2014

Bret N. Bogenschneider presents the effective tax rates for U.S. multinational corporations in a sensitivity analysis of permanently reinvested earnings seen as a percentage of total unexplained book tax differences.
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The OECD December 19 released a discussion draft addressingwork on actions 8, 9, and 10 of its base erosion and profit-shifting project, covering changes to transfer pricing rules for intangibles and addressing transfer pricing rules regarding risks and capital.
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The Organization for Economic Cooperation and Development is proposing to change its transfer pricing guidelines to prevent base erosion and profit shiftingwhen group members transfer risks to each other.
The discussion draft on risk, recharacterization and special measures issued Dec. 19 proposes significant revisions to Chapter 1 of the OECD guidelines. If adopted, revised Chapter 1would mean a paradigm shift for both companies and tax administrations given the draft's new focus on the conduct of the parties, rather than on related-party contracts, in analyzing an entity's functions, assets and risks and its interactionwith the group value chain.

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President Obama's framework for business tax reformwould reduce the corporate rate from 35% to 28%. Departing Houseways & Means Committee Chair Dave Camp, R-Michigan, does Obama one better, offering a plan that cuts the rate to 25%.

Both Obama and Camp cite "global competitiveness" as the principal justification for their reforms. Yet neither proposal is especially competitive by international standards. The average corporate rate among OECD nations is 24%. If tax reform isworth doing,why not aim high?

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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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In news analysis, Lee A. Sheppard reports on recent IRS Large Business and International Division audit practices and other guidance discussed at the International Fiscal Association USA New York branch seminar on December 18.

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Mike Gaffney calls for thewithdrawal of a 2012 generic legal advice memorandum that he believes inappropriately applies the economic substance doctrine in the tax ownership area of fungible securities.

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Patrick Driessen provides four reasons to be cautious about the adoption of a territorial tax system by the United States.

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On December 18, 2014, the Organisation for Economic Co-operation and Development (OECD) released itswork on Base Erosion and Profit Shifting (BEPS) Action 14: Make Dispute Resolution Mechanisms More Effective (the "Discussion Draft" or "Draft"). During the last decade, the OECD has issued guidance to improve dispute resolution mechanisms, including the Manual on Effective Mutual Agreement Procedures (MEMAP) in 2007. Today's global tax controversy environment, however, calls for a more focused effort to improve the effectiveness of the Mutual Agreement Procedures (MAP) in resolving treaty-related disputes.

For the PwC Bulletin, go here.

Jose Maria Garcia-Valdecasas Alloza, partner at Belaguer-Morera & Asociados and assistant lecturer at the University of Barcelona, explores upcoming changes to the Spanish tax regime,which has not been comprehensively reformed since 2004.
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The UK government has published draft legislation for the diverted profits tax (DPT) – dubbed the 'Google tax' – announced by George Osborne, Chancellor of the Exchequer, in lastweek's Autumn Statement. The consensus is that the UKwould be better servedwaiting for the delivery of international initiatives on tackling aggressive tax avoidance.
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The European Union's probe of tax deals expanded as the competition regulator asked all EU countries to give it information about financial agreementswith multinational corporations.
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European Union regulators said theywouldwiden a high-profile probe into alleged sweetheart tax deals, stepping up an investigation that already has ensnared four multinational companies including Apple Inc. and Amazon.com Inc.
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The United States Council for International Business (USCIB) condemned proposed UK rules to impose a new tax on so-called "diverted profits," saying the measurewould, if implemented, have a major impact on U.S.-based multinational companies.

For the USCIB release, go here.

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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by Zachary R. Mider(Bloomberg)

The only operetta everwritten about Subpart F of the Internal Revenue Code made its debut on a rainy Sunday evening in May 1990, in a Fifth Avenue apartment overlooking Central Park. In bow ties and spring blazers, partners of the law firm of Davis Polk &wardwell dined on lobster prepared by a Milanese chef. Then everyone gathered around a piano, and a pair of professional opera singers, joined by the few Davis Polk menwho could carry a tune, performedwhat sounded like a collaboration of Gilbert & Sullivan and Ernst & Young.

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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.

Around theworld, countries are desperately seekingways to stop multinational companies from earning profitswithin their borderswithout paying taxes on them,while stashing trillions in tax havens like the Cayman Islands. The British government, after a search, says it knows how to tax the profits Google earns in the United Kingdom. Its solution is simple and elegant, and it probablywon't change a damn thing.

The proposal has come because Britain and many other countries are tired of getting just the table scraps after companies enjoywhat tax lawyers call Dutch Sandwicheswashed downwith a Double Irish. Those are popular names for tax strategies that let companies earn profits in countrieswith high taxes, but report profitswhere little or no tax is paid, such as Ireland.

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The Council of the European Union has approved an amendment to the EU Parent-Subsidiary Directive in a clampdown on aggressive corporate tax avoidance.
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While the OECD considers special measures to address perceived improprieties in risk-based income allocation, stakeholders continue to disagree on fundamental issues such as the appropriate return on investment for intangibles.
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The OECD on December 16 released two discussion drafts under action 10 of its base erosion and profit-shifting project on potential guidance on the use of transactional profit-split methods and the pricing of commodity transactions.
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Daniel N. Shaviro explores the relationship between taxing corporate income at the entity level and the difficulties in evaluatingwhether a corporate rate cutwould be desirablewithout significant structural changes.
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While the media has been feasting onLux Leaksand other stories of "multinational tax dodging", academic accountants have determined that U.S. multinational corporations (MNCs) have no particular tax advantage over U.S. domestic firms.
In fact, anew studyfinds the average effective tax rate for U.S. MNCs is slightly higher than that of U.S. domestic firms: 28 percent versus 24 percent. The study calls into question policymakers' emphasis on international "profit shifting," including the elaborate efforts by theOECDand rich-country governments to crack down on MNCs exclusively.
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Is it possible that today's acronym-laden, conceptually dense tax reform proposalwill become one of the biggest business stories of 2015? It's already happening.
The proposal in question is the Organization for Economic Cooperation and Development's (OECD) Action Plan on Base Erosion and Profit Shifting. This mouthful of a plan – known in tax circles as BEPS – is a tough topic for most business people towrap their arms around. But soon they'll have little choice but to become BEPS experts.
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The announcement by the UK government that it is introducing a 25 per cent so-called Google tax on "contrived arrangements"within multinationalswas one of the issues raisedwith the OECD during awebcast yesterday.
The Paris-based organisation's Pascal Saint-Amans said the UK movewas "extremely interesting" as it served to illustrate the level of political concern that exists about the practice of tax avoidance by multinationals.
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The OECD on Monday provided an update via awebcast of its BEPS (Base Erosion & Profit Shifting) corporate tax reform proposals.
The leading tax officials at the Paris-based Organisation for Economic Co-operation and Development, Pascal Saint-Amans , director, Centre for Tax Policy and Administration; Raffaele Russo, head of BEPS Project (left); Marlies de Ruiter, head of Tax Treaty, Transfer Pricing and Financial Transactions and Achim Pross, head of International Cooperation and Tax Administration Division, spoke of developments in the project that is due to be completed next year.
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The OECD expects to release as early as December 16 discussion drafts dealingwith transfer pricing, dispute resolution, and interest deductibility as part of the base erosion and profit-shifting project.
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The European Union is braced for a legal battlewith governments embroiled in its probe of sweetheart tax deals for multinationals from Apple Inc. (AAPL) to Amazon.com Inc. (AMZN), the group of nations' new antitrust chief Margrethe Vestager said.

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There's big news from across the pond. The U.K. government'sAutumn Statement(formerly known as the pre-Budget report), released December 3, promises to change how multinational corporationswill be taxed – and offers a cautionary tale forwould-be U.S. tax reformers.

Britainwill introduce a "diverted profits" tax, targeting corporations that use "artificial arrangements" to shift profits overseas. The rate of tax on diverted profits, 25 percent,will exceed the basic U.K. statutory rate,which falls to 20 percent in April 2015.

For the story, go here.

The fourth-quarter issue of PwC;s Tax & Investment in the US covers:
• Mike Danilack joins PwC
• Paying Taxes 2015: Key aspects of the US tax system
• Captive insurance: Recent favorable US Tax Court decision
• Share-based compensation: understanding the tax accounting.

For the PwC Quarterly, go here.

As the Treasury Department considers further guidance to limit inversion transactions that are contrary to the purposes of section 7874, itwill examine the appropriateness of applying a zerowithholding tax rate under a U.S. tax treaty to interest payments made to foreign members of an inverted group, a Treasury official said December 12.
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The IRS is considering raising the de minimis threshold under its anti-inversion temporary regs (T.D. 9654), an IRS official said December 12.
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The Internal Revenue Service must remain focused on U.S. tax laws and regulations even as other countries begin adopting provisions to limit the credibility of foreign taxes similar to those being examined under the Organization for Economic Cooperation and Development's base erosion and profit shifting project, an IRS official said.

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A Treasury Department official cited significant support among the countries participating in the international project on base erosion and profit shifting to require only some, rather than all, multinational companies to file the forthcoming country-by-country reporting template.

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Business groupswarned Britain's government onwednesday that it risked undermining international efforts to rewrite tax rules after officials published plans to target multinational companies, including Google, that use complex strategies to cut their British tax bills.

Details of a new measure,which has become known as the ''Googletax,''were released onwednesday, aweek after George Osborne, the chancellor of the Exchequer, promised a crackdown on tax-avoidance strategies.

For the story, go here.

Congress likelywill need to act to truly put the brakes on corporate inversions even as the IRS and Treasury Department takewhat actions they can to combat the deals, Internal Revenue Service Commissioner John Koskinen told Bloomberg BNA.
Although the issue is still being looked at "carefully and closely"within the administration and policy decisions restwith Treasury, "I think it has been clear from the start that there are limits as towhat the Treasury and IRS regulatory process can accomplish," Koskinen said in a Dec. 9 discussionwith reporters.

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Democrats didn't succeed in their attempt to stop the U.S. government from awarding contracts to companies that complete inversion transactionswhere they move their tax address outside the country.
The $1.1 trillion spending plan currently being debated in Congress retains a limit that a top House Republican said is already "watered down" and adds an anti-inversion rule that applies only to a few agencies and may not affect any companies.

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The British government detailed planswednesday for a new 25% tax on profits of multinational technology and other companies it says are avoiding paying taxÔøΩa move that has prompted complaints from business groups andwarnings from tax specialists that it could conflictwith international tax treaties.

For the story, go here.

The U.K. government published draft legislation to stop multinational companies from avoiding paying tax on profits generated in Britain.

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A cache of secret tax documents released Tuesday shed further light on how Luxembourg has helped multinational companies to lower their tax bills, in a second major leak that could intensify pressure on the Grand Duchy to alter its tax practices.

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Luxembourg vowed to rein in sweetheart tax deals for multinational companies after its reputation took another blow from a newwave of leaks revealing fiscal accords.

The nation's Finance Ministry is pushing to set up oversight of so-called tax rulings next month as Prime Minister Xavier Bettel promised that Luxembourg is doing all it can to clean up its "damaged image."

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Walt Disney Co. and Microsoft Corp.'s Skype unit are among hundreds of companies that benefited from lower taxes arranged in "secret" dealswith Luxembourg, according to a new report by a group of investigative journalists.

Confidential documents released by the group show that Hong Kong-based Hutchisonwhampoa Ltd. and private equity firmwarburg Pincus LLC also are among the international companies that have benefited from arrangements in the country allowing them to cut their tax bills. The International Consortium of Investigative Journalists posted the documents on itswebsite late Tuesday.

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On December 10, 2014 HM Revenue & Customs (HMRC) released the diverted profits tax (DPT) provisionswithin its draft Finance Bill 2015. Upon initial review, the new rules could affect many more companies than one might have anticipated.

The DPT is a new tax,with a 25% rate on profits that are considered to be artificially diverted from the United Kingdom. The legislationwill apply to profits arising after April 1, 2015. Furthermore, if taxpayers potentially arewithin the scope of the tax, they must notify HMRCwithin three months of the end of the relevant accounting period.

For the PwC Insight, go here.

On 10-11 December, officials from fourteen developing countries discussedways to maximise benefits from their recent commitment to enhanced engagement in the BEPS Project.

For the release, go here.

The surge in U.S. companies avoiding taxes by taking a foreign address has been condemned by President Barack Obama and stirred a policy debate in Congress.what's often overlooked is that these "inversions" are typically a final step in a hopscotch of multinational tax dodging.

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Taxation rose to the highest level in six years,with the governments of Denmark and France extracting the most from their economies, a report by the Organization for Economic Cooperation and Development showed.

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European Union finance ministers have backed plans requiring EU member states to begin revising their patent box tax regimes in 2015 and approved changes to EU parent-subsidiary and administrative cooperation legislation.

"The agreement today means that virtually every EU member statewith a patent box tax regimewill have to change their legislation to comply," an EU diplomat told Bloomberg BNA on Dec. 9 at the conclusion of the Council of Economic and Financial Affairs. "Those changes should begin in 2015 and be completed by 2021," the diplomat said, speaking on the condition of anonymity.

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by Thomas Jaworski

Many U.S. public companies are not providing sufficient information regarding their foreign earnings in corporate financial filings, and improved disclosures about the tax effects of those earnings is required to facilitate informed investor decision-making, SEC officials said December 9.

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For much of the year,wall Street adviserswere scrambling to engineer the cross-border transactions known as inversions. The resultwas billions of dollars in mergers and acquisitions, adding fuel to a banner year for deal-making.

But an abrupt change to tax rules in September left the future of inversions in limbo. Andwhile many expect the deals to continue in some form, they are unlikely to take placewith the same frequency, or at the same size, as they did earlier this year.

For the story, go here.