Int'l Tax News

With the success of its first big legislative initiative, the American Rescue Plan Act of 2021 (P.L. 117-2), the Biden administration has moved on to the next item on its agenda: infrastructure. Long discussed but highly elusive, the need for additional spending on the country's infrastructure has broad bipartisan support. The problem is how to pay for a measure that's expected to cost more than $2 trillion. The first of a series on various alternatives for funding infrastructure, this article considers how corporate tax increases might be used. Imposing more taxes on profitable corporationswas high on President Biden's campaign list,which includedways to both reverse and fix some of the legislative changes enacted by the Tax Cuts and Jobs Act. Progressive Democrats also have made higher taxes on corporations a key part of their platform.

A U.S. proposal to increase the rate of the global intangible low-taxed income provision of the Tax Cuts and Jobs Act may influence OECD global tax reform discussions, a top German official said. "We are of course aware there's a plan to raise the GILTI rate; of course, this plays a role in our discussions, given that the U.S. is theworld's largest economy," Martin Kreienbaum, director general of international taxation at the German Federal Ministry of Finance and chair of the OECD Committee on Fiscal Affairs, said. Hewas speaking during a March 25 panel at the American Bar Association U.S. and Europe Tax Practice Trends virtual conference. "If theworld's largest economy thinks that the rate currently laid down in the GILTI should be higher in [the] future, then I think thatwould also have an impact on our discussions," Kreienbaum added.

The global intangible low-taxed income provisionwas a primary target of criticism from Democrats andwitnesses at a Senate Finance Committee hearing, although most critiques focused on reforming GILTI rather than advocating a complete rewrite. The criticism at the March 25 hearing appeared to coalesce around three aspects of GILTI ÔøΩ its exemption from tax for qualified business asset investment income, its reduced rate, and its inapplicability on a per-country basis. These critiques come as Finance Committee Chair Ronwyden, D-Ore., announced that hewill release a new international tax framework "in the coming days" in cooperationwith committee members Sherrod Brown, D-Ohio, and Mark R.warner, D-Va.

Since 2018, the UK government, the European Commission, and several European national governments have advanced bold proposals for a new "digital services tax" (DST),with the aim of capturing profits earned by multinationals that reflect value contributed by users of digital platforms. The author offers a novel set of arguments in support of the DST,which appeal to both efficiency and fairness considerations. In particular, the DSTwould allow location-specific rent (LSR) earned by digital platforms to be captured by the countries inwhich such rent arises. The author argues that platform LSR is often hidden from view under the traditional international income taxation paradigm, due to that paradigm's focus on physical presence, source of payment, and profit allocation among related entities. Moreover, that paradigm ignores a basic intuition about how rent accruing to mobile intangible assets should be assigned:when the deployment of a technology is non-rivalwith respect to multiple locations, it is both efficient and fair to assign any rent earned from the technology's deploymentwith respect to a given location to that location.

The European Union is advancing sweeping new tax transparency rules this spring thatwill require companies to disclose publicly how andwhere they pay taxes. The proposal has been heralded by advocates as a victory for corporate transparency and the fight to end tax dodging. Companies, meanwhile,warn the planwill create compliance burdens and expose sensitive company informationÔøΩsuch aswhere they make investmentsÔøΩthatwill put them at a competitive disadvantage.

The international tax system "isn't fit for purpose," U.K. Chancellor of the Exchequer Rishi Sunak says on Tuesday at Bloomberg event on G-7, G-20 priorities.

The European Unionwants to press aheadwith a digital tax from Jan. 1, 2023ÔøΩeven if OECD talks succeed in redefining how online companies are taxed, the bloc's top digital policy official said Tuesday. Even in the "optimistic scenario" of an agreement at the Organization for Economic Cooperation and Development on a new system of digital taxing rights, "itwill take time before it is ratified and implemented all over," Margrethe Vestager, European Commission executive vice president for the digital age, told a European Parliament's tax subcommittee

Digitalization of everything is the motto of 2021.with Covid-19, there has been a significant acceleration in the growth of onlineworld. All eyes are on the Biden Administration as more and more countries join the digital tax bandwagon, and the OECD struggles to find consensus for digital service taxes (DST). As an important trade partner for theworld, and the countrywith the most companies impacted by the DSTwave, the U.S.'s actions nowwill have large ramifications.

President Biden is reportedly planning the first major hike in federal taxes in almost 30 years to fund the economic program set to follow the recently approved $1.9 trillion pandemic stimulus package. Unidentified sources told Bloomberg that the increaseswill reflect the promises Biden made during his 2020 campaign.

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.

The European Unionwill continue to push aheadwith a planned digital tax, independently of the OECD effort to broker a global deal by mid-2021, it said Tuesday. "We are looking forward to a commission proposal for a digital levy,which should be a separate instrument, not linkedwith the corporate tax rules that are being negotiated in the OECD," Portuguese Finance Minister Joao Leao said after a meeting of EU finance officials.

The EU should drop its plans for a digital tax if there is an overall agreement at the OECD, Pascal Saint-Amans, director of the organization's Center for Tax Policy and Administration, saidwednesday. The European Parliament plans to recommend that the European Union introduce a single, bloc-wide digital levy,with national digital taxes being phased out.

Brussels is suing the UK at the European Court of Justice over tax breaks in Gibraltar, in a sign of the EU's determination to persistwith pursuing disputes dating back to Britain's membership of the bloc. The European Commission announced on Friday that Britain had failed to fully recover ÔøΩ100m of illegal state aid relating to tax breaks given to companies in Gibraltar. The origins of the case date back to a Spanish complaint in 2012, but Brussels said on Friday that the long-running sagawas still not over, claiming Gibraltarian authorities had failed to claw back all the money more than two years after an EU order to do so.

In this series covering likely and potential proposals by the Biden administration,1we have saved international tax for last because the Biden and Harris proposals have primarily focused on domestic issues alongwith fairness and parity. By looking at past and present goals to eliminate disparities and inequalities internationally and domestically,we find that international tax law has the most room for improvement. The Tax Cuts and Jobs Act's corporate design is clear, and the harmful disparities can be eliminatedwhile fostering economic growth in the United States for all businesses and individuals.

While not identical, it isn't surprising that many of the priorities of the Obama and Biden administrationwill alignwith those of the Biden and Harris administration.

A pair of bills introduced by Democratic members of theways and Means and Finance committeeswould upend the corporate international tax environment, but their path forward is unclear.

On March 11 several Democratic senators, including Senate Finance Committee member Sheldonwhitehouse, D-R.I., and Houseways and Means Committee member Lloyd Doggett, D-Texas, introduced the No Tax Breaks for Outsourcing Act (S. 714). That same day,whitehouse and Doggett also introduced the Stop Tax Haven Abuse Act (H.R. 1786).

A proposed safeguard clause for a new EU directive on country-by-country reporting thatwould protect commercially sensitive information doesn't go far enough, according to participants in a recentwebinar hosted by the Renew Europe group. Under the European Commission's proposal, multinational enterprises that fall under the public CbC reporting directivewould be allowed to conceal commercially sensitive information for up to six years. During the March 17webinar, Roland Franke of the Family Business Foundation and Monikawünnemann of the Federation of German Industries said the safeguard clause could temper the CbC reporting requirement's potential negative impact on MNEs, but both said it is not enough to protect them from unfair competition.

The EU's highest court has found that Hungarian and Polish tax regimeswith progressive rate structures based on turnover rather than profit are in linewith state aid rules. In its March 16 judgment in European Commission v. Hungary, C-596/19 P (CJEU 2021), and European Commission v. Poland, C-562/19 P (CJEU 2021), the Court of Justice of the European Union interpreted article 107(1) of the Treaty on the Functioning of the European Union to determinewhether to uphold the General Court of the European Union's findings that the progressive turnover taxes of Hungary and Poland do not violate EU state aid rules. The CJEU dismissed the European Commission's appeals in both cases, saying that the General Courtwas justified in its conclusions that the commission had not sufficiently established that the tax measures adopted by Hungary and Polandwere designed in a "manifestly discriminatory manner,with the aim of circumventing the requirements of EU law on State aid," according to the CJEU's March 16 release.

EU finance ministers reportedly asked the European Commission March 16 to make sure its June proposal for a digital tax does not interferewith talks on pillars 1 and 2 of the OECD'swork program. There is a need for a global agreement to reform the international tax system, commission Vice President Valdis Dombrovskis said at a news conference after the informal meeting of the Economic and Financial Affairs Council. "Wewelcome the change of position by the new U.S administration andwe remain confident of reaching a consensus by mid-2021." Luxembourg Minister of Finance Pierre Gramegna tweeted March 16 that there is "a reasonable prospect of reaching such a solution by mid-summer."

Googlewill pass on the cost of new digital services taxes to clients in Spain and France, it says, raising prices in response to unilateral taxes meant to make big tech companies pay more. Clientswith ads in Spain and Francewill be charged an additional 2% fee from May 1, 2021, regardless of company location, Google said thisweek in a statement.

European Union leaders are poised to affirm their commitment to a unilateral tax on tech giants if they fail to agree on a global frameworkwith partners, including Joe Biden's U.S. administration, by the middle of this year. Over a summit later this month, leaderswill "stress the need to urgently address the tax challenges arising from the digitalization of the economy to ensure fairness and effectiveness," according to an early draft of a joint communique seen by Bloomberg.while vowing towork on "a consensus-based solution by mid-2021," leaderswill "confirm readiness to move forward if a global solution is not forthcoming," according to the draft,which is still subject to change.

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.