Int'l Tax News

President Obama and legislators are embroiled in a debate overwhether and how to punish companies that seek U.S. tax relief by buying a smaller foreign company and legally reincorporating in its country. So-called tax inversions are at a record high, and Obama has suggested it's not a victimless activity. "It's not right," he said on August 6. "The lost revenue to Treasury means it has got to be made up somewhere, and that typically is going to be a bunch of hard-working Americans,who either pay through higher taxes themselves" or cuts to government services.
The inversion debate is a sign of unhappinesswith U.S. corporate tax rates,which are the highest in the developedworld and tempting companies to jump overseas in the first place. And fixing the tax code, by reducing those onerous rates and plugging loopholes, requires the government to find some new sources of income elsewhere. Enter federal climate policy,which for years now has been held up as a potential funding source forwhatever anyone needs at the moment. Two environmental economists propose that federal income from a carbon tax could help reboot the U.S. corporate tax code. And a rebooted corporate tax codewould then have the effect of reducing the cost of the carbon tax to GDP.
For the story, go here.

In an August 13 letter to President Obama, several House and Senate Democrats urge executive action on inversions.
For the letter, go here.

Samuel Thompson Jr. of Penn State Law has expressed support for legislation and administrative actions to curtail corporate inversions and related transactions, specifically endorsing a proposal to issue regulations under section 385 thatwould target artificial debt instruments issued by a U.S. corporation to its new foreign parent.

For the letter to Treasury, go here.

U.S. companies are looking for all sorts ofways to reduce their tax bill. But scores of big U.S. companies just paid no taxes or effective tax rates of 0%.

For the story, go here.

Political heat has intensified on tax "inversions" after awave of cross-border mergers and acquisitions. A tax inversion occurswhen a U.S.-headquartered firm acquires or mergeswith a smaller global firm, but the headquarters are located in the acquired firm's country because of tax considerations. Obviously, this is a tax policy issue. So it is telling that Democrats in the House and Senate introduced legislation to prevent inverted companies from receiving government contracts, instead of dealingwith the tax policy issue. Clearly, this signals that Democrats are only interested in playing politics, not fixing the problem.
What should they be doing?
For the article, go here.

Jeffery Kadet of the University ofwashington School of Law has suggested to Treasury two proposals for eliminating the economic incentives that encourage corporate inversions, neither ofwhichwould require Congress to pass legislation.

For the letter, go here. (Subscription required)

Proposals for anti-expatriation legislation, such as restrictions on interest expense deductions and limitations on management and control, could discourage foreign direct investment in the United States, the Organization for International Investmentwarned the Senate Finance Committee in an August 5 letter.

For the letter, go here.

Michael L. Schler discusses technical and policy issues, aswell as unexpected results, that arise under the OECD's proposals to eliminate mismatches of income and deduction resulting from hybrid instruments and hybrid entities.
For the article, go here.

President Barack Obama is facing increasing pressure to bypass Congress and act on corporate inversions unilaterallyÔøΩbut many tax experts believe the administrationwould be on shaky ground in doing so.
"The arguments for Treasury regulation are based on laudable policy instincts,which I share," said Edward Kleinbard, a professor of law at the University of Southern California, and former chief of staff of the U.S. Congress's Joint Committee on Taxation. "But they are very strained readings of the relevant regulatory authority." In fact, he said, those arguments are so strained that theywould do more harm than good to "Treasury's ongoing relationshipwith Congress, and its ability to take courageous stands through regulation in the future."
For the story, go here. (subscription required)

The steady rise in U.S. corporations buying foreign companies and then moving their headquarters abroad is not personal, it's just business.
It reflects the increasingly obvious fact that America's high corporate tax rates put our companies at a competitive disadvantage against foreign companies, especiallywhen competing for global markets. Yet a number of commentators have tried to make it personal.
For the article, go here.

A group of accountants said Friday that they're tired of being blamed by President Obama for a rash of new offshore tax deals.

Scott Adair, president of the New York State Society of Certified Public Accountants, said that Obama should be looking closer to home if hewas seeking to hold someone responsible for so-called corporate inversions.
"If President Obamawants to point fingers, perhaps he should point them at Congress for creating the very loopholes he vilifies. Sustainable corporate tax reform is the elephant in this room," Adair said in a statement.
For the story, go here.

The recentwave of corporate tax inversions has triggered interest inwhat motivates these tax-driven transactions now. Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate,which is high by international standards, and by its "worldwide" tax base. This paper explainswhy this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.'s former vice-chairman) as a case study.

For the paper, go here.

Corporations now have toweigh much more than just their tax billwhen decidingwhether to shift their legal addresses overseas.

President Obama thisweek vowed to curb the influx of companies buying smaller foreign competitors to slash their tax bill through a corporate "inversion," just the latest sign that an issue little-known outside the taxworld a few short months ago has evolved into potent political fodder.

For the story, go here.

U.S. companies thatwant to lower tax bills by moving their legal address overseas have bulked up their lobbying efforts since April as the Obama administration and some lawmakers seek to curb the practice.
In total, nine companies that have sought cross-border mergers, are considering doing so or are targets of such deals have begun lobbying on legislation to stop the practice, federal disclosure reports show.

"There are a lot of reasonswhy tax reform is stuck in Congress, and one of them is because big companieswith vested interestswant it to be stuck," said Adam Rappaport, a senior counsel at Citizens for Responsibility and Ethics inwashington.

For the story, go here. (subscription required)

J.D. Foster, deputy chief economist at the U.S. Chamber of Commerce, points out that merger transactions resulting in a foreign-domiciled business are a real and consequential symptom of serious flaws in the U.S. tax system.
For the viewpoint, go here. (subscription required)

Forwhat appears to be the first time since the statutewas enacted in 2004, the IRS has issued a private letter ruling (LTR 201432002) applying the section 7874 anti-inversion rules to a set of taxpayer facts, concluding in the taxpayer's favor that the proposed transactionwon't trigger inversion gain.
Although the ruling is a first, it's not particularly surprising and doesn't touch on the kinds of inversion transactions in the news lately.
For the story, go here. (subscription required)

What has prompted the current inversion trend? A change in U.S. law is not the reason. Section 7874,which attempts to restrict U.S. companies from expatriating overseas, has existed unchanged for over 10 years. Instead, thewave of inversions may be explained by a complex and interacting set of factors, including tax competition, increased foreign earnings, and decreasing reputational risk forwould-be inverters.

For the story, go here. (subscription required)

Over the past few months, many companies have responded to our overly burdensome corporate tax system by re-domiciling their headquarters overseas. Such moves leave the United Stateswith a smaller tax base that results in many billions of dollars in lost revenue. Clearly, this is a cause for concern, and, unfortunately, it is unlikely to go away anytime soon.
Despite this grim reality, however, every Democratic proposal offered so far to deter such action has been purely political.what's more, these proposals contain punitive and retroactive provisions thatwould exacerbate the problem.
For the op-ed, go here.

The Obama administration is exploring a range of possibleweapons in the tax code to try to deter companies from relocating overseas for tax purposes through so-called inversion mergers.
Each potential change comeswith its own potential pitfalls and risks, and no decisions have been made. Meantime, lawyers and bankers are busy doing their own homework in order to gauge how any changes might hurt existing or proposed corporate deals.
For the story, go here.

If the Treasury Departmentwas trying to scare investors away from corporate inversions by saying the U.S.would examineways to stop the deals, itworked.
Stock markets punished companies pursuing inversions on Aug. 6 and investors have genuine reason for concern about the prospects for cross-border mergers that limit U.S. corporate taxes.
The policy landscape on inversions has shifted significantly since lastweek,when U.S. lawmakersÔøΩdeadlocked on tax policyÔøΩleftwashington for a five-week break.

For the story, go here. (subscription required)

The corporate income tax rate in Japan is known to be one of the highestworldwide. To encourage foreign companies to do business in Japan and make the country a more attractive location for investments, Prime Minister Shinzo Abe is considering reducing the corporate income tax rate to a "competitive rate in the global market".
For the story, go here.

Between 1983 and 2004 therewere 29 inversion transactions out of the US. In the decade following, almost 50 companies restructured using the method.whatever the motivation, inversions are in vogue. ITR's special report looks at the knock-on impacts of the currentwave of inversions, including shareholder pressure to consider an option they see their rivals pursuing and the possible inflammation of the tax morality debate in the US.
For the story, go here.

The U.S. corporate tax system is broken.
Recent efforts by major corporations to mergewith smaller foreign firms and move their corporate residence overseas to reduce their U.S. tax liability have sparked outrage and prompted proposals to curb such transactions.
Tax avoidance by U.S. corporations, however, is not limited to thosewho migrate overseas. Congressional hearings earlier this year highlighted efforts by major U.S. firms to avoid taxes by shifting their reported profits to affiliates in low-tax countries.
Policy makers and expertswidely agree that current proposals to limit corporate expatriations are only a stopgap and that broader reforms are needed. President Barack Obama and Rep. David Camp, the Republican chairman of the Houseways & Means Committee, among others, have proposed cutting the corporate tax rate and eliminating tax breaks that help many firms avoid tax.
For the story, go here.

Three prominent Democratic senators on Tuesday urged President Barack Obama to use his executive authority to reduce or eliminate tax breaks for companies that shift their headquarters overseas to cut their U.S. tax bills.
"Althoughwewill continue towork toward a legislative solution to the problem,we urge you to use your authority to reduce or eliminate tax breaks associatedwith inversions," the senatorswrote in a letter to the president.
For the story, go here.

On July 3, 2014, New Zealand's Revenue Minister Todd McClay revealed that the OECD has agreed the final recommendations for the first set of actions to tackle base erosion and profit shifting (BEPS) by multinational enterprises,which are due to be finalised in September. So as the BEPS project approaches a crucial juncture, this feature summarises key developments in its brief history and other issueswhich could have a major bearing on its outcome.
For the story, go here.

The administration and Congressional Democrats have signaled their intention to make corporate flight from the U.S. a populist issue in the run-up to the mid-term elections. The Democrats' policy prescriptions for these redomiciliations or "inversions" threaten to cost U.S. jobs and ignore the underlying flaws in the tax code that drive many of these overseas transactions. As tax policy, the anti-inversion proposals advanced by the administration and certain Congressional Democrats are flawed, and as budget policy, they areweaker still.

For the story, go here.

There is almost no one left in officialwashingtonwho doesn't think something should be done about inversions. But there is a lot of variety in the solutions being proposed,which makes consensus almost impossible.

For the story, go here.

The Obama administration has broad legal authority to stop corporate inversions.
The dispute boils down to law versus politics.
For the article, go here.

Just four short years ago, the OECD resoundingly reaffirmed its commitment to the arm's-length principle and all seemedwell in theworld of transfer pricing. Fast forward to 2014,where BEPSdominates the
international tax landscape, and suddenly the arm's-length principle is "under assault" and the transfer pricingworld stands on the verge of "international tax chaos."The BEPS Action Plan notes certain "flaws" in the arm's-length principle, and contemplates "special measures, eitherwithin or beyond the arm's length principle," in order to address issueswith respect to "intangible assets, risk and over-capitalisation." Nothing is taboo, and OECD officials now openly discuss the possibility that the organization may approve new transfer pricing rules inconsistentwith the arm's-length principle.

For the story, go here.

Talk of cracking down on U.S. corporations that move offshore is making some other companies nervous -- notably, foreign-owned concerns,which arewarning of cuts to their U.S. employment or investment if they're caught in the cross hairs.
The Organization for International Investment, a trade group of U.S. subsidiaries of big foreign multinationals, told lawmakers in a letter Tuesday that legislative efforts to limit so-called inversions by U.S. companies could hit its members aswell. And, the foreign firms said, so could potential regulatory action by the Obama administration.
For the story, go here.

Every loophole has its lover.
That'swhy, despite the furor that has erupted over American companies adopting foreign headquarters to reduce their taxes, it is proving so difficult to fix a corporate tax system that most everyone agrees is badly broken.
For the story, go here.

Given the risks and uncertainties inherent in inversion transactions and the number of factors at play in determining a company's effective tax rate, the headline-making tax rate declines promised by inverting U.S. multinationals can seem too good to be true. But an examination of companies involved in deals announced just a few years ago suggests that the move can pay off even in the short term.
A multinational's effective tax rate is influenced by numerous factors, both internal and external. A primary factor is a business's performance, according to Kevin M. Johnson of Pepper Hamilton LLP. "Future tax benefits are projected based on some kind of earnings projections, so if business circumstances change, if earnings are higher or lower, that could affect the rate," Johnson said.
For the story, go here. (Subscription required)

Walgreen Co., the biggest U.S. drugstore chain, said it plans to buy all of Alliance Boots for about $15.3 billion andwon't use the deal to move its tax address abroad.
"A potential tax inversion has become a hot button topic in recentweeks as the company and a handful of outspoken investors haveweighed the option," said Ross Muken, an analystwith ISI Group LLC, in a note to clients before the dealwas announced. Moving overseas could have savedwalgreen at least $4 billion in taxes over five years, he said.
For the story, go here. (subscription required)

We have met the enemy and he is us. Yesterday, in a series of hits as operatic and brutal as the last 15 minutes of the Godfather, the government effectively made inversion through corporate merger an offense punishable by corporate death.
Using the threat of an unlimited Treasury investigation, the President and Senator Dick Durbin stoppedwalgreen from moving to Switzerland. Thewreckage of some $10 billion in lost stock value for mostly Main Street investorswas left as a grim reminder not to cross the government by, in this case, following the letter of our own stupid laws.
For the story, go here.

Treasury is exploring options for administrative actions to limit the ability of companies to invert and to reduce tax benefits for inverted companies, a Treasury spokesperson confirmed to Tax Analysts August 5.
Treasury Secretary Jacob Lew last month called on Congress to immediately pass legislation thatwould retroactively address inversions, but argued that tax reform remains the best long-term solution. Lew stands by that call because there are limits towhat Treasury can dowithout congressional action, the spokesperson said. "Nonetheless, Treasury is reviewing a broad range of authorities for possible administrative actions that could limit the ability of companies to engage in inversions, aswell as approaches that could meaningfully reduce the tax benefits after inversions take place, to at least provide a partial fix," the spokesperson added.
For the story, go here. (subscription required)

Washington policymakers are bracing for awave of corporations to renounce their U.S. citizenship over the next few months, depriving the federal government of billions of dollars in tax revenue and stoking public outrage ahead of the Nov. 4 congressional elections.
So far this year, about a dozen U.S. companies - including suchwell-known brands as Medtronic medical devices and Chiquita bananas - have mergedwith foreign firms and shifted their headquarters offshore to avoid U.S. taxes, analysts say.
For the story, go here.

The Obama administration isweighing plans to circumvent Congress and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recentwave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday.
Treasury Department officials are rushing to assemble an array of options thatwould essentiallywipe out the economic incentive for the deals, Mr. Lew said. No final decision has been made.
''The question is, Canwe do enough that itwill materially change the economics of inversions so that companieswill make different decisions?'' Mr. Lew said in an interview. ''The thingswe are looking at look to me like they could very materially change the economics of inversions.''
For the story, go here.

Eighty-six percent of Democrats, 80 percent of independents, and 69 percent of Republicans disapprove of corporate inversions, according to a poll of likely voters, Americans for Tax Fairness said in an August 5 release.

For the release, go here.

President Barack Obama just might find away to use the power of his pen to slow the pace of tax-driven corporate mergers called inversions.
Afterweeks ofwaffling overwhether the administration has the power to sidestep Congress, Treasury Secretary Jacob J. Lew is exploring possibilities. Obama and Lew stillwant legislation to halt such deals, inwhich U.S.-based companies combinewith foreign companies in less-expensive tax jurisdictions to trim their tax obligations, but a stopgap could be coming in the meantime.
For the story, go here. (subscription required)

A request for input has been released today to invite public commentson BEPS Action 11 regardingwork on establishing methodologies to collect and analyse data on BEPS and the actions to address it.
In July 2013, the OECD published its Action Plan on Base Erosion and Profit Shifting. The Action Plan identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions.
The Action Plan also provided that "[t]he OECD'swork on the different items of the Action Planwill continue to include a transparent and inclusive consultation process" and that all stakeholders such as business, labour, non-governmental organisations, think tanks, and academiawould be consulted.
As part of that consultation process, interested parties are invited to send comments on this request for inputwhich should be submitted electronically (inword format) before 5.00pm on 19 September 2014 (no extensionwill be granted) to CTP.TPS@oecd.org.
For the request, go here.

"It ain't right," says President Barack Obama. American companieswho dodge the taxman by mergingwith overseas rivals are "renouncing their U.S. citizenship" and should be branded "corporate deserters," he says. And in name of "economic patriotism," Obamawants Congress to quickly close the corporate "inversion" loophole so these Benedict Arnold multinationals keep paying their fair share to Uncle Sam.
But patriotism, at least of the superficial sort, and business don't mix. For example, after the 9/11 terror attacks, investorswondered if therewould be a "patriots rally" once the New York Stock Exchange reopened.well, therewasn't. Instead, the Dow Jones Industrial Average fell by more than 7 percent on Sept. 18, 2001, one of largest one-day declines inwall Street history.with fear of new attacks running high, therewas little incentive for investors to stay in the market ÔøΩ even though itwould have been the "patriotic" thing to do.
For the story, go here.

Work on international tax rules and guidance to address base erosion and profit shifting should take into account difficulties that developing countries have getting access to tax information from multinational companies, according to a new report by the Organization for Economic Cooperation and Development.
The report, released Aug. 1, summarizes key OECD findingsÔøΩfor example, that lack of information often hinders these countries' ability to effectively respond to BEPS.
For the story, go here.

As far as tax loopholes go, "inversion" has officially made it into the big leagues.
The once obscure practice has been thrust into the spotlight by the President (who called inversions "unpatriotic"); Jon Stewart (who said the practicewas equivalent to "gender reassignment" for corporations); and Steven Colbert ("it's like me adopting an African child, then claiming myself as his dependent.")
For the story, go here.

Any time is a bad time to try ginning up popular enthusiasm for a corporate tax cut.
Now is especially bad. Stock values are bursting through the ceiling and companies are hoarding cash. Few American firms are hiring. Not an ideal atmosphere for considering the best interests of big companies.
But to stem the current trend of American companies moving their headquarters overseas ÔøΩ a practice known as an "inversion" ÔøΩ tax reform that includes lower corporate taxes is exactlywhat is needed.
For the editorial, go here.

It's both endearing and infuriating towatch American corporate executiveswring their hands about how the injustices of the U.S. tax code are forcing them ÔøΩ forcing them! ÔøΩ to reincorporate overseas through the procedure known as inversion.
For the story, go here.

The Institute for Policy Innovation on July 31 published an article positing that tax reform, rather than imposition of penalties and capital controls, is key to reducing corporate inversions among U.S. companies.

For the article, go here.

One campaign 2014 kerfuffle concerns the previously arcane issue of "inversion," the process bywhich a U.S. corporation mergeswith a foreign one so as to pay taxes at the other country's lower rates. If ever a tax loopholewere designed to provoke inflammatory rhetoric, this is it. Senate Finance Committee Chairman Ronwyden (D-Ore.) labeled a recentwave of corporate reflaggings a "plague"; Treasury Secretary Jacob J. Lew took to The Post's op-ed page to demand "economic patriotism." For their part, Republicans are playing this as a simple story of corporate escape from the allegedly oppressive U.S. corporate tax rate.
For the editorial, go here.

There has been little interest in Congress in the OECD's base erosion and profit-shifting project. Lawmakers' relative indifference toward the BEPS recommendations, the firstwave ofwhich is due in September, is typical of the general antipathy toward major tax changes. That indifference might change once the recommendations are released, because Congresswill need to be involved in at least some aspects of their implementation in the United States.
For the story, go here.

In the press and on Capitol Hill, the conventionalwisdom is that inversions occur because Congress has failed to enact tax reform. The United States has a high corporate tax rate and aworldwide system. Foreign countries have lower corporate tax rates and territorial systems. If the United States lowers its rate and adopts a territorial system, the incentive to invertwould be removed, right?
For the story, go here. (subscription required)

In response to section 7874 and the increasingly broad interpretation of the statute by the IRS, inversion transactions have begun to take new forms and rely on more aggressive interpretations of the code. The resulting increase in both the types and the complexity of inversion transactions has fueled public debate and put pressure on Congress to try to prevent even more corporations from fleeing U.S. shores.
It is important to look at the details of the inversions that have happened or are being contemplated in 2014 to see the trends that have emerged.
For the story, go here. (subscription required)