Int'l Tax News

Law 360 - ByNatalie Olivo

The European Union's proposal to tax online activities based on a digital platform's users and data ÔøΩ rather than a physical presence ÔøΩ presents logistical hurdles in attempting to split profits based onwhere value is created, a practitioner saidwednesday.

This article gives insight into the recently released proposed tax code Section 965 transition tax regulations. One item of interest relates to the basis consequences that flow from treating earnings and profits that are offset by shared deficits in determining a taxpayer's net accumulated earnings and profits subject to tax under Section 965 as previously taxed income for purposes of Section 959. The statutory language under Section 965 is unclear as towhether a U.S. shareholder is entitled to increase its basis in a specified foreign corporation for the amount of such earnings and profits. As a practical matter, this could preclude a U.S. shareholder from repatriating cash held by its specified foreign corporationwithout incurring taxable gain in the U.S., particularly if the U.S. shareholder has a low basis in the shares of its specified foreign corporation.

This second part of a two-part articlewill consider how the Luxembourg draft law introduces a new framework to tackle hybrid mismatches, and the exit taxation rule.

This article looks for the positive aspects of a federal appeals court's decision to send the 'Medtronic' transfer pricing case back to the Tax Court. KPMG professionalswho analyzed the first 'Medtronic' case come together to analyze and comment on the recent decision.

Panama's National Assembly is considering a draft bill thatwould revise the computation of qualifying income under the intellectual property tax regime.

The European Commission's digital economy taxation plan needs clarity regarding the definition of digital services and member states' ability to set higher tax rates, the European Parliament's Economic and Monetary Affairs Committee rapporteurs said.

With trade tensions between the United States and other countries escalating, a think tank says the EU should respondwith both negotiations and retaliatory measures, and that future deals should address tax optimization and evasion.

As a clarification of existing rules, newly released guidance on the profit-split method incorporating recent revisions to the OECD transfer pricing guidelineswill apply both prospectively and retrospectively, according to Sweden's tax administration.

In this article, the author examines the theoretical background of value chain analysis and some of the approaches that multinational enterprises could use to perform the analysis.

In this article, the author examines Canada's tax reform efforts, or absence thereof, comparing Canada's approachwith tax reform efforts in other countries, particularly the United States. After reviewing the status quo, he makes recommendations regarding how Canada can maintain its tax competitivenesswhile also supporting its approach to socialwelfare.

Proposed transition tax regs may provide a significant amount of computational and definitional detail, but the rules' spartan guidance on notional cash pools has left practitionerswith an unclear picture on that matter.

Law 360 - By Joshua Rosenberg

A vote on the next round of tax overhaul legislationwill likely not take place in the Senate until the end of the year, the Senate's third-ranking Republican leader told Law360 on Tuesday. Because Senate GOP leaderswill probably need to persuade at least nine Democrats to vote for their "tax reform 2.0" legislation in order to reach the 60-vote threshold, a year-end tax bill that includes bipartisan priorities is the most likely vehicle, said Sen. John Thune, R-S.D.

The Court of Justice of the European Unionwill consider a case (C-405/18) onwhether the EU freedom of establishment precludes the Czech Republic from denying loss deductions incurred in another EU state that are claimed by an entity relocating its place of business or place of management to the Czech Republic.

The Tax Court of Canada in Devon Canada Corporation v. The Queen, 2018 TCC 170, held that surrender payments made to holders of unexercised options during a corporate takeover are deductible capital expenditures because the transaction extinguished the options.

The South African Revenue Service (SARS) is reestablishing its Large Business Unit and Illicit Economy Team,whichwill focus on high-net-worth individuals and large businesses.

The Inland Revenue Department (IRD) has issued draft guidance on its interpretation of New Zealand's recent anti-profit-shifting legislation, including the interaction between domestic laws and OECD guidance on transfer pricing and permanent establishment avoidance.

The United States' existing and pending tax treaties potentially conflictwith the base erosion and antiabuse tax, but Congress's silence about its intent to override the treaties cloudswhat ÔøΩ if any ÔøΩ action Treasury should take.

Although the Tax Cuts and Jobs Act reduced the corporate tax rate, several offsetting revenue raiserswill affect the insurance industry: Companies are expected to revisit their risk profiles and investment asset decisions and consider mergers and acquisitions. The law makes significant changes to tax provisions affecting both property and casualty (P&C) and life insurance.

The Tax Cuts and Jobs Act (P.L. 115-97) reversed Grecian Magnesite v. Commissioner, 149 T.C. 3 (2017), in a new statute for taxation of effectively connected gain on a foreign partner's disposition of a partnership interest (section 846(c)(8)).withholding is required on the entire gross proceeds of the sale. Literally, the newwithholding obligation is not imposed proportionally to the partnership's ECI (section 1446(f)).

Law 360 - By Molly Moses

The IRS on Monday announced itwould postpone the start of the 2019 application period for its Compliance Assurance Process program ÔøΩ a voluntary prefiling program for some of the largest U.S. companies ÔøΩ by one month, to Oct. 1, to give the companies time to assess other changes to the program. The voluntary program, known as CAP,will now require companies to submit a preliminary list of material issues, including specified information about transfer pricing issues.

Law 360 - By Natalie Olivo

Ever since the Tax Cuts and Jobs Actwas enacted in December, officials at the U.S. Department of Treasury and Internal Revenue Service have assured practitioners and accountants that regulationswould clear up questions under the tax law's complex international measures ÔøΩ including how to calculate global intangible low-taxed income, or GILTI. Proposed rules for GILTI are expected to be floated this fall, but specialists say some issues under this provision and others are outside Treasury's regulatory scope.

Practitioners continue to voice concerns over the operation of the transition tax's antiabuse rules, arguing that their implementation could lead to bizarre consequences.

The focus of this paper is the relationship of the Base Erosion and Anti-Avoidance Tax (the BEAT) to the income tax conventions in force towhich the United States is a party.

This article suggests the need for a rethink of thewidely accepted tax policy goal that multinationals' global profits should be alignedwith value creation, a concept underlying the OECD's base erosion and profit-shifting project.

PricewaterhouseCoopers LLP, on behalf of DefCo Holdings Inc., has urged Treasury and the IRS to provide a transition rule thatwill allow U.S. taxpayers to carry forward some excess general category foreign taxes under section 904(c) to the new foreign branch income category in the first year of its existence.

PricewaterhouseCoopers LLP has requested guidance indicating that a controlled foreign corporation may be eligible for the deduction under section 245A, as amended by the Tax Cuts and Jobs Act (P.L. 115-97), to the extent that the dividend received from a specified 10-percent owned foreign corporation constitutes subpart F income.

In this article, the author examines the United Kingdom's impendingwithdrawal from the European Union, discussing potential models for the future relationship between the two parties and considering the potential impact of Brexit on corporate taxation in the United Kingdom.

The newly elected Colombian government plans to lower taxes on businesses and raise more revenue from individuals, Finance Minister Alberto Carrasquilla told business leaders.

There is international consensus that transfer pricing rules should address not only how to price related-party transactions but alsowhether their structure alignswith arm's-length transactions, according to an Australian Taxation Office (ATO) official.

Income earned by providingweb hosting services is not taxable as a fee in India under the India-U.S. tax treaty, an Indian tribunal has found.

The IRS is paying heed to commentators' calls for an exclusion of global intangible low-taxed income from the calculation of exempt organizations' unrelated business taxable income.

This paper uses an alternative measurement methodology adjusting for profit shifting to empirically demonstrate how the effects of profit shifting cascade throughout a fully articulated set of economic accounts. The authors alternative methodology applied to U.S. economic data in 2014 results in a 1.5 percent and 3.5 percent increase in measured U.S. gross domestic product and operating surplus, respectively, and a 33.5 percent decrease in measured income receivable from the rest ofworld.

IMFworking Paper, ByNigel Chalk, Michael Keen, and Victoria Perry

This IMFworking Paper provides an assessment of the key provisions of the Tax Cuts and Jobs Act (TCJA), from the perspective of both the U.S. itself and thewiderworld. The paper determines that the reform has many positive aspects including steps to broaden the base of, and reduce marginal rates under, the personal income tax, reduce distortions to investment and financing decisions, and mitigate outward profit shifting. But it also says that the TCJA has a large fiscal price tag and leaves significant uncertainty as to how the U.S. tax systemwill develop. It concludes that the novel international provisions create a complex array of both positive and negative international spillovers, and have the potential to significantly reshape thewider international tax system.

The US has issued new proposals to regulate tax deductions on pass-through entities in an effort to level the playing field between corporations and partnerships.

Law 360, By Richard Crump

Denmark's tax authority has filed a suit at the High Court in London against 71 individuals and companies, including many in the financial services sector,which it alleges took part in a massive multinational fraud to cheat the Danish government out of £1 billion ($1.3 billion) in reimbursed taxes.

U.S. banks shattered earnings records in the second quarter of 2018, reeling in $60.2 billion in revenuewith the help of the corporate tax cuts passed last year, according to federal data released Thursday.

The Tax Cuts and Jobs Act (TCJA) has created significant new tax incentives to invest in automation rather than hiring more people, and some critics see tax incentives for robots as a fiscal time bomb because tax revenue could fall dramatically unless governments find newways to raise it.

Executives of North Sea oil companies are becoming increasinglyworried about a tax increase in the next UK budget as the government looks for an alternativeway of raising revenuewithout a corporate tax hike.

The Philippine government has already commenced a massive tax reform program but now taxpayers need to be ready for the TRAIN 2, the second package of tax reform,which sees a cut in corporate income tax.

The U.S. Chamber of Commerce urged the Treasury Department to give corporations that overpaid taxes on offshore profits more flexibility in how to use those refunds. The Internal Revenue Service said earlier this month that itwon't rebate excess payments or credit them toward tax bills not tied to repatriation, such as annual bills for corporate income.

Russia has decided to move away from a controversial plan to levy a new $7.5 billion tax on some of the country's largest industrial companies after an outcry from business groups and leading executives. This proposed plan sought to increase social spending by taking aim at 14 of Russia's largest metals, mining, and chemical companies.

Importers from countries outside the U.K., including giants like Amazon.com Inc., could benefit from the country's proposed value-added tax treatment in the event of a no-deal exit from the European Union. In a no-deal scenario, importers from EU and non-EU countrieswould be required to account for import VAT on their VAT return, rather than paying it at the border before any goods are sold. This change could be a balm for companies that otherwise could face cash-flow problemswhen importing large amounts into the U.K., the government said.

Taxpayers could see regulations on a new tax on international profitswithin 45 days. Thewhite House's Office of Management and Budget is reviewing proposed regulations (REG-104390-18) that provide guidance on a new tax on global intangible low-taxed income (GILTI) under tax code section 951A.

The 2017 tax act has substantially altered U.S. multinational groups' expectations about repatriation of their present and future accumulated foreign cash and earnings. This article reviews the difference between financial accounting and income tax rules as it relates to foreign subsidiaries' earnings and the impact the 2017 tax actwill have on anti-deferral rules, source ordering rules, and fluctuations in the currency exchange rate.

Chile plans to reduce its tax take from corporations,wagering itwill boost economic growth and investment, under legislation announced Aug. 21 by President Sebastian Piñera.Central to the bill is the creation of a fully integrated corporate income tax regime, allowing shareholders to discount all taxes paid by the companies they own from their own tax burden, a central tenet of Chilean tax law for most of the last three decades.

On Aug. 16, 2018, in a 3-0 decision, the Eighth Circuit overturned the Tax Court's June 2016 decision in the dispute between the Internal Revenue Service (IRS) and Medtronic, Inc. concerning the transfer pricing treatment of an intercompany licensing arrangement and remanded the case for further consideration. This is a rare victory for the IRS in a transfer pricing case. Could it herald a reversal of the IRS's long string of losses?

The Eighth Circuit has vacated the Tax Court's 2016Medtronicdecision, remanding the case for a comparability assessment of the legal settlement agreement used in the taxpayer's comparable uncontrolled transaction method analysis.

A Luxembourg legislator has released the draft law implementing the EU Anti-Tax Avoidance Directive.while the main purpose of the draft law is to implement ATAD, it also includes two additional BEPS-related tax law changes aiming at removing potential double non-taxation situations. This article provides an overview of the different tax measureswhich may still evolve throughout the legislative process.

The U.K. tax authority, HM Revenue & Customs ("HMRC") has recently published a consultation document "Amending HMRC's civil information powers" inwhich it launched a focused review of its existing third party information powers and proposed certain changes to simplify and accelerate the process bywhich it can obtain information about specified taxpayers from third parties. The proposed changes in the documentwill be of concern to taxpayers because itwill result in a considerable expansion to HMRC's information-gathering powers,with very limited restrictions or processes in place to safeguard taxpayers' rights.