Int'l Tax News

On October 14, 2014, the Minister for Finance delivered the Irish Budget for 2015 inwhich he announced plans to introduce a new 'Knowledge Development Box' (KDB). The budget did not provide a proposed tax rate for the KDB. However, a rate in the range of 5% - 6.25% may be under consideration.

The Department of Finance launched a public consultation on the KDB regime on January 14, 2015. They have requested submissions to be made on the design of the KDBwith the goal of ensuring "it meets its key objective of being the most competitive in classwithin the agreed international parameters for fair tax competition in this area". The consultation process runs until April 8, 2015.


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On 18 December 2014,interested partieswereinvited to commenton the discussion draft on Action 14 (Make dispute resolution mechanisms more effective) of the BEPS Action Plan. The OECDis grateful to the commentators for their input andnow publishes the comments received.

For the comments, go here.

Congressional Democrats are preparing new efforts to curb the offshore tax deals that drew the ire of President Obama last year.

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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:
Uruguay's new tax benefits for shared service centers
New normative instruction regarding Brazil's controlled foreign operation rules
The new China/Russia double taxation treaty

For this month's issue, go here.

The traditional American corporation looks to be slowly on itsway out, andwe might miss itwhen it's gone.
There are still more than 1.6 million of them, as of the most recent data, but the total peaked in 1986 and they have been disappearing at the rate of about 60,000 per year.
The decline is due to tax policy, of course, and it goes far beyond the corporate inversions that are so much in the news.
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An advisory group reporting to the Organization for Economic Cooperation and Development said it can't fully endorse any of the proposals for rewriting permanent establishment rules on commissionaire structures.
Of the options it has, however, the OECD's proposed "option B" "is "the least damaging" idea,william Morris, chair of the OECD's Business and Industry Advisory Committee, said at the OECD's Jan. 21 public consultation in Paris.
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Italy has become one of the latest countries to introduce a patent box regime, offering lower tax rates on income derived from intellectual property.
The regimewas approved in December under Italy's 2015 Budget Law,with the exemptions effective from Jan. 1, 2015. The Italian Revenue Agency saidwill introduce multiple rulings to determine the relevant applicable income.
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As an international project to combat base erosion and profit shifting continues to debate the finer points of numerous proposals, Latin American countries are taking independent action to combat BEPS by enacting significant overhauls of their tax systems and engaging in more robust enforcement actions against large multinationals.
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In both the U.S. and Canada, high-profile transfer pricing caseswill continue to be hot topics in 2015, as several cases move to trial and taxpayers await rulings in others that could change the ground game for tax planning in both countries.

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Coming off a crescendo of anti-avoidance measures in 2014 that culminatedwith the country's president calling for global efforts to combat tax evasion, Chinese tax authorities are poised to step up audits of foreign companies, require more self-assessments and intensify scrutiny of cross-border transactions in 2015.

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The European Union is discussing "pragmatic solutions" onwhatwould be the fairest outcome for intellectual property owners, publishers and the services offered by Google Inc, the EU's digital economy chief said.
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Evidence indicates profit shifting by U.S. corporations overseas has jumped significantly in recent years, the Congressional Research Service said in a new report on international tax evasion and avoidance through tax havens.
Multinational firms can artificially shift profits from high-tax to low-tax jurisdictions using a variety of techniques, such as shifting debt to high-tax jurisdictions,with some estimates of losses that may approach, or even exceed, $100 billion, CRS said in a 55-page report issued Jan. 20.
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Democratic lawmakers dusted off legislation designed to curb international mergers and acquisitions for tax purposes, known as corporate inversions.
Senate Minoritywhip Richard J. Durbin (D-Ill.), Houseways and Means Committee ranking member Sander M. Levin (D-Mich.), Sen. Jack Reed (D-R.I.) and Rep. Lloyd Doggett (D-Texas) on Jan. 20 introduced the Stop Corporate Inversions Act, continuing efforts thatwon little bipartisan support in 2014.
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On January 15 the Congressional Research Service updated a report on tax havens to reflect new revenue-raising estimates for various options and proposals for reducing international tax evasion and avoidance.
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Business groups reacting to the Organization for Economic Cooperation and Development's recent discussion draft on low-value-added services are asking for clarification on how the draft's proposed range of between 2 percent and 5 percentwould be applied.
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India and the U.S. have reached a "framework" for resolving pending double-tax cases involving information technology enabled services (ITeS) and software development, according to a U.S. official.
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The Organization for Economic Cooperation and Development needs to get tough on member countries and require binding arbitration as part of the mutual agreement procedureÔøΩaswell as promote other mechanisms to prevent tax authorities from manipulating the MAP process to their advantage.
Those are the recurring themes among comments submitted by more than 50 practitioners, taxpayers, and business groups in response to a discussion draft on Action 14 of the OECD's Action Plan on Base Erosion and Profit Shifting (BEPS).
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As the Organisation for Economic Co-operation and Development (OECD) passes the halfway point in its joint projectwith the G20 to address base erosion and profit shifting (BEPS) concerns, it isworth pausing to examinewhat the consequences of some of the proposed changes may be. Much of the focus of the project from the U.S. Treasury Department's perspective has been on preventing "stripping" of the U.S. tax base by U.S. multinational enterprises (MNEs). Equally important, however, should be the prevention of stripping of the U.S. tax base by other countries, and avoidance of anti-BEPS "solutions" that facilitate or subsidize that result.

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Elaine Kamarck and James Pinkerton of the RATE Coalition have submitted comments to Treasury asserting that corporate tax reform that lowers the statutory rate to an internationally competitive levelwhile broadening the tax basewill boost economic growth and create jobs, noting that there is bipartisan and public support for tax reform.
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Representatives of U.S. multinationals urged the OECD to reconsider its plan to include the model text of a limitation on benefits provisionwhen it issues a final report on preventing treaty abuse under action 6 of its base erosion and profit-shifting project.
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In late November 2014, the Brazilian government issued Ordinance 488,which reduces the maximum tax rate on income from locations defined as tax favourable jurisdictions and privileged tax regimes – so-called tax havens.
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China has long considered itself shortchanged by U.S. multinationals' tax planning techniques and is finding support for many of its positions in the OECD's project to combat base erosion. The author points to recent developments and officials' statementsÔøΩthe new general anti-avoidance rule, promised guidance on transfer pricing in 2015, a list of 15 "unacceptable practices"ÔøΩand predicts the tax authoritywill seize the moment to demand a greater share of global profits through both changes in the law and tougher audits.
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The government has published a bill it aims to pass before May's general election giving Northern Ireland the power to cut its corporation tax rate.

Theresa Villiers, Northern Ireland secretary,who published the bill yesterday, said it ushered in the "prospect of a transformative change" in the province.

The proposal to devolve the powers and cut the rate from April 2017 is intended to allow the province to compete for investmentwith the Republic of Ireland,which sets ultra-low tax rates to attract business.

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The latest judgment in the Franked Investment Income (FII) GLO, handed down by Justice Henderson in the High Court in London on December 18 2014, dealswith the quantification of the test claimants' claims and follows on from liability hearings in the High Court, the Court of Appeal, the Supreme Court and three references to the European Court of Justice (ECJ).

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The Dutch deputy minister of finance has confirmed that restrictions on companies from other member states applying for fiscal unitywill be loosened.

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Globally, the sphere of taxation haswitnessed a constant tussle between its primary players –while governments continually strive to maximise revenue andwiden the tax base through successive amendments to tax laws and streamlining tax administration, taxpayers seek to arrange their affairs in a manner so that the incidence of tax is minimised.
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Even as the OECD seems on track to complete itswork on base erosion and profit shifting as scheduled, practitioners say the BEPS project's potential costs, including a chilling effect on cross-border trade and investment, have not been sufficientlyweighed against the project's projected benefits.
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Another lawmaker has thrown his hat into the tax reform ring. Republican House taxwriter Devin Nunes released a business tax reform plan lastweek thatwould gradually lower tax rates to 25% and move to full expensing. Nunes's plan shifts U.S. international tax rules toward territoriality and imposes a 5% tax on a company's undistributed earnings. He says thatwhen it is scored, itwill be revenue neutral. Sounds great, right?well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, sayingwhen pressed that those concerns are "irrelevant" because he is creating a new tax code.
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The Ecuadorian government has passed a major tax reform law that, among other changes, introduces capital gains taxation on the direct and indirect transfer of Ecuadorian company shares. In addition, the law increases the corporate income tax rate from 22% to 25%when the Ecuadorian company's owners are residents of a tax-haven jurisdiction.

The law,whichwas signed by the Ecuadorian President and published in the Official Gazette on December 29, 2014, took effect on January 1, 2015.

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Amazon.com Inc.'s "cosmetic" tax arrangements in Luxembourg may give the U.S. online retailer an illegal advantage over competitors, European Union regulators said Friday, marking the latest phase of a crackdown on alleged sweetheart tax deals for multinationals.
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In news analysis, Marie Sapirie discusses potential problemswith the United Kingdom's diverted profits tax, including how the tax undermines the OECD's base erosion and profit-shifting project.

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The most important message in the Organization for Economic Cooperation and Development's recent discussion draft on risk, recharacterization and special measures "is that it is now stressed how important it is to determinewhat the actual controlled transaction is that you later on are going to price," the OECD's Marlies de Ruiter said.
De Ruiter, head of the organization's division on tax treaties, transfer pricing and financial transactions, and Andrew Hickman, head of its transfer pricing unit, spokewith Bloomberg BNA on Jan. 13 about the discussion draft on risk, recharacterization and special measures issued in December.
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Ireland's Finance Department has launched a public consultation on the design and implementation of a patent box tax regime,whichwould offer a tax rate below 12.5 percent on intellectual property income.
In an October 2014 preview of Ireland's 2015 budget, Finance Minister Michael Noonan unveiled plans for the "knowledge development box" (KDB),whichwould tax profits generated as a result of patented innovations, such as technological and medical developments. In his budget speech, Noonan said the KDBwould "be best in class and at a low competitive and sustainable tax rate" (199 DTR I-4, 10/15/14).
The Jan. 14 consultation on the KDB seeks feedback on the introduction of the new corporation tax incentive. The measurewould be similar to so-called patent box tax benefits offered by other countries, such as Netherlands and the U.K.
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The Internal Revenue Service Chief Counsel's Office released private letter ruling (LTR or PLR) 201452002 on December 26, 2014. The PLR concludes that certain intercompany transactionswithin consolidated groups occurring during a global restructuring did not trigger recapture of consolidated overall foreign loss or consolidated separate loss limitation accounts.

PLR 201452002 highlights the importance of timing the steps of a transaction sequence, and providing business purpose supporting such timing (aswell as an overall transaction), so as to ensure that the transaction elementswhich could potentially trigger such recapture occurwithin consolidation.

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Most business tax reform proposals promise two things that American companies reallywant ÔøΩ a lower corporate rate and exemption of foreign profits from U.S. tax. RepublicanRep. Devin Nunes has a draft proposal, the American Business Competitiveness Act of 2014, thatwould provide a third major benefit to business ÔøΩ the immediatewrite-off of capital expenditures. Further, his rate reduction ÔøΩ to 25% ÔøΩ and accelerated capital recoverywould apply to both corporate and noncorporate business. And Nunes intends that his proposal do all this "without adding a penny to the debt."
For the story, go here.

So how did the previously obscure term tax inversions become part ofwashington parlance, fodder for the next presidential campaign and the issue that helped derail a Treasury Department nominee?
Thank, or blameÔøΩdepending on your perspectiveÔøΩcutting-edge tax lawyers, populist Democrats, a banana seller, a drugmaker, a hamburger chain, the 35 percent U.S. corporate tax rate and awall Street banker named Antonioweiss.
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Following the UK's lead as the first country to commit publicly to adopting the country-by-country reporting (CBCR) template developed by the Organisation for Economic Co-operation and Development (OECD), the Government has now published the draft legislation to enable the introduction of CBCR in the UK.

The legislation,whichwill be included in the Finance Act 2015, confirms that UK parented multinational enterprises (MNEs)will be required to provide CBCR tax related data to HM Revenue & Customs (HMRC) as part of this requirement.

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Corporate inversions have been the dominant tax issue over the last year and have forced a serious evaluation of the U.S. corporate tax system.while there iswidespread agreement that the U.S. corporate tax code is out of stepwith our global competitors, there is also concern that inversions and other aggressive tax planning techniques are eroding the nation's tax base. Indeed, the Treasury has issued a series of rules intended to reduce the financial benefits from inversions.
What has been missing from this debate, however, is recognition that inversions are just the latest example of a more than two decade long trend in self-help tax reform by American businesses.

For the report, go here.

Proposals now being considered under the Organization for Economic Cooperation and Development's base erosion and profit shifting project face big hurdles in the U.S., an official from the National Foreign Trade Council said.

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In news analysis, Lee A. Sheppard discusses the relationship between the United Kingdom's proposed diverted profits tax and the U.S. foreign tax credit.

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In news analysis, Kristen A. Parillo considerswhether the U.K. government's proposed diverted profits taxwould hurt its "open for business" message orwhether the proposal is a shrewd political move to appease voters ahead of the May election.

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Former IRS Large Business and International Division Deputy Commissioner Michael Danilack recently spokewith Tax Analysts' Amy S. Elliott to discuss his departure from LB&I, the international enforcement priorities he setwhile there, and his thoughts on how international examiners should be given more authority to control their cases.

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The latest plan in Congress to cut business tax rates faces a major obstacle: U.S. businesses.
Many Democrats and Republicans, including new Houseways and Means Committee Chairman Paul Ryan, agree that theywill try to reduce the 35 percent corporate tax rate and curb business tax breaks to help pay for it. They'll leave individual rates alone to avoid a politically charged fight.
The complication is that millions of U.S. businesses -- from the largest hedge funds to neighborhood restaurants -- don't pay taxes through the corporate system.

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The U.S. economy faces a number of structural challenges over the coming decade. A relatively simple change in tax lawwould help address two of these. The first problem is that U.S. corporations have roughly $2 trillion in foreign earnings parked overseas that they are unlikely to bring home because doing sowould subject them to high taxes. The second is that U.S. spending on basic and applied research has stagnated, making it harder to deliver the technological breakthroughs needed to increase productivity, competitiveness and living standards.
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As the newly installed Chairman Paul D. Ryan, R-Wis., convenes his first Houseways and Means Committee hearing on Tuesday about policies to boost our economy, undoubtedly, tax reformwill be a top priority.
Both parties in Congress talking about tax reform is great news for Americanworkers. It appears our system is so badly broken that virtually everyone agrees it's time to fix it.
But beforewe break out the champagne, it's important for us and the 114th Congress to definewhat meaningful tax reform looks like, andwhat it doesn't look like.
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The Luxembourg tax authorities have released circular LIR n 14/4,which includes more detailed guidance on the tax treatment of income derived by Luxembourg limited partnerships (Société en Commandite Simple - SCS) and Luxembourg special limited partnerships (Société en Commandite Simple Spéciale - SCSp).

For the PwC Insight, go here.

A senior IRS adviser expressedwariness about so-called special measures included in a recent draft of the Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting, claiming the potential for deviation from the arm's-length standard and arbitrary enforcementwould cause headaches for mutual agreement procedure negotiations.

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Implementing the OECD's proposal to permit "special measures" for some intangibleswould lead to a transfer pricing environmentwith no guideposts unless rules are put in place spelling outwhen a tax authority may invoke those measures, an IRS official said January 13.

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The Organization for Economic Cooperation and Development has released public comments on two discussion drafts under its Action Plan on Base Erosion and Profit ShiftingÔøΩa under Action 7 and a draft on preventing treaty abuse under Action 6.
The comments on the draft about avoiding PE status and the treaty abuse draft expressed concerns that the proposals couldlead to double taxation or major complications for transfer pricing.

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The extension of Myanmar's 5% commercial tax on previously exempt industries,which came into effect on April 1 2014, primarily applies to large and foreign corporations. Tax and industry professionals are generally positive about the changing tax regime,which augurswell for Myanmar as it attempts to create a competitive economy for foreign direct investment (FDI).
For the story, go here.