2014

The top Republican taxwriters in Congress joined the biggest U.S.-based companies inwarning that global negotiations to limit businesses from shifting profits to low-tax countries could harm Americans.
Rep. Dave Camp (R-Mich.) and Sen. Orrin Hatch (R-Utah) said in a joint statement June 2 that other governments may be using the talks at the Organization for Economic Cooperation and Development as away to "raid the American Treasury."
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About two dozen U.S. companies ranging from Liberty Media to Sara Lee have quietly moved their headquarters out of the United States to places like Ireland and Canada and England since 2008 in search of lower corporate income taxes. Few people other than tax techies noticed. But now, thanks to the high-profile attempt launched in April by Pfizer to buy British-based AstraZeneca and cut its taxes by turning itself into a British companywith headquarters in New York, so-called tax inversions have gotten a lot of attention. Aswell they should. But rather than shriek and point fingers, theway tax questions are usually dealtwith these days, let's step back and ask two fundamental questions.

First,what is an American company? Second, canwe and shouldwe stop U.S.-based companies from continuing to benefit fromwhat our country has to offer - things such as our financial markets, legal system, intellectual infrastructure and abundance of great places for employees to live -without their paying full freight? It's letting them eat their cake and have it, too.

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Japanese Prime Minister Shinzo Abe's second term began in December 2012. In the first 12 months, prices on the previously moribund stock market soared 63 percent. In the following six months, they have dropped by 10 percent. The rise and fall are largely explained by Abenomics.
The prime minister's radical break from Japan's previous economic policies has three components, referred to as the three arrows. The first arrow is an enormous expansion of the money supply by the Bank of Japan. The second arrow is a big boost in government spending.
Japan's miraculous made-in-Tokyo recovery is now stalled by a lack of progress on the third arrow of Abe's program: promised but unspecified structural, supply-side reforms like reduced regulation of the labor market, reductions in trade barriers and other protections of favored industries, and a reduction in the corporate tax rate, currently the second highest in theworld after the United States. The government's fiscal and economic blueprint, due later this month, is expected to offer proposals on these issues.
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The OECD's base erosion and profit-shifting project is approaching a major milestone in June. The OECD's Committee on Fiscal Affairswill vote on the first set of deliverables on the BEPS action items.
For thosewho don't spend all their time keeping upwith the BEPS project's various releases and deadlines, the following summary might be helpful.
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The European Union member states need to advance common corporate tax legislation to ensure that companiesworking in the digital economy pay their fair share of taxes, a European Commission-sponsored report urges.
The report, drawn up after various companies such as Google Inc., Apple Inc. and Amazon.com Inc.were accused of paying minimal corporate tax in the EU by manipulating different tax laws in EU member states, also said EU member states should consider revising transfer pricing rules and reviewing concepts for defining and applying taxable presence. The changes should be made as part of the Organization for Economic Cooperation and Development's project to combat base erosion and profit shifting (BEPS), the May 28 report said.
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The international base erosion and profit shifting project's September 2014 deliverables on tax treaty abuse, intangibles and country-by-country reportingwill affect the U.S. insurance industry to varying degrees, a U.S. Treasury official said.
Deputy Assistant Treasury Secretary for International Tax Affairs Robert Stack told the Federal Bar Association's annual insurance tax seminar on May 30 that the BEPS project could result in measures "that can actually harm you guys. I can imagine folks in the [insurance] industry may think of this as a very distant topic."
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A report by Citizens for Tax Justice on corporate use of tax havens is flawed by double-counting of controlled foreign corporation income,which results in understating effective corporate tax rates and makes the analysis "virtually meaningless," according to a May 28 blog post by the Tax Foundation.

For the blog post, go here.

On or around April 18, the OECD released a copy of a revised draft on action 13 (transfer pricing) of the base erosion and profit-shifting action plan toworking party members and official consultative members in advance of the May 19 public consultation on transfer pricing documentation and country-by-country (CbC) reporting.
The document instructed delegates to review the revised draft and providewritten comments on or before May 1 and to bring their own copies of the draft to a meeting, the date and location ofwhich are unknown, because therewould be no printed copies available in the meeting room. (Related coverage of secrecy issues at a G-20 tax symposium in Tokyo on May 9-10.)
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More than half of big global and home-grown Irish companies are very concerned about the impact of proposed changes to the international tax regime by the Organisation for Economic Co-operation and Development (OECD), a survey suggests.

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Anti-treaty-shopping provisions enacted under domestic law don't necessarily amount to a treaty override, according to U.S. and Canadian officials speaking at a May 22 international tax seminar in Toronto co-hosted by the U.S. and Canadian branches of the International Fiscal Association.
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ACT has released a new report in response to the recent trend of U.S. companies pursuing redomiciliation through mergerswith overseas companies. The report describes the recent trend of corporate inversions through mergers, the parts of the U.S. tax code that are encouraging these mergers, aswell as the economic and tax effects of these transactions. Additionally, the report looks at how the U.K. dealtwith this issue in the past – andwhat it means for U.S. corporate tax reform efforts today.

For the report, go here.

Speaking during a May 26webcast on the status of the OECD's base erosion and profit-shifting project, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, reported "tremendous progress" toward finalizing the seven 2014 action plan items.
According to Saint-Amans, the 2014 deliverables are on target to be finalized and releasedwhen the G-20 finance ministers meet in Cairns, Australia, September 20 and 21.
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Recently, several high profile companies have indicated an interest in merging or plans to mergewith a non-U.S. headquartered company. This "secondwave" of inversions again raises concerns about an erosion of the U.S. tax base.
Two policy options have been discussed in response: a general reform of the U.S. corporate tax and specific provisions to dealwith tax-motivated international mergers. Some have suggested that lowering the corporate tax rate as part of broader tax reformwould slow the rate of inversions. The second option is to directly target the merger inversions.

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The Organization for Economic Cooperation and Development has decided to speed up itswork on risk recharacterization and capital as part of an effort to address the most challenging transfer pricing issues in its action plan on base erosion and profit shifting, a top OECD transfer pricing official said.
Marlies de Ruiter, head of the OECD's division on tax treaties, transfer pricing and financial transactions, said May 26 that the organization'sworking Party No. 6 on Taxation of Multinational Enterpriseswill soon send its latest draft on transfer pricing issues related to intangible assets to the Committee on Fiscal Affairs (CFA) for approval as a BEPS 2014 deliverable.
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Democrats in Congress are trying to block companies from cutting their tax bills by moving their legal address outside the U.S. through a merger.
Companies are forging ahead anyway.

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A few days after Americans filed their tax returns last month, the Internal Revenue Service
released data on the offshore subsidiaries of U.S. corporations. The data demonstrate, in an
indirectway, that these companies are not playing by the same rules as the rest of us.

For the report, go here.

Tax audits have risen 73%worldwide, giving corporations around theworld plenty to think aboutwhen it comes to having their tax affairs in order.

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Let's repeat. The OECD base erosion and profit-shifting project is a European initiative designed to patch the current international system of transfer pricing and separate company accounting. It is not a Trojan horse for formulary apportionment based on sales. That regime may evolve, but not from BEPS.
Sowhat is the OECD doing? The OECD is trying to coordinate and make consistent the various domestic measures that European countries have been pursuing -- long before this project came about -- to counterwhat they see as offensive tax planning by U.S. multinationals. Herding cats is such a hackneyed phrase!

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If too many U.S. companies are able to shift their legal residence to foreign locations, thewhole U.S. system ofworldwide taxation could unravel.
If firms comprising a significant portion of an industry in the United States become legally domiciled outside it, theywill enjoy tax advantages not available to their domestically domiciled competitors. The domestic firms left behindwill justifiably cry foul and seek relief from Congress. If Congress doesn't provide that relief, the domestic companieswill seek foreign merger partners.

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European efforts to build a financial-transaction tax are turning towhich derivatives to tax and how to leave room for future expansion, planning documents show.
Greece,which holds the EU's rotating presidency until July 1, has proposed several options for taking the plan forward, according to the documents prepared for a May 28working group meeting.
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A senior senator's bill targeting corporate inversionswould also affect transactions in some corners of the partnershipworld, and at least one practitioner recommended on May 22 that new businesses think twice before establishing themselves as domestic entities.
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Tax authorities around theworld have yet to develop a uniform approach to the taxation of Bitcoin.

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Switzerlandwill implement changes to its corporate tax regime at federal and cantonal level in an effort to preserve the country's tax appeal.
Several companies have chosen to move their registered company seat outside of Switzerland this year, citing tax and legal uncertainty as their main reasons for doing so.
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Eighty six countries have agreed to the new OECD VAT guidelines,which aim to provide practical solutions to tackle tax avoidance, mitigate the risk of double taxation, combat lost revenue and solve issues surrounding tax law mismatches.

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It's not just congressional Republicanswho believe tax reform is the appropriateway to halt U.S. corporations' interest in inversions as a tax avoidance strategy. A growing number of Democratic lawmakers are saying they too believe Congress should dealwith the issue in the context of reform.
"In away, Ian Read, CEO of Pfizer, has given us awake-up call -- maybe done us a favor -- and put a spotlight on the need for us to come back to the issue of corporate tax reform," Senate Finance Committee member Thomas R. Carper, D-Del., said, noting that he believes reform is the "real solution" to the inversion issue. A merger attempt by Pfizer Inc. to avoid taxeswas rejected by U.K. company AstraZeneca PLC on May 19.
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It's common for tax conferences to acknowledge the companies and organizations that sponsor the event. Given the significant amount of money and resources needed to hold a conference, it makes sense for the host to solicit funding.
However, should that same justification applywhen the host is not a professional body or advocacy group, but a government entity that is holding a conference on a topic that directly affects those sponsors? Does it seem inappropriate if the press is barred from covering a government-hosted, private-sector-funded conference atwhich high-level government officials discuss tax policywith private sector representatives?
Those are questions that Tax Analysts debatedwhen the Australian Treasury, as part of Australia's G-20 presidency, hosted an international tax symposium in Tokyo May 9-10. Details about the symposium, including the agenda and attendee list,were posted on the Australian Treasury'swebsite.
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There is no doubt that companies are becoming more transparent in reporting and disclosing their tax affairs. But they are still not going far enough, according to tax justice campaigners.
More companies are voluntarily offering tax information, and the number of mentions of theword "tax" in FTSE 100 companies' annual reports has dramatically increased in the past five years.
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The increased diversification of the digitised economy presents a major challenge for BEPS initiatives. Lack of a permanent establishment (PE) had led to debate overwhere tax should be applied, evenwhere a digital entity is not practising a tax avoidance strategy. The prospect of amended tax legislation to address this has raised concerns over the increased risk of double taxation, and a regulatory burden on multinationals.
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On May 19, 2014, the Organisation for Economic Co-operation and Development
(OECD) held a public consultation on the transfer pricing documentation and
country-by-country (CbC) reporting draft,whichwas released on January 30, 2014.

The transfer pricing documentation and CbC reporting draft is the outputwith respect
to Action 13 of the Base Erosion and Profit Shifting (BEPS) project,which requires
the development of improved transfer pricing documentation standards and a CbC
reporting template. The draft is set to be completed by September 2014.

For the alert, go here.

Just after Michigan Democrats and brothers Sen. Carl Levin and Rep. Sander M. Levin introduced legislation May 20 to tighten inversion rules under section 7874 that attempt to prevent U.S. companies from moving their tax residence overseas to avoid U.S. taxation, the top Senate taxwriter threw coldwater on the idea of changing stock ownership rules before enacting comprehensive tax reform.
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A pair of legislative efforts to curb international, tax-driven mergers and acquisitions met a tepid reception on Capitol Hill, but the bills' backers say that they put companies looking to perform corporate inversions on notice.

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A group of fourteen Senate Democrats moved to thwart plans by US companies such as Pfizer to redomicile abroad through mergers to cut their tax bills, introducing legislation thatwould impose a two-year "moratorium" on such inversion deals.

The bill led by Carl Levin, a veteran Michigan lawmaker, is unlikely to gain much traction on Capitol Hill this year amid Republican resistance, but is designed to at least have a chilling effect on other companies contemplating such manoeuvres.

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U.S. companieswould face strict limits on mergers inwhich they move their tax address outside the U.S. under a bill proposed today by Senator Carl Levin, a Michigan Democrat.

Under Levin's plan, U.S. companies trying to buy a foreign company and relocate their headquarters to a lower-tax countrywould have to ensure that shareholders of the non-U.S. company own at least 50 percent of the combined company, up from 20 percent now. The plan,which lacks Republican support, is unlikely to become law any time soon.

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A group of Democratic senators unveiled a bill Tuesday thatwould limit corporations' ability to shift their address offshore for tax purposes, though they acknowledged it faces a long road.

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Although multinational corporations use tax planning to reduce taxes on foreign income, the current tax system requires U.S. companies to pay taxes on foreign profits once to the host country and again to the United States,which increases their effective tax rates, the Tax Foundation said in a May report.

For the report, go here.

Twenty-eight companies disclosed that they pay less than a 10 percent tax rate on the $409 billion they collectively hold offshore, but hundreds of companies are likely avoiding about $550 billion in U.S. taxes by holding $1.95 trillion of profits offshore, Citizens for Tax Justice said in a May 19 report calling on Congress to end deferral.

For the report, go here.

Heated debate over the method of filing and sharing corporate information via a country-by-country (CbC) reporting template arose among representatives from governments, the business sector, and civil society at the OECD's May 19 transfer pricing documentation consultation in Paris,with some advocating for direct filingwith all countries and others pushing for a treaty-based sharing system.
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Stakeholders at a May 15 public consultation in Paris found the OECD's proposals to neutralize the effects of hybrid mismatches unworkable and identified specific problems for repos, regulatory capital,widely held funds, and collective investment vehicles (CIVs).
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An Organization for Economic Cooperation and Development official quizzed business community representatives about their assertion that the organization's proposed country-by-country reporting template should be provided by the parent company to its home tax jurisdiction.
During the OECD's latest public consultation on base erosion and profit shifting May 19, Joseph Andrus, head of the OECD's transfer pricing unit, askedwhether sharing the proposed country-by-country template and master filewith tax administrations under this approachwould impact state sovereignty.
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Proposed legislation thatwould set a two-year moratorium on corporate inversionswon't drive assets overseas, Sen. Carl Levin (D-Mich.), the bill's top proponent, said.
Levin's bill, expected to be released May 20,would put new restrictions on international, tax-driven corporate mergers and acquisitions that result in a lower tax bill for the new company. The threshold for an inversion deal to legally take placewould likely rise from 20 percent of foreign stock ownership to 50 percent.
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The OECD held a public consultation on 23 April 2014. The consensus at this meeting supported the conclusion in the draft report that there is no separable 'digital economy'which is different from the economy, rather,whatwe are living through is a 'digitising' of the economy.

Notwithstanding this consensus, therewas a divergence of views aboutwhat the consequences of this conclusion should be. Broadly speaking, the business representatives favoured postponing futurework on the digital economy issues outlined by the OECD Task Force until itwas clearwhat recommendationswould come out of the other BEPS Action Plan groups.

For the article, go here.

Here'swhatwe've alwayswondered about tax havens:what do they get out of being tax havens?
Turns out they get quite a bit -- even though money merely moves through them to somewhere else -- provided they satisfy the immutable laws of tax havens.
First, a tax haven must be small. Second, a tax haven must be near the customers. Third, a tax haven must have rule of law,which usually means British corporate law and final appeals to the Privy Council.
The title of this article refers to the OECD base erosion and profit-shifting project, a principal goal ofwhich is to prevent multinationals from shifting profits to tax havens.
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The Organization for Economic Cooperation and Development's recently proposed rules for neutralizing hybrid mismatch arrangements should be modified to allow "flexibility"for jurisdictions to apply domestic rules to mismatches between unrelated parties, a Chinese tax official said May 15.
For China, "there seems no reason to prevent [jurisdictions] from extending the scope" of the OECD rules, said Yuxianwu, principal staff member for nonresident taxation at China's State Administration of Taxation.

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Developing countries and their role in facilitating global tax reform came to the forefront at the G-20 International Tax Symposium on May 9-10 in Tokyo, as more than 200 government officials, tax practitioners, academics, and business representatives from more than 40 countries gathered to discuss the G-20's tax agenda for 2014-2015.

Delegates discussed a broad range of topics -- including progress on the OECD's base erosion and profit-shifting action plan andwork on automatic exchange of information -- and exchanged views on creating a stronger, more efficient global tax system.

Australia,which holds the current G-20 presidency, led the eventwith the support of the Japanese Ministry of Finance; sponsors included the Institute of Chartered Accountants Australia, the Institute of Chartered Accountants in England andwales, and the Global Accounting Alliance, aswell as Deloitte, KPMG, and PricewaterhouseCoopers.

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Robert Stack, Treasury deputy assistant secretary (international tax affairs), on May 10 previewedwhat to expect as the OECD finalizes proposals on the digital economy, hybrid mismatches, treaty abuse, and country-by-country (CbC) reporting.

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Taxpayers got some joy from the Brazilian Superior Court of Justice (STJ) decision that the country's controlled foreign corporation (CFC) regime does not complywith the business profits article (Article 7, OECD Model Convention) of some of the tax treaties in its network.

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Commentators responding to the OECD's discussion drafts on hybrid mismatch arrangements cited the difficulty and unfairness of the OECD's top-down approach, overly stringent related-party test, and potentially adverse effects of the proposed rules on regulatory capital,widely held funds, and imported mismatches.

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Senator Carl Levin said hewill introduce legislation thisweek to limit U.S. companies' ability to move their legal addresses out of the country for tax purposes through mergers.

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Corporate "inversion," inwhich an American corporation reincorporates itself as a "foreign" company to avoid U.S. taxes, is in the news again. In 2004, Congress enacted a bipartisan law to prevent inversions, but a gaping loophole allows corporations to skirt this law by acquiring a foreign company.
For this article, go here.