2013

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OECD releases three-pager on base erosion and profit shifting

  • By OECD
The OECD has released a three-page background brief regarding the organization'swork in the area of tax base erosion and profit shifting (BEPS).


For the three-pager, go here.

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OECD releases revised public discussion draft on permanent establishments

  • By OECD
The OECD on October 19 released a revised public discussion draft on the interpretation and application of Article 5 (permanent establishment) of the OECD Model Tax Convention.

For the revised discussion draft, go here.

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Software firms find tax advantages

Expanding use of cloud computing to deliver software as a service is making it easier for global software companies to earn and keep profits outside the reach of U.S. taxes.

For the article, go here.

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New York Times calls territorial tax system a "permanent tax holiday"

In a July 18 editorial, The New York Times explainswhy it opposes a territorial tax system for the US.

Says the Times, "The corporate tax system needs reform, to raise more revenue, more fairly. The territorial tax system does not meet those criteria."


For the editorial, go here.

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NSYBA comments on Camp international tax reform discussion draft

  • By New York State Bar Association Tax Section
The New York State Bar Association Tax Section on September 6 issued a report on the international tax reform discussion draft released by Houseways and Means Chair Dave Camp on October 26, 2012.

For the NYSBA report, go here.

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Corporate tax: a race to the bottom

Corporate tax rates have been falling around theworld since the 1980s and the trend shows no sign of letting up. The Financial Times' Daniel Garrahan reports onwhether theworld is engaged in a ruinous race to the bottom.

For the video, go here.

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Dell's multiple restructurings aid it in tax avoidance

In a Tax Notes column, David Cay Johnston discusses a restructuring by Dell Inc. thatwould enable it and other U.S. multinationals to avoid being taxed on their U.S. profits.

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

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How can vulnerable countries cope with tax avoidance?

In Tax Notes news analysis, Lee A. Sheppard discusses how nations like Norway can copewith the international tax system, includingwhether they should use OECD model treaties.

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

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NFTC comments on OECD discussion draft on revisions to intangibles guidance in OECD Transfer Pricing Guidelines

  • By National Foreign Trade Council
In a September 12 letter, the National Foreign Trade Council presents its comments on the OECD Discussion Draft: Revision of the Special Considerations for Intangibles in
Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions, dated June 6, 2012.

For the NFTC comment letter, go here.

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The borders of EU tax policy and US competitiveness

In a University of Miami Legal Studies Research Paper, Professor George Mundstock examines a European Commission proposal that the member states of the European Union allow corporations to elect a harmonized corporate income tax. A particularly interesting feature of the proposal is that incomewould be allocated among the member states using a mathematical apportionment formula rather than, as currently is the law, by determining the source of income on a case-by-case basis.

For the paper, go here.

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Transfer pricing more workable than unitary tax

In a letter to the editor of the Financial Times,will Morris, Chair, Tax Committee, Business Industry Advisory Committee to the OECD, responds to recent articles praising formulary apportionment.

For the letter, go here. (Free registration required.)

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Manufacturing the future: The next era of global growth and innovation

The McKinsey Global Institute undertook the research in Manufacturing
the future: The next era of global growth and innovation to gain a better
understanding of how manufacturing contributes to developing and advanced
economies in the 21st century. The authors' goalwas to establish a clear fact base on
the current state of the global manufacturing sector and analyze how longterm
trendswill shape manufacturing in the coming decades.

For the full report, go here.

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CRS examines tax havens: international tax avoidance and evasion

In a January 23 Congressional Research Service report, Senior Specialist in Economic Policy Jane G. Gravelle looks at recent legislation and other proposals by the Organization for Economic Cooperation and Development (OECD) and the
G-20 industrialized nations that have targeted tax haven countries, focusing primarily on evasion issues.

For the report, go here.

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The merits of a territorial tax system

Writing for the Manhattan Institute for Policy Research Issues 2012, Senior Fellow Diana Furchgott-Roth and Research Associate Yevgeniy Feyman examine the merits of a territorial tax system for the US.

For the report, go here.

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Levin opening statement at Senate PSI hearing on offshore profit shifting and the US tax code

In his opening statement at the September 20 Senate Permanent Subcommittee on Investigations hearing on offshore profit shifting and the US tax code, panel Chairman Carl Levin described various "loopholes" that have allowed US multinationals to "stockpile" $1.7 trillion in earnings offshore.

For Levin's statement, go here.

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Sen. Levin lists 10 "offshore tax loopholes" he wants closed

In an October 5 letter to the chairs and ranking minority members of the Senate Finance and Houseways and Means committees, Senate Permanent Subcommittee on Investigations Chairman Carl Levin (D-MI) describes 10 "offshore tax loopholes" his panel has investigated.

For the letter, go here.

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Deferred taxes may fluctuate under extended CFC rules

The recently enacted fiscal cliff law could alter the deferred tax accounting of companies subject to controlled foreign corporation rules, but the resulting financial statement ramifications may depend on the accounting strategy thatwas employed during the brief expiration of those retroactively extended tax laws.

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

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Cameron: U.K. will focus on tax avoidance at G-8

British Prime Minister David Cameron said Thursday hewill use his country's year-long presidency of the G-8 to target tax-dodging tactics by businesses.

Public anger has been mounting in Britain after lawmakers accused major multinational companies of "immorally" avoiding paying tax.

For the story, go here.

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Corporate tax take has "risen"

A group of top finance directors has joined the fray as big business seeks to confront intense public scrutiny of corporate tax planning, saying companies tax treatment has undergone a dramatic change in recent years and that the overall burden they face has increased.

Andrew Bonfield, chairman of the tax committee of the Hundred Group, said the changes reflected the policy of successive governments looking for stable tax revenues and economic growth.

For the story, go here.

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"Robin Hood" trading tax nudged forward in Europe

A hotly contested tax on financial trades took a big step forward on Tuesdaywhen European Union finance ministers allowed a vanguard of member states to proceedwith the plan.

The so-called Robin Hood taxwould apply to trading in stocks, bonds and derivatives. Although the taxwould probably be small one-tenth of a percentage point or less on the value of a trade it could earn billions of euros for struggling European governments.

Algirdas Semeta, the European commissioner in charge of tax policy, called the decisiona major milestone in tax history and said the levy could be imposed starting next year. But deep concerns about how it wouldwork could still lead to delays.

For the story, go here.

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CRS examines where American companies report profits: indications of profit-shifting

Federal tax revenue could increase as a result of tax reform that cuts the top corporate tax rate to reduce incentives to shift profits to tax havens, and that revenue could be used to reduce debt and deficits, the Congressional Research Service said in a January 18 report.

This report uses data on the operations of U.S. multinational companies (MNCs) to examine the extent towhich, if any, MNCs are moving profits out of high-tax countries (or out of the U.S.) and into low-tax countrieswith little corresponding change in business operations, a practice known as "profit shifting."

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

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As foreign profits rise, corporate tax rates fall

Globalization is creating two misleading impressions about corporate taxes in the U.S.

First, corporate-tax revenue is keeping upwith recent historical averages as a share of gross domestic product. However, that's only because globalization has raised the corporate-profit share of GDP,while reducing the share of labor compensation.

Second, both Democrats and Republicans in Congress are committed to corporate-tax reform in response to globalization. Yet they are unlikely to accomplish much, because each party's desired reforms are pretty much the opposite of the other's.

Consider the state of corporate taxes. In the final quarter of fiscal year 2012, corporate income taxes amounted to 1.7 percent of GDP -- exactly their quarterly average over the past three decades. A closer look, though, reveals that this pattern reflects two contrasting trends.

For the opinion piece by Peter S. Orszag, go here.

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Firms keep stockpiles of "foreign" cash in US

There's a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas: A lot of it is actually sitting right here at home.

Some companies keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, according to people familiarwith the companies' cash positions.

In the eyes of the law, the Internal Revenue Service and company executives, however, this money is overseas. As long as it doesn't flow back to the U.S. parent company, the U.S. doesn't tax it. And as long as it sits in U.S. bank accounts or in U.S. Treasurys, it is safer than if itwere plowed into potentially risky foreign investments.

For the story, go here.

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Yahoo, Dell swell Netherlands $13 trillion tax haven

Inside Reindert Dooves's home, a 17th- century, three-story convertedwarehouse along the Zaan canal in suburban Amsterdam, a 21st-century Internet giant is avoiding taxes.

The bookkeeper's home office doubles as the headquarters for a Yahoo! Inc.offshore unit. Through this sun-filled,white- walled room, Yahoo has taken advantage of the law to quietly funnel hundreds of millions of dollars in global profits to island subsidiaries, cutting itsworldwide tax bill.

The Yahoo arrangement illustrates that the Netherlands, in the heart of a continent better known for socialwelfare than corporatewelfare, has emerged as one of the most important tax havens for multinational companies. Now, as a deficit-strapped Europe raises retirement ages and taxes on theworking class, the Netherlands role as a $13 trillion relay station on the global tax-avoiding network is prompting a backlash.

For the article, go here.

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Globalization and corporate tax

In an International Monetary Fund (IMF)working Paper, Manmohan S. Kumar and Dennis Quinn analyze the extent towhich the degree of international economic integration, both financial and trade, affects corporate tax rates.

Their paper explores this issue in the context of strategic behavior by countries, taking into account other global and domestic political economy factors.Tax rates are analyzed using a unique tax dataset for advanced and developing economies extending over five decades.

For the paper, go here.

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Controlled foreign companies reform: UK Finance Bill published

  • By KPMG UK
On March 29, 2012, the UK Government published Finance Bill 2012,which includes, in Schedule 20, the latest draft of the new controlled foreign companies (CFC) rules.
The draft legislationwas originally published on December 6, 2011, and January 31, 2012with comments invited from business. In response to feedback, amended draft legislationwas issued on February 29, 2012 reflecting improvements to the operation of the gateway provisions and some amendments to the finance company exemption. The Finance Bill includes further changes, including a new temporary period exemption.

For further coverage, go here.

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The connection between competitiveness and international taxation

Writing in the Tax Law Review, University of Pennsylvania Law School Professor Michael S. Knoll examines two conceptions of competitiveness that are frequently used in discussions of the connection between international taxation and competitiveness, but are not always clearly distinguished from one another. One conception emphasizes the competition between firms to be profitable and grow by acquiring productive assets. The other conception focuses on the competition between states to attract investment capital and people by varying their regulations.

For Professor Knoll's article, go here.

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The better base case for a post-2012 US personal income tax regime

Writing in Tax Notes, Professor Edward D. Kleinbard of the University of Southern California Gould School of Law and Joseph Rosenberg of the Urban-Brookings Tax Policy Center present their proposal for an alternative post-2012 US personal income tax regime -- the "Better Base Case."

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

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International tax competition and coordination

In a Max Planck Institute for Tax Law and Public Financeworking Paper, Michael Keen and Kai A. Conrad aim to provide a comprehensive survey of the theory of international tax competition.

Startingwith the standard framework, the authors visit the non-cooperative equilibrium of tax competition, analyses aspects of partial and regional coordination, repeated interaction, stock-flow-effects, agglomeration effects, and time consistency issues in dynamic models. They discuss profit shifting in the Keen-Kanbur model and then survey frameworks to analyze countries bidding for firms, tax rate differentiation and preferential tax regimes, the role of information exchange and recentwork on tax havens.

For the paper, go here.

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Why the US is getting corporate tax reform wrong

Matthew Gilleard of the International Tax Review argues thatwhile the IRS and Treasury have already moved to tighten the rules relating to US firms moving to low-tax jurisdictions, encouraging companies to stay rather than building barriers to
prevent them leaving is a moreworthwhile and growth-friendly road to go down.

For his article, go here.

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The FTT is on the way.

After months of fraught discussions, and years as a radical fringe policy ignored by those in power, the financial transactions tax (FTT) is set to become a reality as 11 EU member states have decided to adopt it.

For the article, go here.

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Were #27!: US lags far behind in R&D tax incentive generosity

According to the Innovation Technology and Information Foundation, the US in 2012 ranked just 27th out of 42 countries studied in terms of research and development (R&D) tax incentive generosity, down from 23rd just five years ago.

For the ITIF report, go here.


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IMF examines key economic issues for US

  • By International Monetary Fund
In a Selected Issues Paper prepared as background documentation for the International Monetary Fund's periodic meetingwith the US, a team of IMF staffers examines key issues facing the US.

For the paper, go here.

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HMRC issues draft guidance on CFCs and PEs

  • By Her Majesty's Revenue & Customs
Her Majesty's Revenue & Customs (HMRC) has issued draft guidance on controlled foreign corporations (CFCs) and permanent establishments (PEs).

The draft guidance supplements Finance Bill 2012,which contains the draft legislation for the new CFC rules and some amendments to the rules for the exemption of foreign PEs thatwill apply to CFCs and permanent establishmentswith accounting periods that begin on or after 1 January 2013.

For the draft legislation, go here.

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HMRC examines the taxation of the profits of multinational businesses

  • By Her Majesty's Revenue & Customs
An Issue Briefing released by Her Majesty's Revenue & Customs responds to recent media reports suggesting that some high-profile multinational businesses do not pay their fair share of corporation tax on profits they make from their businesswith UK customers. This briefing explains how the profits of multinational businesses are taxed, and how tax policy affectswhere multinationals choose to locate.

For the Issue Briefing, go here.

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UK tax reform: a model for the United States?

In a Tax Notes viewpoint, Georgewhite examineswhat he sees as the UK's "misguided" campaign to persuade businesses to stay in the United Kingdom,which had two elements: a substantial cut in the corporate tax rate and a taxpayer-friendly tax administration.

According towhite, "title of this article is taken from a paper presented at awashington tax conference last fall by a senior U.K. Treasury official, David Gauke. In light of subsequent developments in Old Blighty, Gauke's suggestion has all the appeal of free passage on the R.M.S. Titanic."

Forwhite's viewpoint, go here. (Subscription required.)

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UK Revenue homes in on profit shifting

HM Revenue & Customs has stepped up its investigations into profit shifting by multinationals, according to statistics that suggest a sharp increase in the scale oftransfer pricing enquiries.

For the article, go here.

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Offshoring: Welcome home

A special report in the Economist examines the fact that, after decades of sendingwork across theworld, companies are rethinking their offshoring strategies.

According to the Economist, "The political mood may have influenced decisions to bring jobs back, but the fundamental drivers are economic. First, manufacturing is becoming more automated, so labour makes up a decreasing proportion of costs. Second, for businesses that continue to rely on armies of people, labour costs have soared in formerly poor countries.wages for Chinese manufacturingworkers are going up by around 20% a year, faster than their productivity is growing. A stronger Chinese currency has added to the upward pressure on costs.

For a summary of the report, go here. For the full report, go here.

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Large Finnish companies good at avoiding domestic taxes

A Finnish newspaper reports that in 2010, Finland's nine largest listed companies paid Finnish corporate tax at a rate of 4.5 percent on pre-tax profits, but more than 19 percent abroad. The newspaper attributes this in part, to "international tax planning. Global companies seek to post their profits in countrieswhere the tax rates are low."

For the story, go here.

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Can America compete? Strategies for economic revival

The September-October issue of Harvard Magazine features highlights from discussionswith principals of the Harvard Business School's U.S. Competitiveness Project. The project's research attempts to address comprehensively the country's economic strengths (innovation and entrepreneurship, for instance, and research universities) and shortcomings (deterioratingworker skills, complex tax and regulatory systems, and fractious federal policymaking).

For the discussions, go here.

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Foreign taxes and the growing share of US multinational company income abroad: profits, not sales, are being globalized

In a US Treasury Office of Tax Analysisworking Paper later published in the National Tax Journal, Harry Grubert looks at the trend in the foreign share of theworldwide income of U.S. multinational corporations (MNCs) rising sharply in recent years.

Data from a panel of 754 large MNCs indicate that the MNC foreign income share increased by 14 percentage points from 1996 to 2004. The differential between a companys U.S. and foreign effective tax rates exerts a significant effect on the share of its income abroad, largely through changes in foreign and domestic profit margins rather than a shift in sales. U.S.-foreign tax differentials are estimated to have raised the foreign share of MNCworldwide income by about 12 percentage points by 2004. Lower foreign effective tax rates had no significant effect on a companys domestic sales or on the growth of itsworldwide pre-tax profits. Lower taxes on foreign income do not seem to promote competitiveness."

For the paper, go here.

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Fixing the system: an analysis of alternative proposals for the reform of international tax

In a paper presented May 1 as part of the NYU Colloquium Series on Tax Policy and Public Finance, Harry Grubert of the US Treasury Office of Tax Analysis and Professor Rosanne Altshuler of the Rutgers University Department of Economics evaluate proposals for the reform of the U.S. system of taxing cross-border income including dividend exemption, full current inclusion, and a Japanese type version of dividend exemptionwith an effective tax rate test subject to an exception for an active business.

They also consider a special version of a country by country minimum tax with dividend exemption, no active business exception, but a current deduction against the minimum tax base for real investment in the location.

For the full paper, go here.

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CRS examines options and challenges of moving to a territorial income tax

In a July 25 Congressional Research Service report, Jane G. Gravelle, Senior Specialist in Economic policy, examines the options and challenges associatedwith the US moving from aworldwide income tax system to a territorial system.

For the full report, go here.


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Technological innovation, international competition, and the challenges of international income taxation

In a John M. Olin Center for Studies in Law, Economics, and Public Policy Research Paper thatwill be published in the Columbia Law Review, Professor Michael Graetz of Columbia and Yale law schools and Yale Law graduate Rachael Doud examine the
three primary tax policies supporting innovation: (1) incentives for research and development, (2) so-called patent boxes, and (3) proposals for tax benefits foradvanced manufacturing.

The authors also examine current proposals for limiting opportunities for US multinationals to shift intellectual property income to low or zero-tax jurisdictions. In that connection, they offer new proposals for change that emphasize imposing US tax based on US sales.

For the authors' paper, go here.

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UK, Germany call for international action to strengthen tax standards

In a joint statement issued at the November 5 G20 meeting, German Finance Ministerwolfgang Schauble and British Chancellor of the Exchequer George Osborne called for concerted international cooperation to strengthen international standards for corporate tax regimes.

The statement notes that "Britain and Germanywant competitive corporate tax systems that attract global companies to our countries, but alsowant global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards."

For the statement, go here.

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The big choice for growth: lower tax rates vs. expensing

In a Tax Notes Viewpoint, Heritage Foundation economist J.D. Foster explains, "Although the classic case for expensing rests on the economists' simplifying assumption of perfectly competitive markets eliminating systematic economic profit, in the realworld economic profits are typically required. Relaxing that assumption and allowing an expectation of pure profit may explain the common ambivalence toward expensing in the business community and may validate an approach to corporate tax reform.

For Foster's Viewpoint, go here. (Subscription required.)

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Overseas cash and the tax games multinationals play

In a New York Times DealBook article, University of Colorado Professor VictorFleischer comments on the fact that "more than a trillion dollars in cash and short-term investments sits in offshore holding companies, awaiting a repatriation tax holiday,"while"in the meantime, tax professionals spin outways to manipulate the system."

For Fleischer's article, go here.

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Organizations urge Congress to eliminate active financing exception and CFC look-through rule

  • By Financial Accountability and Corporate Transparency Coalition
In an August 1 letter to the chairmen and ranking minority members of the Senate Finance and Houseways and Means committees, a coalition of organizations urged Congress to eliminate the "active financing exception" and "CFC look-through rule" from the US tax code.

For the letter, go here.

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International formulary apportionment is not a panacea

In a letter to the editor of Tax Notes International, long-time practitioner Peter Faber responds to the commonly voiced opinion that the use of formulary apportionmentwould eliminate the expensive and time-consuming disputes involving transfer pricing that arise under the present system.

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

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Designing a US exemption system for foreign income when the treasury is empty

In an article published in the Florida Tax Review, Professors J. Clifton Fleming Jr., Robert J Peroni, and Stephen E. Shay present their proposal for a US territorial or exemption system thatwould raise revenue to help ease the deficit problem.

For the article, go here.

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