2013

The other day, Exxon Mobil Corp. announced that itwould recognize gay marriage for its employees. Thiswas front-page news, right up therewith a New Jersey Supreme Court judge telling the state it had to do the same.

Why? Because Exxon is a politically conservative oil company that makes most of its political donations to Republicans? No, because Exxon is such a huge non-state actor that anything it does is tantamount to a government action. In The Power Elite, C.wright Mills cogently explained how giant multinational corporations had escaped thewrit of national governments.

Exxon is one of theworld's 10 largest multinational corporate groups measured by market value. At the time of thiswriting, nine companies on that listwere American, alongwith half of the top 50. Some of theworld's largest companies pay very little tax anywhere in theworld. But to their home governments, they are often national champions.

Someone else's multinationals are unfairly skipping out on their corporate tax obligations to OECD member and observer countries. Thatwas the genesis of the OECD base erosion and profit-shifting project,which has produced an action plan that is designed to repair and preserve the fragile international consensus in the short run, but may end up upsetting it in the long run. In the long run, the international consensus is dead, and everyone knows it, but BEPS has to be tried and allowed to fail first.

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The Organization for Economic Cooperation and Development has asked the business community for input on how to draft aworkable country-by-country reporting template that requires companies to report their income in each country inwhich they operate.

In a memorandum on transfer pricing documentation and country-by-country reporting, issued Oct. 3, the OECD said taxpayers should be prepared to discuss "which approaches to the reporting of incomewould be most useful to governments and most readily available from existing accounting records" at the organization's Nov. 12-13 consultation in Paris.

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Despite massive investment in international tax planning designed to flatten difference in taxes across countries, the location of a multinational corporation's headquarters continues to be a major factor in determining itsworldwide effective tax rate, a corporate tax specialist said.

"There appears to be no doubt that there is an enormous amount of tax planning going on, and there also appears to be no doubt that there has not been enough of it towipe out the difference across countries," Doug Shackelford, director of the University of North Carolina's Tax Center in Chapel Hill, N.C., said Oct. 3 at a National Bureau of Economic Research conference on tax policy and the economy.

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A group of U.S.- and foreign-based multinationals,while vigorously objecting to the proposed concept of "intangible related returns" in the Organization for Economic Cooperation and Development's 2013 revised intangibles discussion draft, has told the organization that adopting such a radical conceptwould require "special measures."

In an Oct. 1 letter, the Transfer Pricing Discussion Group said adopting the concept of intangible-related returnswould "shift" the OECD transfer pricing guidelines to emphasize functions and de-emphasize contracts, funding and risks, thus requiring countries to adopt new legislation and to negotiate new provisions in their tax treaties.

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With international tax rules firmly in the spotlight, Mirna Screpante, invited tax researcher at the Max Planck Institute for Tax Law and Public Finance, takes another look atwhy a new approach for taxing companies is needed, and how this might look.

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More than 300 senior tax officials from more than 100 jurisdictions and international organisations met in Paris on September 26 and 27 to discuss solutions to unintended double non-taxation caused by base erosion and profit shifting (BEPS).

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France's 2014 draft Finance Bill has been released.with revenue-raising a clear objective, anti-abuse measures dominate, and companies face a higher tax bill.

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Japanese Prime Minister Shinzo Abe said Japan is considering corporate tax reductions and the elimination of a special reconstruction tax, and is continuingwith plans to implement a consumption tax hike starting next year.

At an Oct. 1 Tokyo news conference, Abe said his updated tax plan is part of economic changes aimed at getting Japan out of its severe deflationary state.

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3M Co.'s challenge to regulations under section 482 holds the promise of a major development in the evolution of the rules on blocked income. Although the fundamental controversy has been around for several years, 3M's case is the first to address the 1994 revision to the regulations. Over 40 years, the government has lost three cases, including one at the Supreme Court, on related issues.

The controversy in 3M Co. v. Commissioner, No. 005816-13 (T.C. 2013), involves a Brazilian restriction on the payment of royalties from 3M Brazil to 3M. The IRS asserts that those restrictions cannot be taken into account because the requirements of reg. section 1.482-1(h)(2)were not met.

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A new survey announced at EY's 32nd Annual International Tax Conference today brings to life the conference theme "Success under pressure" and explores
the combination of external pressures and internal corporate plans for growth that international
tax and finance executives are managing.

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Multinational companiesÔøΩboth U.S. and foreignÔøΩare major performers of industrial research and development (R&D) in the United States. For U.S. multinational companies, U.S. parent companies play a dominant role in U.S. R&D activity, accounting for about three-quarters of the domestic R&D performed by all U.S. businesses. Through their U.S. affiliates, foreign multinational companies also play a major role: majority-owned U.S. affiliates account for about 15 percent of U.S. industrial R&D, triple their share of production or employment by all U.S. businesses.

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The European Union reached a major milestone in the second quarter of 2013when it officially emerged from its year-and-a-half recession. According to Eurostat, the European Union's statistics office, the 17 countries that use the euro saw economic output grow by 0.3% in Q2 compared to the previous quarter.

Now that the EU's economic output has started to grow, (hopefully) multinational businesseswill get some economic relief. Companies that have been seeing earnings from their European operations decline for the past several months are starting to turn the corner,with growth thatwill drive profitably in these regions again.we're crossing our fingers that the trend continues … but it may not be time to celebrate just yet.

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A rented office overlooking a dusty rail track near Madrid's airportwas until recently theworkplace ofwhatwould appear to be the most productiveworker in all of Spain.

From here a single employee presided over a company that from 2009 to 2011 made ÔøΩ9.9bn of net profits, allwhile earning an annual salary of only ÔøΩ55,000.

The personwasworking for ExxonMobil Spain SL, a holding company for theworld's largest oil group by value,which for several years used a relatively unknown part of Spanish tax law to transfer billions of euros from foreign subsidiaries to the US, helping to significantly reduce its tax bill.

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Review & Outlook (Wall Street Journal)

The $29 billion merger that America's Applied Materials AMAT +2.21% and Japan'sTokyo Electron 8035.TO -0.73% announced on Tuesday is a rare trans-Pacific marriage inwhich a U.S. firm seems to be the dominant player. As eye-catching, the companies say that their merged entitywill be incorporated not in Japan or in North AmericaÔøΩbut in the tax-friendly Netherlands.

Among OECD countries, the U.S. ranks at the bottomwith a combined statutory federal and state corporate income tax rate of 39.1%, and Japan is next on the dishonor roll at 37%. America is also, er, exceptional for taxing overseas profits,which dissuades companies from bringing back and reinvesting this capital at home.

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BMC Software Inc. is appealing a decision by the U.S. Tax Court that the IRS properly reduced a section 965 dividends received deduction the company receivedwhen it repatriated $721 million from outside the U.S. during its 2006 tax year.

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