Int'l Tax News

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Joint Committee explanation of Obama's FY 2013 budget covers four new international tax provisions

On June 18, 2012, the JCT staff released a pamphlet that analyzes the revenue provisions proposed in President Obama's FY 2013 federal budget. when compared to the FY 2012 pamphlet, the new version provides similar analysis of the international tax provisions. In addition, the pamphlet analyzes the Administration's four budget provisions added for FY 2013. This newsalert summarizes the JCT staff's explanation of both the carryover and the new tax provisions.

For discussion of the JCT explanation, go here.

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General anti-avoidance rules: what are the key elements to a balanced approach?

More and more countries, such as the UK and India, are considering the enactment of a General Anti-Avoidance Rule (GAAR). A GAAR is typically a statutory rule that empowers a revenue authority to deny taxpayers the benefit of an arrangement that they have entered into for an impermissible tax-related purpose. This broad definition only scratches the surface -- there can be many permutationswith respect to a GAAR's operating provisions.

For the article, go here.

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UK to introduce above-the-line R&D tax credit

A new R&D regime, effective April 1, 2013, should reduce the cost of R&D in the United Kingdom. The credit is above-the-line, so corporate officials should have greater visibility into how investment decisions can benefit from the credit. In addition, some loss-making companies could see an immediate cash benefit.

For the article, go here.

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PSI releases exhibits for hearing on offshore profit shifting and the US tax code

The Senate Permanent Subcommittee on Investigations (PSI) has released a package of exhibits for its September 20 hearing on offshore profit shifting and the tax code.

For the exhibits, go here.

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Beware territorial tax proposals

In his Foreign Policy blog, Clyde Prestowitzwrites, "The president and Congress need to remember that those making these proposals are not making them in their role as American citizens, but in their role as CEOs of profit maximizing global corporations. They should recall the New York Times quote of a high ranking Apple executive to the effect that the company doesn't 'have an obligation to solve America's problems.'"

For the article, go here.

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President's Council of Advisors on Science and Technology issues report on the domestic advantage in advanced manufacturing

  • By President's Council of Advisors on Science and Technology
In a July report, the President's Council of Advisors on Science and Technology (PCAST) discusses capturing the domestic advantage in advanced manufacturing.

For the report, go here.

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Capping the deductibility of corporate interest expense

In a Tax Notes special report, Robert C. Pozen and Lucasw. Goodman propose reform that lowers the corporate tax rate from 35 to 25 percent and allows nonfinancial C corporations to deduct only 65 percent of their interest expense,with special treatment for the financial sector and for companies thatwould have otherwise realized taxable losses.

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

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President Obama statement on fiscal cliff tax legislation

In his January 1 statement on the agreement resolving the fiscal cliff crisis, President Obama said, "And today's agreement enshrines, I think, a principle into law thatwill remain in place as long as I am President:The deficit needs to be reduced in away that's balanced.Everyone pays their fair share. Everyone does their part.That's how our economyworks best.That's how we grow."

For the statement, go here.

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The folly of attacking outsourcing

What's most revealing about the political assault on outsourcing is that while the critique of foreign commerce has moved decisively from the fringes into the political mainstream, our political leaders have yet to turn their rhetorical skepticism into policy.

For the article, go here.

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Multinationals and the high cash holdings puzzle

Lee Pinkowitz of Georgetown, Rene M. Stultz of Ohio State, and Rohan Williamson of Georgetown, defining as normal cash holdings the holdings a firmwith the same characteristicswould have had in the late 1990s, find that the abnormal cash holdings of U.S. firms after the financial crisis represent on average 1.86% of assets.

For the paper, go here.

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Italy scours deals abroad for elusive tax revenue

Italy,which has one of the biggest tax-cheating problems in the developedworld, is cracking down on suspect offshore investments as part of an unprecedented drive to find new sources of tax revenue and ease concerns about its $2 trillion ($2.69 trillion) in debt.

One of the brightest spotlights is on companies suspected of earning money or shifting it abroad to avoid paying Italian taxes.

For the article, go here.

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Immigration, offshoring and American jobs

In a Centre for Economic Performance Discussion Paper, Gianmarco I.P. Ottaviano, Giovanni Peri, and Greg C.wright examine the following issues:

  • How do offshoring and immigration affect the employment of nativeworkers?
  • What kinds of jobs suffer, or benefit, most from the competition created by offshore and immigrantworkers?
For the paper, go here.

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OECD releases revised proposals concerning the meaning of beneficial ownership in Articles 10-12 of OECD Model Tax Convention

  • By OECD
On 29 April 2011, the OECD released a public discussion draft entitled “Clarification of the meaning of beneficial owner in the OECD Model Tax Convention.

In light of the comments received on that first discussion draft, the OECD Committee on Fiscal Affairs, through its Working Party 1 on Tax Conventions and Related Questions, made a number of changes to the proposals released in April 2011.

This revised discussion draft includes the revised proposals that theworking Party has drafted.

For the revised discussion draft, go here.

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OECD releases revised complete edition of public comments received on the discussion draft on timing issues relating to transfer pricing

  • By OECD
The OECD has released a revised complete edition of public comments received on the June 6 discussion draft regarding transfer pricing timing issues.

The commentswill be discussed byworking Party No. 6 at its November 2012 meeting and at a Public Consultation to be held in Paris on 12-14 November 2012.

For the comments, go here.

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OECD seeks comment on transfer pricing timing issues

  • By OECD
In a June 6 announcement, the OECD Secretariat invites public comments on certain timing issues related to transfer pricing, in connectionwith thework ofworking Party No. 6 on intangibles and other projects.

For the announcement,which includes a link to the draft on timing issues, go here.

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OECD releases three-pager on base erosion and profit shifting

  • By OECD
The OECD has released a three-page background brief regarding the organization'swork in the area of tax base erosion and profit shifting (BEPS).


For the three-pager, go here.

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OECD releases revised public discussion draft on permanent establishments

  • By OECD
The OECD on October 19 released a revised public discussion draft on the interpretation and application of Article 5 (permanent establishment) of the OECD Model Tax Convention.

For the revised discussion draft, go here.

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Software firms find tax advantages

Expanding use of cloud computing to deliver software as a service is making it easier for global software companies to earn and keep profits outside the reach of U.S. taxes.

For the article, go here.

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New York Times calls territorial tax system a "permanent tax holiday"

In a July 18 editorial, The New York Times explainswhy it opposes a territorial tax system for the US.

Says the Times, "The corporate tax system needs reform, to raise more revenue, more fairly. The territorial tax system does not meet those criteria."


For the editorial, go here.

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NSYBA comments on Camp international tax reform discussion draft

  • By New York State Bar Association Tax Section
The New York State Bar Association Tax Section on September 6 issued a report on the international tax reform discussion draft released by Houseways and Means Chair Dave Camp on October 26, 2012.

For the NYSBA report, go here.

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Corporate tax: a race to the bottom

Corporate tax rates have been falling around theworld since the 1980s and the trend shows no sign of letting up. The Financial Times' Daniel Garrahan reports onwhether theworld is engaged in a ruinous race to the bottom.

For the video, go here.

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Dell's multiple restructurings aid it in tax avoidance

In a Tax Notes column, David Cay Johnston discusses a restructuring by Dell Inc. thatwould enable it and other U.S. multinationals to avoid being taxed on their U.S. profits.

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

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How can vulnerable countries cope with tax avoidance?

In Tax Notes news analysis, Lee A. Sheppard discusses how nations like Norway can copewith the international tax system, includingwhether they should use OECD model treaties.

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

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NFTC comments on OECD discussion draft on revisions to intangibles guidance in OECD Transfer Pricing Guidelines

  • By National Foreign Trade Council
In a September 12 letter, the National Foreign Trade Council presents its comments on the OECD Discussion Draft: Revision of the Special Considerations for Intangibles in
Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions, dated June 6, 2012.

For the NFTC comment letter, go here.

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The borders of EU tax policy and US competitiveness

In a University of Miami Legal Studies Research Paper, Professor George Mundstock examines a European Commission proposal that the member states of the European Union allow corporations to elect a harmonized corporate income tax. A particularly interesting feature of the proposal is that incomewould be allocated among the member states using a mathematical apportionment formula rather than, as currently is the law, by determining the source of income on a case-by-case basis.

For the paper, go here.

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Transfer pricing more workable than unitary tax

In a letter to the editor of the Financial Times,will Morris, Chair, Tax Committee, Business Industry Advisory Committee to the OECD, responds to recent articles praising formulary apportionment.

For the letter, go here. (Free registration required.)

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Manufacturing the future: The next era of global growth and innovation

The McKinsey Global Institute undertook the research in Manufacturing
the future: The next era of global growth and innovation to gain a better
understanding of how manufacturing contributes to developing and advanced
economies in the 21st century. The authors' goalwas to establish a clear fact base on
the current state of the global manufacturing sector and analyze how longterm
trendswill shape manufacturing in the coming decades.

For the full report, go here.

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CRS examines tax havens: international tax avoidance and evasion

In a January 23 Congressional Research Service report, Senior Specialist in Economic Policy Jane G. Gravelle looks at recent legislation and other proposals by the Organization for Economic Cooperation and Development (OECD) and the
G-20 industrialized nations that have targeted tax haven countries, focusing primarily on evasion issues.

For the report, go here.

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The merits of a territorial tax system

Writing for the Manhattan Institute for Policy Research Issues 2012, Senior Fellow Diana Furchgott-Roth and Research Associate Yevgeniy Feyman examine the merits of a territorial tax system for the US.

For the report, go here.

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Levin opening statement at Senate PSI hearing on offshore profit shifting and the US tax code

In his opening statement at the September 20 Senate Permanent Subcommittee on Investigations hearing on offshore profit shifting and the US tax code, panel Chairman Carl Levin described various "loopholes" that have allowed US multinationals to "stockpile" $1.7 trillion in earnings offshore.

For Levin's statement, go here.

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Sen. Levin lists 10 "offshore tax loopholes" he wants closed

In an October 5 letter to the chairs and ranking minority members of the Senate Finance and Houseways and Means committees, Senate Permanent Subcommittee on Investigations Chairman Carl Levin (D-MI) describes 10 "offshore tax loopholes" his panel has investigated.

For the letter, go here.

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Deferred taxes may fluctuate under extended CFC rules

The recently enacted fiscal cliff law could alter the deferred tax accounting of companies subject to controlled foreign corporation rules, but the resulting financial statement ramifications may depend on the accounting strategy thatwas employed during the brief expiration of those retroactively extended tax laws.

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

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Cameron: U.K. will focus on tax avoidance at G-8

British Prime Minister David Cameron said Thursday hewill use his country's year-long presidency of the G-8 to target tax-dodging tactics by businesses.

Public anger has been mounting in Britain after lawmakers accused major multinational companies of "immorally" avoiding paying tax.

For the story, go here.

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Corporate tax take has "risen"

A group of top finance directors has joined the fray as big business seeks to confront intense public scrutiny of corporate tax planning, saying companies tax treatment has undergone a dramatic change in recent years and that the overall burden they face has increased.

Andrew Bonfield, chairman of the tax committee of the Hundred Group, said the changes reflected the policy of successive governments looking for stable tax revenues and economic growth.

For the story, go here.

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"Robin Hood" trading tax nudged forward in Europe

A hotly contested tax on financial trades took a big step forward on Tuesdaywhen European Union finance ministers allowed a vanguard of member states to proceedwith the plan.

The so-called Robin Hood taxwould apply to trading in stocks, bonds and derivatives. Although the taxwould probably be small one-tenth of a percentage point or less on the value of a trade it could earn billions of euros for struggling European governments.

Algirdas Semeta, the European commissioner in charge of tax policy, called the decisiona major milestone in tax history and said the levy could be imposed starting next year. But deep concerns about how it wouldwork could still lead to delays.

For the story, go here.

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CRS examines where American companies report profits: indications of profit-shifting

Federal tax revenue could increase as a result of tax reform that cuts the top corporate tax rate to reduce incentives to shift profits to tax havens, and that revenue could be used to reduce debt and deficits, the Congressional Research Service said in a January 18 report.

This report uses data on the operations of U.S. multinational companies (MNCs) to examine the extent towhich, if any, MNCs are moving profits out of high-tax countries (or out of the U.S.) and into low-tax countrieswith little corresponding change in business operations, a practice known as "profit shifting."

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

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As foreign profits rise, corporate tax rates fall

Globalization is creating two misleading impressions about corporate taxes in the U.S.

First, corporate-tax revenue is keeping upwith recent historical averages as a share of gross domestic product. However, that's only because globalization has raised the corporate-profit share of GDP,while reducing the share of labor compensation.

Second, both Democrats and Republicans in Congress are committed to corporate-tax reform in response to globalization. Yet they are unlikely to accomplish much, because each party's desired reforms are pretty much the opposite of the other's.

Consider the state of corporate taxes. In the final quarter of fiscal year 2012, corporate income taxes amounted to 1.7 percent of GDP -- exactly their quarterly average over the past three decades. A closer look, though, reveals that this pattern reflects two contrasting trends.

For the opinion piece by Peter S. Orszag, go here.

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Firms keep stockpiles of "foreign" cash in US

There's a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas: A lot of it is actually sitting right here at home.

Some companies keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, according to people familiarwith the companies' cash positions.

In the eyes of the law, the Internal Revenue Service and company executives, however, this money is overseas. As long as it doesn't flow back to the U.S. parent company, the U.S. doesn't tax it. And as long as it sits in U.S. bank accounts or in U.S. Treasurys, it is safer than if itwere plowed into potentially risky foreign investments.

For the story, go here.

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Yahoo, Dell swell Netherlands $13 trillion tax haven

Inside Reindert Dooves's home, a 17th- century, three-story convertedwarehouse along the Zaan canal in suburban Amsterdam, a 21st-century Internet giant is avoiding taxes.

The bookkeeper's home office doubles as the headquarters for a Yahoo! Inc.offshore unit. Through this sun-filled,white- walled room, Yahoo has taken advantage of the law to quietly funnel hundreds of millions of dollars in global profits to island subsidiaries, cutting itsworldwide tax bill.

The Yahoo arrangement illustrates that the Netherlands, in the heart of a continent better known for socialwelfare than corporatewelfare, has emerged as one of the most important tax havens for multinational companies. Now, as a deficit-strapped Europe raises retirement ages and taxes on theworking class, the Netherlands role as a $13 trillion relay station on the global tax-avoiding network is prompting a backlash.

For the article, go here.

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Globalization and corporate tax

In an International Monetary Fund (IMF)working Paper, Manmohan S. Kumar and Dennis Quinn analyze the extent towhich the degree of international economic integration, both financial and trade, affects corporate tax rates.

Their paper explores this issue in the context of strategic behavior by countries, taking into account other global and domestic political economy factors.Tax rates are analyzed using a unique tax dataset for advanced and developing economies extending over five decades.

For the paper, go here.

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Controlled foreign companies reform: UK Finance Bill published

  • By KPMG UK
On March 29, 2012, the UK Government published Finance Bill 2012,which includes, in Schedule 20, the latest draft of the new controlled foreign companies (CFC) rules.
The draft legislationwas originally published on December 6, 2011, and January 31, 2012with comments invited from business. In response to feedback, amended draft legislationwas issued on February 29, 2012 reflecting improvements to the operation of the gateway provisions and some amendments to the finance company exemption. The Finance Bill includes further changes, including a new temporary period exemption.

For further coverage, go here.

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The connection between competitiveness and international taxation

Writing in the Tax Law Review, University of Pennsylvania Law School Professor Michael S. Knoll examines two conceptions of competitiveness that are frequently used in discussions of the connection between international taxation and competitiveness, but are not always clearly distinguished from one another. One conception emphasizes the competition between firms to be profitable and grow by acquiring productive assets. The other conception focuses on the competition between states to attract investment capital and people by varying their regulations.

For Professor Knoll's article, go here.

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The better base case for a post-2012 US personal income tax regime

Writing in Tax Notes, Professor Edward D. Kleinbard of the University of Southern California Gould School of Law and Joseph Rosenberg of the Urban-Brookings Tax Policy Center present their proposal for an alternative post-2012 US personal income tax regime -- the "Better Base Case."

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

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International tax competition and coordination

In a Max Planck Institute for Tax Law and Public Financeworking Paper, Michael Keen and Kai A. Conrad aim to provide a comprehensive survey of the theory of international tax competition.

Startingwith the standard framework, the authors visit the non-cooperative equilibrium of tax competition, analyses aspects of partial and regional coordination, repeated interaction, stock-flow-effects, agglomeration effects, and time consistency issues in dynamic models. They discuss profit shifting in the Keen-Kanbur model and then survey frameworks to analyze countries bidding for firms, tax rate differentiation and preferential tax regimes, the role of information exchange and recentwork on tax havens.

For the paper, go here.

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Why the US is getting corporate tax reform wrong

Matthew Gilleard of the International Tax Review argues thatwhile the IRS and Treasury have already moved to tighten the rules relating to US firms moving to low-tax jurisdictions, encouraging companies to stay rather than building barriers to
prevent them leaving is a moreworthwhile and growth-friendly road to go down.

For his article, go here.

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The FTT is on the way.

After months of fraught discussions, and years as a radical fringe policy ignored by those in power, the financial transactions tax (FTT) is set to become a reality as 11 EU member states have decided to adopt it.

For the article, go here.

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Were #27!: US lags far behind in R&D tax incentive generosity

According to the Innovation Technology and Information Foundation, the US in 2012 ranked just 27th out of 42 countries studied in terms of research and development (R&D) tax incentive generosity, down from 23rd just five years ago.

For the ITIF report, go here.


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IMF examines key economic issues for US

  • By International Monetary Fund
In a Selected Issues Paper prepared as background documentation for the International Monetary Fund's periodic meetingwith the US, a team of IMF staffers examines key issues facing the US.

For the paper, go here.

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HMRC issues draft guidance on CFCs and PEs

  • By Her Majesty's Revenue & Customs
Her Majesty's Revenue & Customs (HMRC) has issued draft guidance on controlled foreign corporations (CFCs) and permanent establishments (PEs).

The draft guidance supplements Finance Bill 2012,which contains the draft legislation for the new CFC rules and some amendments to the rules for the exemption of foreign PEs thatwill apply to CFCs and permanent establishmentswith accounting periods that begin on or after 1 January 2013.

For the draft legislation, go here.

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HMRC examines the taxation of the profits of multinational businesses

  • By Her Majesty's Revenue & Customs
An Issue Briefing released by Her Majesty's Revenue & Customs responds to recent media reports suggesting that some high-profile multinational businesses do not pay their fair share of corporation tax on profits they make from their businesswith UK customers. This briefing explains how the profits of multinational businesses are taxed, and how tax policy affectswhere multinationals choose to locate.

For the Issue Briefing, go here.

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