committee hearing on international tax reform. "Iwant to have a bill; that'swhat the chairmanwants me to do."
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Senate Finance Committee Chair Orrin G. Hatch, R-Utah, said February 24 that his corporate integration plan and the Houseways and Means Committee's efforts on international tax reform could complement each other.
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In this article, Brewer and Antoon discuss recently proposed regulations under section 367 thatwould dramatically change the treatment of goodwill and going concern value transferred by a U.S. person to a foreign corporation.
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Taxpayers, tax advisers and politicos alike are eagerly awaiting India's 2016 Budget,whichwill be released on Monday [February 29].will BEPS be covered, andwhich Action Pointswill feature?will there be an update on GST?what other indirect tax changes might there be?
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Wielding a new brand of aggressive investigations, the European Commission is unduly targeting U.S. businesses to fill the budget holes of European Union countries.
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Thewords 'International regulatory tax framework harmonisation' are unlikely to spark the interest of most readers – andwriters – at first sight. Few enjoy exploring the patchwork of international tax arrangements,when filling out tax returns alone can leave themquestioning the sanity of the bureaucracies that created them.Evenworse are agreements coated in layers of jargon so thick that you'd need a tax lawyerwith a pickaxe to decipher them. Therefore it is not surprising that their importance to the global economy is difficult to quantify.

For the MCGill International Review article, go here.

Between the presidential election and a gridlocked political environment on Capitol Hill, it's "probably unlikely" that lawmakerswill be able to pass an international tax overhaul bill this year, but Congress can still make progress, a top House taxwriter said.

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A bill thatwould limit how some corporations use earnings stripping as a tax avoidance strategywas introduced February 23 by Houseways and Means Committee ranking minority member Sander M. Levin, D-Mich.
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Value-added taxes across the European Union should be simplified and made less burdensome for companies and households, EU Economic Affairs and Tax Commissioner Pierre Moscovici said.
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The OECD has agreed to a new framework thatwould allow all interested countries and jurisdictions to join in implementing the final recommendations of its project to combat base erosion and profit shifting.

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Patrick Driessen is a former revenue estimator for the Joint Committee on Taxation and the Treasury Department.
In this article, Driessen praises the OECD for beginning to comprehensively measure base erosion and profit shifting. The OECD's finding that there is abundant global evidence that foreign-controlled companies shift profits out of high-tax nations contrastswith the inconclusiveness of U.S. government research onwhether earnings stripping generally happens here. Resolving the question of how much U.S. base erosion occurs should inform how the United States approaches international tax reform.
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A familiar face is expected at the Feb. 24 Houseways and Means Committee hearing on international taxesÔøΩBarbara Angus, the panel's new chief tax counselÔøΩwho should have the chairman's ear throughout the proceedings.
That private dialogue on the daiswith Rep. Kevin Brady (R-Texas)will differ from the last timeways and Means held an international tax hearing,when Angus sat at thewitness table Dec. 1.
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In a February 23 report (JCX-8-16) prepared for a Houseways and Means Committee hearing on international tax reform, the Joint Committee on Taxation described current law, policy issues, and recent global activity regarding cross-border taxation.
The JCT summarized principles behind the international tax system and current law regarding inbound and outbound taxation, taxation of nonresident aliens and foreign corporations, and taxation of U.S. taxpayers' foreign activities.
For the JCT report, go here.

The OECD unveiled an inclusive framework inviting all countries and jurisdictions towork on base erosion and profit-shifting project implementation on an equal footingwith OECD and G-20 countries, a proposal that is "quite striking," tax chief Pascal Saint-Amans told Tax Analysts.
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Two top House Democrats introduced legislation Tuesday afternoon to limit one of the main tax benefits for U.S. companies that reincorporate in foreign countries.
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The chairman of a House tax-policy panel said Tuesday that international tax reform is not likely to be enacted this year.
"It's probably unlikely given the short timelinewe've got, given the occupant in thewhite House, and also dealingwith the Senate," said Rep. Charles Boustany (R-La.), the chairman of the Houseways and Means Committee's tax policy subcommittee.
For The Hill story, go here.

Oscar Grisales-Racini is a partnerwith Grisales-Racini Shefer LLP, an international tax boutique law firm in Miami.
In this report, Grisales-Racini describes the misunderstanding of section 7874(b) and its application to corporate inversions and the 1980 Foreign Investment in Real Property Tax Act.
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Multinational companies investing in Australia that don't meet their full tax liability on domestic earnings could be forced to sell their Australian assets under a new plan announced by Treasurer Scott Morrison.
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Global tax rules need to be significantly revised to address a global economywhere more of the value comes from services and intellectual property, not "fields and factories," IMF Managing Director Christine Lagarde said.

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Bermudawon't bow to international pressure to introduce a corporate income tax, but iswatching how the U.S. implements country-by-country reporting before taking action, Finance Minister Everard Richards confirmed in his 2016-17 budget presentation to parliament.

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Even as it overrules tax rulings on transfer pricing in European Union countries, a European Commission official said the executive body isn't looking to become the "fiscal super-authority" for the continent.

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In determiningwhen to use a residual profit split method for evaluatingwhether a related-party transaction is priced at arm's length, IRS agents should notewhether both parties have made "significant" nonroutine contributions to the deal, the Large Business and International Division advised in new internal guidance.
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There's nothing revolutionary about the EU's state aid rules and the companies receiving adverse tax rulings should have known they had been getting favorable treatment, said Karl Soukup, director of the European Commission's Directorate General Competition,who faced intense criticism from Treasury official Robert Stack at an event February 22.
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Ajay Gupta considerswhether the U.K. diverted profits tax may have affected the tax settlement between U.K. tax authorities and Google, and examines the prospects and implications of a state aid inquiry into that agreement.
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While the base erosion and profit-shifting project has been good news for countries seeking to protect their national tax bases, the OECD's measures do not fully address the specific needs of developing countries, IMF Managing Director Christine Lagarde said in a February 22 speech to the Arab Fiscal Forum in Abu Dhabi.
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Two House Democrats plan to introduce a billon Tuesdaythatwould seek to curtail a strategy used by former American companies to cut their United Statestaxbills.
The measure takes aim at so-called corporate inversions,where American companies move their headquarters overseas through a merger to save on taxes at home. The biggest such deal isPfizer's planned $150 billion mergerwithAllergan.
For the New York Times story, go here.

The OECD today agreed a new framework thatwould allow all interested countries and jurisdictions to join in efforts to update international tax rules for the 21st Century. The proposal for broadening participation in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Projectwill be presented to G20 Finance Ministers at their next meeting on 26-27 February in Shanghai, China.
For the OECD release, go here.

The new U.S. model tax treaty may face an uncertain reception in other countries, practitioners said, despite Treasury'swork to narrow some of its anti-tax evasion provisions inwayswelcomed by the business community.
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Houseways and Means Committee Chair Kevin Brady, R-Texas, talked up the idea of international tax reform in 2016 forweeks after taking charge of the committee, but the biggest reassurance camewith the announcement that former Treasury International Tax Counsel Barbara Anguswould be the committee's new chief tax counsel.
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The Treasury Department released its long-awaited 2016 model income tax treaty,with provisions intended to curb the shifting of businesses and income around the globe to avoid taxes.
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European Tax Commissioner Pierre Moscovici urged European Parliament members to lobby their finance ministers to halt a German-led move to split apart his anti-tax avoidance proposal.

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