2014

Treasury Secretary Jacob J. Lew's crackdown on inversionswill get an immediate test as eight U.S. companieswith pending deals decidewhether to proceed -- and other companies contemplating a foreign address now have to think twice.
That's exactlywhat Lew had in mind.
For the story, go here.

The OECD published a discussion draft in March 2014 on proposals for addressing perceived abuse of tax treaties.

A focal point of the discussion draftwas the proposal for a US-style limitation on benefits article (LoB) to provide an objective basis for entitlement to treaty benefits for companieswith a nexus in the resident country aswell as a subjective main purpose / anti-abuse rulewithin the LOB article.

In lieu of this singular combined LoB/Main Purpose Test approach, the OECD report on Action 6 now proposes a "minimum level of protection" to prevent treaty abuse, suggesting two alternatives to the combined approach that treaty partners may consider. Significantly, the LoB now includes a "derivative benefits test" provision allowing certain entities owned by residents of other States to obtain treaty benefits if these residentswould have obtained the same benefits had they invested directly.

For the Bulletin, go here.

On 16 September 2014, the OECD published its final and interim revisions in relation to Chapters I, II and VI of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. These revisions have been developed in connectionwith Action 8 of the Action Plan on Base Erosion and Profit Shifting that is focused on assuring that transfer pricing outcomeswith respect to intangibles are in linewith value creation activities.

For the Insight, go here.

Treasury Secretary Jacob J. Lew's crackdown on inversionswill get an immediate test as eight U.S. companieswith pending deals decidewhether to proceed -- and other companies contemplating a foreign address now have to think twice.

That's exactlywhat Lew had in mind.

"This actionwill significantly diminish the ability of inverted companies to escape U.S. taxation," Lew told reporters on a conference call yesterday. "For some companies considering deals, today's actionwill mean that inversions no longer make economic sense."

For the story, go here.

The OECD and its Global Forum on Transparency and Exchange of Information have today been mandated by the G20 to develop toolkits to support developing countries addressing base erosion and profit shifting (BEPS) and to launch pilot projects to assist them to move towards automatic exchange of information. This mandate comes in response to two reports:
a Report on the Impact of Base Erosion and Profit Shifting in Low Income Countries (Part 2); and
a Roadmap for developing country participation in the new global standard for the automatic exchange of information between jurisdictions.
The G20 communiqué issued yesterday sets out an ambitious agenda for developing countries to take advantage of the tax reforms that have taken shape in 2014.

For the release, go here.

The Obama administration took action Monday to discourage corporations from moving their headquarters abroad to avoid U.S. taxes, announcing new rules designed to make such transactions significantly less profitable.
The rules,which take effect immediately,will not block the practice, and Treasury Secretary Jack Lew again called on Congress to enact more far-reaching reforms. But in the meantime, he said, federal officials "cannotwait to address this problem,"which threatens to rob the U.S. Treasury of tens of billions of dollars.
For the story, go here.

The Treasury Department tightened tax rules Monday to deter U.S. companies from moving their legal headquarters to lower-tax countries, part of awhite House effort to slow awave of so-called corporate inversions that effectively reduce federal revenues.
Treasury officials took action under five sections of the U.S. tax code to make inversions harder and less profitable, removing some of the appeal that has made the transactions more common in recent years, particularly in the pharmaceutical industry.
For the story, go here.

Treasury Secretary Jacob J. Lew announced rules on Monday that are aimed at making it more difficult for American companies to lower their tax bills by relocating overseas and thatwouldwipe out the benefits for those that do. It is the administration's latest move to sidestep a paralyzed Congress and tackle a politically charged element of President Obama's agenda.
''While there's no substitute for congressional action, my administrationwill actwhereverwe can to protect the progress the American people haveworked so hard to bring about,'' Mr. Obama said in a statement after the regulations on the so-called corporate inversionswere announced.
For the story, go here.

Steven M. Rosenthal proposes that Treasury curb inversions by issuing factor-based regulations under section 385 that identify situations inwhich corporate obligationswill be treated as stock.
In a recent Tax Notes article, Prof. Stephen Shay argued that Treasury couldwrite regulations to reduce the tax incentives for U.S. corporations to expatriate. Rosenthal agreeswith Shay and analyzes the legal support for regulations under section 385.
For the viewpoint, go here. (subscription required)

The existing anti-inversion rules under section 7874 create several traps for foreign companies and individuals that could cause transactions to be treated as inversionswhen no inversion has taken place.
Under current guidance, there are several scenarios inwhich a non-inversion transactionwould be subject to the inversion rules, David G. Shapiro of Saul Ewing LLP and Joseph Calianno of Grant Thornton LLP noted during a U.S. Activities of Foreigners and Tax Treaties session of the American Bar Association Section of Taxation meeting in Denver on September 19.
For the story, go here. (subscription required)

The G-20 finance ministers and central bank governors on September 21welcomed the "significant progress" made under the OECD's base erosion and profit-shifting action plan and committed to finalizing all action items in 2015.
The group also endorsed the OECD's final global common reporting standard (CRS) for automatic exchange of tax information on a reciprocal basis, saying their countrieswill begin exchanging information automatically between each other andwith other countries by 2017 or by the end of 2018, "subject to the completion of necessary legislative procedures."
For the story, go here. (subscription required)

The smart money is against retroactive anti-inversion legislation. That seems to be the message from Illinois-based Horizon Pharma Inc.'s decision to proceedwith its acquisition of Vidara Therapeutics International PLC and invert to the latter's home jurisdiction of Ireland.

For the article, go here. (subscription required)

In a much-anticipated notice, Treasury on September 22 took administrative action against companies that invert by substantially reducing the economic benefit to be gained from inverting and making inversions more difficult to accomplish.
According to an accompanying fact sheet, Notice 2014-52, under the authority of section 956(e), prevents inverted companies from accessing a foreign subsidiary's earningswhile deferring U.S. tax through the use of hopscotch loans,which involve a controlled foreign corporation making a loan to a new foreign parent instead of the U.S. parent. The notice provides that those loans are considered U.S. property for purposes of applying the antiavoidance rule. The provisionwould apply for 10 years after the inversion took place.
For the story, go here. (subscription required)

The IRS and Treasury have announced (Notice 2014-52) that theywill issue regulations aimed at reducing the tax benefits of corporate inversions by significantly diminishing the ability of inverted companies to escape U.S. taxation.
Notice 2014-52, generally applicable to specified transactions completed on or after September 22, 2014, eliminates some techniques inverted companies use to access the overseas earnings of foreign subsidiaries of the U.S. company that invertswithout paying U.S. tax.
For the Notice, go here.

Finance ministers from the Group of 20 countries meeting in Cairns, Australia, unanimouslywelcomed the first seven components of the OECD's Action Plan on Base Erosion and Profit Shifting.
In a Sept. 21 communique, the 20 finance ministers highlighted "the significant progress" achieved by the Organization for Economic Cooperation and Development toward completing the two-year action planÔøΩa joint project between the G-20 and the OECDÔøΩand committed to finalizing all of the 15 BEPS action items in 2015.
For the story, go here. (subscription required)

The Treasury Department may lack the ability to halt corporate inversions, but it can make them less appealing by blocking the use of "creative" intracompany loans, spin-offs and asset transfers to foreign subsidiaries.
In a series of actions announced Sept. 22, Treasury said new rules applying to future deals include a prohibition on "hopscotch" loans that let companies access foreign cashwithout paying U.S. taxes, aswell as language to stop inverted companies from restructuring a foreign subsidiary in order to access its earnings tax-free under Section 7701(l).
For the story, go here. (subscription required)

We have more confirmation ofwhatwe've long suspected: the United States has an uncompetitive tax code. According to our new International Tax Competitiveness Index, the U.S. has the 32nd most competitive tax system in the developedworld.
But this shouldn't be a surprise. The recent string of corporate inversionsÔøΩwhere U.S. companies move their headquarters to a new homeÔøΩis a symptom of this problem.
The U.S.'s tax code,which is far out of linewith other nations', is driving investment overseas, reducing our economic potential.
For the commentary, go here.

OECD chief Angel Gurria yesterday handed the G20 recommendations on the biggest changes to international tax rules in more than a century in a bid to tackle corporate tax strategies that are costing countries billions.
The secretary general said the plan,which seeks to close international loopholes used by multinational firms to avoid paying large amounts of tax,was "the most prominent step towards the modernisation of the international tax system in a hundred years".
For the story, go here.

European multinationals have launched a rearguard effort inwashington to prevent them becoming unintended victims of a US crackdown on tax-driven international mergers.
For the story, go here.

Practitioners from Deloitte discuss the OECD's proposed new paradigm for transfer pricing documentation and suggest that companies rethink their current procedures.
For the article, go here. (subscription required)

The Organization for Economic Cooperation and Development lastweek released its latest proposals to combat "base erosion and profit shifting," or the monster known as BEPS. The OECD and its masters at the G-20 are alarmed that large companies are able to use entirely legal accounting and corporate-organization strategies to shield themselves from the highest tax rates governments try to impose. They mean to stop it.
All ofwhich is great news for Ireland, the poster child for a low corporate tax rate. Allow us to explain.
For the editorial, go here.

While discussing the seven progress and final reports released as part of the OECD's base erosion and profit-shifting project, practitioners on a September 19webcast hosted by KPMG LLP raised key business concernswith Robert Stack, Treasury deputy assistant secretary (international tax affairs).
For the story, go here. (subscription required)

The publicity surrounding the OECD's release of seven reports and recommendations on September 16 ignores that the OECD has not yet begun to quantify base erosion and profit shifting. On August 4 the OECD released a request for input under action item 11 inwhich it asked for comments on the scale and economic impact of BEPS, including analysis of the effectiveness of actions taken to address it. Commentswere due September 19.
The discussion below highlights some of the challenges in quantifying BEPS and offersways to measure the success of the BEPS project.
For the article, go here. (subscription reqiured)

In economic analysis, Martin A. Sullivan examines different starting points for tax reform, their pros and cons, and the political challenges to achieving them. The following is based on a September 17 presentation to theworking group formulating the tax portion of the national strategic agenda for the No Labels Foundation.
For the article, go here. (subscription required)

A U.S. Treasury official said there is "good support" among the countries participating in the international project to combat base erosion and profit shifting for tax administrations to share the forthcoming country-by-country reporting template via the bilateral tax treaty network.
Speaking on a KPMG LLPwebcast Sept. 19, Robert Stack, Treasury's deputy assistant secretary for international tax affairs, said, "The possibility that youwould just hand this stuff around on the country-by-country template seems to be a low probability right now."
The reporting templatewas developed under Action 13 of the BEPS plan,which addresses documentation and transparency.
For the story, go here. (subscription required)

Treasury Secretary Jacob Lew delivered a speech on topics including tax reform and inversions at the G-20 conference on September 21.

For the speech, go here.

A publicly traded multinational corporation and other entities in itsworldwide groupwon't recognize any gain or loss in the spin-off of a business line operated by many members of the group, the IRS said in a private letter ruling.
The parent corporation and three of its subsidiaries in turn held foreign subsidiaries thatwere controlled foreign corporations and conducted the business in various countries, the IRS said in PLR 201438009, released Sept. 19.
For the story, go here. (subscription required)

The chief executive officer of CVS Health Corp., Larry Merlo, said he hasn't lost hope that Congress can tackle a tax overhaul in 2015ÔøΩbefore corporate inversions further erode the U.S. corporate tax base.
"Chairmanwyden has beenworking diligentlywith Sen. Hatch," Merlo told Bloomberg BNA Sept. 19 after a speech at the National Press Club, referring to Senate Finance Committee Chairman Ronwyden (D-Ore.) and ranking Republican Orrin Hatch (R-Utah)."With all the gridlockwe've seen inwashington, D.C., I remain optimistic thatwe may be able to see action in early 2015."
For the story, go here. (subscription required)

The government is considering expanding the types of transactions itwill consider covered asset acquisitions for purposes of denying the foreign tax credit under tax code Section 901(m), Treasury Department and IRS officials said.
Under that code section, taxpayerswon't get the foreign credit if they have used such acquisitions to exempt their foreign income from U.S. taxes, the officials said at the fall meeting of the American Bar Association in Denver. Currently, covered asset acquisitions include elections under tax code Section 338(h).
Both Brenda Zent, a taxation specialist in the Treasury Office of International Tax Counsel, and Douglas Poms, senior counsel in that office, said the government is thinking about including situationswhere taxpayers "bust" tax-free reorganizations under Section 351 so those transactionswill be purposely taxable.
For the story, go here. (subscription required)

A senior official in the Treasury Office of International Tax Counsel said it is too soon to comment on any potential action the government may take on inversions, following indications thisweek by Treasury Secretary Jacob J. Lew that an announcement on such action may come soon.
"It's not appropriate for us to go out in front of the Secretary of the Treasury on that," Douglas Poms, senior counsel in that office, said Sept. 19 in response to an audience question at the fall meeting of the American Bar Association in Denver.
For the story, go here. (subscription required)

Thisweek, the Organisation for Economic Co-operation and Development (OECD) released its first recommendations for combating international tax avoidance. The announcements,which form part of the multilateral organisation's Base Erosion and Profit Shifting (BEPS) initiative, mark a major change to the global tax and transfer pricing landscape andwill have an impact on multinational enterprisesworldwide.
For the story, go here.

Verizon CFO Fran Shammo said yesterday thatwith the high corporate tax rate in the U.S. and the expiration of a tax incentive called bonus depreciation, "You don't even have incentive to invest anymore."
Well, maybe you don't. Be he does.
Mr. Shammo said Verizon,whose network building consistently ranks it among the nation's largest spenders on capex,will invest no matterwhat incentives the government puts in place.
Other companies, Mr. Shammo said,would base their investment decisions on tax incentives.
The comments underscore the mixed messaging that can arise around discussions of tax policy and investment. Executives often say that certain policies discourage investment. But they are less quick to say that their own investment is being discouraged.
For the story, go here.

The Tax Executives Institute submitted comments September 17 on base erosion and profit-shifting action 11 regarding methods to collect and analyze data, saying that the OECD should define BEPS behaviors more clearly, determinewhether actions lead to double taxation, and safeguard the confidentiality of taxpayer information.

For the comments, go here.

U.S. companies that invert after September 18would have to pay taxes on unrepatriated foreign earnings that they held before completing inversion deals under legislation drafted by Senate Finance Committee member Sherrod Brown, D-Ohio, and Senate Democraticwhip Richard J. Durbin of Illinois.
According to bill text obtained by Tax Analysts, the Paywhat You Owe Before You Go Actwould add to section 7874 a subsection specifying that applicable accumulated deferred foreign income of specific inverting corporationswill be added to those companies' subpart F income in the last tax year ending before the date of acquisition by a foreign entity. One of the reasons U.S. companies are said to be seeking inversion opportunities is to access offshore cash.
For the story, go here. (Subscription required)

Congress needs to focus on overhauling the tax code, not just trying to block corporate inversions, House Speaker John Boehner (R-Ohio) said Sept. 18.
In a speech at the American Enterprise Institute, Boehner said focusing on inversions is ignoring the larger problem.
"All this talk about inversions is just making the problem smaller," he said. "It's fussing over a divotwhen the road is loadedwith potholes."
For the story, go here. (Subscription required)

Shame on Burger King for moving to Canada? Or shame on us for being unresponsive to businesses and job creators?
The current debate about corporate inversions has once again brought out the tired, progressive-socialist rhetoric railing against corporate profits. Burger King, Chiquita, and other iconic American brands are seeking more attractive tax provisions to better manage their businesses, as they also absorb the high impact of our costly regulatory environment, including the mandated requirements of the Un-Affordable Care Act.
All of a sudden it is un-American to seek a lower tax burden to operate in dynamic and highly competitiveworld markets. American corporations suffer the burden of the highest corporate tax rate in the industrializedworld.what basis dowe have to pout and shudderwhen they find a smarterway to do business?
For the op-ed, go here.

Treasury Secretary Jack Lew saidwednesday that hewas surprised that Republicans and the business community objected to the Obama administration's rhetoric on the recent spate of offshore tax deals.

Lew himself questioned the patriotism of companies that shifted their legal address abroad in deals known as inversions,while President Obama dubbed them "corporate deserters."
For the story, go here.

Robert Stack, Treasury deputy assistant secretary (international tax affairs), on September 17 gave a behind-the-scenes view of the negotiations thatwent into drafting the seven progress and final reports the OECD released September 16 as part of its base erosion and profit-shifting project.
For the story, go here. (subscription required)

Treasury Secretary Jacob Lew said September 17 that administrative action on inversions is now a certainty.
"Any company considering an inversion is now on notice that there is action that is going to be taken," Lew said in an interviewwith Bloomberg at an event sponsored by the University of California, Los Angeles.
For the story, go here. (subscription required)

A U.S. Treasury officialwelcomed the first seven components of the Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting.
Robert Stack, Treasury's deputy assistant secretary for international tax affairs, said, "The United States is delightedwith the progresswe have made to date in the BEPS project as emblematic of the papers thatwere put out yesterday."
For the story, go here. (subscription required)

A new Organization for Economic Cooperation and Development plan for fighting base erosion and profit shifting tackles tax challenges of electronic commerce,warning about the danger of "special rules for the digital economy."
The OECD's Raffaele Russo, head of the project, said the final report on Action 1 states an agreement by the 44 participating countries "that you can't have special rules for the digital economyÔøΩyou can't ring-fence it."
For the story, go here. (subscription required)

A decision on administration steps to slow inversions should soon emerge, Treasury Secretary Jacob J. Lew said, rehashing prior remarks.
Lew said companies considering such transactions, inwhich U.S. corporations mergewith foreign companies and establish new domiciles in lower tax jurisdictions abroad, need to know of the very real probability of executive action to come. In otherwords, they should be on notice, he said in remarks at UCLA's Anderson School of Management on Sept. 17.
For the story, go here. (subscription required)

Democrats and their advocates havewashed, rinsed and are now repeating one of their favorite talking points from 2012: that "(Insert Republican Here) supports tax breaks for corporations that ship jobs overseas."
There's a lot packed into this insult. It implies that the person on the receiving end is beholden to corporate interests, against sensible tax reform and unconcerned about American employment. It plays to Americans' economicwoes and fits into the recent discussions about corporate tax reform, following Burger King's mergerwith a Canadian company.
Only a CPA might enjoy digging into the nuances of tax policy. But our search for evidence shows that the Democrats' description is so simplistic as to be misleading. There is no special tax break for outsourcing.
For the story, go here.

There has been quite a bit of press and politicized declarations on the U.S. practice of federally taxing corporate profits earned internationally and of U.S. companies pursuing an inversion strategy. This accounting technicality is having a major effect on U.S. business location and international investment.
For the story, go here.

At the Morgan Stanley Global Healthcare Conference on September 9, Merck CEO Ken Frazier told investors hewouldn't join the giantwave of companies pursuing overseas acquisitions so they can move abroad and escape high U.S. corporate taxes. Such deals, known as "tax inversions," go against Merck's policy of only making purchases that give the company "quality commercial access and quality scientific access," Frazier said. "We don't see that the advantages thatwewould get from a tax inversion dealwould … be durable long-term because I think the U.S. governmentwill do something positive or negative in response to the flight of capital," he added.
For the article, go here.

The tax-avoidance strategies that companies like Google Inc. (GOOG), Apple Inc. (AAPL) and Amazon.com Inc. use to escape more than $100 billion a year of levies in the U.S. and Europe are under threat from a plan drawn up by the Organization for Economic Cooperation and Development.

The Paris-based OECD, a research institute funded by 34 countries including the U.S., recommended governments limit the techniques those companies use to avoid taxes, such as assigning valuable patent rights to shell companies based in tax havens, according to draft rules released today. All of the OECD member countries and 10 others, including China and Russia, have approved the recommendations, though further action by countrieswould be required for them to take effect.

For the story, go here.

Plans to overhaul the international tax system to make it more difficult for companies to shift profits to low-tax countries remain on track,with the Organization for Economic Cooperation and Development meeting an ambitious deadline on Tuesday for presenting a first set of new guidelines to finance ministers of the Group of 20 advanced and developing economies.
Launched by the G-20 last year, the overhaul is intended to modernize aweb of 3,000 bilateral tax treaties and national tax rules that dates back to the 1920s and allows companies to adopt legal structures designed to shift their profits to the lowest-tax jurisdictions, regardless ofwhere those profits are generated.
The proposalswere agreed by the Committee on Fiscal Affairs,which includes representatives from the 34 countries that are members of the OECD, two candidate nations, and eight large developing economies, including China, India, Brazil, Russia, Indonesia and South Africa. The CFA is due to produce a second, and final set of proposals next year.
For the story, go here.

Dozens of countrieswith the most advanced economies have agreed on principles for concrete action to prevent corporations from gaming the international tax system, the Organization for Economic Cooperation and Development said in a report on Tuesday.
In a set of recommendations, the organization said the nations --which include the United States, the biggest countries in Europe and China -- had agreed on a series of actions to ensure ''the coherence of corporate income taxation at the international level'' and to improve transparency for governments.
For the story, go here.

The OECD has released frequently asked questions on several areas of the base erosion and profit-shifting project, including the digital economy, hybrid mismatch arrangements, treaty abuse, transfer pricing, and country-by-country reporting.

For the FAQs, go here.

The BEPS hybrid project (action 2) is one of the more difficult projects and one that requires a fair amount of coordination between countries. American readerswill be pleased to see that the BEPS drafters responded positively to some of the complaints made at the Paris public consultation.
The just-released recommendationsdiffer little from the drafts, as the drafters appeared to punt on some difficult questions. The report contains recommendations for defensive changes to domestic law aswell as proposed changes to the OECD model treaty.
For the story, go here. (subscription required)