2014

All those recent headlines about more U.S. companies contorting themselves to move their legal headquarters to Ireland or Britain could serve as an epitaph for the 105-year-old U.S. corporate income tax.

No, lawmakers in Congress aren't about to repeal the tax. They say they don'twant to do modest tinkeringwith the tax code so they can save the energy (and, in some cases, the revenues) for that bigger, broader tax reform. But in the same breath members of Congress say doing bigger, broader tax reform is impossible in today's polarized Congress.

So nothing happens. In Congress, that is.

For the blog post, go here.

The International Monetary Fund (IMF) today released the study "Spillovers in International Corporate Taxation," that explores the nature and policy implications of cross-border effects from national corporate tax policies, highlighting how these effects can be significant for developing countries,with resulting tax revenue losses sometimes quite large relative to total government revenues.

For the report, go here.

Uncertainty about extenders impairs businesses in planning and investment, and the growing difference between corporate tax rates in the U.S. and those of major trading partners creates an incentive to relocate overseas, according to a report from McGladrey LLP on manufacturer and distributor issues.
For the report, go here.

Today Maryland Congressman Chris Van Hollen, Ranking Member of the House Budget Committee, and Congressman Sander Levin, Ranking Member of theways and Means Committee, introduced the Stop Corporate Expatriation and Invest in America's Infrastructure Act. This legislationwill put an end to corporate expatriations and devote the resulting revenue to the Highway Trust Fund. Itwill raise $19.5 billion in revenue over ten years and keep the Trust Fund solvent as Congressworks on a long-term funding solution.
For the release, go here.

Spainwill cut its corporate tax rate to 28% from January 1 2015,with a further cut coming in a year later. Incentives used by large businesseswill be repealed to fund the rate cut, but the R&D tax credit has been spared.

For the story, go here.

Tax executives from Altadis, BMW, Iberdrola and Repsol share their exclusive reactions to the announcement of Spanish tax reforms,with allwanting more information before they can be completely satisfiedwith the measures.
For the story, go here.

Narrowlywritten legislation to curb international, tax-driven mergers and acquisitionswon'twork, Houseways and Means Committee Chairman Dave Camp (R-Mich.) said.
But addressing the issue of inversions more broadly could open the door to overhauling corporate tax laws, he said at an event June 24 at the Heritage Foundation. Bills to raise foreign ownership thresholds to discourage the practice simplywon't solve the issue on their own, Camp said in response to a question from the audience.
"If you do corporate only, you need to do corporate only, and not a part of corporate reform," he said. "You just can't pull out, I believe, a partial holiday or a temporary piece."
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Senior tax officials from New Zealand areworkingwith the Organization for Economic Cooperation and Development in Paris to implement measures from the OECD's base erosion and profit shifting action plan, Revenue Minister Todd McClay announced.
New Zealand officials said they are collaboratingwith the OECD theweek of June 23 to prepare the first parts of its BEPS action plan,with the goal of delivering the first seven measures in September. The 15-point action planwas initiated by the OECD in 2013 in response to tax avoidance measures being utilized by multinational corporations.
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The issue of tax-motivated income shiftingwithin multinational firms – or "base erosion and profit shifting" (BEPS) – has attracted increasing global attention in recent years. This paper provides a survey of the empirical literature on this topic. Its emphasis is on reviewing and elucidatingwhat is known about the magnitude of BEPS.

For the paper, go here.

On February 28, 2014, the Urban Institute hosted an invitational conference onwhat policymakers in the United States can learn from the experience of other countrieswith territorial systems for taxing the income of their multinational corporations. Participants included academic experts, government officials, and private sector tax practitioners from the United States and overseas. The discussion focused on the experience of four countries - two (Australia and Germany)with long-standing territorial systems and two (Japan and the United Kingdom) that moved to a territorial system recently. This document summarizes the discussion at the conference.

For the report, go here.

In this article, Prof. Bretwells argues that until policymakers address the fundamental tax disparity that creates corporate inversions, ever-changing forms of the transactionwill continue to pop up like moles in awhack-a-mole game.

For the article, go here. (subscription required)

A proposal bywalgreen Co. to reincorporate into Switzerland could cost the United States an estimated $4 billion in lost revenue over five years, but that could be the least of the IRS'sworries if the deal inspires other U.S. retailers to follow suit.
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In a step hailed as important in the overall battle to reduce corporate tax base erosion and profit shifting, European Union finance ministers reached unanimous agreement to revise the EU's Parent-Subsidiary Directive to eliminate double nontaxation.
At the same time, the ministers meeting June 20 in Luxembourg approved a measure for the European Commission to begin an overall illegal state aid investigation into the use of "patent box" tax schemes that a host of EU member states have introduced to attract high-tech companies.
And in a third key move, the European Commission confirmed that Switzerland has agreed to abide by rules outlined in the EU Code of Conduct against unfair corporate taxation.
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from The Economist

America is a land of immigrants, but some of its biggest companies are keen to emigrate, driven abroad by high tax rates and America's "worldwide" system of taxation,which grabs a share of their foreign profits. The preferred method of exit is the "tax inversion",which uses a cross-border mergerÔøΩgenerally one that also has some sort of industrial logicÔøΩas the pretext for reincorporating in a more tax-friendly place. Medtronic, a maker of medical devices, is the latest and largest firm to change its nationality in thisway.

For the story, go here.

At the Economic and Financial Affairs Council meeting on 20 June the ministers agreed an amendment to EU tax rules thatwill close a loopholewhich had allowed cross-border corporations to profit from double non-taxation.
The agreed amendment to the parent-subsidiary directive (2011/96/EU)will put an end to the situationwhereby cross-border corporate groups could exploit differences between national tax laws and profit from double non-taxation by means of hybrid loan arrangements.
For the Council's release, go here.

Reaping the benefits of tax inversion isn't as straightforward as many think.
Through its $42.9 billion mergerwith Covidien PLC, Medtronic Inc.will gain an Irish address, a lower overall tax rate and more overseas cash to spend in Americawithout paying U.S. taxes. But at least initially, the new cash flowwill come only from surgical-tools and hospital-supplies maker Covidien,whose overseas profits have always rested outside the U.S. tax net, Medtronic said.
To free Medtronic's future international earnings from the U.S. tax net is complicated, andwould require additional maneuvering, tax experts said.
For the story, go here.

Fiscal unity rules fall foul of European Court of Justice over location of intermediate subsidiary and lack of permanent establishment.
For the story, go here.

European Union finance ministerswill try to close down an important corporate tax device by approving EU Parent-Subsidiary legislation changes, including new rules on hybrid loans designed to eliminate both double taxation and double nontaxation.
After EU finance ministers unexpectedly failed to approve the revision of the EU Parent-Subsidiary legislation in MayÔøΩSweden and Malta objectedÔøΩGreece,which holds the rotating presidency, said it believed the unanimous backing required could be achieved.
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The Association of Chartered Certified Accountants (ACCA) believes that the coalition government has failed to support the Office of Tax Simplification (OTS) and has instead made the UK tax system more complex and confusing for both individuals and businesses.
For the story, go here.

At no time in the past 50 years has the UK been a better place to do business. The coalition government thatwas formed in 2010 set outwith the stated purpose of making the UK a more attractive place to do business and has radically reformed the UK corporate tax regime over the past four years. By and large, it has succeeded in its aim of making the jurisdiction a more attractive business location.
For the story, go here.

Joe Hockey, Australian Treasurer, labelled the Australian taxation system as "compromised" in a speech to the Sydney Institute lastweek,while Big 4 accounting firm EY described it as in "disarray". The criticisms have led to calls for the formation of an independent tax reform commission.
For the story, go here.

Spainwill announce a number of tax reform measures tomorrow, including a corporate tax rate reductionwhich could see five percentage points shaved off the existing rate.
For the story, go here.

China may incorporate concepts from the international base erosion and profit shifting plan into future domestic tax regulations, but the countrywill not give up its right to negotiate bilateral agreements or develop its own tax policies, a Chinese official said at a tax conference in Beijing.
China "will dowhatwe should do according to our domestic law," Liao Tizhong, director general of China's State Administration of Taxation, said June 17. He said Chinawill "keep track of developments"and stay involved in BEPS discussionswith the Organization for Economic Cooperation and Development "while negotiating our own treaties,while negotiating our own transfer pricing guideline agreements like APAs or corresponding adjustment."
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Countries participating in an international initiative to fight base erosion are mistaken to think they must choose between upholding the arm's-length standard on one hand and adopting global formulary apportionment on the other, a practitioner said.
Instead, the ultimate solution may be to retain separate entity accountingwhile allowing for some kind of formulary option as an alternative transfer pricing method, said Peter Barnes of Caplin & Drysdale inwashington.
"Separate entity reporting is the onlyway to go," Barnes said June 18, "butwithin transfer pricing methods there are a variety of accepted approaches."
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The corporate income tax is dying.which is hardly surprising, since it's getting on in years. It's a 19th century levy struggling to hang on in a 21st century economy. And the prognosis is bad.

The numbers show a tax in decline. Over the past six decades, the corporate levy has played a shrinking role in federal finance. In the early 1950s, it provided roughly 30 percent of total revenue. Nowadays, it delivers about 10 percent.

Not a good sign.

But there's an even better indicator of poor healthwhen it comes to elderly taxes: rampant avoidance.

For the blog post, go here.

Israel's Tax Authority is preparing to collect value-added tax and income tax on the revenue of international Internet companieswith extensive operations in Israel, Tax Authority Director Moshe Asher announced.
New regulations on the matter, the result of more than a year of intensivework, have been finalized andwill be released shortly, he said at the annual conference of the Institute of Certified Public Accountants in Israel.
The changes reinterpret existing tax law, and thereforewould not require new legislation. But they could be implemented only after a proposal is circulated for public comment.
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Though some of the issues raised by the OECD's base erosion and profit-shifting project lend themselves to multilateral solutions, Robert Stack, Treasury deputy assistant secretary (international tax affairs), said that others may be best left unresolved.
Speaking at an International Fiscal Association U.S. Branch D.C. Region meeting inwashington June 17, Stack said that BEPS makes sense for addressing arbitrage opportunities such as hybrid mismatches, interest expenses, treaty abuse, and intangibles. He noted that one area the U.S. considered ripe for BEPS action is improvements to controlled foreign corporation rules to prevent earnings stripping.
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Uncle Sam may not be a fan of cross-border takeovers that allow U.S. acquirers to avoid high corporate tax rates. Investors, however, are cheering.

For the story, go here.

The United States could improve its long-term economic outlook by expanding the earned income tax credit, limiting individual itemized deductions, making the research credit permanent, reforming corporate taxes, and moving toward a VAT, among other measures, the IMF said in a June 5 report.

For the report, go here.

What's greasing thewheels for the rise in mergers by U.S. companies? The tax man.
Two tax-code quirksÔøΩone that charges U.S. companieswhen they repatriate overseas earnings, the other that allows them to claim a foreign domicilewithout moving their senior leadership abroadÔøΩare motivating U.S. companies to buy overseas counterparts in part to lower their bills.
Takeovers by U.S. companies of targets in low-tax environmentsÔøΩthosewith a corporate tax rate of below 20 percentÔøΩhave doubled in proportion to all overseas deals, according to data compiled by Goldman Sachs Group Inc. analysts.
"If you have a lot of cash trapped offshore, then the potential tax savings are likely to be larger," said Marc Zenner, co-head of JPMorgan Chase & Co.'s corporate finance advisory group. "With bigger tax savings, you can offer a bigger premium and it's harder for a target company to say no to an offer."
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Gabriel Zucman is a 27-year-old French economistwho decided to solve a puzzle:why do international balance sheets each year show more liabilities than assets, as if theworld is in debt to itself?

Over the last couple of decades, the few international economistswho have addressed this question have offered a simple explanation: tax evasion. Money that, say, leaves the United States for an offshore tax shelter is recorded as a liability here, but it is listed nowhere as an asset -- its mission, after all, is disappearance. But until now the economists lacked hard numbers to confirm their suspicions. By analyzing data released in recent years by central banks in Switzerland and Luxembourg on foreigners' bank holdings, then extrapolating to other tax havens, Mr. Zucman has put creditable numbers on tax evasion, showing that it's rampant -- and a major driver ofwealth inequality.

For the story, go here.

The U.S. should reform its tax codewith "a degree of urgency" to overcome challenges to long-term economic growth, including an aging population and rising household inequality, theOrganization for Economic Cooperation and Developmentsaidin a report Friday.
The OECD said the U.S. recovery is solidly on track, if historically sluggish, and that the short-term outlook is favorablewith a resurgent manufacturing sector and new energy development.
But the country is facing long-term challengesÔøΩdue largely to the retirement of baby boomersÔøΩthat require sweeping policy reforms, according to the Paris-based think tank,which is backed by the 30 leading industrialized countries.
For the story, go here.

Senate Republicanswill reject a proposal by Senate Majority Leader Harry Reid, D-Nev., to replenish the Highway Trust Fund through a repatriation tax holiday if it also curbs the corporate interest deduction or otherwise increases taxes, a tax staffer to a Senate Finance Committee Republican said June 13.
"We are inwait-and-see mode" regarding Republican feedback, a Reid aide told Tax Analysts. Republican Finance Committee members held at least two staff-level meetings during theweek to discuss Reid's proposal, the aide said.

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The U.S. government has made regular efforts since the 1990s to prevent companies from moving their business out of the United States. However, those efforts have been only partially successful as companies continue to seek lower corporate tax rates overseas. Evenwhile lawmakers debate how to stop the currentwave of inversions, the next set of transactions is already taking shape.

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Inversions have been oversold. But institutional investment decisions are made by analystswho are not old enough to shave and haven't figured out that the best information in SEC filings is in the footnotes. So many boards of public companies are being instructed about inversions by tax advisers and investment bankers.
Pfizer Inc.'s bid for AstraZeneca PLC has ended, and notwithout recriminations on all sides. Here's all you need to know about it: The bid could have gone higherwithout materially eating into Pfizer's expected tax benefits.
Seems British politicians and the British public gotwind of the apparent business justification for the deal and didn't like it one bit. Although it is a British corporation, AstraZeneca has most of its operations in Sweden and the United States. As the detractors correctly deduced, the dealwould have meant reduction of AstraZeneca's relatively small Britishworkforce.
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The refusal by Dutch tax authorities to allow parent companieswith subsidiaries in the Netherlands to form a single tax entity,while denying that right to groupswith subsidiaries in other European Union states, violates EU law, the European Court of Justice ruled.
In a June 12 decision (C-39/13, C-41/13) considered by tax experts a victory for the principles onwhich the EU single marketwas created, the ECJ rejected Dutch government arguments that different treatment for company groupswith subsidiaries in other member stateswas justified to protect the "coherence" of the Netherlands tax system.
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The US economy is recovering from the Great Recession and near-term prospects
are favourable. The sector of manufacturing durables is enjoying a particularly strong
revival thanks to more competitive labour costs and low energy prices. The recovery
is more sluggish than after past recessions because the damage of the financial crisis
has not been fully repaired, government spending has exerted an unusual drag and,
finally, the long-expected retirement of baby-boomers has depressed the labour
supply. Hence, removing obstacles to growth comeswith a certain degree of urgency.
For this, tax reform has a key role to play: business investment is discouraged by high
marginal tax rateswhile numerous tax expenditures distort resource allocation.
Aggressive tax planning by multinational firms also imposes a higher tax burden on
everybody else; and individual taxpayers face costly compliance obligations.

For the report, go here.

Continued U.S. leadership in the international project to fight base erosion and profit shiftingwill be essential if changes in the program are to be consistently implemented across countries, the Organization for Economic Cooperation and Development said in a new report.
The Paris-based organization made its comments in "OECD Economy Surveys: United States,"which it launched inwashington June 13 andwhich urges the U.S. to make key economic and tax reforms to boost its "sluggish" recovery.
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The European Court of Justice (ECJ) in a judgment issued on June 12, 2014, has found that the Dutch fiscal unity rules breach European Union (EU) law because they do not allow a fiscal unity between a Dutch parent company and a Dutch sub-subsidiary held through an EU/European Economic Area (EEA) intermediate subsidiary or a fiscal unity between two Dutch 'sister' companies held through a joint EU/EEA parent company.

For the report, go here.

Japan is set to reduce its corporate tax rate from 2015.

For the story, go here.

Newly-elected Indian leaders Narendra Modi and Arun Jaitley must use next month's Budget to repeal the retrospective amendments brought in under the previous government if theywant to provide businesseswith the certainty and confidence to invest and grow.
For the story, go here.

The success of international expansion depends on efficient structuring, believes Lee Sheehan, head of tax at Radius.
For the story, go here.

The French government's new proposals for business tax cuts can significantly improve companies' competitiveness butwon't produce major effects for the biggest companies for about two years, practitioners told Bloomberg BNA.
The government on June 11 provided new details of its road map for cutting business's payroll taxes by 30 billion euros ($40.6 billion) by 2016 in order to boost the economy and employmentwhile also announcing tax cuts for modest-income households.
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The European Commission has opened three in-depth investigations into tax decisions in Ireland, the Netherlands and Luxembourg. The probes focus onwhether decisions by authorities in the three member states about corporate tax to be paid by Apple, Starbucks and Fiat Finance and Trade complywith state aid rules.
For the story, go here.

The governor of Californiawas joking. Orwas he? At a breakfast lastweek in San Francisco, Jerry Brown admitted hewas surprised that Apple – about as Californian a company as can be imagined – turned out to be Irish, after all.

"I don't know how you got Apple to have so much of their business in Ireland," Mr Brown told an audience that included Enda Kenny, the Irish prime minister. "We thought theywere a California company butwhen you look at their tax return, they are really an Irish company. Anyway, that is part of the creativity – yeah, it's called creative accounting. Anyway, Iwon't go there."

For the story, go here.

The OECD called it "the golden age" of tax planning: a period inwhich multinational companies pushed ever more of their profits offshore and pushed their effective tax rates down.

In the past eight years, this simple strategy has enabled some of the largest US corporations to cut their tax bills by a quarter, on average –while boosting their annual earnings by up to 24 per cent.

But there are signs that both politicians and investors are increasingly questioning the merits of a tax regime that has made such savings possible.

For the story, go here.

The European Commission raised pressure on Ireland, the Netherlands and Luxembourg over their corporate tax practices, saying itwas investigating deals the countries have cutwith Apple, Starbucks and Fiat.
The Commission, the executive body of the European Union, is looking atwhether the countries' tax treatment of multinationals that help attract investment and jobs that otherwise might go towhere the companies' customers are based represent unfair state aid.
For the story, go here.

European Union officials have been pushing some countries to plug corporate tax loopholes for years to help bolster government coffers in an era of shrinking public budgets andweak economic growth.
Now they are adopting a more forceful approach, announcing onwednesday an investigation into how low-tax nations like Ireland have helped large multinationals like Apple and Starbucks reduce their tax bills by billions of dollars.
The inquiry represents one of the most aggressive steps taken by Europe to counter the increasingly sophisticated tax avoidance strategies deployed by multinational companies, a move that follows similar crackdowns by the United States and others. Authorities are concerned that countries may be offering improper tax breaks to big global companies.
For the story, go here.

To listen to Treasury Secretary Jacob Lew, onewould never know that the United States has its own currency and that the petrodollar is theworld's reserve currency. Seems the United States is so broke that it has to use the temporary revenue increase that corporate tax reformwould produce to fix bridges that are falling down.
Oblivious to the day's headline that House Majority Leader Eric Cantor, R-Va., had been defeated by a primary challenge from the right, Lew on June 11 talked up the potential for congressional agreement on tax reform thatwould lower the corporate rate. Speaking at the Economic Club of New York, he told the assembled business leaders and financiers that their supportwas necessary for reform to go forward. (Is the president too busy golfing?)
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The European Commission on June 11 formally launched three separate investigations to examinewhether Apple in Ireland, Starbucks in the Netherlands, and Fiat in Luxembourg all received transfer pricing-related tax rulings that violated EU state aid rules.
Joaquín Almunia, the EU executive arm's vice president and competition commissioner, said the commission has "serious doubts" about the compatibility of three specific tax rulingswith EC Treaty rules on state aid, but he clarified that the commission is not questioning tax rulings as a general concept.
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