Int'l Tax News

Delivering his first Budget speech today, Arun Jaitley, India's new finance minister, pledged to maintain a stable tax environment, but disappointed multinational taxpayers by not removing rules on retrospective tax. Indeed,while the majority of the finance minister's proposals sound business-friendly enough, taxpayerswould have liked more concrete detail.
For the story, go here.

U.S. companies are rushing to lower their tax bills by buying Irish companies and moving their headquarters to the Emerald Isle. Butwhat is Ireland getting out of it?

Less than you might think.

For the blog post, go here.

Christian Aid, ActionAid, Globalwitness and the Financial Transparency Coalition have accused G8 countries of failing to live up to the promises they made on tax and transparency a year ago at the Lough Erne summit in Northern Ireland.
For the story, go here.

Citizens for Tax Justice in a July 8 report explainedwhy Congress needs to raise the overall amount of federal revenue collected and described tax policy options thatwould increase revenue available for public investments by closing or limiting tax breaks that benefit high-income individuals, businesses, and multinational corporations.

For the report, go here.

The number of U.S. companies reincorporating overseas has shot up considerably in recent decades.
Why all the reincorporation, or tax inversion, as the practice is often called? The answer is corporate tax breaks.
For the blog post, go here.

In a survey of CFOs conducted by Grant Thornton LLP, only 39 percent of respondents said theywould give up the tax benefits required to enact a rate cut of 25 percent or more for their company; a majority of respondents identified bonus and accelerated depreciation as the most important tax benefit for their business.

For the survey, go here.

The Urban-Brookings Tax Policy Center in a July 8 report described the major provisions in the tax reform discussion draft introduced by Houseways and Means Committee Chair Dave Camp, R-Mich., and analyzed the plan's revenue impact beyond a 10-year budget period, distribution of the tax burden, and other aspects of the plan.

For the report, go here.

American manufacturer Ingersoll-Rand Co. (IR) forged the tools that carved the Panama Canal and shaped Mount Rushmore.when it shifted its legal address to Bermuda in 2001 to reduce taxes, the maneuver sparked bipartisan outrage in Congress.

"These corporations have turned their back on their country," Nevada Democrat Harry Reid fumed from the Senate floor, adding that his father, a hard-rock miner, hadwielded an Ingersoll-Rand jackhammer. "There is no reason the U.S. government should reward tax runawayswith lucrative government contracts."

Over the next dozen years, Congress passed law after law to prohibit American companies that reincorporate overseas from doing businesswith the federal government. Those laws haven'tworked. Benefiting from loopholes and a cooperative Obama administration, the companies avoid the ban on federal contracts as effectively as they avoid U.S. taxes.

For the story, go here.

Inwashington many in Congress are ruing "corporate inversions," inwhich a U.S.-headquartered company becomes a foreign-headquartered company through an M&A transaction and thus "inverts" its citizenship. Dozens of such M&A-linked inversions have happened in the past year or are being discussed (even by the iconic U.S. retailerwalgreens), and in response many are blaming the companies. In announcing plans to introduce legislation banning companies from inverting, Senator Carl Levin intoned, "It's become increasingly clear that a loophole in our tax laws allowing these inversions threatens to devastate federal tax receipts."
Thus is the issue laid bare. Are U.S. leaders going to heed the sobering policy message being delivered to them by Pfizer and others: that America's current system of business taxation is penalizing U.S.-headquartered companies seeking to compete inworld marketsÔøΩand thus to support jobs and investment in America? Or are U.S. leaders going to shoot the messenger?
For the blog post, go here.

The July 2014 edition of PwC's International Tax News includes reports on key developments in Luxembourg, the Netherlands, Taiwan, the United States, and several other important countries.

For the report, go here.

Jean-Claude Juncker, president-designate of the European Commission, may face tough questions from members of the European Parliament about tax arrangements he helped create in his dual role as prime minister and finance minister of Luxembourg.
The tax arrangements attracted numerous multinational companies to the tiny European Union member state, turning it into a financial powerhousewith one of the highest standards of living in the EU.
European Commission officials confirmed July 4 that their probe is expanding. The commission has challenged Luxembourg in the European Court of Justice to hand over tax documents and followed upwith specific requests about its transfer pricing arrangementswith Fiat's holding company.
"There are a number of companiesÔøΩleading multinationalsÔøΩand their tax arrangements that are of obvious interest to us," said a European Commission official. "We are continuing to gather information about certain tax practices."
For the story, go here. (subscription required)

Microsoft Corp., theworld's biggest software maker, is among companies embroiled in a European Union inquiry into Luxembourg's tax treatment of multinational firms, according to three people familiarwith the EU's review.
The European Commission has quizzed Luxembourg about how it taxes Microsoft's intellectual property, said one of the people,who asked not to be identified because the matter is private. Antitrust officials also asked questions about McDonald's Corp.'s taxes in Luxembourg, two of the people said. Amazon.com Inc.'s tax affairs there also are being examined, the Financial Times reported July 3, citing an EU official.
For the story, go here. (subscription required)

Ah, July!what a great month for those of uswho celebrate American exceptionalism. There's the lead-up to the Fourth, countrywide Independence Day celebrations including my town's local Revolutionarywar reenactment and fireworks, the enjoyable days of high summer, and, for the fortunate, the prospect of some time at the beach.
Sorry, but this year, July isn't going towork for me. That's because of a new kind of American corporate exceptionalism: companies that have decided to desert our country to avoid paying taxes but expect to keep receiving the full array of benefits that being American confers, and that everyone else is paying for.

For the story, go here.

Here's a question for investors in any big United States corporationwith foreign operations: Do you knowwhat the company's tax billwould be if it had to bring its overseas earnings home?
For the story, go here.

Lower corporate tax rates stimulate investment and growth. This is hardly a controversial statement among mainstream economists. Yet for some reason economists in Japan assume the rate cut proposed by Shinzo Abewill have few net benefits and large immediate costs. Maybe the Prime Minister needs to add a fourth policy arrow to clean out the brain dead in his own Finance Ministry.
For the story, go here.

Company executives may not flaunt the tax benefits that comewith some overseas deals, but their importance is coming through loud and clear in the fine print of merger documents.
Inversion deals have become bigger and more popular lately.
But pitfalls abound. The effort by companies to lower their taxes through deals has sparked outcry from U.S. policy makers, some ofwhom are threatening to change the rules to limit the tax advantage of these tie-ups.
To protect themselves, companies increasingly are adding details to merger agreements that allow them towalk away from a dealwithout paying a penalty, or breakup, fee should the tax advantage suddenly be taken away.

For the story, go here.

The IMF chose a moment during theworld Cup round of 16 andwimbledon to issue an important policy paper, "Spillovers in International Corporate Taxation," about tax competition and how countries should protect themselves from this destructive nonsense. (For the paper, seewww.imf.org/external/np/pp/eng/2014/050914.pdf.) The Bank for International Settlements chose the same moment to make the obvious point that quantitative easing has detached equity markets from realitywhile not fulfilling its stated goal (http://www.bis.org/publ/arpdf/ar2014e.pdf).
The IMF paper's objective is to discuss the effects of beggar-thy-neighbor tax policies on macroeconomic development. The point is to discuss how a country's tax system affects other countries' tax bases. The bottom line: Tax competition makes everyoneworse off.

For the story, go here. (subscription required)

This paper identifies and analyses some key challenges that OECD and partner economies may face over the coming 50 years if underlying global trends relating to growth, trade, inequality and environmental pressures prevail. The paper discusses towhat extent national structural policies can address these and other interlinked challenges, but also points to the growing need for international coordination and cooperation to dealwith these issues over the coming 50 years.

For the paper, go here.

Tax-arbitrage mergers and acquisitions require a deep discount. American companies seeking to relocate by mergers in a bid to slash how much they pay Uncle Samwere a big part of the $1.8 trillion first-half deal boom. The benefits of such ill-conceived combinationswill be fleeting, though. The more so-called inversions there are, the more likely the law is to change.

For the story, go here.

European officials have demanded that Luxembourg hand over documents relating to Amazon's tax affairs as the online retail giant becomes embroiled in a crackdown that has already drawn in Apple, Starbucks and Fiat's financial arm.

The EU's competition commission has sent a request for information to the Grand Duchy,where Amazon's main European operating company is based, aboutwhether its decisions on corporate tax compliedwith state aid rules, two people familiarwith the matter said.

For the story, go here.

With accusations of cosying up to multinationals and engaging in a race to the bottom, there is an assumption that tax competition is bad. But panellists at the Oxford Business School's Summer Conference on Tax Competition and BEPS questionedwhether the perception matches reality.

For the story, go here.

The OECD's project on providingways to tackle base erosion and profit shifting (BEPS) is at the forefront of the minds of tax directors and other stakeholders all over theworld right now. But different jurisdictions have different approaches and different agendas in terms ofwhat theywant OECD outcomes to look like.

For the story, go here.

The popularity of corporate inversion transactions has grown considerably in the past few years,with notable examples including Medtronic-Covidien, Actavis-Warner Chilcott, Elan-Perrigo and Liberty Global-Virgin Media. Now shareholders in US companies are asking: "If our rivals are doing this, is it somethingwe should be considering?"

For the story, go here.

Notice 2014-32 is the IRS's latest attempt to prevent so-called Killer B transactions from repatriating cashwithout paying taxes. It also has important consequences for inversion transactions pairedwith Killer Bs. The notice is designed to combat a cross-border acquisition structure used in connectionwith an inversion.william Pauls looks at transactions affected by the new guidance and the history of IRS rulemaking in this area.

For the report, go here. (subscription required)

Eric Toder of the Urban-Brookings Tax Policy Center in a June 18 report summarized the discussion at a February 28 conference hosted by the Urban Institute onwhat U.S. policymakers can learn from the experience of other countrieswith territorial systems for taxing the income of their multinational corporations.

For the report, go here.

A little less than two years ago, Gregory D.wasson, the chief executive ofwalgreen, sought a series of tax breaks from Illinois,where his company is based.
''We are proud of our Illinois heritage,'' he said at the time. ''Just as our stores and pharmacies are health and daily living anchors for the communitieswe serve,we as a company are now recommitted to serving as an economic anchor for northeastern Illinois.''
Mr.wasson's actions, however, could soon run counter to hiswords. The same chief executivewho said hewas so ''proud of our Illinois heritage'' is now considering moving the company's headquarters to Switzerland as part of a mergerwith Alliance Boots, a European drugstore chain.
For the story, go here.

The International Monetary Fund (IMF) today released the study "Spillovers in International Corporate Taxation," that explores the nature and policy implications of cross-border effects from national corporate tax policies, highlighting how these effects can be significant for developing countries,with resulting tax revenue losses sometimes quite large relative to total government revenues.

For the study, go here.

The "common person" may be a better judge than sophisticated tax experts onwhether tax principles make good common sense, especially regarding international taxation, Michael Danilack, departing deputy commissioner (international), IRS Large Business and International Division, said at a June 5 transfer pricing conference inwashington.

For the speech, go here. (subscription required)

All those recent headlines about more U.S. companies contorting themselves to move their legal headquarters to Ireland or Britain could serve as an epitaph for the 105-year-old U.S. corporate income tax.

No, lawmakers in Congress aren't about to repeal the tax. They say they don'twant to do modest tinkeringwith the tax code so they can save the energy (and, in some cases, the revenues) for that bigger, broader tax reform. But in the same breath members of Congress say doing bigger, broader tax reform is impossible in today's polarized Congress.

So nothing happens. In Congress, that is.

For the blog post, go here.

The International Monetary Fund (IMF) today released the study "Spillovers in International Corporate Taxation," that explores the nature and policy implications of cross-border effects from national corporate tax policies, highlighting how these effects can be significant for developing countries,with resulting tax revenue losses sometimes quite large relative to total government revenues.

For the report, go here.

Uncertainty about extenders impairs businesses in planning and investment, and the growing difference between corporate tax rates in the U.S. and those of major trading partners creates an incentive to relocate overseas, according to a report from McGladrey LLP on manufacturer and distributor issues.
For the report, go here.

Today Maryland Congressman Chris Van Hollen, Ranking Member of the House Budget Committee, and Congressman Sander Levin, Ranking Member of theways and Means Committee, introduced the Stop Corporate Expatriation and Invest in America's Infrastructure Act. This legislationwill put an end to corporate expatriations and devote the resulting revenue to the Highway Trust Fund. Itwill raise $19.5 billion in revenue over ten years and keep the Trust Fund solvent as Congressworks on a long-term funding solution.
For the release, go here.

Spainwill cut its corporate tax rate to 28% from January 1 2015,with a further cut coming in a year later. Incentives used by large businesseswill be repealed to fund the rate cut, but the R&D tax credit has been spared.

For the story, go here.

Tax executives from Altadis, BMW, Iberdrola and Repsol share their exclusive reactions to the announcement of Spanish tax reforms,with allwanting more information before they can be completely satisfiedwith the measures.
For the story, go here.

Narrowlywritten legislation to curb international, tax-driven mergers and acquisitionswon'twork, Houseways and Means Committee Chairman Dave Camp (R-Mich.) said.
But addressing the issue of inversions more broadly could open the door to overhauling corporate tax laws, he said at an event June 24 at the Heritage Foundation. Bills to raise foreign ownership thresholds to discourage the practice simplywon't solve the issue on their own, Camp said in response to a question from the audience.
"If you do corporate only, you need to do corporate only, and not a part of corporate reform," he said. "You just can't pull out, I believe, a partial holiday or a temporary piece."
For the story, go here. (subscription required)

Senior tax officials from New Zealand areworkingwith the Organization for Economic Cooperation and Development in Paris to implement measures from the OECD's base erosion and profit shifting action plan, Revenue Minister Todd McClay announced.
New Zealand officials said they are collaboratingwith the OECD theweek of June 23 to prepare the first parts of its BEPS action plan,with the goal of delivering the first seven measures in September. The 15-point action planwas initiated by the OECD in 2013 in response to tax avoidance measures being utilized by multinational corporations.
For the story, go here. (subscription required)

The issue of tax-motivated income shiftingwithin multinational firms – or "base erosion and profit shifting" (BEPS) – has attracted increasing global attention in recent years. This paper provides a survey of the empirical literature on this topic. Its emphasis is on reviewing and elucidatingwhat is known about the magnitude of BEPS.

For the paper, go here.

On February 28, 2014, the Urban Institute hosted an invitational conference onwhat policymakers in the United States can learn from the experience of other countrieswith territorial systems for taxing the income of their multinational corporations. Participants included academic experts, government officials, and private sector tax practitioners from the United States and overseas. The discussion focused on the experience of four countries - two (Australia and Germany)with long-standing territorial systems and two (Japan and the United Kingdom) that moved to a territorial system recently. This document summarizes the discussion at the conference.

For the report, go here.

In this article, Prof. Bretwells argues that until policymakers address the fundamental tax disparity that creates corporate inversions, ever-changing forms of the transactionwill continue to pop up like moles in awhack-a-mole game.

For the article, go here. (subscription required)

A proposal bywalgreen Co. to reincorporate into Switzerland could cost the United States an estimated $4 billion in lost revenue over five years, but that could be the least of the IRS'sworries if the deal inspires other U.S. retailers to follow suit.
For the story, go here. (subscription required)

In a step hailed as important in the overall battle to reduce corporate tax base erosion and profit shifting, European Union finance ministers reached unanimous agreement to revise the EU's Parent-Subsidiary Directive to eliminate double nontaxation.
At the same time, the ministers meeting June 20 in Luxembourg approved a measure for the European Commission to begin an overall illegal state aid investigation into the use of "patent box" tax schemes that a host of EU member states have introduced to attract high-tech companies.
And in a third key move, the European Commission confirmed that Switzerland has agreed to abide by rules outlined in the EU Code of Conduct against unfair corporate taxation.
For the story, go here. (subscription required)

from The Economist

America is a land of immigrants, but some of its biggest companies are keen to emigrate, driven abroad by high tax rates and America's "worldwide" system of taxation,which grabs a share of their foreign profits. The preferred method of exit is the "tax inversion",which uses a cross-border mergerÔøΩgenerally one that also has some sort of industrial logicÔøΩas the pretext for reincorporating in a more tax-friendly place. Medtronic, a maker of medical devices, is the latest and largest firm to change its nationality in thisway.

For the story, go here.

At the Economic and Financial Affairs Council meeting on 20 June the ministers agreed an amendment to EU tax rules thatwill close a loopholewhich had allowed cross-border corporations to profit from double non-taxation.
The agreed amendment to the parent-subsidiary directive (2011/96/EU)will put an end to the situationwhereby cross-border corporate groups could exploit differences between national tax laws and profit from double non-taxation by means of hybrid loan arrangements.
For the Council's release, go here.

Reaping the benefits of tax inversion isn't as straightforward as many think.
Through its $42.9 billion mergerwith Covidien PLC, Medtronic Inc.will gain an Irish address, a lower overall tax rate and more overseas cash to spend in Americawithout paying U.S. taxes. But at least initially, the new cash flowwill come only from surgical-tools and hospital-supplies maker Covidien,whose overseas profits have always rested outside the U.S. tax net, Medtronic said.
To free Medtronic's future international earnings from the U.S. tax net is complicated, andwould require additional maneuvering, tax experts said.
For the story, go here.

Fiscal unity rules fall foul of European Court of Justice over location of intermediate subsidiary and lack of permanent establishment.
For the story, go here.

European Union finance ministerswill try to close down an important corporate tax device by approving EU Parent-Subsidiary legislation changes, including new rules on hybrid loans designed to eliminate both double taxation and double nontaxation.
After EU finance ministers unexpectedly failed to approve the revision of the EU Parent-Subsidiary legislation in MayÔøΩSweden and Malta objectedÔøΩGreece,which holds the rotating presidency, said it believed the unanimous backing required could be achieved.
For the story, go here. (subscription required)

The Association of Chartered Certified Accountants (ACCA) believes that the coalition government has failed to support the Office of Tax Simplification (OTS) and has instead made the UK tax system more complex and confusing for both individuals and businesses.
For the story, go here.

At no time in the past 50 years has the UK been a better place to do business. The coalition government thatwas formed in 2010 set outwith the stated purpose of making the UK a more attractive place to do business and has radically reformed the UK corporate tax regime over the past four years. By and large, it has succeeded in its aim of making the jurisdiction a more attractive business location.
For the story, go here.

Joe Hockey, Australian Treasurer, labelled the Australian taxation system as "compromised" in a speech to the Sydney Institute lastweek,while Big 4 accounting firm EY described it as in "disarray". The criticisms have led to calls for the formation of an independent tax reform commission.
For the story, go here.

Spainwill announce a number of tax reform measures tomorrow, including a corporate tax rate reductionwhich could see five percentage points shaved off the existing rate.
For the story, go here.