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2013

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Foreign Passthrough Entity Use In Five Selected Countries

  • By Joint Committee on Taxation

by: Joint Committee on Taxation

A Joint Committee on Taxation report from October 2013, obtained by Tax Analysts andwritten at the request of the Senate Finance Committee, outlines data on the taxation of passthrough entities in Australia, Canada, Germany, Japan, and the United Kingdom.

The JCT built on reports by the OECD in 2009 and summarized the use of passthroughs by size and industry in each country. The report breaks down the data for each country according to tax rates and different business structures permitted in each country, and it summarizes influences on the choice of entity in each country.

For the report, go here. (subscription required)

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Factoryless Goods Producers in the US


This paper documents the extent and characteristics of plants and firms in the US that are outside the manufacturing sector according to official government statistics but nonetheless are heavily involved in activities related to the production of manufactured goods. Using new data on establishment activities in the Census ofwholesale Trade conducted by the US Bureau of the Census in 2002 and 2007, this paper provides evidence on so-called "factoryless goods producers" (FGPs) in the US economy.

For the paper, go here.

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CFC Legislation, Passive Assets and the Impact of the ECJ's Cadbury-Schweppes Decision


In its Cadbury-Schweppes decision of 12 September 2006 (C-196/04), the Court of Justice of the European Union decided that the UK controlled foreign corporation rules,whichwere implemented to subject low taxed passive income of foreign affiliates to UK corporate tax, implied an infringement of the freedom of establishment. Consequently, many EU countries including Germany changed their legislation. The paper discusses towhich extent the ECJ ruling has impacted on the allocation of passive assets in German multinationals. Using firm level data the authors find evidence for an increased preference for low-tax European countries compared to non-European countries.

For the paper, go here.

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HMRC 'losing nerve' over tax affairs of multinationals but small businesses are targeted

  • By Correspondent (London Evening Standard)

A Parliamentary report has accused tax authorities of avoiding sanctioning major multinationalswhile pursuing small businesses and individuals.
HM Revenue and Customs seems to "lose its nerve"when facedwith the prospect of taking legal action against global giants, and has fallen short on the unpaid tax it hoped to extract from Swiss bank accounts - collecting just £440 million so far this financial year, rather than the £3.12 billion forecast after a bilateral agreement.

For the story, go here.

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MPs accuse HMRC of being soft on big business


HM Revenue and Customs has been accused of failing to collect enough tax from big business and not using the powers at its disposal to do so by an influential committee of MPs.
The Public Accounts Committee (PAC), chaired by Margaret Hodge, accused the tax man of "not clearly demonstrating that it [HMRC] is on the side of the majority of taxpayerswho pay their taxes in full."

For the story, go here.

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HMRC Tax Collection: Annual Report & Accounts 2012-13 - Public Accounts Committee

  • By UK Parliament PAC

In pursuing unpaid tax, HM Revenue & Customs (HMRC) has not clearly demonstrated that it is on the side of the majority of taxpayerswho pay their taxes in full. It does not use the full range of sanctions at its disposal to pursue vigorously all unpaid tax, and its measure of the tax gap does not capture all the avoided tax that it should be collecting. HMRC massively over-estimated how much itwould collect from UK holders of Swiss bank accounts, and in 2013-14 has so far collected only £440 million of the £3.12 billion predicted in the 2012 Autumn Statement. HMRC is not doing enough to collect tax credits debt or to tackle tax credit error and fraud.

For the report, go here.

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EU 11 mull narrower FTT


The 11 EU member states looking to adopt a financial transaction tax (FTT) have discussed proposals for a narrower version of the tax to get it past stalled negotiations.

For the story, go here.

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Morality versus legality in international taxation

  • By ITR Correspondent

Delivering an address on the morality versus legality debate at the Foundation for International Taxation's December 5-7 conference in Mumbai, former Chief Justice of India SH Kapadia stated that in the Indian context, the discernible principles of law should prevail and not morality in a general sense.

For the story, go here.

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Tax Policy: Baucus Not Looking to Raise Revenue From Corporate Tax Rewrite, Senior Aide Says


Revenue from reworking the U.S. tax codewould come from individuals rather than big businesses, remarks from a top Senate staffer suggested.
Revenue neutrality is the goal for overhauling all corporate income taxes, including taxes on international earnings, said Lily Batchelder, the chief tax counsel to Senate Finance Committee Chairman Max Baucus (D-Mont.). So, to increase revenuewhile comprehensively rewriting the tax code, as Baucus has said hewants to do, the burdenwould necessarily fall to individual taxpayers.

For the story, go here. (subscription required)

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Tax Committee Aides Weigh Trade-Offs and Efficiencies in International Reforms


As the debate over international tax reform continues, Mark Prater, minority deputy staff director and chief tax counsel, Senate Finance Committee, urged practitioners on December 16 to move beyond a focus on trade-offs in a revenue-neutral reform of the U.S. tax system and to instead look to the efficiencies the reformwould create.

For the story, go here. (subscription required)

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Back from the Dead: How to Revive Transfer Pricing Enforcement


The OECD has recently come to recognize that the transfer pricing system does notwork as intended. In its report on Base Erosion and Profit Shifting, the OECD recognizes that BEPS results in revenue losses that affect all states, especially poorer ones; that systematic tax avoidance by the richest and most powerful companies in theworld undermines the general legitimacy of taxation; that it gives MNEs significant competitive advantages over purely domestic firms, resulting in inefficient allocations of investment and major distortions to economic activity; and that it skews the decisions of the MNEs themselves, resulting in overall economicwelfare losses.

This articlewill contrast three approaches to dealingwith the BEPS problem: adopting a unitary taxation regime; ending deferral; and adopting anti base erosion measures. It concludes thatwhile the first approach is the best long term option, the other two are more promising as immediate candidates for adoption in the context of US tax reform and the OECD BEPS project.

For the paper, go here.

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Tax Administration: IRS: Resource Issues Lead to Constraint On International Private Letter Rulings


The Internal Revenue Service is "thinking more critically" aboutwhich requests for private letter rulings itwill accept in the international area and the number it takeswill likely be reduced, an agency official said.
The IRS's Office of Associate Chief Counsel (International) is facing major resource constraints andwill have to be more picky, Anne Devereaux, deputy associate chief counsel (international field service & litigation), said Dec. 13.

For the story, go here. (subscription required)

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Treasury Official Previews FTC Guidance


The IRS and Treasury hope to release several guidance projects concerning foreign tax credits in 2014, according to acting Treasury Deputy International Tax Counsel Ginny Chung.

For the story, go here. (subscription required)

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Anti-Inversion Substantial Business Activity Regs to Be Finalized Next Plan Year


Practitioners should not expect section 7874 anti-inversion regulations that provide guidance on substantial business activities to be finalizedwithin the current business plan year,which ends June 30, but rather can expect finalization in the next business plan year, an IRS official said December 12.

For the story, go here. (subscription required)

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Profit Shifting: U.S. Officials Urge Taxpayers to Comment On BEPS, Now in Brainstorming' Phase


U.S. officials are urging taxpayers to provide detailed commentary on the Organization for Economic Cooperation and Development's action plan to combat base erosion and profit shifting (BEPS), particularly on the issue of hard-to-value transactions.
Working Party No. 6 of the OECD,which is chargedwith addressing transfer pricing issues, is still in a "brainstorming phase" for BEPS, said Brian Jenn, attorney adviser in the Treasury Department's Office of the International Tax Counsel.

For the story, go here. (subscription required)

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Officials Urge Engagement to Ensure Good BEPS Outcomes on Intangibles


Chris Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International), called on interested parties to actively engagewith the OECD on its intangibleswork under the base erosion and profit-shifting project to offer guidance on how difficult transactions can be priced.

Speaking at a December 12 session of the annual Institute on Current Issues in International Taxation, cosponsored by Georgewashington University Law School and the IRS, Bello said that some participants in the OECD discussions are inclined to disregard transactions they do not regard as having an arm's-length price. To counter that perception, he said, businesses need to participate in the process to offer solutions for pricing difficult transactions.

For the story, go here. (subscription required)

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Digital Economy Report Will Discuss Whether Special Tax Rules Are Needed, Treasury Official Says


At the heart of a report being prepared by the OECD's digital economy task forcewill be a discussion ofwhether special rules should be created to address the tax challenges raised by the digital economy, Robert Stack, Treasury deputy assistant secretary (international tax affairs), said December 12.

For the story, go here. (subscription required)

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Profit Shifting: IRS Official: OECD Base Erosion Plan to Have Huge Impact on Cross-Border Tax Disputes


The Organization for Economic Cooperation and Development's base erosion projectwill create "tremendous pressure" for officials chargedwith resolving cross-border tax disputes, an Internal Revenue Service official said.

The OECD's action plan to combat base erosion and profit shifting (BEPS) has brought together "every difficult issue that has ever existed" in international taxation, but the OECD has no authority to coordinate the response, said Michael Danilack, deputy commissioner (International)with the IRS. "We have to be mindful of the fact that the various BEPS initiatives maywell take place on a country-by-country basis"ÔøΩand thatwill create additional burdens for competent authorities around theworld.

For the story, go here. (subscription required)

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JCT Finds Overall Depreciation Treatment Similar in 5 Major Economies

  • By Tax Analysts

Cost recovery rules in the United States, Canada, Germany, Japan, and the United Kingdom vary as far aswhich industries they favor, but no system stands out as having more or less generous depreciation allowances overall than any of the others, the Joint Committee on Taxation said in an unreleased April 12 report obtained by Tax Analysts.

The JCT analyzed depreciation regarding specific business assets, namely commercial buildings, computer hardware and software, construction equipment, machinery and equipment, and tractor-trailers.

For the report, go here. (subscription required)

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UK reaffirms commitment to open for business agenda, but announces anti-avoidance measures

  • By PwC

The UK government recently released its annual Autumn Statement, focusing on growth and managing debtwhile maintaining the 'Britain is open for business' agenda. The Statement reaffirms the government's commitment to corporation tax reform, including the 20% corporate income tax rate effective in April 2015.

The government also announced a number of targeted anti-avoidance measures that are primarily aimed at UK PLCs but may impact US MNCs.

For the story, go here.

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UK Autumn Statement: Osborne pledges to raise £9 billion from anti-avoidance measures


George Osborne, UK Chancellor of the Exchequer, today unveiled his Autumn Statement. Anti-avoidance measures dominated,with Osborne promising theywill raise £9 billion ($15 billion) over five years.

For the story, go here.

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BEPS: The Australian perspective


David Bradbury, Assistant Treasurer of Australia until the September 2013 election, and the driving force behind Australia's efforts to tackle base erosion and profit shifting (BEPS) over the past 12 months, discusses the progress he madewhile in office and outlineswhat the newly elected government must do to build on that.

For the story, go here.

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UK Lords slam FTT that would make "losers of us all"


The UK House of Lords EU Subcommittee on Economic and Financial Affairs has declared that the financial transaction tax (FTT) could significantly damage the UK and the rest of the EU.

For the story, go here.

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Profit Shifting: Government Officials Say U.S. Won't Wait for BEPS Action Plan


Congressional taxwriters are paying close attention to the Organization for Economic Cooperation and Development's multicountry project on base erosion and profit shifting, butwill notwait for its outcome to push aheadwith overhauling the U.S. tax code, two top staffers said.

For the story, go here. (subscription required)

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Subpart F: Facts, Circumstances Key to Foreign Base Sales Income, Not Bright Line, Official Says


Definitions important to the manufacturing exception in determining foreign base company sales income under Subpart F supply chain rules depend on the facts and circumstance of each case, not any "bright line" test, an Internal Revenue Service official said.

Speaking at a Dec. 9 International Fiscal Association seminar in New York, Jeffery Mitchell, chief of the IRS Branch 2 Office of Chief Counsel (International), said the Servicewill look to all the activities of all employees of a controlled foreign corporation (CFC) to seewhether the substantial contribution test under tax code Section 954 is met.

For the story, go here. (subscription required)

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Tax Policy: Top Hill Aides Say Common Ground Possible Between Camp, Baucus Tax Overhaul Drafts


There may be common ground between the tax overhaul drafts unveiled separately by Houseways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.), but differences remain, top advisers from the panels said.

For the article, go here. (subscription required)

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Tax Policy: Obama Business Tax Overhaul Proposal Differs in Key Ways From Baucus Plan


Proposals to change numerous business tax laws from Senate Finance Committee Chairman Max Baucus (D-Mont.) generally differ from overhaul ideas put forth by President Barack Obama in his fiscal year 2014 budget plan and other documents.

For the article, go here. (subscription required)

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Senate Finance Tax Counsel Says International Tax Reform Draft Not Set in Stone


The international discussion draft on tax reform released November 19 by Senate Finance Committee Chair Max Baucus, D-Mont., is "not set in stone," and the "higher-than-expected bracketed rates" are subject to change, Ronald Dabrowski, IRS deputy associate chief counsel (international), said December 9.

"Whatwe've set outwas intended to be conservative," said Dabrowski,who is on detail to the Senate Finance Committee majority. "We didn'twant to give promiseswe couldn't deliver on, but in any event,wherewe've started is notwherewewill end up."

For the article, go here. (Subscription required)

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CBO Report Confirms that the Federal Government Redistributes a Substantial Amount of Income


Senate Finance Committee Chairman Max Baucus has released a detailed proposal for international corporate tax reform,whichwe summarized earlier thisweek.while there are some improvements to current law, the proposal is mainly a step backward in terms of business competitiveness andwill harm investment, job creation, andwages.

For the blog post, go here.

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Economic Analysis: The Baucus Draft and Other Options for Taxing Foreign Profits


This article explains the basic mechanics of taxing foreign profits of U.S. multinationals under options Y and Z of the staff discussion draft released by Senate Finance Committee Chair Max Baucus, D-Mont., on November 22. The analysis here draws heavily from thework of professor Daniel Shaviro of New York University School of Law and concludes by suggesting an alternative to options X and Y.

For the article, go here. (subscription required)

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Corporation tax is no longer fit for purpose


Onewould easily be forgiven for believing that, in recent years, tax competition has acquired pariah status in the global economy. The much-vaunted crackdown on multinational tax avoidance, the fresh attempt to regulate corporate transfer payments and the likely impact of rolling out the Foreign Account Tax Compliance Act mean that thosewhowish to evade their obligations by arbitraging the complex labyrinth of global tax networkswill find life much more difficult in the future.


For the article, go here.

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Review & Outlook: Britain's Laffer Curve


While America dawdles over tax reform, new evidence from Britain shows that cutting corporate tax rates is a tax revenuewinner.

Chancellor of the Exchequer George Osborne has cut Britain's corporate tax rate to 22% from 28% since taking office in 2010,with a further cut to 20% due in 2015. On paper, these tax cutswere predicted to "cost" Her Majesty's Treasury some £7.8 billion a yearwhen fully phased in. But Mr. Osborne asked his department to figure out how much additional revenuewould be generated by the higher investment,wages and productivity made possible by leaving that money in private hands.

For the article, go here.
For the report, go here.

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Tax Policy: New Legislation Would Use Revenue From Offshore Tax Avoidance for Budget Deficit


Curtailing corporations' tax breaks for their overseas operations should help lower the budget deficit, according to a pair of House Democratswho are backing new legislation to do just that.

Reps. Lloyd Doggett (D-Texas) and Rosa DeLauro (D-Conn.) proposed to use revenue fromwhat they called offshore tax haven abuse to replace the across-the-board sequestration budget cuts to discretionary programs for fiscal years 2014 and 2015. The resulting revenuewould also help partially reduce the sequester-mandated cuts for fiscal 2016.

For the story, go here. (subscription required)

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Profit Shifting: OECD Fast-Tracking Country-by-Country Reporting; Discussion Draft Due in February


The Organization for Economic Cooperation and Development has announced that itwill release a discussion draft in February 2014 on transfer pricing documentation thatwill include a proposed template for country-by-country reporting.
A calendar posted on the OECD'swebsite Dec. 3 states that the deadline for comments on the discussion draftwill be 21 days after publication of the draft and cautions that the February date may change.

For the story, go here. (subscription required)

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The OECD releases calendar for planned stakeholder input into the BEPS project

  • By PwC

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Tax Policy: Bloomberg BNA Summary of Senate Finance Committee Chairman's Staff Discussion Draft of Provisions to Reform International Business Taxation

  • By Bloomberg BNA

The Bloomberg BNA staff provides a chart summarizing the "Technical Explanation of the Senate Committee on Finance Chairman's Staff Discussion Draft of Provisions to Reform International Business Taxation," as proposed by Sen. Max Baucus (D-Mont.) Nov. 19.

For the summary, go here. (subscription required)

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ABA Ltr to Congress: Options for Tax Reform in the Inbound International Tax Provisions

  • By Michael Hirschfeld (American Bar Assn)

The American Bar Association Section of Taxation in a December 3 letter to leaders of the Houseways and Means and Senate Finance committees proposed options for reforming inbound international tax provisions, including those for foreign bank account information reporting and taxation of foreign sovereigns, affiliated entities, and expatriates.

For the letter, go here.

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SFC Chairman Baucus discussion draft features CFC minimum tax options

  • By PwC

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Senate Finance Committee discussion draft includes certain proposals impacting US inbound investment

  • By PwC

On November 19, 2013, Senate Finance Committee Chairman Max Baucus (D-MT) released a comprehensive international tax reform discussion draft. Although the primary emphasis of the discussion draft is the modification of rules applicable to outbound investments by US multinationals, the discussion draft also includes certain proposals that may impact foreign multinationalswith US operations. This alert summarizes the US inbound-specific provisions of the discussion draft.

For the newsalert, go here.

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Profit Shifting: Apportioning State, Jurisdictional Taxation Can Help Offset Profit Shifting, OECD Says


Better formulas for apportioning corporate taxes across sub-jurisdictionswithin a country can reduce "excessive" inter-jurisdictional tax base mobility aswell as profit shifting by corporations, according to a report by the Organization for Economic Cooperation and Development.

The report, "Fiscal Federalism 2014: Making Decentralisationwork," said thatwhile tax competition among sub-central governments can produce lower rates for companies and other benefits, it can have negative effects for governments, for example by giving companies an incentive to shift profits to jurisdictionswith lower taxes.

For the story, go here. (subscription required)

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A Tax Plan to Please Both Sides


Here's some holiday cheer: 120 million American families no longer have to file income tax returns; the top individual rate is lowered 20 percent; the top corporate rate is cut by more than half; the government gets the same amount of revenue; and the tax system is slightly more progressive.

O.K., it's not a free lunch. Itwould be accompanied by a 12.9 percent value-added levy,which critics like to call a national sales tax.

For the story, go here.

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Yet Another Look at Corporate Effective Tax Rates


Andrew B. Lyon responds to Government Accountability Office officialswho rebutted his article's contention that the GAO's analysis of corporate effective tax rates has exclusions that make the analysis inaccurate.

For the letter, go here. (subscription required)

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November 2013 Survey of Current Business


The U.S. Bureau of Economic Analysis (BEA) announces the following:
You can now access the November Survey of Current Business at

www.bea.gov/scb/index.htm

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EC amendments to Parent Subsidiary Directive address hybrid loans and introduce common GAAR

  • By PwC

On November 25, 2013, the European Commission proposed amendments (2011/96/EU) to the Parent Subsidiary Directive (PSD) to address tax fraud and evasion aswell as aggressive tax planning and base erosion and profit shifting (BEPS) in the European Union. The proposal addresses hybrid financial mismatches under the PSD and introduces a general anti-abuse rule (GAAR) to protect the directive's functioning.

For the newsalert, go here.

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Professor Michael J. Graetz Receives National Tax Association Award, Updates Competitive Tax Plan


Michael J. Graetz, Justus S. Hotchkiss Professor Emeritus of Law and Professorial Lecturer in Law at Yale Law School, presented his "Competitive Tax Plan" during lastweek's annual conference of the National Tax Association. The plan, he says, is "an update and an epilogue" to his book 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States,which advocated for a value-added tax (VAT) thatwould act as a national sales tax.

For the plan, go here.

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European Commission tightens corporate tax rules


The European Commission hopes to "significantly reduce tax avoidance in Europe" through proposed amendments to EU corporate tax legislationwhichwould shut down loopholes in the Parent-Subsidiary Directive.

For the story, go here.

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Baucus US tax reform proposal: A warning for Apple and Google


After the release of the Senate Finance Committee chairman's proposals for US corporate tax reform, Jim Ditkoff, senior vice president – finance and tax – at science and technology company Danaher Corporation, analyses the proposals and explainswhy companies like Apple and Google may regret some of their lobbying efforts.

For the story, go here.

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Baucus releases US tax reform discussion draft


Max Baucus, chairman of the US Senate Finance Committee, has released a discussion draft outlining his proposals for US corporate tax reform, including provisions thatwould drastically alter the tax treatment of income earned by controlled foreign corporations. Business has reacted badly to the draft, having lobbied for greater repatriation relief than Baucus is offering.

For the story, go here.

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Canada: Canada Takes Aim at Treaty Shopping, Mindful' of OECD BEPS Work, Official Says


The Canada Department of Finance shares taxpayer concerns about the potential interplay between its efforts to combat treaty abuse andwork being done on the same problem through the Organization for Economic Cooperation and Development's BEPS project, a Canadian official said.

For the story, go here. (subscription required)

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Tax Policy: BGOV Analysis: Baucus International Tax Plan Would Hit Tech, Health Companies


Senate Finance Committee Chairman Max Baucus's draft international tax overhaul includes a one-time 20 percent transition tax on the more than $2 trillion of corporate profits "locked out" abroad, according to the latest Bloomberg Governmentweekly Tax Update.

This foreign income is categorized as "permanently reinvested,"which defers U.S. taxes until the income is repatriated. Companieswould pay the mandatory 20 percent tax on these permanently reinvested earnings during an eight-year period. Foreign tax credits and other deductionswould reduce the tax bill by about halfÔøΩcutting the actual tax paid by companies to an estimated $200 billion.

For the story, go here. (subscription required)

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