2013

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Corporate and international tax reform: proposals for the second Obama Administration (and beyond)

In a University of Michigan Public Law Research Paper thatwill be published in the Pepperdine Law Review, University of Michigan Law School Professor Reuven S. Avi-Yonah presents some long-, medium-, and short-term proposals for corporate and international tax reform in thewake of the passage of the American Taxpayer Relief Act of 2012.

For Professor Avi-Yonah's paper, go here.

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The globalization of corporate tax reform

In a UCLA School of Law Law-Econ Research Paper to be published in the Pepperdine Law Review., UCLA School of Law Professor Steven A. Bank discusses the importance of international corporate tax reform efforts to corporate tax reform in the US.

For Professor Bank's article, go here.

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India delays implementation of GAAR rule until 2016

Indian Finance Minister P Chidambaram has confirmed that the major recommendations of the expert general anti-avoidance rule (GAAR) committeewill be accepted and that GAAR implementationwill be deferred by two years to April 2016.

Foreign investors are cheering the news,which sees the legislative change pushed back from its original implementation date of April 1, 2014.

For the article, go here.

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Numerous technical changes modernize US-Spain tax treaty, Treasury official says

A new tax treaty protocol between the United States and Spain substantially changes the existing treaty's dividends rules, a Treasury Department official said Jan. 15, a day after the amended documentwas signed.

“We have adopted an exemption for certain direct dividends and the definition of direct dividendwill not be surprising to anybody familiarwith other bilateral tax agreements signed by the United States, said Henry Louie, deputy to the U.S. Treasury International Tax Counsel.

For the article, go here. (Subscription required.)

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Repatriated earnings: a carrot, stick, and cabbage approach

Writing in Tax Notes, Professors John O. Everett, Cherie J. Hennig, andwilliamA. Raabe present a new approach to taxing repatriated earnings.

To read the article, go here. (Subscription required.)

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Consequences of the new UK tax exemption system: evidence from micro-level data

In a June 11 paper, Professors Peter Egger, Valeria Merlo, Martin Ruf, and Georgwamser examine the effects on the foreign affiliates of UK-owned multinational firms of the UK's shift fromworldwide taxation to a territorial system.

For the paper, go here.

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Permanently reinvested earnings and the profitability of foreign acquisitions

In a University of Toronto Rotman School of Managementworking paper, Professors Alexander Edwards, Todd Kravet, and Ryanwilson examine the effects of current U.S. tax laws underwhich the U.S. government charges additional corporate taxes upon repatriation of foreign earnings that create an incentive for some U.S. firms to avoid the repatriation of foreign earnings.

For the paper, go here.

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The hollowing out: the future of joblessness in the US

Writing in the New York Times Campaignn Stops blog, Thomas B. Edsall comments onwhat he sees as the most important issue facing the United States: the hollowing out of the employment marketplace, the disappearance of mid-level jobs.

For Edsall's column, go here.

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Corporate tax avoidance: the price isn't right

The Economist's Schumpeter business and management blog comments on the Senate Permanent Subcommittee on Investigations hearing on corporate tax avoidance.

For the article, go here.

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Taxation trends in the European Union

  • By European Commission
The European Union reported on May 21 that VAT rates in the EU have continued a steady rise since 2008,while top corporate and individual rates have inched up after a long decline.

For the EU press release, go here.

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European Commission releases summary report of responses received on double non-taxation cases

  • By European Commission
The European Commission Directorate-General Taxation and Customs on July 5 released a summary report of the responses it received from the public in response to its February request for factual examples of, and possibleways to tackle, double non-taxation cases.

For the report, go here.

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The internal market: factual examples of double non-taxation cases

  • By European Commission
In a staffworking paper, the European Commission Directorate-General Taxation and Customs has asked the public for contributions of factual examples of, and possibleways to tackle, double non-taxation cases.

The EC is launching this fact-finding public consultation in order to establish evidence concerning double non-taxationwithin the EU and in relationwith Third Countries.

For the paper, go here.


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OECD's fight against income shifting -- and for its global role

Michael C. Durst, a former director of the IRS advance pricing agreement program, provides background to an anticipated vigorous debate between OECD officials and multinational business interests regarding proposed changes to the OECD transfer pricing guidelines governing the taxation of income from intangibles.

For Durst's article, go here. (Subscription required.)

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EU Tax Commissioner says Member States must embrace tax reforms to aid recovery

European member states must adopt prescriptive tax policy changes in their annual budgets to boost economic recovery and to facilitate a new economic governance scheme designed to overcome the fiscal and competitiveness gaps that have contributed to the euro zone sovereign debt crisis, European Taxation Commissioner Algirdas Semeta said Jan. 11.

Speaking in advance of a crucial periodwhen the “European Semester is due to begin, Semeta said the prescriptive tax reforms, outlined in November, should be adopted in the coming months as European Union member states draw up their annual budgets.

For the article, go here. (Subscription required.)

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UK parliamentary committee advocates adoption of country-by-country reporting

A United Kingdom House of Commons Committee has recommended that the government enact legislation thatwould require U.K. multinational corporations to report their financial information on a country-by-country basis in order to help expose tax evasion in developing countries.

The Commons' International Development Committee, in a Aug. 23 report, Tax in Developing Countries: Increasing Resources for Development , concluded that the United Kingdom should unilaterally adopt country-by-country reporting irrespective ofwhether agreement is reached at the European Union level, butcontinue to support the progress of similar legislation at EU level.

For the article, go here. (Subscription required.)

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UK move to territorial system driven by struggling British economy, top official says

The United Kingdom's move to a territorial tax system and other reforms stemmed from the nation's effort to shore up a struggling economy in the face of heavy competition from its European neighbors, a top British tax official said Sept. 27.

The comments from U.K. Exchequer Secretary to the Treasury David Gauke came as part of a discussionwith a panel of tax expertswho framed the difficult days ahead for U.S. tax reform efforts.

For the article, go here. (Subscription required.)

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Governments want to close tax loopholes but risk scaring off big foreign investors

In April 1961, a newly elected President John F. Kennedy launched an offensive against a phenomenon that he feared could undermine Americas future: aggressive tax avoidance.

In a message to Congress, he railed against the unjustifiable use of tax havens by growing numbers of businesses to slash their tax liabilities at home and abroad.

More than 50 years on, the political rhetoric seems to be identical, echoing Kennedys broadside against artificial arrangements. Once again, businesses are under fire for using corporate structures that shift profits to low-tax jurisdictions.

For the article, go here.


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Swedish budget plan details new interest deduction limits

Multinationals and large businesses should take note of new rules thatwill significantly tighten interest deductibility on intracompany loans.

Announced September 20 as part of the nation's 2013 budget plan, the new rules follow a September 13 government proposal designed to cut corporate taxes by 4.3 percent,which is to be partly funded by the tightening in interest allowances.

Under the new rules, interest deduction limitations are extended to cover all group company loans, and restrictions on loans deemed to have been made for tax purposeswill apply regardless ofwhether an existing 10 percent tax threshold is met.

For the article, go here. (Subscription required.)

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Singapore develops tax policies in effort to attract intellectual property

Singapore has implemented a series of innovative tax policies for developing itself as an intellectual property (IP) hub in Southeast Asia that focus on attracting industries such as biomedical, interactive and digital media, and clean energy, PricewaterhouseCoopers (PwC) analysts said in a Sept. 20webinar broadcast from Singapore.

Sunil Agarwal, an international tax partner at PwC in Singapore, said companies are increasingly setting up Singapore principal entities to take advantage of these tax incentives and allowances.

“Singapore is certainly one of the most favorable places for undertaking headquarter and IP activities, Agarwal said. “Over the next few years, many more entitieswill be housing their regional or global IP activities in Singapore.

Agarwal said companies that arewilling to own IP in Singaporewill have a much better bargaining position [with Singapore authorities] and are able to negotiate a much more favorable incentive package.

For the article, go here. (Subscription required.)

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UK House of Commons debates corporate tax avoidance

The UK House of Commons on Monday, January 7, held a debate on corporate tax avoidance. The debatewas a response to the increase in public awareness of multinationals' transfer pricing practices brought about by the Public Accounts Committee investigation of several high-profile companies last year.

For the article, go here. (Subscription required.)

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US Senate committee says reforms needed to stop tax avoidance by multinationals

The Senate's Permanent Subcommittee on Investigations released a memorandum September 20 urging strong reforms to accounting rules and tax provisions that it says allow many major multinational corporations to avoid paying U.S. income taxes.

The memorandum, issued by Carl Levin (D-Mich.), subcommittee chairman, and ranking member Tom Coburn (R-Okla.), recommended reform of tax code Sections 482 and 956 to end certain transfer pricing and offshore loan practices. They urged the Internal Revenue Service to make greater use of its anti-abuse rules to stop offshore schemes.

Financial Accounting Standards Board policies that allow multinationals to manage their earnings by avoiding the reporting of U.S. tax liabilities for foreign profits under APB 23 should also be changed, the subcommittee leaders said.

For the article, go here. (Subscription required.)

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Repeal business tax preferences as trade-off for lower corporate rate, US Treasury official says

Repealing most tax preferences except those that have strong and observable spillover benefits that affect the rest of the economy would be the first step in accomplishing tax reform that includes lowering the statutory corporate tax rate in a revenue neutral manner, a Treasury Department official said December 7.

Exceptionswould include research and development credits, manufacturing preferences, and investments in clean energy, said Mark Mazur, assistant secretary for tax policy.

For the article, go here. (Subscription required.)

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OECD draft on intangibles moves toward dictating business structures, US Treasury official says

A U.S. Treasury official questioned about the Organization for Economic Cooperation and Development's recent draft on intangibles Oct. 18 agreedwith practitioners that the document reflects a significant move toward dictating a company's business structure.

David Ernick, associate international tax counsel with Treasury, said the draft at paragraph 40does go very far towards dictatingwhat the business arrangement should be. He said the United States and other countries have raised serious concerns about that aspect of the document, and said OECD isvery open to changes in the next draft.

For the full article, go here. (Subscription required.)

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OECD revises permanent establishment discussion draft, adds third criterion

The Organization for Economic Cooperation and Development announced a revised discussion draft. Oct. 22 that adds a third criterion to theat the disposal of test for permanent establishment in its Model Tax Treaty.

The revised discussion draft, dated Oct. 19, would amend an earlier proposal for amending the commentary on the PE article. The previous discussion draft, issued Oct. 12, 2011, proposed adding the following language to paragraph 4.2 of the Article 5 Commentary:

Whether a location may be considered to be at the disposal of an enterprise in such away that it may constitute a place of business throughwhich the business of [that] enterprise is wholly or partly carried on'will depend on the extent of the presence of an enterprise at that location and the activities that it performs there.

The revised discussion draft proposes adding to paragraph 4.2 a third criterion that the enterprisehav[e] the effective power to use that location in order for a finding that the location isat the disposal of the enterprise.

For the full article, go here. (Subscription required.)

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OECD clarifies when dividend recipients are beneficial owners

The question ofwhen the recipient of a dividendwill be considered a beneficial owner got an overhaul in a revised discussion draft unveiled Oct. 22 by the Organization for Economic Cooperation and Development.

OECD said the issuewas the one that attracted the most comments on its original draft on beneficial ownership, and said it made the changes to reduce confusion and clarify situations in which dividend recipientswould not be considered beneficial owners for tax purposes.

For the article, go here. (Subscription required.)

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OECD: US should drop tax favoritism for investing abroad, cut corporate rates

The United States should spur domestic investment in manufacturing innovation by cutting corporate tax rates and eliminating tax system bias for foreign direct investment, according to a report released June 26 by the Organization for Economic Cooperation and Development.

OECD's Economic Survey of the United States 2012 said boosting innovative manufacturing can, by extension, fuel growth in the economy and employment.

It said the United States has one of theworld's most innovative economies, but newfissures indicate its innovation status is slipping relative to other advanced economies among the Paris-based organization's 34 member countries.

For the article, go here. (Subscription required.)

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IRS closes 70 APAs, could top 100 by year's end, official predicts

After a sluggish 2011 inwhich the Internal Revenue Service closed only 42 advance
pricing agreements, the retooled Advance Pricing and Mutual Agreement Program could end 2012with 100 APAs completed, APMA Director Richard McAlonan said Oct. 18.

For the full article, go here. (Subscription required.)

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G-20 Asks OECD to review rules with goal of curbing profit shifting

The G-20 has tasked the Organization for Economic Cooperation and Developmentwith a fundamental review of international tax rules, including transfer pricing rules,with the goal of helping governments better respond to multinational taxpayerswho use aggressive tax planning to shift their profits to low tax jurisdictions.

In an announcement, OECD said itwill deliver a progress report to the G-20 in early 2013 onwhether the current tax rules are still effective in today's business environment,particularlywhen applied to the increasingly digital economy, orwhether there is a need for different solutions.

For the full article, go here. (Subscription required.)

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Inquiry into tech giants' tax strategies nears end

Congressional investigators arewrapping up an inquiry into the accounting practices of technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.

The Senate Permanent Subcommittee on Investigations inquiry now drawing to a close began more than a year ago and involves at least a half dozen technology companies.

For the full article, go here.



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India to Western tech firms: to sell it here, build it here

India has proposed sweeping curbs on the import of technology products ranging from laptops towi-Fi devices to computer-network equipment.

The proposed regulations,whichwere reviewed by Thewall Street Journal,would create an expansive "Buy India" mandate requiring a large percentage of the high-tech goods sold in the country to be manufactured locally.

For the full article, go here.

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CRS examines tax cuts on repatriation earnings as economic stimulus

In the latest version of a Congressional Research Service report, Donald Marples, Senior Research Manager, and Jane G. Gravelle, Senior Specialist in Economic Policy, present an economic analysis of tax cuts on repatriation earnings as economic stimulus.

The authors argue that, viewed in the current debate on how to most efficiently stimulate the economy, economic theory suggests that the simulative effect of a temporary tax cut for repatriations may be offset, or more than offset, by exchange rate adjustments thatwould reduce net exports. In addition, how businesses use repatriated earningswill impact the stimulative or contractionary effect of a tax cut for repatriations. For example, repatriated earningswill have a larger stimulative effect, or smaller contractionary effect, the greater the degree towhich they are used to increase current
investment. A smaller stimulative effect or a larger contractionary effectwill result, in contrast, if more of the repatriated earnings are used to shore up cash-flow issues or pay dividends. This reportwill be updated as legislative eventswarrant.

Proposals to adopt a phased in repatriation at a lower tax rate have been coupledwith more recent proposals to make a permanent more to a territorial tax,where active earnings of foreign operationswould not be subject to U.S. tax.

For the full report, go here. (Subscription required.)

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CBO reviews options for taxing US multinational corporations

  • By Congressional Budget Office
In a January 8 report, the Congressional Budget Office examines options for changing theway the United States taxes multinational corporations or addressing particular concernswith the current system of taxation. All of those optionswould affect multinational corporations investment strategies and reporting of income, aswell as U.S. revenues from corporate income taxes.

For the CBO report, go here.

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UK.s biggest companies lower tax rate with overseas business

The biggest UK companies paid taxes at a lower rate for the fourth consecutive year, in part by garnering more profit overseas even as some prominent companies caused public outcry by avoiding levies in Britain.

UK. Business Secretary Vince Cable said in December that governments should coordinate across borders to make companies pay more tax.

For the full article, go here.


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More US service jobs heading offshore

US service companies have been sending jobs abroad in large numbers the past decade to cut labor costs a trend that accelerated in the recession and is expected to continue the next few years before slowing after 2016.

Since 2005, legal services such as document review, contract drafting and regulatory communication increasingly have been offshored, particularly to India, says Greg McPolin, managing director of Pangea3, a legal outsourcing firm. Indian attorneys handlework that in the U.S. is sometimes done by paralegals and at a 40% to 60% cost savings, he says.

For the full article, go here.

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Bernstein: Corporate tax reform should be revenue positive

In a blog post, Jared Bernstein argues that corporate tax reform should not be revenue neutral, but should raise more revenue thanwould be needed to lower the top rate from 35 percent to 28 percent.

Says Bernstein, "There are a lot more tax expenditures, e.g., tax breaks for favored investments, there's a lot more overseas income that escapes US taxation, more debt financing, heaving favored in our corporate code, and much more passing through ofwhat used to be corporate income to the individual side of the tax code, to take advantage of things like lower rates on capital gains realizations."

For the full text, go here.

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US productivity climbs, but wages stagnate

Federal income tax rateswill rise for thewealthiest Americans, and certain tax loopholes might get closed this year. But these developments, andwhatever else happens inwashington in the coming debt-ceiling debate, are unlikely to do much to alter one major factor contributing to income inequality: stagnantwages. For millions ofworkers,wages have flatlined.

Wages have fallen to a record low as a share of America's gross domestic product. Until 1975,wages nearly always accounted for more than 50 percent of the nation's G.D.P., but last yearwages fell to a record low of 43.5 percent. Since 2001,when thewage sharewas 49 percent, there has been a steep slide.

For the full text of this article, go here.

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France, Germany to pool revenue from FTT to fund programs aimed at competitiveness

France and Germany plan to use revenue collected from a financial transactions tax for a
special fund thatwould help euro zone countries that have committed to structural reforms designed to boost competitiveness.

The commitment by France and Germany to use the FTT revenue came on the same day that the European Commission confirmed that Lithuania has joined the other 11 EU member states that have committed to impose an FTT via a special EU legislative procedure.

For the full story, go here. (Subscription required.)

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Finland to restrict interest deductions, offer temporary relief on depreciation

Finlandwill introduce new limits on companies' ability to deduct interest on intracompany loans, the nation's coalition government has announced. Scheduled to take effect in the 2014 tax year, the new limits form part of a series of measures contained in the nation's 2013 budget plan,whichwas presented to parliament September 18. Neighboring Sweden introduced similar interest deduction rules September 20.

For the full story, go here. (Subscription required.)


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EU parliament OKs special legislative procedure for EU financial transactions tax

The European Union took an important step toward implementing a financial transactions
tax in at least 11 EU member states in 2013when the European Parliament December 12 approved the use of a legislative procedure that allows normal unanimous voting requirements to be bypassed.

For the full story, go here. (Subscription required.)

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Economic substance needed to weigh third-party behavior, OECD's de Ruiter says

Economic substance is as relevant as legal contracts for determining third-party behavior in a transaction, and the two factors should carry equalweight in the Organization for Economic Cooperation and Development's discussion draft on intangibles, a top OECD transfer pricing official said Nov. 13.

Marlies de Ruiter, head of the OECD's division for tax treaties, transfer pricing, and financial transactions, said that legal contracts arevery relevant in determining third-party behavior in transfer pricing transactions, but that authorities should also be able to look at economic substance to assesswhether related parties' conduct is in linewithwhat third partieswould have done.

For the full story, go here. (Subscription required.)

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European Court of Justice rules against UK tax imputation method on foreign dividends

The United Kingdom may be forced to repay billions of dollars to a variety of multinational companies after the European Court of Justice ruled Nov. 13 against different tax treatment the United Kingdom uses for domestic dividends and foreign-based dividends paid to companies.

In a case (C-35/11) that dates to the early 2000s, the EU high court said a United Kingdom law that allowed corporate tax exemptions on dividends paid by domestic companies, but not on those earned for foreign-based sources, is a violation of EU law allowing the free movement of capital. The lawwas repealed in 2009 pending ECJ review.

For the full story, go here. (Subscription required.)

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European Commission to launch new plan against tax havens, corporate loopholes

The European Commissionwill unveil Dec. 6 a plan to crack down on tax havens andaggressive tax planning by companies in order to help EU member states recover desperately needed revenue lost to tax evasion.

Citing the $1 trillion or more in revenue the 27 EU member states lose annually to tax evasion and tax avoidance, the European Commission proposalwill also call for an EUTaxpayer's Code of Conduct, an EU tax identification number, a review of the anti-abuse provisions in key EU directives and common guidelines to trace money flows.

For the full story, go here. (Subscription required.)

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Danish Parliament OKs law allowing publication of companies' tax details

Despite strong criticism from industry, a new bill thatwill allow the Danish Tax
Authority (SKAT) to publish companies' tax details online has been approved by the nation's parliament.

The law's June 13 approval means that thousands of companies' 2011 tax detailswill be freely available on the SKATwebsite from the end of 2011, regardless ofwhether the companieswish such information to be publicized.

For the full text of the article, go here. (Subscription required.)

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Motion introduced to implement 2012 federal budget tax measures in Canada

Canadian Federal Finance Minister Jim Flaherty Oct. 15 introduced a measure to implement an overseas employment tax credit and other international tax and corporate income tax measures proposed in the federal government's budget for fiscal 2012-13.

Thenotice ofways and means motionwould implement a range of international taxation measures outlined in the government's March 29 budget.

For the full story, go here. (Subscription required.)

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Burden of proof placed on taxpayers when French profits moved outside EU

France's Parliament has adopted legislation that shifts the burden of proof to French taxpayers in transfer pricing auditswhen they transfer profits to subsidiaries located outside the European Union.

For the story, go here. (Subscription required.)

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Earnings shocks and tax-motivated income-shifting: evidence from European multinationals

In a paper presented at the 5th Annual Conference on Empirical Legal Studies, Dhammika Dharmapala of the University of Illinois at Urbana-Champaign and Nadine Riedel of the Universitat Hohenheim present a new approach to estimating the existence and magnitude of tax-motivated income shiftingwithin multinational corporations.

For the abstract and the full paper, go here.

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Oxford Centre for Business Taxation presents its annual ranking of G20 nations' corporate taxes

In a June 2012 report by Katarzyna Bilicka and Michael Devereaux, the Oxford Centre for Business Taxation ranks the statutory tax rates and effective tax rates of the G20 countries at the beginning of 2012. The purpose of the report is to assess the competitiveness of the UK corporation tax regime.

For the full text of the report, go here.

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A better way to tax US businesses

In an article published in the July-August issue of the Harvard Business Review, Harvard Business School and Law School Professor Mihir Desai presents a proposal for improving US taxation of businesses that followswhat he views are the three principles that should guide a reform of the US corporate tax to advance American interests: The structure must reflect developments in theworld economy; corporate tax reform probablywill have to be instituted separately from fundamental tax reform and be roughly revenue neutral; and any reform must relegitimize corporations as responsible citizens and the corporate tax as a meaningful policy instrument.

For Desai's article, go here. (Registration, one-time purchase, or subscription required to read the full article.)

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CTJ: 286 Fortune 500 companies hold $1.6 trillion in offshore profits

  • By Citizens for Tax Justice
In a December 13 report, Citizens for Tax Justice reports that, based on an examination of the annual 10-K reports filed by 290 Fortune 500 corporations, those corporations held nearly $1.6 trillion in profits outside the US at the end of 2011.

For the CTJ report, go here.

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Which Fortune 500 companies are sheltering income in overseas tax havens?

  • By Citizens for Tax Justice
An October 17 report by Citizens for Tax Justice examines the likelihood that US multinationals are shifting offshore profits to tax havens,where they remain untaxed, rather than repatriate those profits to the US.

For the CTJ report, go here.

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