Int'l Tax News

By Darien Shanske and David Gamage

This essay argues that the states should conform to the post-2017 federal tax law's provision for Global Intangible Low-Taxed Income (or "GILTI"). This essay is directed at state legislators and their staffs and presents the argument as succinctly as possible. The authors' argument can be summarized in three sentences. First, states should conform to GILTI because there is significant evidence that profit shifting is substantially eroding their corporate tax bases. Second, GILTI is a tool for identifying shifted profits. Third, there are many legally and analytically soundways to apportion GILTI income to a state. The authors also ÔøΩ briefly ÔøΩ counter the standard objections to state conformitywith GILTI.

The General Court of the EU has upheld the decision of the European Commission in the Fiat case, confirming that a tax ruling by the Luxembourg tax authorities conferred an advantagewhich constituted illegal state aid. Oliver R. Hoor and Keith O'Donnell of ATOZ Tax Advisers (Taxand Luxembourg) discuss the Court's decision andwhat itwill mean for Luxembourg going forward.

French Finance Minister Bruno Le Maire says itwould be "incomprehensible" for the U.S. to sanction France for the introduction of a tax on digital revenue.

Companies are making the case they shouldn't face new rules and standards to complywith a global minimum tax plan.

The Treasury Department offered some relief to companies that lost foreign tax credits after investing in research and development operations in the U.S.

Mexican President Andres Manuel Lopez Obrador's administration may speed up plans for a tax overhaul to generate more revenue if 2020 budget assumptions turn out to be overly optimistic, a top official said.

The European Unionwill still pursue a digital tax even if a global push at the OECD fails, the EU's new digital czar told Bloomberg TV.

Japanese retail sales plunged in October after a sales tax hike and a super-typhoon kept shoppers at home, a factor the government is likely to consider as it mulls the size of a spending package to support growth.

Ireland is too reliant on corporation tax from a small number of international operations to fund spending, the state's fiscalwatchdogwarned.

The U.S. proposed tariffs on roughly $2.4 billion in French products, in response to a tax on digital revenues that hits large American tech companies including Google, Apple Inc., Facebook Inc. and Amazon.com Inc

Big internet companies have long been the target of complaints that they don't pay enough in taxes. Fed up, France imposed a 3% levy on the digital revenue of companies that make their sales primarily in cyberspace, such as Facebook Inc. and Alphabet Inc.'s Google. Other countries also are targeting companies, most ofwhich are American, that have multinational earnings that often escape the taxman's grip. The U.S. isn't taking this sitting down.

By Michael P. Devereux and Rita de la Feria

The authors argue that the current international tax system based upon the principles of source and residence is no longer suited to a globalisedworld economy, and the fundamentals of the international tax system need to be re-examined. They propose an R+F based cash-flow tax based on the principle of destination as a suitable alternative to taxing corporations in an international setting. The paper's aim is to discuss the legal and practical issueswhichwould arise in the implementation of such a tax, namely how a destination-based tax could be effectively designed and implemented. For this purpose the authors draw on experienceswith designing VAT systemsworldwide. It is proposed that the destination principle should be implemented through use of the customers' location as the main legal proxy.

Mindy Herzfeld considerswhat steps the United Stateswould need to take for the OECD's pillar 1 proposals to becomeworkable for theIRS, aswell as for other tax authoritieswhen applied to U.S. taxpayers.

In economic analysis, Martin A. Sullivan examines the OECD's attempt to rewire the international source rules so that more taxable profitsare allocated to marketjurisdictions than currently allowed under the arm's-length rules.

France strongly supports the OECD pillar 1 proposal for allocating more taxing rights to market countries and suggests a 12.5 percent ratefor global minimumtaxation under pillar 2, according to a top official.

The U.K. Labour Party pledged Thursday to return the corporation tax rate to 26% by 2022 and abandon the arm's-length standard ÔøΩ the traditional international approach for pricing transactions between related companies ÔøΩ if itwins next month's general election.

Representatives from business groups pressed the Organization for Economic Cooperation and Development on Thursday to simplify its proposed new international tax system by using the tax administrationswhere large companies are headquartered as a "one-stop shop" for payment.

By Mattias Cruz Cano

The growing number of countries introducing a digital services tax (DST) could lead to "taxwars" rates, trade sanctions and disputes,warned senior tax professionals debating the issue.

Amazon is pressing the OECD to change the scope of the unified approach to apply to all businesseswith explicit exemptions for specific sectors.

Amazon has suggested the OECD should adopt existing VAT principles to simplify the compliance and administration of its digital tax proposals under pillar one. It believes VAT rules on customer location could help, butwarns that privacy laws and VPNs mean it can only be part of the solution.

The retail banking sectorwants to be exempted from the pillar one proposals under the OECD's digital tax plan because of existing, heavy financial regulations and possible mismatcheswith OECD policy considerations under pillar one.

In this article, the author tracks the development of the EU and OECD actions to combat harmful tax competition and assesses the current state of play.

In this article, the author considers the OECD's "unified approach" proposal on the tax challenges of the digital economy, and questionswhether it represents a true international consensus.

The head of a Philippine business association said a tax reform program might be one of the reasonswhy 10 to 15 multinational companies' regional operating headquarters have pulled out of the country.

The OECD must address the lack of interaction between three categories of company profit thatwould be taxed under proposed new global tax rules, or else double taxation risks could increase, a trade representativewarned.

Robert Goulder examineswhether reverse transfer pricing could become a viable method to avoid the base erosion and antiabuse tax provisions.

Ambassadors and tax experts from EU countries recently spoke out against the decision of the Finnish EU Council presidency to try to reach an agreement on public country-by-country reporting by qualified majority.

The three British crown dependencies have jointly released updated guidance for applying each jurisdiction's new economic substance rules,with new sections on core income-generating activities of intellectual property companies, shipping, and the insurance industry.

The formulas for calculating local distributors' profit under pillar 1 of the OECD's two-pillar project on taxing the digital economy should produce results that generally alignwith the arm's-length standard, according to business representatives and practitioners.

The IRSwill selectively consider extending relief to the relatively small number ofaffected taxpayers that may suffer double taxation as a result of the Tax Cuts and JobsAct's international provisions.

An OECD plan to reallocate more of a multinational company's profits towhere it has users or consumerswould have a negligible impact on revenue, a French government advisory report said.

With April 2020 set to mark a raft of new tax legislation in the U.K., Paul Falvey, of BDO U.K., considerswhatwill impact business the most.

Companies and industry groups may agree it's time international tax systems catch up to the digital economy, but they don't agree on how. They raised concerns during a Nov. 21-22 public consultation in Paris that the OECD's first part of a plan to rewrite global tax ruleswill complicate their tax affairs.

The Netherlands is intensifying the fight against corporate tax dodgers that are using the country to evade billions of euros in payments to governments around theworld. There's no quick-fix though, according to a top official.

Boris Johnson's Conservative Partywill pledge not to increase several key tax measures if itwins next month's general election, part of a manifesto document that's set to promise to return the Brexit bill to Parliament before Christmas.

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. 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.

By Terry S. Moon

This paper assesses the effects of capital gains taxes on investment by exploiting a unique institutional setting in Korea,where the capital gains tax rates vary by firm size. The author uses a difference-in-differences design that compares the outcomes of firmswhose tax rateswere reduced, due to an unanticipated reform in 2014, to the outcomes of unaffected firms. The author finds that firmswhose capital gains tax rates dropped from 24 percent to 10 percent increased investment by 48 log points,with the implied medium-run elasticity of 2.6with respect to the net of tax rate, and increased newly issued equity by 5 cents per dollar of lagged revenue. The effects of the tax cutwere larger for firms that appeared more cash-constrained. Taken together, these findings are consistentwith a class of the "traditional view" models predicting that lower capital taxes spur equity-financed investment by increasing the marginal returns on investment.

Study shows France, China and USwould raise barely any extratax under OECD proposal

A multilateral solution agreed through the OECD framework by the end of 2020will addressdigital services taxes, but how itwill do so remains to be seen, according to an OECD official

Mindy Herzfeld discusses recent academic and legislative proposals forwealth taxes, sayingthatwhile skeptics might find those ideas unlikely to become law, they should still pay attention to thedebate

Democrats are seizing on a report published by The New York Times on Sunday that found FedEx didn't owe anything in taxes in fiscal 2018, a year after President Trump signed off on a $1.5 trillion tax cut that sharply reduced tax rates for corporations in the country.According to the Times, the package signed by Trump in December 2017, forwhich FedEx reportedly lobbied hard, spelled good news the following year for the shipping company,whichwould later see a 34 percent drop in its effective tax rate in fiscal 2018. Its tax ratewas reportedly brought to less than zero at the time.

A project to more closely align Brazil's transfer pricing systemwith international norms ÔøΩ a key requirement in the country's quest to join the Organization for Economic Cooperation and Development ÔøΩ is occurring just as those norms are being eroded.

Officials around the globe hope that a minimum corporate tax is the best approach to tackling avoidance and complex tax planning, but developing a universal standard to measure tax payments could be a daunting technical challenge.

The first responses to the OECD on its public consultation on the digital economy show divisions continue,with some calling for an expansion of the FAR analysis or reverting to the G24 plan.The Paris-based organisation held a public consultation on the October report on its pillar one proposals. Sources close to the OECD hope the consultationwill demonstrate that there is support for the proposals. This could be crucial for the OECD to push aheadwith its ambitious project. So far, the signs have been mixed, but not necessarily bad for policymakers.

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.