Int'l Tax News

With less than three months before service tax on imported digital services is implemented in Malaysia, Yvonne Beh and Sarah Sheah, ofwong & Partners, look atwhat foreign service providers should be doing now to prepare.

European Union efforts to force large companies to publicly report the taxes they pay on a country-by-country basis have been stopped dead after Germany declined to back the legislation.

Retroactive transfer pricing adjustments in China are becoming increasingly feasible, and multinational corporations have the incentive to make them. Dr. James Zhao and Alina Huang of Deloitte China explain recent developments and share their observations.

ByWilliam Byrnes

This paper address two issues related to the EU decision in the Starbucks state aid case: the properway to allocate the residual between SMBV and Starbucks intermediary IP management limited partnership, and how to allocate the residual among Starbucks' global value chain.

Turkey's government has proposed several revenue-raising measures, including a digital services tax, an increase in income taxes for high earners, and new residential property and hotel accommodations taxes.

The UK financial sector could face a financial transaction tax (FTT) among a raft of tax reforms if the Labour Partywins the upcoming snap general election.The UK has an SDRT rate of 0.5% on share trading,which raised £3.5 billion ($4.5 billion) in 2017/18. Labour's proposalwould expand this to include transactions involving corporate bonds, equity and credit derivatives, raising an extra £2.1 billion in annual tax revenues.

France made some bignewsrecently in theworld of global taxation. It enacted a tax targeting large U.S. tech companies – including Facebook, Amazon, Google and Apple – that are earning massive global profits. For years these multinational enterprises have avoided paying corporate taxes in the U.S., thanks to shell operations in tax havens like the Bahamas and the Cayman Islands. But France is tired of seeing these companies get awaywith large-scale tax avoidance.It's not just France, however. More than 20 European countries are poised to impose digital taxes on large U.S. tech companies.

The House on Tuesday passed legislation aimed at cracking down on the use of anonymous shell companies for illicit activities. The bill passed by a vote of 249-173. Twenty-five Republicans joined most Democrats in voting for the bill,while five Democrats voted against it.

Both national and international action are necessary to end tax practices that,while legal, are still unfair, the German finance minister said recently, praising aEuropean Uniondisclosure requirement his country is due to adopt by year-end. Under the requirement, companieswould have to notify authorities of legal tax avoidance strategies, Olaf Scholz, the finance minister, said duringa conference for German tax consultants in Berlin on Monday.

President Donald Trump's administration still might double U.S. taxes on French taxpayers and companiesÔøΩeven as negotiatorswork towards a broader international solution.

The French General Directorate of Public Finance Oct. 16 opened a consultation on the implementation of a 3 percent tax on all revenue linked to France for large companies engaging in digital advertising, online platforms, or user data sales.

Developing countrieswant to slow down the OECD's digital tax project so they have time to understand its effect on their revenueÔøΩbut pausing itwould lead to tax chaos, the OECD's chief tax officialwarned.

Over the last five years or so, the European Commission has been using competition law, and in particular the state aid rules, to challenge favorable tax regimes and tax rulings given by some member states to particular multinationals. Catherine Robins of Pinsent Masons looks at the recent decisions of the General Court in the Starbucks and Fiat cases.

James Ross of McDermottwill & Emery looks at the current factors influencing the implementation of the U.K.'s digital services tax.

The United Kingdom Parliament Oct. 15 accepted for consideration a statutory instrument to implement an EU directive clarifying the definition of financial instruments for hybrid mismatch arrangement purposes. The draft instrument includes: 1) reporting procedures for tax periods that fall outside the effective date range, and 2) the exclusion of certain financial instruments.

The European Union Official Gazette Oct. 17 published an order updating the EU list of non-cooperative tax jurisdictions. The order includes measures: 1) removing the United Arab Emirates from the black list; 2) removing Albania, Costa Rica, Mauritius, Serbia, and Switzerland from the gray list; and 3) moving Marshall Islands to the gray list from the black list.

Meeting inwashington, the G20welcomed the recent progress and the announcement lastweek of an OECD initiative to find a compromiseway of taxing profits, particularly of tech giants. Its suggestionwas to rip up almost a century of taxing profits according to the physical presence of a company in a jurisdiction and move to one that gave countries greater taxing rights dependent onwhere saleswere located.

President Donald Trump onwednesday again criticized France's digital services tax, saying that only the U.S. should be allowed to tax its tech companies.

As the dust settles around the federal tax overhaul, states that have largely avoided touching companies' global intangible low-taxed income may still be treating foreign earnings differently from their domestic counterparts inways that could violate the U.S. Constitution. Most states have simply decoupled from the federal provision for GILTI or they've recognized the earnings as dividends that qualify for a 50% deduction under Section 250 of the Internal Revenue Code, and in some cases more than that. Earlier this month, Louisianawent a step further and issued a revenue bulletin stating that itwould recognize GILTI earnings as fully deductible dividends, essentially declining to tax this type of income at all.

The OECD hopes to hammer out details of its proposal to adapt the international tax rules for the digital age in January and reachpolitical agreement in June, the organization's tax chief said.

Energy-related carbon dioxide emissions reached new heights in 2018, but governments are not doing enough to take advantageof environmental taxpolicies to curb the problem, according to a new OECD report.

ByMitchell Kane, Joseph Bankman and Alan Sykes

This paper offers a comparative assessment of the policy instruments that governments might employ to collect a share of rents from non-resident MNEs that operatewithin their borders. The paper beginswith tax instruments, discusses recent attempts to expand those instruments, and then expands the analysis to antitrust policy, state-owned enterprises, price regulation, and various instruments of trade policy. The goal is to identify the strengths andweaknesses of different instruments in different contexts.

ByJeff Ferry, Bill Parks, Arpan Dahal

France's new digital services tax aimed at internet companies has raised good questions about the best system fortaxing corporate income in the internet age.

Carrie Brandon Elliot reviews how hypothetical distribution rules for determining pro rata shares of subpart F income are modified todetermine pro ratashares of GILTI items.

In the second in a series reviewing provisions that could be included in upcoming tax legislation, Mindy Herzfeld looks at recentproposals to addressboth extenders and technical corrections to the Tax Cuts and Jobs Act.

In news analysis, Lee A. Sheppard examines the Starbucks and Fiat state aid cases, both decided by the General Court of theEuropean Union, askinghow to reconcile the different outcomes

Countries are far from doing enough to tax carbon emissions, especially outside of road transport, the OECD said.

A rewrite of international tax rules for the modern digital economy shouldn't apply to shipping businesses, a shipping industry group said.

Developing countries often lose revenuewhen they can't tax capital gains from sales of assets in their country made offshoreÔøΩbut they could close those gaps, two IMF economists said.

Mexico's lawmakers are preparing to vote on boosting tax collection from digital companies, and major U.S. tech industry groups are trying to enlist the U.S. government to fight the effort.

Italywill join France and Austria in taxing tech giants such as Apple Inc. and Facebook Inc. starting in 2020, the government said Oct. 16 in its budget plans.

The United Kingdom HM Revenue and Customs Oct. 14 issued a policy paper on amendments to offshore intangible income legislation,which taxes the income received by entities in low tax jurisdictions from U.K. sales of intangible property.

Market countries that use novel tax instruments, such as properly designed digital services taxes (DSTs) to expand their capacity to reach such location-specific rents, are not acting unreasonably.whether they prove permanent or merely transitional, DSTs look like harbingers of a new era inwhich entity-level corporate taxation rightly focuses more on locational rents, and less on decades-old doctrinal and semantic debates concerning the supposedly "true" source of economic income and value creation.

By Ceinwen Rees and Rhiannon Kinghallwere

The OECD has produced a "work programme" to address the tax challenges presented by the digital economy. In this two-part article, Ceinwen Rees and Rhiannon Kinghallwere of Macfarlanes look at the proposals in the OECD programme,with particular focus on the implications for investment managers, and respond to some of the most frequently asked questionswhich arise.

By Ceinwen Rees and Rhiannon Kinghallwere

With the Organisation for Economic Development and Co-operation (OECD) proposals in the early stages of negotiation there are more questions than answers.we have tried to answer here a few of the questionswe are commonly asked.

By Hamza Ali

Large market countries like India and Chinawill see their tax coffers boosted under OECD plans to improve the taxation of companieswithin the fast-growing global digital economy.

By Joe Kirwin

European Union finance chiefs agreed Oct. 10 to not list the U.S. as a tax haven, despite the country not meeting the bloc's criteria for the automatic exchange of foreign residents' bank data.

The OECD has proposed a global shake-up of corporate taxation, overturning a century of rules that have allowed digital groups such as Facebook, Apple, Amazon, Netflix and Google to shift profits around theworld to minimize their tax bills.

The article introduces the larger context of the controversy over digital taxes, and considers the likelihood of countries reaching an international solution. It acknowledges that an effective international solution,where countries agree to the necessary technical details and not just to high-level principles, is unlikely given that many countries now benefit from the current system and concludes that, if countries cannot agree to real international reform, the international tax systemwill face many more years of countries imposing a cascade of inconsistent and overlapping digital tax measures on tech companies.

The authors provide a method to estimate the GILTI tax from a U.S. MNC's financial statementswhen such information is not publicly disclosed and illustrate the ETR and GILTI tax effects for a small sample of public firms after the TCJA, and discuss some likely changes in international tax planning going forward.

Italy plans to renew corporate tax breaks to support investments in innovation andwiden the measures to include spending on environmentally friendly projects, Economy Minister Roberto Gualtieri said on Monday. Italy's new government, made up of the anti-establishment 5-Star Movement and the centre-left Democratic Party, has promised an expansionary 2020 budget to try to revive chronically stagnant growth in the euro zone's third largest economy.​

EU Competition Commissioner Margrethe Vestager says the bloc should agree on a tax to ensure global digital companies pay "their fair share" in Europe. Vestager,who has been designated to continue herwork in the new European commission, said during her confirmation hearing by EU lawmakers that "wewant these taxation rules to be based on a global agreement. But if that's not possible by the end of 2020, thenwe are prepared to act."​

Digital tax dodgers, take heed: International leaders have advanced a plan to prevent large multinational companies like Apple, Facebook and Amazon from avoiding taxes by shifting profits between countries. It's an effort to de-escalate a global battle over how to tax the digital economy. The framework proposal, releasedwednesday by the Organization for Economic Cooperation and Development,would allow countries to tax large multinationals even if they did not operate inside their borders.​

The splitting of a cryptocurrency blockchain under a "hard fork" does not create taxable income if no new cryptocurrency is received, but taxable income is generated by "airdrops" that deliver new cryptocurrency, the IRS said in guidance releasedwednesday. The guidance came in the form of a revenue procedure and set of frequently asked questions addressing how virtual currency holders must report cryptocurrency transactions to the Internal Revenue Service and the calculation of gains and losses and tax basis in cryptocurrencies. The guidance also addressed the tax treatment of cryptocurrency received for services.​

European Union leaders confirmed Thursday that Switzerlandwould be coming off the bloc's "gray list" after passing tax reforms to bring it into linewith international standards in May. The United Arab Emirateswill be coming off the black list, and the Marshall Islands has been moved from the black to the gray list, ministers confirmed at a meeting of the EU's economic and financial affairs council. Albania and Serbia,which are both in the formal process of joining the EU, have also both dropped off the gray list, alongwith Costa Rica and Mauritius.​

The OECD has put forward a proposal to apply a new formula to residual profits in its digital tax report. The organisation hopes this compromisewill resolve the impasse, but companies don't expect radical change.​

By Annagabriella Colon

Ahead of Canada's federal election October 21, the Green Party has pledged to protectworkers in an increasingly automatedworld by imposing a tax on employers for every human replaced by a machine.

By Stephanie Soong Johnston

Canadian Prime Minister Justin Trudeau's Liberal Party is taking aim at large tech companieswith a reelection campaign proposal for a 3 percent revenue-based levy modeled after France's controversial digital services tax.