Int'l Tax News

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Indian budget leaves taxpayers disappointed

Readwhy foreign investors have every reason to be disappointedwith Finance Minister P Chidambaram's eighth annual budget,which contained fewer business-friendly measures than expected.

For the article, go here.

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But Who Will Fix the Formulary Apportionment Fix?

Peter L. Faber comments on the proposed formulary apportionment fix, saying there are some aspects of the reform effort that haven't been properly resolved.

For the letter, go here. (Subscription required.)

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News Analysis: Thinking Outside the Patent Box

Promoting U.S. manufacturing is on every politician's lips. By "promoting" they mean offering a combination of tax benefits and training programs, but tax incentives are the main focus. Could patent boxes be an incentive thatwould help U.S. manufacturers?

For the article, go here. (Subscription required.)

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A new European tax on financial transactions is set to go global

A new European tax on financial transactionswill hit investorsworldwide including in the United Stateswho buy stocks and bonds of European companies, do businesswith European banks or engage in any of a broad array of financial activities.

The levy is due to take effect next year andwill be a significant money-raiser for the 11 nations that have signed on, bringing in an estimated $45 billion annually. The 11-nation group,whose members are mostly from the economically ailing euro currency union, includes major U.S. trading partners such as Germany and France. Britain is not participating.

For the story, go here.

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Collaboration on FATCA Sets Stage For Work on BEPS, Corwin Suggests

The speed and successwithwhich the United States developed regulations under the Foreign Account Tax Compliance Act (FATCA)—working in cooperationwith multiple foreign governments—may serve as a lesson in how to tackle international concerns about base erosion and profit shifting, a former U.S. Treasury official said Feb. 28.

Manal Corwin,who stepped down Feb. 21 as deputy assistant secretary, international tax affairs,with Treasury,was keynote speaker at a meeting of the U.S. and Netherlands branches of the Internal Fiscal Association.

Corwin told IFA members that the Organization for Economic Cooperation and Development's approach to its BEPS project—on a fast track to a June report to the Group of 20—could draw lessons from the development of guidance and collaborative agreements related to implementing FATCA, a 2010 law intended to stop cross-border tax evasion.

For the article, go here. (Subscription required.)

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News Analysis: The OECD Confronts Zipless Tax Planning

Have a care for the OECD Centre for Tax Policy and Administration.
Since the OECD released its base erosion report, "Addressing Base Erosion and Profit Shifting," they have angry European and South Asian governments on one side, hurt multinationals on the other, and the United States in between trying to head off drastic unilateral measures. (For the report, see http://www.oecd.org/ctp/beps.htm.)
Representatives of multinationalswhinged that their careful tax planningwas derided as "schemes." Critics like your correspondent said the report didn't go far enough. And the complaining members and non-members are not going to be satisfied if four months from now, the OECD tells them to go back and amend their domestic laws if they don't like cross-border arbitrage.
For the article, go here. (Subscription required.)


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India to Foreign Firms: Pay More Taxes

  • By Wall Street Journal
India's tax authorities are seeking billions of dollars from some of theworld's biggest multinational companies, saying that they haven't properly valued transactionswith their Indian subsidiaries.
The move threatens to sour foreign companies on Indiawhen it badly needs investment and is creating friction between tax authorities in India and the U.S.
The tensions reflect growing debate over how multinational companies should report their income through subsidiaries around theworld. Emerging economies such as Indiawant to grab a larger slice of such income,while the U.S. and other countrieswhere the multinationals are basedwant to keep profitsand taxesat home.
For the story, go here.

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EU Commissioner Advocates Global Financial Transaction Tax

The new EU financial transaction tax (FTT) to be adopted by 11 EU member stateswill serve as an example that proves the viability of the tax in meeting policy and fiscal needs, EU Tax Commissioner Algirdas Šemeta said on February 25.

"We are ready to lead theway to show that the FTT can and should be appliedwidely," said Šemeta. "I believe that the group of 11 member stateswill grow. Several others have already expressed an interest in joining the FTT zone in the future and I also retain hope that through the EU's example a global FTTwill also be a reality sometime."

For the article, go here. (Subscription required.)

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Who's Afraid of Inversion?

  • By U.S. PIRG
Many large U.S. companies avoid U.S. taxes by using accounting gimmicks to shift profits legitimately made in the U.S. to offshore tax havens that levy little to no tax. The most recent academic estimates put the revenue lost due to corporate tax haven abuse at $90 billion annually.According to a 2008 study by the Government Accountability Office, at least 83 of the top 100 publicly traded companies in the United States maintain subsidiaries in offshore tax havens.

As Congress considers closing the loopholes that allow aggressive offshore profit shifting, lobbyists for some companies are resorting to blackmail:If you prevent us from using offshore tax havens to avoid paying taxes,we may re-register our company outside the country or rearrange our corporate structurewith a foreign headquarters to avoid U.S. taxes altogether. Dont messwith our loopholes orwell become a company based in a tax haven like the Cayman Islands!

For the report, go here.

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A Tax That May Change the Trading Game

To the dismay of the United States government not to mentionwall Street much of Europe seems poised to begin taxing financial trading as soon as next year.

For the article, go here.

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Insight: In Europe's tax race, it's the base, not the rate, that counts

The amount of profit a country taxes - commonly known as the tax base - has been shrinking for multinationals in many European countries over the past decade or so, experts say, a fact easily lost in talk about headline rates. Countries have found that reducing the base - agreeing to not tax some profits that a company makes - helps attract firms and, they hope, jobs. But as recent protests against corporate tax avoidance in Britain highlight, voters are beginning to question that tactic. If taxpayers see governments helping companies to avoid taxes, it could hurt their ability to tax everyone else.

For the article, go here.

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OECD Tries to Fix Income Shifting

With its new report, "Addressing Base Erosion and Profit Shifting," the OECD promises to do something about the income-shifting problem and meet its critics. (For the report, see http://www.oecd.org/ctp/beps.htm.)

The report contains some astonishing admissions against interest about the causes of the zero-tax results under the current international system. The significance of the admissions by the erstwhile defenders of the faith cannot be understated.

"The existing system (arm's length) does not alwayswork as it should," Centre Director Pascal Saint-Amans told Tax Analysts. "I am much more interested in focusing onwhat can be done to the existing system,without taking anything of this current system for granted."

Putting the best face on it, the report is a baby step toward practical proposals --which are supposed to be ready for the G-20 meeting in a mere four months! The report provides little in theway of proposals, and it leaves the readerworrying that the OECDwill jump in front of the parade and carry onwith its useless projects.

For the article, go here. (Subscription required.)

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Will Tax Avoidance in the U.K. Go Out of Style?

A January 31 hearing in the House of Commons focused on the role played by the Big Four in tax avoidance in the United Kingdom. The hearings raised the issue of the morality of aggressive tax planningwhile bringing to light significant differences between the United States and the United Kingdom on the boundaries of acceptable tax practice.

For the article, go here. (Subscription required.)

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Enduring Charms: A brief history of tax havens

The history of offshore finance isriddledwith myths and legends, says Ronen Palan, a haven-watcher. The termtax haven did not enter the language until the 1950s, but the concept originated in the late 19th century,when the American state of New Jersey eased its business-registration and tax laws to drum up incorporation revenues during a fiscal squeeze. A few years later Delaware copied its methods. These early moveswere driven bywall Street lawyers.

For the article, go here.

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The OFCs Economic Role: The good, the bad and the Ugland

Detractors describe the offshore phenomenon as one of the more noxious features of financial globalisation that is now, mercifully, in retreat. The half-dozen senior lawyers gathered in thewood-panelled boardroom of Ugland House, the head office of Maples and Calder in George Town, the Cayman Islands capital, have heard it all before, and they beg to disagree. Offshore centres oil the financial interface between larger economies, insists Alasdair Robertson of Maples. Grant Stein ofwalkers, another Cayman firm, thinks of it as the plumbing that connects the global financial system. His peers nod vigorously. At times they seem touchy, but then Ugland House, the registered address of more than 18,000 companies, is held up by critics as a symbol of all that iswrongwith OFCs.

For the article, go here.

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The Merry Enablers: Accounting firms will do nicely under any set of rules

Many corporate tax-avoidance strategies are craftedwith the help of the big four accounting firmsDeloitte, Ernst & Young, KPMG and PwC. These firms also happen to be among the longest-standing and best-represented providers of corporate services in offshore locations.

For the article, go here.

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Company taxation: The price isnt right

During the tax-evasion trial of Leona Helmsley, a flamboyant hotelier, a former housekeeper testified that she heard her employer say:We dont pay taxes. Only the little people pay taxes. These days, multinational companies stand accused of taking a similarly haughty attitude to their fiscal affairs, shifting profits offshore to cut their tax bills. Many of the tax-avoidance techniques being employed are legal, but many others are ruled to be illegal over time or occupy a grey area between the two. Corporate tax directors have generallyworked on the basis that a strategy is legitimate until it is ruled illegal, no matter how aggressively it is structured. Their opponents recall thewords of Denis Healey, a former British chancellor,who suggested that the difference between avoidance and evasionwasthe thickness of a prisonwall.

For the article, go here.

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G-20 'Determined' to fight Profit-Shifting, Secure Revenue Base

Finance chiefs from the Group of 20 pledged towork together to curb multinational companies leeway to shift profits to low-tax countries, endorsing an initiative spearheaded by Europes biggest economies.

Britain, Germany and France today called on other G-20 nations to restrict tax avoidance by international corporations that declare profits in territorieswhere they can pay the lowest amounts.

For the story, go here.

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Five myths about manufacturing jobs

In his State of the Union address Tuesday, President Obama said that creating manufacturing jobs is the nation'sfirst priority. To some, this may sound like a throwback to a long-lost era; after all, such jobs are being eliminated, outsourced or automated, right? Not really. The United States remains aworld leader in manufacturing, and that sector remains essential to our economic and technological future. Here are the five biggest misconceptions about U.S. manufacturing andwhy the sector still matters.

For the story, go here.

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Who's the criminal? The agony and the ecstasy of offshore whistleblowing

Since the start of the financial crisis, taxwhistleblowing has been roundly applauded by the media. But it remains a hell of a tough business, says Jack Blum, a lawyer in the field. One of Mr Blums clients is Heinrich Kieber,who in 2008 handed the German authorities client data from the Liechtenstein bankwhere heworked. Hewas paid 5m ($7.4m) for snitching but has been on Interpolswanted list ever since for breaking Liechtensteins privacy laws,which America supports because it sees Liechtenstein as an ally in thewar on terrorist finance. Mr Kieber is in awitness-protection programme in a third country, unable to travel abroad.

For the article, go here.

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New rules use government buying power against tax avoidance

  • By HM Treasury
New rules thatwill allow government departments to ban companies and individualswhich take part in failed tax avoidance schemes from being awarded Government contracts have been unveiled by Chief Secretary to the Treasury, Danny Alexander and Minister for the Cabinet Office, Francis Maude today.

For the news release, go here.

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Storm Survivors

When the Economist Intelligence Unit, a sister organisation of this newspaper, published the first bound edition ofTax Havens and Their Uses in 1975, a queue several blocks long formed outside The Economist's bookshop in London. Interest in offshore financial centres (OFCs) kept growing over the following 20 years as dozens of new havens popped up, oftenwith help from lawyers based inwall Street or the City of London. Tax authorities did little to intervene. Beginning in the mid-1970s, Jerome Schneider, awell-knowntax planner, hawked various tax-evasion schemeswith impunity for more than 20 years, even advertising in airline magazines.

For the article, go here.

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Lawmaker, budget agency spar over taxing corporate profits

A top Republican lawmaker, Houseways and Means Committee Chair Dave Camp (R-MI) has challenged thewidely respected congressional forecaster on budget issues, the Congressional Budget Office, accusing it of a slanted report on taxing corporate profits, according to documents released on Friday.
For the story, go here.
For Camp's letter to CBO, go here.
For CBO's letter to Camp, go here.

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George Osborne: why I am committed to global tax reform

The principles for governing tax have barely changed in 100 years. Now's the time.
Iwant competitive taxes that say Britain is open for business and to attract global companies,with all the jobs they bring. That'swhywe're cutting the corporation tax rate from 28% to 21% the lowest in the G7. But I am also clear that global companies should pay those taxes.

For the full op-ed, go here.

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Practitioners Ponder OECD Base Erosion Initiative

Expectwork on the OECD's base erosion and profit shifting initiative (BEPS) to move quickly and include a fundamental rethinking of international tax principles, practitioners said during a February 27 Ernst & Young LLPwebinar.

For the article, go here. (Subscription required.)

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Outlines of Deal to Tax Worldwide Income Beginning to Take Shape, Lawmakers Say

Lawmakers are starting to see the outlines of a bipartisan agreement on how to tax the income that U.S.-based corporations earn outside the country.

Such a systemwould make it easier for U.S. companies to bring home foreign income taxed elsewherewhile preventing profits booked in low-tax or no-tax jurisdictions from receiving the same benefit.


For the article, go here. (Subscription required.)

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Lawmakers Introduce Targeted Wall Street Trading Tax

  • By Senator Tom Harkin (D-IA)
Senator Tom Harkin (D-IA) and Congressman Peter DeFazio (D-OR) today introduced legislation to place a tax on certain trading activities undertaken by banking and financial firms. If enacted, the measurewould not harm ordinary middle-class investors or long-term investing, but instead targets financial trading and complex transactions undertaken by financial and investment firms. In the last Congress, the Congressional Joint Tax Committee scored a similar proposal as raising $352 billion over 10 years.

Joining Harkin and DeFazio in cosponsoring the legislationwere Senators Bernie Sanders (I-VT) and Sheldonwhitehouse (D-RI) alongwith 19 House cosponsors.

For the Harkin release, go here.

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Harkin, DeFazio Reintroduce Financial Transaction Tax Proposal

A pair of Democratic lawmakers February 28 reintroduced legislation thatwould tax financial transactions at 3 basis points, mirroring bills introduced in the last Congress.

For the story, go here. (Subscription required.)

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In Wall St. Tax, a Simple Idea but Unintended Consequences

Some say that a financial transaction tax is a cost-freeway to kill many a birdwith one stone -- raising revenue, preventing financial crashes and making markets safer. But advocates of this neat idea conveniently ignore the century of less-than-successful experiencewith this tax, including New York State's own failed attempt.

For the article, go here.

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India's 'Nonstandard' Treaty Positions Fracture India-U.S. Competent Authority Relationship

The Indian government's "nonstandard" positions on some international tax issues such as permanent establishments and transfer pricing underlie the frayed India-U.S. tax treaty relationship, according to Carol Doran Klein of the United States Council for International Business (USCIB).

For the article, go here. (Subscription required.)

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The Conversation: Tax havens let billions vanish into thin air

As youwork on your state income tax return, give some thought to how much extra state income tax you must pay to make up for verywealthy California residents and multinational corporationswho squirrel away money offshore.
The burden they shifted onto you came to $2.9 billion fromwealthy individuals and $4.2 billion from big companies in the 2011-12 state budget year, a pioneering new study estimates. Together the escaped tax comes to $7.15 billion that you have to make up through higher state taxes, fewer services or the state taking on more debt to fund current operations.

For the article, go here.

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U.S., Poland Sign New Tax Treaty With Comprehensive LOB Provision, Treasury Says

The United States has signed a new income tax treatywith Poland that has a comprehensive limitation on benefits provision similar to many other recently concluded accords, the U.S. Treasury Department announced Feb. 13.
The LOB provision is intended to ensure that only residents of the United States and Polandwill enjoy the benefits of the treaty, Treasury said in an unnumbered news release on itswebsite.
For the Treasury news release, go here.

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Q&A: international tax loopholes

The tax planning exploits of some multinationals can leave them paying as little as 5 per cent in corporate taxeswhen smaller businesses are paying up to 30 per cent.

For the Q&A, go here. (Registration required.)

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Silicon Valley firms shelter assets overseas, slash U.S. tax bill

The largest tech companies in the Bay Area have avoided paying federal taxes on more than $225 billion they have accumulated through foreign subsidiaries, documents filedwith the Securities and Exchange Commission show.

For the article, go here.

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President Obama remarks on manufacturing

Thewhite House has released the text of President Obama's speech in Asheville, NC, today, inwhich he focused on policies to strengthen the American manufacturing sector.

The President's speech included the following as part of his "to-do" list: "The second thingwe need to do is make our tax code more competitive. Right now, companies get all kinds of tax breaks for moving jobs and profits overseas, but companies that stay here get hitwith one of the highest tax rates in the world. That doesnt make any sense."

For the full text of the speech, go here.

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The growing corporate cash hoard

Lastweek, the investor David Einhorn sued Apple, inwhich his hedge fund has a large stake, over how the company can issue preferred stock. At the heart of the dispute is the $137 billion pile of cash that Apple has accumulated, andwhether it could be used to better reward shareholders.

Mr. Einhorn's action highlights a growing problem: many corporations are holding vast amounts of cash and other liquid assets, using them neither for investment nor to benefit shareholders. These assets are largely earned and held overseas, and not subject to American taxes until the money is brought home.

For the article, go here.

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OECD reps tout "authorized intermediary" system as win for source and residence countries

A multicountry adoption of the OECD's new authorized intermediary system for streamlining the process for portfolio investors to claim treatywithholding rates on cross-border investments could provide awin for investors aswell as source and residence countries, according to OECD representatives.

For the article, go here. (Subscription required.)

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OECD says G-20 BEPS effort could lead to redefinition' of global taxation rules

A new report by the Organization for Economic Cooperation and Development could eventually contribute to a redefinition of international tax rules thatwould be aimed at preventing certain multinational companies from shifting profits to avoid taxation, according to the organization's top tax official.

OECD Feb. 12 released its Addressing Base Erosion and Profit Shifting report in response to growing concerns that multinationals, especially internet giants, are exploitinggaps in international tax standards and transfer pricing rules to shift profits away from jurisdictionswhere those profitswere generated.


For the article, go here. (Subscription required.)

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Sen. Whitehouse introduces sequester replacement plan to preserve jobs

With the so-called budgetsequester set to begin on March 1, U.S. Senator Sheldonwhitehouse (D-RI) today introduced two bills to replace the across-the-board cuts. The bills,which are cosponsored by U.S. Senators Carl Levin (D-MI), Tom Harkin (D-IA), and Bernie Sanders (I-VT),would raise the revenue needed to replace the sequester by closing tax loopholes that currently benefit thewealthiest Americans and big corporations.

For the fullwhitehouse press release, go here.

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OECD releases system to reduce compliance cost and facilitate cross-border investment

  • By OECD

Claimingwithholding tax relief under treaties and domestic law is often cumbersome, time and resource intensive for the bulk of foreign portfolio investors and thus often does not happen.

After several years ofworkwith governments and businesses around theworld and in close co-operationwith the EU, the OECD has developed and approved a standardised system of effective treaty and domestic relief including a complete implementation package for countries to move forward (“TRACE). This is a major step in streamlining processes, reducing costs, and giving investors their rightswhile improving tax compliance.

For more information on the TRACE project, go here.

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OECD releases report on base erosion and profit shifting

  • By OECD
The OECD today released a new report, "Addressing Base Erosion and Profit Shifting."

For the report, go here.

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Myths and misconceptions about transfer pricing and the taxation of multinational enterprises

Jeffrey Owens of the Institute for Austrian and International Tax Law, (WU) Vienna University of Economics and Business,writes about the need for international principles governing transfer pricing, but says there is no “silver bullet to resolve the related issues of tax base erosion and multinational enterprises shifting their profits to low-tax jurisdictions.

For the article, go here. (Subscription required.)

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Vodafone to challenge $243 million allocation on pricing of shares to Mauritius

Vodafone said Feb. 7 itwill challenge a transfer pricing order alleging that the Indian arm of the U.K. telecommunications company underpriced by 13 billion rupees ($242.5 million) the shares it issued to a group company based in Mauritius in 2007-08.

For the article, go here. (Subscription required.)

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A new Rx for tax bills: shuffling sales abroad, rates for big drug firms are dropping

Drug makers are taking new steps to lower their taxes significantly, in a boon to their bottom lines.

Many drug makers pay effective tax rates of 20% or higher. Firms that are seeking even lower rates don't specify their strategies, and the details can vary. But the efforts typically involve shifting revenue overseaswhere it can be taxed at a lower rate than in the U.S., experts say. Some companies also noted the tax benefit theywill receive this year from a federal tax credit for research and development.

For the article, go here.

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The 0.03% solution to Washington's budget problems

The unwritten rule ofwashington debates about taxing and spending is to never consider anything new. Butwouldn't it bewonderful if the pressure of the next few months' debate changed that?

Last month, 11 European countries, including France and Germany, moved forward on introducing a minuscule tax on trades in stocks, bonds and derivatives. The tax goes by many names. It's often called a Tobin tax, after the economist James Tobin. In Europe it goes by the more pedestrian financial transaction tax. In Britain, it goes by thewonderful Robin Hood tax, and is supported in an often clever campaign.

On this side of the Atlantic, there is a ghostly silence on a transaction tax in respectable political quarters. But that might change. This month, Senator Tom Harkin, Democrat of Iowa, and Representative Peter DeFazio, Democrat of Oregon, plan to reintroduce their bill calling for just such a tax.

For the article, go here.

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Sanders introduces bill to end some corporate tax preferences

Senate Budget Committee Member Bernard Sanders, I-Vt., introduced legislation on February 7 to close offshore tax havens and end tax preferences that allow corporations to avoid paying taxes on profits earned overseas.

For the article, go here. (Subscription required.)

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Working paper on tax reform options

  • By Citizens for Tax Justice
Citizens for Tax Justice has released aworking paper outlining three categories of revenue-raising options for tax reform, one ofwhich is "ending breaks and loopholes that allow large, profitable corporations to shift their profits offshore to avoid U.S. taxes."

This category of reforms "would target U.S. multinational corporations that engage in
convoluted transactions and accounting schemes to makewhat are truly U.S. profits appear to be generated in a countrywith no corporate tax or a very low corporate tax (a tax haven) in order to avoid the U.S. corporate tax. JCT has already estimated that the very strongest reform possible in this category (endingdeferral of U.S. taxes on the offshore profits of U.S. corporations and reforming the foreign tax credit)would raise around $600 billion over a decade."

The other reforms in this category are more modest reforms proposed by President Obama to limit theworst abuses of deferral (andwould be unnecessary if deferralwas eliminated).

For the report, go here.

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Group urges states to take lead in offshore tax crackdown

A consumer advocacy group is urging states to get ahead of Congress in cracking down on offshore tax avoidance that costs states an estimated $40 billion in annual revenue.

State governments can take several steps to collect revenue fromwealthy individuals and corporations, even if those actions are not matched on the federal level, the United States Public Interest Research Group says in a report released Tuesday.

For the article, go here.

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'Tobin tax' push causes dismay

The European Commission appears determined to press aheadwith a Europe-wide financial transaction tax in spite ofwarnings that it threatens the existence of Europe's $1tn money market funds industry.

Trade bodies representing MMFs have been left dismayed at the emergence of revised and strengthened plans from Brussels for a so-called "Tobin tax on equity, bond and derivative transactions, reported by the Financial Times lastweek.

The plans are expected to be publishedwithinweeks and to be signed off by mid-March.

For the article, go here.

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Political offshoring squabble doesnt address job insecurity

In an editorial, thewashington Post comments on the squabble between candidates Barack Obama and Mitt Romney regarding "offshoring" of jobs.

For the article, go here.

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