2014

This article develops a framework for the study of the unique effects of corporate inversions (meaning, a change in corporate-residence for tax purposes) in the jurisdictions fromwhich corporations invert ("home jurisdictions"). Currently, empirical literature on corporate inversions overstates its policy implications. It is frequently argued that in response to an uncompetitive tax environment, corporations may relocate their headquarters for tax purposes,which, in turn, may result in the loss of positive economic attributes in the home jurisdiction (such as capital expenditures, R&D activity, and high-quality jobs). The association of tax-residence relocationwith the dislocation of meaningful economic attributes, however, is not empirically supported and is theoretically tenuous. The article uses case studies to fill this gap.

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The OECDwill present the latest developments in the OECD/G20 project to combat base erosion and profit shifting (BEPS) by multinational enterprises during a G20 Finance Ministers meeting on 9-10 February in Istanbul, Turkey.
For the OECD release, go here.

The diverted profits tax, recently announced by the U.K. chancellor of the exchequer to combat profit shifting by multinational enterprises earning large profits in the U.K. but not paying commensurate tax, has provoked myriad questions regarding its applicability andworkability. Paul Rutherford of DLA Piper assesses the draft legislation and guidance.

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Bermudawill adopt a public beneficial ownership register onlywhen its major trading partnersÔøΩparticularly the U.S., the U.K. and CanadaÔøΩdo so, Finance Minister E.T. Richards said.
Richards told Bloomberg BNA on Nov. 24 that after U.K. Prime Minister David Cameron's call for British Overseas Territories to set up full, publicly available central registries to ensure corporate transparency, Bermuda undertook a comprehensive consultationwith stakeholders over several months.
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Russian authorities revised provisions of the nation's tax code related to the taxation of controlled foreign corporations.
According to a Nov. 25 statement from the presidential press-service, President Vladimir Putin signed into law Federal Law No. 376-FZ to amend parts 1 and 2 of the Russian Tax Code to counter the use of tax havens for gaining unfair tax preferences.
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Thailand has extended the corporate and personal income tax rate cuts by Royal Decrees to apply beginning in 2015. The 7% value added tax rate has also been extended for an additional year to September 30, 2015.

The Board of Investment announced a new seven-year plan and a revamp of the incentives promotion packages on August 19, 2014. The Board is expected to release specific details later this year. However,we expect the Board to scale back the tax incentives.

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PwC recently conducted an informal Base Erosion and Profit Shifting (BEPS) survey internally among a number of our PwC firms. Their overall view of the PwC partners surveyed is that it provided some useful indicators of the approaches being taken by different countries. That includes an analysis of some trends depending onwhether they are a member of the G20, the 34 OECD member states, the 44 BEPS participating countries or none of these.

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A European Union tax official said it may be necessary for EU member states to adopt a common consolidated corporate tax base (CCCTB) in order to combat base erosion.
Hartmut Foerster, a national expertwith the European Commission's Taxation and Customs Union, said Nov. 27 that once EU member states implement the Organization for Economic Cooperation and Development's guidance on base erosion and profit shifting, the key questionwill be, "Is all of this sufficient?"
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The Congressional Research Service in a December 2 report examined basic concepts and issues relevant to the U.S. international corporate tax system, including fundamental tax system structures; deferral, subpart F income, and active financing; the foreign tax credit; cross-crediting; base erosion and profit shifting; and tax rate comparisons.
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Guidance meant to curb corporate inversions does little to stop the practice and instead harms the nation's business competitiveness, the U.S. Chamber of Commerce said in comments submitted to the Treasury Department and the Internal Revenue Service.
In its Dec. 4 letter, the Chamber said the guidance didn't address the core problem driving inversionsÔøΩtheworldwide tax system used by the U.S. and a 35 percent corporate tax rate.
Those factors are causing companies to move their headquarters overseas to reduce their tax bills, the Chamber said.
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The European Parliament agreed to draw up two reports on tax avoidance in the European Union in thewake of the revelations about hundreds of sweetheart tax agreements multinational companies signedwith Luxembourg in the past two decades.
The Dec. 4 approval for two reports by the leaders of the political groups in the European Parliament falls short of a request by the European Green Party and others for a special committee to probe the issue.
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The U.S.will keepworkingwith other countries to ensure multinational corporations don't face double taxation as global efforts to share tax information across borders multiply, Internal Revenue Service Commissioner John Koskinen said.
The risk is increasing as governments around theworld take part in such efforts as the Organization for Economic Cooperation and Development'swork to combat base erosion and profit shifting and the creation of a new standard for automatic exchange of information by the OECD and the Group of 20 nations, Koskinen said Dec. 4.
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Investors can respond to Vietnamese laws restricting foreign stakes in certain companies by using spinoffs, a form of corporate restructuring that is gaining traction for its tax advantages, attorneys say.
Spinoffs, or demergers, allow buyers to acquire one division of a companywhile retaining the parent company's already-established tax breaks.

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European Union nations that offer "patent box" tax breaks should retool their laws so that only deserving companies can claim benefits tied to technical innovations, according to a draft report from a European Unionworking group.

Countries that use this kind of technology tax break should start legislativework next year on redesigning their rules so they can phase out the old system, according to the report,whichwill be discussed by EU finance ministers on Dec. 9. The group recommends that existing tax breaks be closed to new entrants as of June 30, 2016, followed by a total shift to revamped rules by mid-2021.

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George Osborne's crackdown on companies "that go to extraordinary lengths" to cut tax billswill impose a new charge on multinationals that make "inflated" payments to tax havens.

Under draft legislation to be published onwednesday, the new "diverted profits tax", unofficially dubbed the 'Google tax', is designed to side step Britain's treaty obligations by introducing a new charge thatwould fall outside the corporate tax system.

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The US ambassador to London said on Tuesday he believed Facebook, alongwith other US companies such as Amazon, Google and Starbucks,were doing nothingwrong by using legal methods to cut corporation tax bills in the UK.

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A senior Treasury Department official involved in the Organization for Economic Cooperation and Development's project to combat base erosion said the first draft on risk and recharacterization should be released in a "week or so"ÔøΩand that he anticipates significant areas of continued disagreement over it, including on issues of "moral hazard."
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The IRS is 'very confident' in its authority to issue guidance regarding inverted companies to prevent the avoidance of section 956 as enunciated in its recent anti-inversion notice (Notice 2014-52, 2014-42 IRB 712), an IRS official said December 11.
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The OECD might exempt taxpayerswith consolidated group sales below a threshold amount from country-by-country reporting requirementswhen it releases its CbC reporting implementation package, a Treasury official said December 11.
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The OECD included areas of non-consensus on risk and recharacterization in its base erosion and profit-shifting discussion draft to spur comments from stakeholders, according to Michael McDonald, financial economist (business and international taxation), Treasury Office of Tax Analysis.
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The European financial transaction tax (FTT) is unlikely to be implemented by January 1 2016 as planned.
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The Spanish government, on November 27, 2014, passed Laws Nos. 26 and 27 amending the Personal Income Tax Law, the Nonresident Income Tax Law, and the Corporate Income Tax Law. The new provisionswill generally come into force for tax years beginning on or after January 1, 2015.

While the amendments to the corporate income tax regime reduce the tax rate, they also introduce measures to limit the deductibility of certain costs and the use of net operating losses. The amendments also introduce some measures in linewith the OECD's base erosion and profit shifting (BEPS) project.

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The Canadian Parliament gave final approval to legislation containing measures intended to avoid erosion of the tax base by preventing the shifting of domestic income to no- or low-tax jurisdictions.
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The U.S. government should do more to stop abusive corporate inversions and earnings stripping, a coalition of organizations seeking "an honest and fair tax code" is urging the Treasury Department.

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The Obama administration's efforts to recoup more tax revenue from cross-border financial arrangements may be hard to coordinatewith other countries, the congressional Joint Committee on Taxation said.

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Public comments are invited on this discussion draftwhich dealswithwork in relation to Action 10 ("Assure that transfer pricing outcomes are in linewith value creation" in relation to "other high risk transactions") of theAction Plan on Base Erosion and Profit Shifting(BEPS).

For the OECD release, go here.

Public comments are invited on this discussion draftwhich dealswithwork in relation to Action 10 of the OECDAction Plan on Base Erosion and Profit Shifting(BEPS).

For the OECD release, go here.

The Organization for Economic Cooperation and Development has issued a discussion draft on the use of profit splits in the context of global value chains and another on the transfer pricing aspects of cross-border commodity transactions.
Both drafts, issued Dec. 16 under Action 10 of the international project to tackle base erosion and profit shifting (BEPS), have the support of developing countries and suggest a pendulum swing in favor of source-country taxation.
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New tax legislationwill be a prominent feature of the European Commission's 2015 legislative agenda,with a proposed law requiring European Union member states to automatically exchange information on corporate tax deals negotiatedwith multinational companies, and a reworking of a pending EU common consolidated corporate tax base (CCCTB) proposal that has been blocked for nearly five years.
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The Treasury Departmentwill continue focusing on a business tax overhaul and the Organization for Economic Cooperation and Development's base erosion and profit shifting project along parallel tracks in 2015, Treasury Assistant Secretary for Tax Policy Mark Mazur said.
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The Organization for Economic Cooperation and Developmentwill issue five discussion drafts on base erosion and profit shifting (BEPS) action items thisweek, an official said.
The OECD's Raffaele Russo, head of the BEPS project, said Dec. 15 that assuming the Committee on Fiscal Affairs approves the drafts thisweek, theywill be published by the end of theweek.
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The Organization for Economic Cooperation and Developmentwill issue a discussion draft Dec. 19 on how to prevent base erosion and profit shiftingwhen groups allocate interest expenses among their members, a Treasury Department official said.
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The Treasury Department is looking atwhether inverted groups are getting inappropriate treaty benefits as itworks to stop abusive corporate inversions, a department official said.
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An Internal Revenue Service official said the agency is looking at possible tweaks to the so-called skinny-down provisions included in the anti-inversion regulations first announced in September.
"It's a fair question.we have been thinking about this, and a lot of other questions, most ofwhich have been focused on the anti-slimming rule of the notice," said Daniel McCall, special counsel in the IRS's Office of Associate Chief Counsel (International). "We may verywell think about adding a de minimis rule."
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EY's Bob Carroll, Kevin Bloomfield and Meaghan Maherwrite that corporations from emerging economies are nowwell represented in the Fortune Global 500ÔøΩtheir numbers having grown from 21 in 2000 to 132 in 2014. The authors look at how the U.S. and other advanced economies are faring, China's outlook after a significant uptick in its share of the FG500 and trends in countries' corporate tax rates.
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Multinational enterprises (MNEs) may be concerned about various aspects of the six Discussion Drafts released lastweek as part of the Base Erosion and Profit Shifting (BEPS) Action Plan.

Three of the papers arewithin Action items 8 to 10 of the BEPS Action Plan dealingwith assuring that transfer pricing outcomes are in linewith value creation. One of the other papers is the first step towards producing best practice rules to address base erosion and profit shifting through the use of interest expensewithin Action item 4 of the Plan. The latest proposed additions to the draft International VAT/GST Guidelines relate to supplies of services and intangibles to consumers, raised in the initial report on the digital economywithin Action 1. The final paper is an overarching look at the resolution process involving cross-border tax disputes.

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Peter Anderson,wes Cornwell, Yvonne Metcalfe and Alexward of EYwrite that global supply chains are changing rapidlyÔøΩand a range of emerging trendswill have significant impacts on both the physical supply chain and the broader business and tax operating model. The authors look at considerations arisingwith 3-D printing and other manufacturing developments, big data, supplier and customer collaboration, enhanced procurement, end-to-end cost optimization and supply chain segmentation.

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The Colombian government has passed a major tax reform package that introduces a temporary netwealth tax assessed on net equity on domestic and foreign legal entities, repeals the previously scheduled rate decrease for the income tax on equality (CREE for its Spanish acronym), introduces a CREE surcharge until 2018, and increases domestic law income taxwithholding rates on cross-border payments, among other significant changes.

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France has published a 2014 budget revision law that allows related French companies to opt for tax consolidationwith one another, evenwhen their parent company is located in another European Union state.
Companies affected by the change in the country's "fiscal unity" regime may be eligible for reimbursement of French corporate taxes paid in fiscal years 2011-13, practitioners said.

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The International Seabed Authority is in the process of preparing regulations specifying the payments to be required from foreign companies for deep-sea mining concessions. Some experts estimate that in the long term, mining concessions granted by the authority may produce trillions of dollars of minerals, so these regulations can eventually have a very large economic impact. For U.S. parent companies of foreign mining subsidiaries that engage in authority-licensed deep-sea mining, a crucial question iswhether the IRSwill allow them to claim an income tax credit for the amounts charged by the authority to those foreign subsidiaries. Alan S. Lederman of Gunster, Yoakley & Stewartwrites that under existing U.S. tax law the IRS is unlikely to concede an income tax credit for the payments required by the authority.

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If therewere such a thing as a tax celebrity, then Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration (CTPA),would be an A-lister. He fits the partwellwith his French accent, stylish glasses, finely tailored suits, and magnetic personality. However, it's his role in overseeing the OECD's base erosion and profit-shifting project -- arguably the most high-profile international tax reform initiative in recent history -- that is turning heads and grabbing headlines, aswell as making him TNI's person of the year.

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As part of its project to avert profit shifting, the Organization for Economic Cooperation and Development released draft guidance for implementing a value-added tax or a goods and services tax, focusing on how to determine the place of taxation for digital transactions.
The draft guidance released Dec. 18 as part of the OECD's Action Plan on Base Erosion and Profit Shifting follows up three chapters of guidance approved by the OECD's Committee on Fiscal Affairs in January.

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The Organization for Economic Cooperation and Development has released a discussion draft identifying 22 obstacles to the resolution of treaty-related disputes through the mutual agreement procedure.
The discussion draft, released Dec. 18, also listed more than 30 options for addressing the obstaclesÔøΩincluding mechanisms to encouragewider adoption of mandatory binding arbitration in treaties.

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The OECD on December 18 released a discussion draft that proposes various measures to address the obstacles that prevent countries from resolving disputes through the treaty mutual agreement procedure process.

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The OECD discussion draft on base erosion and profit-shifting project action item 4 regarding interest deductions and other financial payments considers various approaches, some including safe harbors, but one observer has cautioned that formulaic tax systems can be rifewith opportunities for double taxation.

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The Organization for Economic Cooperation and Development has issued a 93-page discussion draft on how countries ought to design their domestic laws to prevent base erosion and profit shifting through multinational companies' use of related-party debt.

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With foreign profits trapped offshore by an outdated,worldwide systemwhichwould hit themwith a tax on repatriation, aswell as a high tax rate, the temptation to consider an inversion is proving too much for US companies, particularly those in the highly-mobile pharmaceuticals sector. ITR's special report looks at the knock-on impacts of the 2014wave of inversions, including shareholder pressure to consider an option they see their rivals pursuing and the possible inflammation of the tax morality debate in the US.we also bring you exclusive insight as towhy Danaher is not looking to invert.

For the report, go here.

In this exclusive article for International Tax Review, Pascal Saint-Amans and Raffaele Russo of the OECD explain how the first half of the BEPS Project'swork starts the task of bringing coherence, substance and transparency to international tax rules around theworld.

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Denmark is focusing on combating tax havens. Amongst proposed measures, the most important is the introduction of a general anti-avoidance rule (GAAR)whichwill apply to any foreign transactionswith a Danish entity. In essence, the protection normally available to transactions under Danish tax treaties and EU Directiveswill no longer be available unless multinational companies meet certain substance and commercial reasons tests.Note that certain EU countries may be viewed as tax havens for Danish purposes.

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In economic analysis, Martin A. Sullivan discusses the tax reform report recently released by incoming Senate Finance Committee Chair Orrin G. Hatch, R-Utah.

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