2013

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A global perspective on territorial taxation

Catherine the Great is supposed to have said,A greatwind is blowing, and that gives you either imagination or a headache. In Washington,winds are stirring for corporate tax reform. Butwhile there is broad bipartisan agreement that tax rates should be reduced, there is less consensus regardingwhat the tax rate should be, how to pay for a tax cut, or generally how to treat international business income. These considerations are inextricably intertwined because the U.S. assesses its corporations onworldwide income.

For the report, go here.

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UK Treasury committee could grill US companies over 'tax evasion'

The Commons committee, headed by Andrew Tyrie MP, is consideringwhether to lend itsweight to the escalating furore over the UK tax affairs of large foreign-based businesseswith UK arms and could call companies to account by early next year.

For the article, go here.

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Tory MP asks FTSE 100 companies to back country-by-country reporting

A Conservative MP haswritten to the chief executives of all FTSE 100 companies seeking their support for corporate tax transparency and a new international accounting standard requiring country-by-country reporting of profits and taxes paid.

For the article, go here.

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Eggert reiterates US opposition to services PE provisions

The United States continues to oppose services permanent establishment provisions because of the burden they impose on taxpayers, even though it has entered into themwith other countries, a Treasury official said December 7.

For the article, go here. (Subscription required.

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Territorial taxation discussed at annual NTA meeting

Speakers at the National Tax Association's annual meeting on November 18 discussed the idea of the US moving to a territorial system, including the beneficiaries and the effects of such a move.

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

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Economic analysis: should the Camp territorial plan include a 5% haircut?

The character of any proposal to move the United States to a territorial system depends heavily on how it treats interest expense. The discussion draft territorial plan from Houseways and Means Committee Chair Dave Camp, R-Mich., addresses interest expense in two contexts: the potential allocation of interest expense to exempt foreign-source income (the allocation rule) and a thin capitalization rule that limits domestic interest expense (the cap).

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

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Economic analysis: the economic case for unlocking foreign profits

Martin A. Sullivan examines the two key obstacles to a second repatriation holiday -- the large upward revision of the estimated revenue cost of the provision since itwas first enacted in 2004 and thewell-documented failure of the 2004 holiday to achieve the intended economic objectives -- and offers suggestions for structuring a new and improved repatriation holiday.

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

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Opinion: tax reform 2.0

In an opinion piece based on a speech he presented to the Tulane Tax Institute in New Orleans on November 1, Martin A. Sullivan examines some key issues that must be addressed for comprehensive tax reform to occur.

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

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Economic analysis: an automatic brake on profit-shifting in a territorial system

One often overlooked benefit of including an interest allocation rule in a territorial system is that itwould obviate the need for separate, base-preserving thin capitalization rules. An interest allocation rule takes the debt of a multinational group held by third parties and assigns it to different jurisdictions in proportion to some measurable factors, most often assets.

This article is about allocatingworldwide interest using gross profits as the allocation factor. The term "gross profits" means profits before interest or taxes. In addition to the salutary effects on artificial profit shifting that it shareswith other interest allocation methods -- in particular, allocation of interest by assets -- interest allocation using gross profitswould reduce the incentive to shift profits by adjusting transfer prices. It does this by narrowing the difference between domestic and foreign effective tax rates.

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Corporate inversions: a symptom of larger tax system problems

In a Tax Notes viewpoint, Eric Solomon examineswhy U.S. corporations engage in inversions and continue to consider them. Inversion activity is a symptom of problems in the U.S. international tax system that need to be addressed.

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

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transparency in our corporate tax system

  • By American Sustainable Business Council; Business for Shared Prosperity; Main Street Alliance
A group of business owners and executives haswritten to President Obama and members of Congress, requesting awant a tax system that is fair and provides sufficient revenue for the public services and infrastructure that underpin our economy.

For the letter, go here.

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News analysis: why do we need treaties?

Individual provisions of the OECD model treaty have been called into question in recent years, but questioning the point of bilateral treaties per se is rare outside South America. Usually, the questioners approach the matter from the vantage point of developing countries,whose revenue interests are undermined by treaties.

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

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News analysis: treaty countries' right to use domestic law

Some 63 percent of Indian households have phone service, usually in the form of cellphones. India has a billion people,which makes for a lot of households and a lot of cellphones. American and Scandinavian suppliers are doing quitewell in this market, and that has not gone unnoticed by the Indian Revenue Department.

Oh, but India signed a bunch of OECD model treaties that restrain source country taxation! That doesn't always stop a determined interpretation of fuzzy treaty terms. There is no requirement that the document be interpreted in favor of the foreign business.

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

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News analysis: services PE upsets presumptions

The OECD has put out a new draft on permanent establishment, the most contentious issuewithinwhich is treatment of services.

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

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News analysis: the downside of patent boxes

Lee A. Sheppard discusses some of the negatives of patent box regimes, such as that enacted in the Netherlands.

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

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Sen. Levin eyes corporate tax breaks, tax evasion in sequestration proposal

Sen. Carl M. Levin's push to close tax loopholes as away to soften federal budget cuts and trim the deficitwill also target corporate tax deductions for stock options and stiffen penalties for tax evasion, his office revealed Feb. 1.

In a memo to Democratic Senate committee leaders, Levin (D-Mich.) described proposals to endwhat he called excessive corporate tax deductions, end the blended tax rate for derivatives such as commodity futures, and strengthen enforcement of the tax code.

Sen. Levin said corporations pay an effective tax rate of 15 percent due to various deductions and loopholes even though the top marginal rate set in the tax code is 35 percent.

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

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News analysis: economists increase their tax-cutting demands

Lee Sheppard comments on various tax reform issues, include how to locate a multinational corporation's income.

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

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Say no to a corporate territorial tax

A San Francisco Chronicle editorial argues against a territorial tax system for the US.

For the editorial, go here.

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Say no to the tax status quo

An opinion piece in the San Francisco Chronicle makes the case for a territorial tax system for the US.

For the article, go here.

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UK announces additonal corporate rate reduction

George Osborne, the UK Chancellor of the Exchequer, recently delivered his 'Autumn Statement'. He focused on reducing the budget deficit, restoring stability to the economy and equipping the United Kingdom to compete globally.while therewere relatively few new announcements, the overall themewas positive given the difficult economic conditions. The statement also reinforced the governments message that the United Kingdom is open for business.

For the article, go here

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Update on OECD tax projects

This issue of the Tax Policy Bulletin provides an update on some of the key tax projects currently being undertaken by the Organisation for Economic Cooperation and Development (OECD).

For this edition, go here.

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Update on OECD work on tax and development

This edition of the Tax Policy Bulletin provides an update on thework currently being undertaken by the Organisation for Economic Cooperation and Development (OECD) on developing countries.

For the article, go here.

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Wall Street tells Washington: Cut corporate taxes in 2013

Corporate CEOs have released theirwish list forwhat Washington should do to energize an economy they expectwill grow just 2% this year. High on the list: reforming the corporate tax code.

John Engler, president of the Business Roundtable,which represents the CEOs of more than 200 U.S. companies, tells The Daily Ticker that the 35% top marginal corporate tax rate in the U.S.—the highest in the developedworld—is too high and creates difficulties for U.S. corporations competing in the global market.

“This is just a numbers game, andwere losing at it," says Engler. “Even Canada has a 15% corporate tax rate. Engler says the relatively high U.S. corporate tax rate affects corporate decisions on location, investment and jobs.

For the article, go here.

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Can publicity curb corporate tax avoidance

Bruce Bartlett examines the argument that public shaming could result in mulitnational corporations paying more income tax.

For the article, go here.

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Corporate tax posturing should stop

When David Cameron flew to Davos lastweek to tell companies that reduce their tax bills by dividing activities among countries towake up and smell the coffee, his targetwas clear. Starbucks now faces a consumer boycott and has been publicly accused of acting unethically.

The only problem is that it is not true.

For the article, go here.

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The fiscal and economic risks of territorial taxation

Many policymakers say theywant to reform the U.S. system of taxing multinational corporations so that it better promotes growth and helps reduce budget deficits. Unfortunately, according to a new report from the Center on Budget and Policy Priorities (CBPP), one proposal that has received significant attentionwould take the tax code in an ill-advised direction, creating serious economic and fiscal risks.

For the CBPP report, go here.

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Next US model treaty may include revised discretionary competent authority provision

The revised discretionary competent authority relief provision in the new protocol to the Spain-U.S. tax treaty may appear in the next U.S. model treaty, Henry Louie, deputy to the Treasury international tax counsel for tax treaty affairs, said January 15.

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

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Globalization poses new challenges for tax reform

The effects of globalization and international competition on the U.S. economy and the government's fiscal conditionwill require any tax reform effort made in the coming months to be much different from past efforts, panelists said January 18 during a conference cosponsored by Pepperdine University and Tax Analysts.

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

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Financial transactions levy tops EU tax agenda for 2013

Adopting a financial transactions tax in at least 12 European Union member states in 2013will top the EU tax agenda in 2013, while at the same timework in the EU Council of Ministerswill continue to help finalize pending legislation to amend EU energy and savings tax laws, key EU tax officials said in interviewswith BNA.

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

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Recent Budget laws pile' tax increases on large firms in France, practitioners say

Large companies in France need to adoptnew reflexes to contendwith apiling on of recent tax measures that have significantly complicated their tax arrangements, according to a Jan. 24 session by the country's largest law firm, Fidal Direction Internationale.

The two-hour conference,which featured four attorneys from Fidal's international tax department, assessed the impact of several major tax increases that have hit businesses in France since 2011 as a succession of governments have attempted to dealwith the country's ballooning budget deficit.

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

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France urges OECD, G-20 action to boost taxation of global internet giants

France is urging a tightening of international tax rules to reduce the scope of global internet companies such as Amazon, Apple, Facebook, eBay, and Google to optimize their taxation, as key tax discussions get underway at the Organization for Economic Cooperation and Development in preparation for the Group of 20 nations' February finance summit.

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

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French Tax Administration increasingly raiding foreign multinationals, report says

The French tax administration is increasinglywilling to conduct tax raids to seize proof that multinational companies have permanent establishments in France and are avoiding or evading taxes in the country, according to a report released Jan. 24 by France's biggest law firm.

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

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OECD's revised discussion draft on beneficial ownership

On 19 October the OECD released its revised proposals on the topic of beneficial ownership. This contains some modifications from its earlier Discussion Draft (released in April 2011)which proposed various changes to the Commentary to the OECD Model Tax Treaty in order to clarify the beneficial owner test.

For discussion, go here.

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UN releases new and updated chapters of its practical manual on transfer pricing for developing countries

The United Nations on October 2 released an updated version of its Practical Manual on Transfer Pricing for Developing Countries. On October 15, the UN Committee of Experts on International Cooperation in Tax Matters (the Subcommittee) approved the current unedited version of the UN Transfer Pricing Manual and approved a one-month period for receiving nonsubstantive comments.

For discussion, go here.

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Reflections on the public consultation on the OECD discussion draft on transfer pricing and intangibles

More than 120 business commentators convened in Paris for the long-awaited 2.5 day Public Consultationwithworking Party 6 (WP6) delegates and the OECD secretariat. These represented at least 70 firms (including corporations, consulting firms, law firms and industry organisations) The Discussion Draft topics discussed are (i) the Intangibles Draft; (ii) Safe Harbours; and (iii) Timing Issues.

This is the OECD's 4th Public Consultation on the Intangibles Draft since the project kicked-off in 2010.

For discussion, go here.

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Joint Committee explanation of Obama's FY 2013 budget covers four new international tax provisions

On June 18, 2012, the JCT staff released a pamphlet that analyzes the revenue provisions proposed in President Obama's FY 2013 federal budget. when compared to the FY 2012 pamphlet, the new version provides similar analysis of the international tax provisions. In addition, the pamphlet analyzes the Administration's four budget provisions added for FY 2013. This newsalert summarizes the JCT staff's explanation of both the carryover and the new tax provisions.

For discussion of the JCT explanation, go here.

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General anti-avoidance rules: what are the key elements to a balanced approach?

More and more countries, such as the UK and India, are considering the enactment of a General Anti-Avoidance Rule (GAAR). A GAAR is typically a statutory rule that empowers a revenue authority to deny taxpayers the benefit of an arrangement that they have entered into for an impermissible tax-related purpose. This broad definition only scratches the surface -- there can be many permutationswith respect to a GAAR's operating provisions.

For the article, go here.

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UK to introduce above-the-line R&D tax credit

A new R&D regime, effective April 1, 2013, should reduce the cost of R&D in the United Kingdom. The credit is above-the-line, so corporate officials should have greater visibility into how investment decisions can benefit from the credit. In addition, some loss-making companies could see an immediate cash benefit.

For the article, go here.

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PSI releases exhibits for hearing on offshore profit shifting and the US tax code

The Senate Permanent Subcommittee on Investigations (PSI) has released a package of exhibits for its September 20 hearing on offshore profit shifting and the tax code.

For the exhibits, go here.

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Beware territorial tax proposals

In his Foreign Policy blog, Clyde Prestowitzwrites, "The president and Congress need to remember that those making these proposals are not making them in their role as American citizens, but in their role as CEOs of profit maximizing global corporations. They should recall the New York Times quote of a high ranking Apple executive to the effect that the company doesn't 'have an obligation to solve America's problems.'"

For the article, go here.

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President's Council of Advisors on Science and Technology issues report on the domestic advantage in advanced manufacturing

  • By President's Council of Advisors on Science and Technology
In a July report, the President's Council of Advisors on Science and Technology (PCAST) discusses capturing the domestic advantage in advanced manufacturing.

For the report, go here.

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Capping the deductibility of corporate interest expense

In a Tax Notes special report, Robert C. Pozen and Lucasw. Goodman propose reform that lowers the corporate tax rate from 35 to 25 percent and allows nonfinancial C corporations to deduct only 65 percent of their interest expense,with special treatment for the financial sector and for companies thatwould have otherwise realized taxable losses.

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

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President Obama statement on fiscal cliff tax legislation

In his January 1 statement on the agreement resolving the fiscal cliff crisis, President Obama said, "And today's agreement enshrines, I think, a principle into law thatwill remain in place as long as I am President:The deficit needs to be reduced in away that's balanced.Everyone pays their fair share. Everyone does their part.That's how our economyworks best.That's how we grow."

For the statement, go here.

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The folly of attacking outsourcing

What's most revealing about the political assault on outsourcing is that while the critique of foreign commerce has moved decisively from the fringes into the political mainstream, our political leaders have yet to turn their rhetorical skepticism into policy.

For the article, go here.

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Multinationals and the high cash holdings puzzle

Lee Pinkowitz of Georgetown, Rene M. Stultz of Ohio State, and Rohan Williamson of Georgetown, defining as normal cash holdings the holdings a firmwith the same characteristicswould have had in the late 1990s, find that the abnormal cash holdings of U.S. firms after the financial crisis represent on average 1.86% of assets.

For the paper, go here.

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Italy scours deals abroad for elusive tax revenue

Italy,which has one of the biggest tax-cheating problems in the developedworld, is cracking down on suspect offshore investments as part of an unprecedented drive to find new sources of tax revenue and ease concerns about its $2 trillion ($2.69 trillion) in debt.

One of the brightest spotlights is on companies suspected of earning money or shifting it abroad to avoid paying Italian taxes.

For the article, go here.

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Immigration, offshoring and American jobs

In a Centre for Economic Performance Discussion Paper, Gianmarco I.P. Ottaviano, Giovanni Peri, and Greg C.wright examine the following issues:

  • How do offshoring and immigration affect the employment of nativeworkers?
  • What kinds of jobs suffer, or benefit, most from the competition created by offshore and immigrantworkers?
For the paper, go here.

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OECD releases revised proposals concerning the meaning of beneficial ownership in Articles 10-12 of OECD Model Tax Convention

  • By OECD
On 29 April 2011, the OECD released a public discussion draft entitled “Clarification of the meaning of beneficial owner in the OECD Model Tax Convention.

In light of the comments received on that first discussion draft, the OECD Committee on Fiscal Affairs, through its Working Party 1 on Tax Conventions and Related Questions, made a number of changes to the proposals released in April 2011.

This revised discussion draft includes the revised proposals that theworking Party has drafted.

For the revised discussion draft, go here.

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OECD releases revised complete edition of public comments received on the discussion draft on timing issues relating to transfer pricing

  • By OECD
The OECD has released a revised complete edition of public comments received on the June 6 discussion draft regarding transfer pricing timing issues.

The commentswill be discussed byworking Party No. 6 at its November 2012 meeting and at a Public Consultation to be held in Paris on 12-14 November 2012.

For the comments, go here.

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OECD seeks comment on transfer pricing timing issues

  • By OECD
In a June 6 announcement, the OECD Secretariat invites public comments on certain timing issues related to transfer pricing, in connectionwith thework ofworking Party No. 6 on intangibles and other projects.

For the announcement,which includes a link to the draft on timing issues, go here.

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