Int'l Tax News

The United Nationswill have a final version of its digital tax proposal in late April, a subcommittee of the organization said. The U.N. is developing a new "Article 12B" in its model tax treaty to help countriesÔøΩespecially developing countriesÔøΩapply tax to digital services in agreementswith their treaty partners.

John Kerry, now Joe Biden's envoy on climate,warned the EU that a carbon border tax adjustment should be a "last resort", at the end of a four-day trip that aimed to build a transatlantic climate alliance ahead of the UN climate talks in November. The former secretary of state told the Financial Times hewas "concerned" about Brussels' forthcoming plans for a carbon border adjustment mechanism and urged the EU towait until after the COP26 climate change conference in Glasgow to move forward.

Annual reports recently filedwith the SEC show that most large U.S. pharmaceutical companies aren't shifting profits into the United States since passage of the Tax Cuts and Jobs Act at the end of 2017. In fact, some have significantly increased the foreign share of theirworldwide profits. This is a notable development because the TCJA greatly reduced incentives to locate profits in low-tax jurisdictions that pharmaceutical companies have favored for decades.

The No Tax Breaks for Outsourcing Act, introduced by Senate Finance Committee member Sheldonwhitehouse, D-R.I.,would provide for current-year inclusion of net controlled foreign corporation income and modify rules regarding inverted corporations, among other measures.

France is pushing for a shared framework on green investmentswith the United States that includes a carbon border adjustment tax, but the United States has not yet committed to an energy tax. French Finance Minister Bruno Le Maire received John Kerry, the U.S. special envoy on climate, on March 10 to discuss Europe-U.S. cooperation on climate matters after President Biden rejoined the Paris climate accord and recommitted to international strategies combating globalwarming.

Despite plans to increase the corporation tax rate in 2023, the United Kingdomwill remain a probusiness country because it offers many other incentives to attract investment, the nation's finance chief said. Chancellor of the Exchequer Rishi Sunak on March 11 defended his proposal to increase the corporation tax rate from 19 percent to 25 percent starting in April 2023. He spoke during a House of Commons Treasury Committee hearing on the 2021 budget,whichwas presented March 3. The hearing coincidedwith the publication of Finance Bill 2021.

WASHINGTONÔøΩThe U.S. dropped a Trump administration demand in global corporate-tax negotiations, removing one obstacle to an agreement on adapting the tax system to the digital economy. Treasury Secretary Janet Yellen said Friday that the U.S.would no longer insist on a "safe harbor" underwhich some elements of the tax ruleswould be optional. The idea, proposed in late 2019 by her predecessor, Steven Mnuchin, drew objections from European counterparts, though talks on how itwouldwork never advanced very far.

The U.S. decision to set aside a roadblock to a deal to overhaul global tax rules earned praise from policymakers Friday, but countries still have to address a number of key issues before agreement can be reached midyear. The U.S. plan, first proposed by former Treasury Secretary Steven Mnuchin, demanded that part of an OECD-led effort to changewhere and how multinational companies are taxed globally be optional. The U.S. call for a "safe harbor"was so internationally unpopular it had created an impasse in the talks.

The Organization for Economic Cooperation and Development is exploring measures to help countries implement its global minimum tax proposal, it said Friday. The OECD is consideringwhether it can use a multilateral instrument (MLI) thatwould allow countries to change multiple tax treatieswithout the need for negotiation, as one method for implementing its minimum tax plan. It had previously used this method to discourage tax avoidance through a practice known as treaty shopping.

Japan's Ministry of Economy, Trade and Industry is forming a panel of experts to look into the taxation of the digital economy, focusing specifically on improving competitiveness of Japanese companies. The panelwill look at the possibility of launching a digital services tax, similar to the taxes imposed in France, Italy, and the U.K. So far, the government has been monitoring international developments.

The U.K. tax office is set to get sweeping new powers to demand information about sellers on digital platforms like Amazon.com Inc. and ebay Inc. The new powers, announced inwednesday's budget,would "affect digital platforms in the U.K. that facilitate the provision of services by U.K. and/or other taxpayers."

The United States remains ready to address new corporate taxation challenges from the changing global economy and "is committed to the multilateral discussions on both pillarswithin the OECD/G-20 Inclusive Framework," U.S. Treasury Secretary Janet Yellen said in a February 25 letter to her G-20 colleagues.

A carbon border adjustment mechanism (CBAM) could be one of several approaches considered by the Biden administration to curb greenhouse gas emissions, according to the Office of the U.S. Trade Representative (USTR). According to the president's 2021 Trade Policy Agenda and 2020 Annual Report, "the Biden administrationwillworkwith allies and partners that are committed to fighting climate change. Thiswill include exploring and developing market and regulatory approaches to address greenhouse gas emissions in the global trading system. As appropriate and consistentwith domestic approaches to reduce U.S. greenhouse gas emissions, this includes consideration of carbon border adjustments." The USTR said it presented the papers to Congress March 1.

Recognizing that the OECD's proposal for reallocating the tax bases of multinationals may be neitherworkable nor passable, U.S. administration and congressional leaders are still trying to salvage hope for a multilateral tax deal. A shift to a focus on tax harmonization appears to be underway. Houseways and Means Committee Chair Richard E. Neal, D-Mass., said February 9 at thewashington International Trade Association virtual conference that after meetingwith Treasury Secretary Janet Yellen to discuss digital taxation, the two agreed that "harmonization of tax rates is very important" and that the OECD model "could be very helpful." In February 12 remarks to the Tax Council Policy Institute, Neal reiterated that harmonizing international corporate tax rates "ought to be a priority."

The EUwants to reform its corporate tax framework to better meet the challenges of maintaining fair competitionwithin the internal market and securing sustainable, long-term funding for public infrastructure, regional governments, and business development. In a March 4 roadmap, the European Commission laid out a vision for a long-awaited communication thatwill set out priorities for corporate taxation over the coming years to meet the changing needs of a globalized economy hit hard by the COVID-19 crisis.

There is room for mid-2021 agreement on two key simplification measures for an OECD-led plan for minimum taxation, including one tied to country-by-country reporting requirements that companies already complywith, an OECD official said. However, morework is needed on "tax administrative guidance,"whichwould identify low-risk jurisdictions inwhich multinational enterpriseswould be presumed to have a sufficiently high effective tax rate (ETR) above the minimum rate set out in pillar 2, according to John Peterson.

Nana Ama Sarfo Now that a high-level U.N. panel has called for a complete overhaul of the global financial system ÔøΩ including a new U.N. tax convention, a U.N. tax body, and a global minimum tax ÔøΩwhatwill happen next?

Annual reports recently filedwith the SEC show that most large U.S. pharmaceutical companies aren't shifting profits into the United States since passage of the Tax Cuts and Jobs Act at the end of 2017. In fact, some have significantly increased the foreign share of theirworldwide profits. This is a notable development because the TCJA greatly reduced incentives to locate profits in low-tax jurisdictions that pharmaceutical companies have favored for decades.

India is heading for a showdownwith Joe Biden's administration after announcing one of theworld's toughest taxes on foreign technology companies. Narendra Modi's government this month announced several amendments to a 2 per cent "equalisation levy" on digital services, introduced in April last year,which analysts said amounted to an expansion of the tax. The measure,which applies to everything from ecommerce to video streaming, follows a similar 6 per cent levy on digital advertising from 2016, known as the "Google tax".

US Treasury secretary Janet Yellen has told G20 finance ministers thatwashingtonwill drop a contentious part of its proposal for reform of global digital taxation rules that had been the main stumbling block to an agreement.

The move could unlock long-stalled multilateral negotiations at the OECD,which struggled to make progress after the Trump administration first insisted on the "safe harbour" measure in late 2019. The provisionwould have allowed technology companies to abide by any agreement on a voluntary basis andwas strongly opposed by several European countries.

This articlewill argue thatwe should tax corporations for the same reasonwe originally adopted the corporate tax in 1909: to limit the power and regulate the behavior of our largest corporations,which are monopolies or quasi-monopolies that dominate their respective fields and drive their competitors out of business (the best example being Big Tech ÔøΩ that is, Amazon, Apple, Facebook, Google, and Microsoft). But if that is the reason to have a corporate tax, it should have a different structure from the current flat corporate tax of 21 percent. Instead, the tax should be set at zero for normal returns by allowing the expensing of physical capital, but at a sharply progressive rate for supernormal returns (rents).

Coca Cola v. Commissioner (Tax Court, Nov. 18, 2020) is the first decisive IRS victory in a major transfer pricing case since 1979. If the outcome is not reversed on appeal, thiswill mark an important shift in transfer pricing litigation in the US, and perhaps indicate that the IRS couldwin some of the other major pending cases, like the one against Facebook.

Rep. Rashida Tlaib (D., Mich.), a member of the so-called "squad" of firebrand progressives in the House, is calling for a financial transaction tax to rein in risky stock trading and to redistributewealth. "The majority of Americans support taxingwall Street transactions," she said at Thursday's hearing on the GameStop trading frenzy. "This tax, to me,would discourage risky and high-frequency trading."

Richard Rubin and Theo Francis consider how tax court decisions may impact companies' bottom lines, or not.

A U.N. subcommittee is seeking input through March 16 on a proposal to update the definition of royalties in article 12 of the U.N. model tax treaty to cover payments for software.

In this article, the author explains how Brazil's transfer pricing methods,which rely heavily on fixed margins, can be reconciledwith the OECD's transfer pricing guidelines and how emerging economies can benefit from the resulting system.

Multinational enterprise groups can apply to participate in a new multilateral tax risk assessment and assurance program spearheaded by the OECD Forum on Tax Administration (FTA) to obtain greater certainty about cross-border tax risks.

The U.K. expects to keep business levies competitivewith the other Group of Seven nations, a government official familiarwith the matter said, giving Chancellor of the Exchequer Rishi Sunak scope to raise corporation tax in his budget nextweek. The U.K. rate is already the lowest among the seven nations at 19%, the person said. Rates in Canada, France, Germany, Italy and Japan are all above 25%. The official also pointed to proposals earlier thisweek by Treasury Secretary Janet Yellen to lift the U.S. rate to 28% from 21%.

Congresswould be "leaving money on the table" if the rest of theworld agreed to the OECD's digital tax planwithout the U.S., a former Treasury official said. Even if the U.S. didn't sign on, its large companieswould likely still face the effects of the OECD's proposed "Amount A," said Lafayette "Chip" Harter,who served as deputy assistant Treasury secretary for international tax affairs until late last year.

The U.S. is committed to engaging in multilateral tax talks at the OECD and G20, Adewale Adeyemo, nominee to be deputy Treasury secretary, told members of the Senate Tuesday.

The European Parliament plans towarn international tax negotiators that a mid-2021 deadline for agreement on digital and minimum corporate taxation must be respected, lawmakers said. Thewarning that the European Union is "not accepting any more a delay"would take the form of a nonbinding resolution that the Parliamentwould finalize in April, said Martin Hlavacek, a centrist member from the Czech Republic,who is one of the drafters of the resolution. Hewas speaking during a tax subcommittee meetingwednesday.

The U.S. and China's interests are alignedwhen it comes to digital taxation, potentially influencing international tax reform talks, a former OECD tax chief said Friday. Theworld's largest two economies both host internet giants, including Alibaba Group, Amazon.com, Baidu, and Facebook, meaning they "have almost exactly the same interests" in relation to digital taxation, said Jeffrey Owens,whowas previously head of tax policy at the Organization for Economic Cooperation and Development.

The introduction of a Digital Services Tax (DST) to ensure that profits are taxedwhere economic value is created has been object of tough debate over recent years. The unilateral attempts of single countries to tax multinational companies active in digital businesswas initially addressed at EU level by the European Commission,which tried to propose a harmonized set of rules to tax companies rather than leaving this to individual EU member states.

Switzerland'swealth tax offers a rare real-world example of how a levy on assets canwork, just as such ideas gain traction elsewhere in thewake of the coronavirus crisis. The measure forces residents in one of theworld's richest nations to tally the value of their investments, real estate, cars, fine art, Bitcoin, and even beehives and cows. A percentage is then skimmed off by cantonal governments, varying in size and method depending on the canton. Switzerland, among only a handful of countrieswith the levy, can make a claim that it has the most effective one.

Advisers to the Senate Finance and Houseways and Means committees believe there is broad support among congressional Democrats for legislative proposals thatwould address the Tax Cuts and Jobs Act's design flaws.

The United States Council for International Business has recommended that proposed foreign tax credit regulations (REG-101657-20) bewithdrawn to permit a thorough review of the policy objectives of the U.S. FTC regimewithin the context of the ongoing debate over the extension of the international tax system beyond traditional norms.

If the IRS applies the transfer pricing method approved by the Tax Court to the Coca-Cola Co.'s post-2009 tax years, the total liability in its U.S. transfer pricing dispute could reach $12 billion.

Jasper L. "Jack" Cummings, Jr., is of counselwith Alston & Bird LLP in Raleigh, North Carolina.

In this article, the author suggests major modifications to the OECD's pillar 1 blueprint proposal to create a new taxing right for multinational digital income and some product sales thatwould greatly simplify the proposal. The modifications rely on readily available existing financial information andwould achieve certainty in the application of pillar 1,while adhering to its fundamental structure and policies.

WASHINGTONÔøΩ Amazon.com Inc., the company frequently cited by Democrats in their calls to raise corporate taxes, saw its tax liability jump last year as it prospered during the pandemic. But the technology giant, and others like it, could face even higher tax bills under the Biden administration's plan for a minimum tax rate on profitable corporations.

A proposal to eliminate a tax benefit for multinationals to help pay for a Covid stimulus package may be a sign that Congress is ready to target other such benefits. Congresswants to revoke the tax breakÔøΩwhich came into effect this year after first being introduced in 2004ÔøΩto help pay for a $1.9 trillion stimulus package (H. R. 133) aimed at additional Covid relief.without the benefit, multinationalswould lose an election that shields them from losing foreign tax credits if they have debt in the U.S.

This is aweekend roundup of Bloomberg Tax Insights,written by practitioners and featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published eachweek. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, Daily Tax Report: International, Transfer Pricing Report, and Financial Accounting.

Indonesia hopes for a global digital tax deal this year so the nation can lead a multilateral implementation starting next year, the country's finance minister said. "The expectation, and the hope, is that in 2021, under the Italian G20 Presidency,we are going to achieve a historic agreement on international taxation, essentially via the two-pillar solution under discussion," Sri Mulyani Indrawatiwrote in a Feb. 8 post on the Organization for Economic Cooperation and Development'swebsite. In pandemic-stricken economies, "Finding a sustainable, equitable, and fair source of revenue is critical," she said.

Chancellor Rishi Sunak has agreed to tie his own hands at next month's Budget by stickingwith the Conservatives' "triple tax lock",which stops him raising the rates of income tax, national insurance or value added tax. Treasury officials had hoped Mr Sunakwould ditch the Tories' 2019 election manifesto commitment,which stops him using the three biggest tax levers to start curbing a deficit that is expected to top £400bn in 2020-21 because of the coronavirus crisis.

Robert Goulder examines recent proposals to simplify the OECD's pillar 1 blueprint and concludes the projectwill neverwin U.S. support.

Mindy Herzfeld considers U.S. legislative obstacles facing any multilateral digital taxation deal agreed to by the Biden administration and reviews other considerations that could affect the chances of reaching global agreement.

Avi-Yonahwrites thatwith a new administration, it might be a good time to reflect on the Tax Cuts and Jobs Act, consideringwhat it should keep andwhat should it discard. He concludes thatthe TCJA's international provisions represent the best parts of the Act and should generally be kept (albeitwith important modifications) but that the FDII regime is a misguided export subsidy that should be discarded.

Advisers to the Senate Finance and Houseways and Means committees believe there is broad support among congressional Democrats for legislative proposals thatwould address the Tax Cuts and Jobs Act's design flaws.

Senate Finance Committee Chair Ronwyden, D-Ore., reiterated Democrats' desire to raise taxes on corporations but did not disclosewhether a consensus exists among his caucus on a specific rate.

Final guidance regarding foreign tax credits and the global intangible low-taxed income regime is atop the priority list for tax executives of multinational corporations, amid concerns about the new administration's tax policies.