Int'l Tax News

Lorraine Eden of Texas A&M and Oliver Treidler of TP&C offer six policy recommendations designed to move the global economy onto the BEPS 2 path, a path appropriate for 21st century digital multinationals thatwill benefit both developed and developing countries. This is Part II of a two-part analysis of the Pillar One proposals. In Part I, the authors provided a summary and analysis of the proposals. In Part II, the authors examine their implications and provide some recommendations.

Amit B. Jain and Ronak Sethi of Ernst & Young LLP take a look at recent tax measures introduced by the Indian governmentwith the aim of making the country more attractive to foreign investment.

Decades of falling tax rates are set to reverse course after enriching corporations around theworldwhile leaving many countries stuck in fiscal deficits, a dislocation that has sparked an uproar among politicians, according to Deutsche Bank.

More than 300 companies, industry groups, law firms, and others haveweighed in on the OECD's plans to rewrite global tax rules.

The Chinese State Administration of Taxation Oct. 26 announced a 4 percent tax on the total income earned from cross-border online retail exports made by e-commerce enterprises and completedwithin a Chinese-designated experimental zone.

The Unified Approach released on Oct. 9, 2019, by the OECD fundamentally changes international tax rules on the grounds that the current rules no longer ensure fairness. Glenn DeSouza of Dentons China analyzes the proposal from the perspective of China.

Final IRS tax rules limit application of attribution rules for determiningwhether U.S. individualswho have ownership in certain foreign companies are related to each other.

Democratic presidential candidate Andrew Yang proposed a tax on digital ads that takes aim at the revenue models of companies such as Facebook Inc. and Alphabet Inc.'s Google.

Labour leader Jeremy Corbyn pledged free high-speed broadband for allwith a 20 billion pound ($26 billion) plan to nationalize BT Group Plc's Openreach unit. The party's most striking move of the election campaignwill be partly paid forwith taxes on tech companies including Facebook and Google. BT shares fell.

U.K. Prime Minister Boris Johnson announced his Conservatives are canceling plans to cut corporation tax next April so the government can save money to spend more on voters' priorities, including the state-funded National Health Service.

By Lorraine Eden

The historical approach to taxing intrafirm transactions of multinational enterprises ÔøΩ the arm's-length standard (ALS) ÔøΩ has been criticized as unworkable, out of date and on death's door. Criticisms of the ALS fall into two broad categories. First are concerns that MNEs have been deliberately engaging in abusive transfer pricing that is extensive, unfair and draining development. Second is that the transfer pricing rules are too difficult to implement for various reasons, ofwhich the two most important reasons are the lack of arm's-length comparables (e.g., for hard-to-value intangibles) and that MNE have synergies not available to unrelated parties. As a result, many academics and policy makers advocate getting rid of the ALS and shifting to global formulary apportionment (GFA). Even the OECD, long a supporter of the ALS and opponent of GFA, now includes fractional apportionment as a possible method for attributing income among countries under its Pillar 1 proposals for taxing the digital economy. The author argues instead that the arm's-length standard remains the appropriate international norm for taxing MNEs, but that new thinking, particularly for the digital business models that are now starting to dominate international production, is probably needed, and that fine tuning the ALS for the 21st century is the appropriate solution.

By Tobias Bornemann, Stacie K. Laplante and Benjamin Osswald

The authors investigatewhether and towhat extent the adoption of an intellectual property box increases innovative activity and the extent towhich different types of firms benefit financially.we examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Their results indicate an overall increase in innovative activity as proxied by patent applications, grants, and highly-skilled employment, at the expense of patent quality. They also provide evidence that firmswith patents on average enjoy 7.2% to 7.9% lower effective tax rates,with the greatest financial benefits accruing to multinational firms compared to domestic firms.

By Kevin Markle and Leslie A. Robinson

The intersection of state aid and international tax has acquired a high profile in Europe. In response, disclosure policies are being proposed.with no empirical evidence, these policies are predicated on rhetoric that pervasive practices by host country governments unfairly benefit foreign-owned companies. Using several novel data sources on tax relief granted in the EU, the authors find that both domestic- and foreign-owned companies benefit from tax concessions. Their evidence that tax avoidance is a joint production function of business and government suggests that any jurisdiction can operate as a tax haven for a companywilling to negotiate.

By Susan C. Morse

Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), the US allowed US parented multinationals to delay indefinitely their payment of US corporate income tax on non-US income earned by non-US corporate subsidiaries (CFCs). The TCJA revoked this permission through the enactment of a unilateral, current minimum tax on the "global intangible low-taxed income" (GILTI) of CFCs. The post-TCJA US international tax law generally imposes current US tax on CFC income subject to reductions for foreign income taxes paid or accrued. This US regime supports the continued existence of a corporate income tax and presents an opportunity to co-ordinate the details of corporate income tax systems globally. The author argues that similarity among systems, for instancewith respect to rate, timing and base,would further strengthen the corporate income tax and perhaps support innovations such as formulary apportionment. US tax administrators, non-US governments and taxpayerswill each play a role in negotiating the details of international corporate income tax law going forward and in determiningwhether and onwhat terms these details converge.

The OECD'swork on overhauling global tax rules for the digital age must require countries towithdraw unilateral measures, such as digital services taxes, a trade group representing companies,including Amazon, Apple, and Facebook, said.

The Organization for Economic Cooperation and Development's proposed approach for how countrieswould tax income from businesses located outside their borders could cause double taxation if the rules don't lend themselves to consistent application, industry groups said Tuesday.

Sen. Elizabethwarren's "Medicare for All" funding plan has come under fire from her rivals for the Democratic nomination, but some in her own party say her framing of the issue could ease the concerns of centrist voters.She estimated that Medicare for Allwould require $20.5 trillion in federal spending and said thatwould be paid forwith taxes thatwould directly fall on employers, corporations,wealthy individuals and financial institutions.

The GOP tax law passed in 2017was supposed to super charge the economy, but the lack of major impact is spurring critics to renew their attacks against the signature measure from President Trump.Republicans said the tax lawwould help the economy through several avenues, including by sending business investment soaring. But just 15 months after it took effect, business investment has actually been contracting, falling 1 percent and 3 percent in the past two quarters.

While Austria introduces unilateral measures to tax digital businesses from January 1 2020, there are concerns that Austria's DST could infringe on EU state aid rules and lead to some companies exiting the market.

It has been more than two years since the Organization for Economic Cooperation and Development (OECD) last updated the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to reflect the final recommendations from its Base Erosion and Profit Shifting (BEPS) Action Plan, but multinational enterprises (MNEs) and government tax administrations alike are still grapplingwith many of the changes.

India has sought changes in the Organization for Economic Cooperation and Development's proposal on digital taxation, holding that the draft rules risk denying the country its proper share of taxes from multinationals, the Economic Times newspaper reported, citing an official it didn't identify.

Japanese government and ruling coalition are considering tax incentives for large companies using their retained earnings on direct investment in unlisted companies less than 10 years old, Asahi reportswithout attribution.

By Doron Narotzki

In this article, Narotzki discusses the short history of the financial transaction tax in the United States andwhy now is the perfect time to adopt it.

By Christine Davis

This paper attempts to reduce the complexity of the TCJA's international tax provisions by examining global intangible low-taxed income ("GILTI") and its interactionwith other provisions that implement income taxation of cross border corporations.

Planswould create safety net for countries to ensure no companyescapes levy

The final version of the OECD's plan for a global approach to taxation of the digital economywilllikely address unilateral digital services taxes such as those adopted by France and the United Kingdom.

Taxing all energy-related carbon emissions in the U.S. at $50 per metric tonwould generate $1.87 trillion in additional federal revenue over 10 years, butwould hurt production and employment if imposed in isolation, the Tax Foundation reportedwednesday.

The Organization for Economic Cooperation and Development's proposals to reform the international tax system and the proposed European Union common consolidated corporate tax basewill ultimately lower businesses' compliance burden, officials from the agencies said at a Thursday conference in Brussels.

The Organization for Economic Cooperation and Development released proposals Friday for a global minimum tax including a top-up to a minimum rate and the use of a fixed percentage of global income.

Around theworld, sales- and destination-based taxing methods are gaining prominence as countries aim to nail down hard-to-catch corporate dollars, but nongovernmental organizations and advocacy groups claim this trend could leave poorer countries no better of.

Umesh Gala and Shruti Lohia of Dhruva Advisors examine India's new tax concessional regimes, introduced to give domestic companies and manufacturers a boost. India also make its move towards a tax e-assessment system.India has traditionally been a high corporate tax jurisdiction. Up until September 2019, the effective corporate tax rates (including surcharge and cess)were almost 35% for large domestic companies and a little less than 30% for smaller companies.with a view to making Indian domestic companies competitive, a tax ordinancewas passed by the government on September 20 2019.As part of the ordinance, two concessional tax regimeswere introduced. Both regimes are optional and companies are required to elect the tax rate regime bywhich theywant to be governed.

The OECD is tinkeringwith technical challenges in its global anti-base erosion (GloBE) proposal under pillar two of the digital tax proposals and is seeking public input by December 2.The OECD's latest consultation document, released on November 8, sets rules to maintain a minimum tax rateworldwide. The rules aim to address risks from structures that allow companies to shift profits to jurisdictionswhere they are subject to either no or low taxation.The OECD 'Programme ofwork on Pillar Two' consultation document is seeking feedback on simplifications, thresholds, carve-outs, and exclusions from the suggested pillar two rules. There are already design issues that need to be addressed such as the determination of an appropriate tax base.

The OECD has released further country-by-country reporting guidance to clarify additional issues,such as the treatment of dividends, and to flag common mistakes that multinational groups makewhenpreparing their CbC reports.

Disagreements between Treasury and lawmakers over base erosion and antiabuse tax provisions areholding up passage of tax treatieswith Chile, Hungary, and Poland, but observers say U.S. companies canhelp push the treaties through.

In the third article in a series on provisions that could be part of an extenders bill or Tax Cuts andJobs Act technical corrections bill, Mindy Herzfeld examines recent legislative proposals from Democraticlawmakers

Congress's latest effort to pierce the opacity surrounding ownership of some U.S. companiesappears to be flying under the taxworld's radar even though tax evasion is a central focus of the legislation.

A December election in the U.K.will mean that the government's draft finance bill,which includes a proposal to tax digital giants,will be shelved.

The EU is trying to find agreement among its members on how to take a united position on the OECD's plan to tax the digital economy.

Peter A. Glicklich and Heath Martin, of Daviesward Phillips & Vineberg LLP, New York, consider the response by U.S. companies and the U.S. government to unilateral digital taxation.

The European Commission should scrap the idea of a carbon border tax and favor incentives for energy-intensive companies to create a greener future, a leading research group concluded.

By Ruth Mason

This short article discusses five major themes emerging from the EU General Court decisions in Starbucks and Fiat, namely, (1) the treatment of the arm's-length standard, (2) implications of the decisions for Apple, (3) implications of the decisions for non-arm's-length allocation rules in the proposed CCCTB and pending in the BEPS 2.0 negotiations, (4)whether the decisions mean that the OECD Transfer Pricing Guidelines have now been incorporated into EU law via the state-aid rules, and (5) implications of the General Court's conceptualization of arm's-length income allocation as analogous to the "market economic operator" test.

By Ari Glogower and David Kamin

Regarding "pass-through" deduction under § 199A and the general reduction in corporate tax rates to 21%, Glogower and Kamin argue that these poorly targeted tax preferences, coupledwith private-sector tax gaming and political economy constraints, create the potential forwhat they term the "progressivity ratchet," inwhich lawmakers cannot readily reverse revenue-losing tax preferences by raising nominal rates on high-earning taxpayers. To escape this predicament, Glogower and Kamin suggest restoring the relative penalty for operating in corporate solution, eliminating existing tax preferences, or better targeting those tax preferences that policymakers choose to keep.

Requiring employers to make contributions to Medicare for All, imposing a financial transaction tax and raising the corporate tax rate to 35% are a fewways to finance a single-payer health care proposal revealed Friday by Sen. Elizabethwarren, D-Mass.The 2020 presidential candidate's Medicare for All proposalwould cost roughly $20.5 trillion between 2020 and 2029, according to a letter on the costs prepared by a panel of economists and policy experts, andwould be paid forwith a myriad of new tax provisions aimed at increasing the burden on thewealthy and corporations.warren's health care planwould eliminate private health insurance options in favor of an expanded version of Medicare available to everyone.

The European Union meeting of finance ministers is set to remove Belize from the bloc's tax blacklist at a meeting Friday.

The U.S. Department of the Treasury's planned paring down of Obama-era internal debt regulations could put the Internal Revenue Service at a disadvantage in targeting abusive transactions.

The OECD has the difficult task of building a consensus between competing nations, but it also faces the critical eye of NGOs convinced that the proposals do not go far enough.

Indonesian Minister of Finance Sri Mulyani Indrawati said her government is exploring how to taxdigital companies that don't have a permanent establishment in the country.

Treasury and the IRS announced plans to substantially modify the anti-inversion debt-equity fundingrules, alongwith issuing final regulations that remove the documentation rules.

Finance ministerswill discuss the state of play of international discussions related to digital taxationand agree on new rules to tackle VAT fraud in e-commerce at the upcoming Economic and Financial AffairsCouncil meeting.

The OECD should propose taxing multinational groups as one entity to prevent tax leakage, according to a report recently issued by a public-sector trade union group.