Int'l Tax News

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US productivity climbs, but wages stagnate

Federal income tax rateswill rise for thewealthiest Americans, and certain tax loopholes might get closed this year. But these developments, andwhatever else happens inwashington in the coming debt-ceiling debate, are unlikely to do much to alter one major factor contributing to income inequality: stagnantwages. For millions ofworkers,wages have flatlined.

Wages have fallen to a record low as a share of America's gross domestic product. Until 1975,wages nearly always accounted for more than 50 percent of the nation's G.D.P., but last yearwages fell to a record low of 43.5 percent. Since 2001,when thewage sharewas 49 percent, there has been a steep slide.

For the full text of this article, go here.

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France, Germany to pool revenue from FTT to fund programs aimed at competitiveness

France and Germany plan to use revenue collected from a financial transactions tax for a
special fund thatwould help euro zone countries that have committed to structural reforms designed to boost competitiveness.

The commitment by France and Germany to use the FTT revenue came on the same day that the European Commission confirmed that Lithuania has joined the other 11 EU member states that have committed to impose an FTT via a special EU legislative procedure.

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

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Finland to restrict interest deductions, offer temporary relief on depreciation

Finlandwill introduce new limits on companies' ability to deduct interest on intracompany loans, the nation's coalition government has announced. Scheduled to take effect in the 2014 tax year, the new limits form part of a series of measures contained in the nation's 2013 budget plan,whichwas presented to parliament September 18. Neighboring Sweden introduced similar interest deduction rules September 20.

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


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EU parliament OKs special legislative procedure for EU financial transactions tax

The European Union took an important step toward implementing a financial transactions
tax in at least 11 EU member states in 2013when the European Parliament December 12 approved the use of a legislative procedure that allows normal unanimous voting requirements to be bypassed.

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

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Economic substance needed to weigh third-party behavior, OECD's de Ruiter says

Economic substance is as relevant as legal contracts for determining third-party behavior in a transaction, and the two factors should carry equalweight in the Organization for Economic Cooperation and Development's discussion draft on intangibles, a top OECD transfer pricing official said Nov. 13.

Marlies de Ruiter, head of the OECD's division for tax treaties, transfer pricing, and financial transactions, said that legal contracts arevery relevant in determining third-party behavior in transfer pricing transactions, but that authorities should also be able to look at economic substance to assesswhether related parties' conduct is in linewithwhat third partieswould have done.

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

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European Court of Justice rules against UK tax imputation method on foreign dividends

The United Kingdom may be forced to repay billions of dollars to a variety of multinational companies after the European Court of Justice ruled Nov. 13 against different tax treatment the United Kingdom uses for domestic dividends and foreign-based dividends paid to companies.

In a case (C-35/11) that dates to the early 2000s, the EU high court said a United Kingdom law that allowed corporate tax exemptions on dividends paid by domestic companies, but not on those earned for foreign-based sources, is a violation of EU law allowing the free movement of capital. The lawwas repealed in 2009 pending ECJ review.

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

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European Commission to launch new plan against tax havens, corporate loopholes

The European Commissionwill unveil Dec. 6 a plan to crack down on tax havens andaggressive tax planning by companies in order to help EU member states recover desperately needed revenue lost to tax evasion.

Citing the $1 trillion or more in revenue the 27 EU member states lose annually to tax evasion and tax avoidance, the European Commission proposalwill also call for an EUTaxpayer's Code of Conduct, an EU tax identification number, a review of the anti-abuse provisions in key EU directives and common guidelines to trace money flows.

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

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Danish Parliament OKs law allowing publication of companies' tax details

Despite strong criticism from industry, a new bill thatwill allow the Danish Tax
Authority (SKAT) to publish companies' tax details online has been approved by the nation's parliament.

The law's June 13 approval means that thousands of companies' 2011 tax detailswill be freely available on the SKATwebsite from the end of 2011, regardless ofwhether the companieswish such information to be publicized.

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

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Motion introduced to implement 2012 federal budget tax measures in Canada

Canadian Federal Finance Minister Jim Flaherty Oct. 15 introduced a measure to implement an overseas employment tax credit and other international tax and corporate income tax measures proposed in the federal government's budget for fiscal 2012-13.

Thenotice ofways and means motionwould implement a range of international taxation measures outlined in the government's March 29 budget.

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

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Burden of proof placed on taxpayers when French profits moved outside EU

France's Parliament has adopted legislation that shifts the burden of proof to French taxpayers in transfer pricing auditswhen they transfer profits to subsidiaries located outside the European Union.

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

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Earnings shocks and tax-motivated income-shifting: evidence from European multinationals

In a paper presented at the 5th Annual Conference on Empirical Legal Studies, Dhammika Dharmapala of the University of Illinois at Urbana-Champaign and Nadine Riedel of the Universitat Hohenheim present a new approach to estimating the existence and magnitude of tax-motivated income shiftingwithin multinational corporations.

For the abstract and the full paper, go here.

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Oxford Centre for Business Taxation presents its annual ranking of G20 nations' corporate taxes

In a June 2012 report by Katarzyna Bilicka and Michael Devereaux, the Oxford Centre for Business Taxation ranks the statutory tax rates and effective tax rates of the G20 countries at the beginning of 2012. The purpose of the report is to assess the competitiveness of the UK corporation tax regime.

For the full text of the report, go here.

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A better way to tax US businesses

In an article published in the July-August issue of the Harvard Business Review, Harvard Business School and Law School Professor Mihir Desai presents a proposal for improving US taxation of businesses that followswhat he views are the three principles that should guide a reform of the US corporate tax to advance American interests: The structure must reflect developments in theworld economy; corporate tax reform probablywill have to be instituted separately from fundamental tax reform and be roughly revenue neutral; and any reform must relegitimize corporations as responsible citizens and the corporate tax as a meaningful policy instrument.

For Desai's article, go here. (Registration, one-time purchase, or subscription required to read the full article.)

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CTJ: 286 Fortune 500 companies hold $1.6 trillion in offshore profits

  • By Citizens for Tax Justice
In a December 13 report, Citizens for Tax Justice reports that, based on an examination of the annual 10-K reports filed by 290 Fortune 500 corporations, those corporations held nearly $1.6 trillion in profits outside the US at the end of 2011.

For the CTJ report, go here.

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Which Fortune 500 companies are sheltering income in overseas tax havens?

  • By Citizens for Tax Justice
An October 17 report by Citizens for Tax Justice examines the likelihood that US multinationals are shifting offshore profits to tax havens,where they remain untaxed, rather than repatriate those profits to the US.

For the CTJ report, go here.

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CRS examines US federal tax benefits for manufacutring

In a September 20 report, Gary Guenther, an Analyst in Public Financewith the Congressional Research Service, examines "Federal Tax Benefits for Manufacturing:
Current Law, Legislative Proposals, and Issues for the 112th Congress."

For the full text of Guenther's report, go here.

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CRS examines options for reform of US corporate income tax system

In a September 13 report, Mark P. Keightley, a Specialist in Economicswith the Congressional Research Service (CRS), and Molly F. Sherlock, a Specialist in Public Financewith the CRS, examine the current US corporate income tax system and options for reform of that system.

For the full text of the report, go here.

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CRS examines US international tax reform alternatives

In a December 27 report, Jane G. Gravelle, a Senior Specialist in Economic Policywith the Congressional Research Service, assesses the existing US international tax regime and examines possible revisions to that regime.

For the full text of the report, go here.

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Accountant testifies at hearing on offshore profit-shifting and the US tax code

Jack T. Ciesielski, CPA, CFA, the president of R.G. Associates, Inc., an investment research and management firm in Baltimore, testified at the September 20, 2012, hearing of the US Senate Finance Committee Permanent Subcommittee on Investigations on "Offshore Profit Shifting and the U.S. Tax Code."

To read Ciesielski's testimony and that of the otherwitnesses, go here.

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Corporate tax competitiveness rankings for 2012

Writing in the September 2012 issue of the Cato Institute Tax & Budget Bulletin, Duanjie Chen and Jack Mintz of the University of Calgary School of Public Policy present new estimates of marginal effective tax rates (METRs) on corporate investment for
90 countries.

For their report, go here.

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International tax practitioner testifies at hearing on offshore profit-shifting and the US tax code

Beth Carr, an international tax services partnerwith Ernst & Young LLP, testified at the September 20, 2012, hearing of the US Senate Finance Committee Permanent Subcommittee on Investigations on "Offshore Profit Shifting and the U.S. Tax Code."

To read Carr's testimony and that of the otherwitnesses, go here.

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Camp, Hatch call on business community to embrace comprehensive tax reform

In a December 14 letter to the heads of the Business Roundtable and the National Federation of Independent Business, Houseways and Means Chairman Dave Camp and Senate Finance Committee Ranking Minority Member Orrin Hatch reaffirm their support for comprehensive tax reform, as opposed to a corporate-only tax reform approach.

For the letter, go here.

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To tax, or not to tax, overseas cash hoards

In a Bloomberg Businessweek article, Elizabeth Dwoskin reports on the debate over how US companies are taxed on overseas profits.


For the full text of the article, go here.

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American companies and global supply networks: driving US economic growth and jobs by connecting with the world

In an extensive report sponsored by the Business Roundtable, the United States Council for International Business, and the United States Council Foundation,Dartmouth Professor Matthew J. Slaughter explainswhat American companies must do to
succeed in todays dynamic global economy.

For the full text of the prepublication version of Professor Slaughter's report, go here.

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As anger over alleged tax avoidance rises, British MPs vow action on multinationals

The UK Parliament's Public Accounts Committee at a November 12 hearing grilled executives from Google Inc., Amazon.com Inc., and Starbucks Corp. over their transfer pricing policies, suggesting that the companieswere engaged in shifting income out of the U.K. to tax havens.

For coverage of the hearing, go here.

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Tax competition and the trend toward territoriality

In a new two-page paper, University of Michigan Law School Professor Reuven Avi-Yonah examines the key aspects of the recent trend toward territorial taxation, includingthe easewithwhich this tax competition allows multinational corporations to avoid taxation in the countries inwhich their goods are produced, and how the correct reforms to CFC rules, togetherwith enhanced transfer pricing enforcement, can minimize the harm the trend toward tax competition can inflict on the stability of the US corporate tax base.

For the abstract of Avi-Yonah's paper, and to download the full text of the paper, go here.

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Avi-Yonah testifies at hearing on offshore profit-shifting and the US tax code

University of Michigan Law School Professor testified at the September 20, 2012, hearing of the US Senate Finance Committee Permanent Subcommittee on Investigations on "Offshore Profit Shifting and the U.S. Tax Code."

To read Avi-Yonah's testimony and that of the otherwitnesses, go here.

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Avi-Yonah makes case for equalizing tax rates applied to capital and labor

In U. of Michigan Law & Econ Research Paper No. 12-008, University of Michigan Law School Professor Reuven Avi-Yonah responds towhat he sees as a central premise of tax scholarship of the last 30 years -- the greater mobility of capital than labor. Recently, Avi-Yonah notes, scholars such as Edward Kleinbard have recommended that the US adopt a variant of the 'dual income tax' model used by the Scandinavian countries, underwhich income from capital is subject to significantly lower rates than labor income because of its supposedly greater mobility.

Avi-Yonah argues that the premise uponwhich this argument is built is mistaken, because for individual US taxpayers (as opposed to corporations), there are significant limitations on their ability to avoid tax by moving their capital overseas.

For the abstract of this paper, and to download the paper, go here.

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Australian Business Tax Working Group issues final report on possible corporate rate cut

  • By Business Tax Working Group
The Australian Treasury's Business Taxworking Group (BTWG), established in 2011 to exploreways inwhich a corporate tax cut could be funded fromwithin the business tax system, has issued its final report, concluding that itwas "unable to recommend a revenue neutral package to lower the company tax rate."

For the full text of the BTWG Final Report, go here.

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Base erosion and profit shifting (2)

Writing in the June 2012 issue of theworld Commerce Review, Masatsugu Asakawa, the Chair of the OECD Committee on Fiscal Affairs and Japan's Deputy Vice-Minister of Finance for International Affairs, explainswhy recent events in the financial sector indicate that corporate tax policy, and in particular its international side, may need a new look.

Asakawa concludes that "It is more important now than ever that taxpayers pay the
right amount of tax at the right time and in the right place."

For the full text of the article, go here.

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Tax Reforms and Corporate Tax Competition

In an unpublished paper, Professors Rosanne Altshuler of Rutgers University and Timothy Goodspeed of the Hunter College and Graduate Center, CUNY, examine the relationship between tax reforms and corporate tax competition. The authors note that corporate tax competition is an important issuewith broad ramifications for tax policy, yet economists have precious little empirical insight into the tax competition process,which normally manifests itself in large tax reforms.

For the full text of the paper, go here.

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Is U.S. Multinational Dividend Repatriation Policy Influenced by Reporting Incentives?

A study in the September 2012 issue of the American Accounting Association journal The Accounting Review concludes that an accounting technique known as permanently reinvested earnings, or PRE, reduces multinational firms' repatriation of foreign affiliates' earnings (through dividends paid to U.S. parent firms) by roughly 20% a year.while acknowledging that high U.S corporate tax rates and the ability to defer payment play a major role in keeping earnings abroad, it finds that "repatriation is more sensitive to the repatriation tax rate in the presence of reporting incentives," so much so that "firmswith high reporting incentives repatriate, on average, 16.6% to 21.4% less per year than firmswith low reporting incentives."

"Our study suggests that companieswould repatriate about 20% more than they currently do if they didn't have this accounting tool that enables them to put a gloss on their financial statements," comments Leslie A. Robinson, an accounting professor at Dartmouth College,who carried out the studywith Prof. Linda Krull of the University of Oregon and Prof. Jennifer Blouin of the University of Pennsylvania.

For a press release on the article, go here

For the full article, go here

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Treasury official: US tax reform efforts must be informed by international fight against base erosion

Appearing at the recent GW/IRS Insititute on Current Issues in International Taxation, Treasury Deputy Assistant Secretary for International Tax Affairs Manal Corwin said efforts to US international tax rules must take placewithin the context of global efforts to combat base erosion. She said in particular that the OECD project on base erosion and profit shifting (BEPS)would "inform the conversation."

For complete coverage of Corwin's remarks, go here. (Subscription required.)

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Designing an "ironclad" US territorial tax system will be difficult, Shay says

Addressing the National Tax Association on November 16, Harvard Law School professor Stephen Shay --who has extensive international tax experience in both government and private practice --warned attendees that practitionerswill findways to avoid a territorial-based corporate tax.

For coverage of Shay's remarks, go here.

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Why advanced manufacturers need tax reform

In an opinion piece published on politico.com, Intel's Peter Cleveland explains how pro-innovation tax policy "can level the playing field for American businesses, expand our advanced manufacturing base and move forward an innovation-based economy."

To read Cleveland's article, click here.

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Durst suggests changes to OECD guidance on transfer pricing for intangibles

In a Tax Notes viewpoint, international tax practitioner Michael C. Durst,who formerly served as director of the IRS advance pricing agreement program, offers suggestions for improving the OECD's proposed modifications to its transfer pricing guidance regarding the taxation of income from intangible property.

To read Durst's viewpoint, click here.

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UK and German Finance Ministers call for corporate tax coordination

In a joint statement issued at the G-20 finance ministers meeting in Mexico city, the finance ministers of the United Kingdom and Germany called for better coordination of corporate tax regimes because changes in global business practices have exposedweaknesses in the current regimes.

The Daily Tax Report story on the statement may be found here.

The joint statement may be found here.

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US corporate taxes: myths and facts

In a recentwall Street Journal op-ed piece, Business Roundtable President John Engler discusses aspects of the US corporate tax system that influencewhether US corporations choose to operate overseas and if so,whether to repatriate foreign earnings.

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Kleinbard examines tax policy implications of "stateless income"

In a Tax Notes special report, University of Southern California Gould School of Law Professor Edward D. Kleinbard examines the tax consequences and policy implications of the phenomenon of "stateless income" -- income that is derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group's ultimate parent company but that is subject to tax only in a jurisdiction that is neither the source of the production factors throughwhich itwas derived nor the domicile of the group's parent company.

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Full text of UK revenue official's speech to AEI/ITPF tax reform event is now available

David Gauke of Her Majesty's Treasury delivered the central presentation at the September 27 American Enterprise Institute event -- co-sponsored by the International Tax Policy Forum -- "UK tax reform: a road map for the US?"

The full text of Gauke's presentation is now available.

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Full video of AEI/ITPF event, "UK tax reform: A road map for the US?" is now available!

  • By ITPF
On September 27, the American Enterprise Insitutute,with the International Tax Policy Forum as co-sponsor, hosted an important tax policy event, "UK tax reform: A road map for the US?"

The event featured prominent US and UK international tax policy experts -- from the private sector, academia, and government -- assessing the applicability of the UK reforms to the US situation.

To view the video, please go to: http://www.aei.org/events/2012/09/27/uk-tax-reform-a-road-map-for-the-us/

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Clausing and Hufbauer debate merits of territorial taxation

In a series of Tax Notes articles, Kimberly A. Clausing, a professor of economics at Reed College, and Gary Clyde Hufbauer, the Reginald Jones Senior Fellow at the Peterson Institute for International Economics, debate the possible effects of a U.S. move toward territorial taxation of corporations.

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