2014

Taxpayers craved certainty from the UK budget lastweek and that is broadlywhat they got. George Osborne, the chancellor of the exchequer, even resisted the temptation to increase the bank levy, a regular measure in recent budgets, though the charge itself is set for a redesign.

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Brussels has stepped up its probe into alleged illegal sweeteners offered to multinationals by expanding the investigation to cover arrangements for patent-holders and ordering Luxembourg to reveal its promises to specific companies.

The case opens a new front in the global clampdown on tax evasion through enforcing the EU's rule book on state aid – a unique regime that bans serious distortions of competition through tax breaks to favoured private groups.

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Public comments are invited on a discussion draft on the Tax Challenges of the Digital Economy.
In July 2013, the OECD published its Action Plan on Base Erosion and Profit Shifting. The Action Plan identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions. Action 1 of the Action Plan is "Address the tax challenges of the digital economy."
Interested parties are invited to send comments on this discussion draft,which includes the preliminary results of thework carried out in relation to Action 1 of the BEPS Action Plan.
Comments on this discussion draft should be submitted electronically (inword format) before 5.00pm on 14 April (no extensionwill be granted) to CTP.BEPS@oecd.org.

For the discussion draft, go here.

The two draft reports released on 19 March 2014 by the OECD call for the introduction of both domestic rules and amendments to the OECD Model Tax Convention to neutralize the effect of hybrid mismatch arrangements. The recommendations of the OECD on hybrid mismatch arrangements result from Action 2 of the Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan).

For the article, go here.

Estimates based on historical data suggest that approximately three-quarters of the income of foreign subsidiaries of U.S. multinationalswill be subject to a new minimum tax under the tax reform discussion draft from Houseways and Means Committee Chair Dave Camp, R-Mich.
The February 26 draft creates a new category of subpart F income called foreign base company intangible income (FBCII). FBCIIwould not get the benefit of the new participation exemption that the draft provides. In effect, FBCIIwould be subject to a minimum U.S. tax of 15 percent if it is related to foreign sales or the provision of services outside the United States. FBCII related to the sale of products or the provision of services in the United Stateswould be taxed at 25 percent.

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Fifty-four percent of CFOs of foreign firms operating in the United States said the corporate tax rate is the most important factor in their investment decisions, according to a March survey by PricewaterhouseCoopers LLP and the Organization for International Investment.

For the survey, go here.

Foreign corporations are increasingly optimistic about investing into the U.S., yet many say tax overhaul is needed to lower the corporate rate, according to a survey of 101 U.S. chief financial officers of "insourcing" companies.
Released March 20 by PricewaterhouseCoopers LLP and the Organization for International Investment (OFII), the survey results show "about a 20 percent uptick in CFO confidence,"Joelwalters, U.S. inbound tax services leader at PwC, told Bloomberg BNA March 20. At the same time, there is significant concern that the U.S. corporate tax rate is too high,walters said.

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A Senate investigative subcommittee is examining Caterpillar Inc. andwhether the company improperly avoided U.S. taxes by moving profits outside the country, said three people familiarwith the inquiry.
The Senate's Permanent Subcommittee on Investigationswill hold a hearing in early April, said two of the people. They spoke on condition of anonymity before an official announcement of the hearing.
Rachel Potts, a spokeswoman for Caterpillar, declined to comment, as did two staff members for the subcommittee.

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The Organization for Economic Cooperation and Development issued a discussion draft recommending that countries adopt new domestic rules to address the mismatch in tax outcomes of hybrid mismatch arrangements and a second draft recommending related changes to the OECD Model Tax Treaty.
The draft, "BEPS Action 2: Neutralise the Effects of Hybrid Mismatch Arrangements (Recommendations for Domestic Laws)," issued March 19, recommends that countries adopt "linking rules" to target hybrid financial instruments, hybrid entity payments, and reverse hybrid mismatches.
The second draft, "BEPS Action 2: Neutralise the effects of Hybrid Mismatch Arrangements (Treaty Issues)," proposes amending Article 1 of the OECD Model Tax Convention to prevent dual resident entities from obtaining inappropriate benefits.

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This article summarizes the 11 articleswritten by Stephen Shay, Robert Peroni, and J. Clifton Fleming,which are mostly about the merits and demerits of shifting to a territorial or exemption system for not taxing foreign-source income. Shay, Peroni, and Flemingwere not the first to identify the current deferral system as sometimesworse (or better, depending on your viewpoint) than full exemption of foreign income, but they have most forcefully explainedwhy deferral, and certainly exemption, is inconsistentwith the underlying theory of the income tax: taxing based on ability to pay.

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The OECD on March 19 issued two discussion drafts in response to action 2 of its base erosion and profit-shifting action plan,which aims to prevent base erosion resulting from cross-border mismatches in the treatment of hybrid entities and instruments.
The drafts recommend changes to domestic law and the model tax convention to address circumstances inwhich a hybrid arrangement leads to double deductions or a deduction in a transaction that does not also result in an income inclusion. The drafts follow the March 14 release of a discussion draft on changes to the model tax convention to prevent treaty shopping.

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In this article, Brown urges the United States not to undertake major tax reformwithout considering the impact on more vulnerable economies, especially those in the Caribbean.

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The National Foreign Trade Council, representing 250 major U.S. multinational companies, is concerned that the international base erosion and profit shifting (BEPS) projectwill result in some countries enacting unilateral domestic transfer pricing legislation, an NFTC official said.
Vice President for Tax Policy Catherine Schultz said March 14 that U.S. businesses care a lot about the BEPS project because countries probablywill adopt new rules on some BEPS action items, including country-by-country reporting and transfer pricing documentation, irrespective ofwhether countries actually reach agreement on the ultimate BEPSwork product.
"Our biggest fear is that suddenlywe have all these reporting requirements and administrative requirements and that they are all different,"Schultz said at an NFTC roundtable.

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Public comments are invited on two discussion drafts on Action Item 2 of the BEPS Action Plan.
In July 2013, the OECD published its Action Plan on Base Erosion and Profit Shifting. The Action Plan identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions.
Action 2 of the BEPS Action Plan calls for the development of model treaty provisions and recommendations for the design of domestic rules to neutralise the effect of hybrid mismatch arrangements.
The Action Plan calls for thiswork to be concluded by September 2014. In connectionwith thiswork the Committee on Fiscal Affairs (CFA) has now released two consultation documents on Action Item 2 as a single proposal for public consultation.
Comments on these documents should be submitted electronically (inword format) before 5.00 pm on 2 May 2014.

For the press release, go here.

For the first discussion draft, go here.

For the second discussion draft, go here.

The international corporate tax system is increasingly outdated. This has allowed some large multinational companies to avoid paying their fair share in tax. International companies are a great source of innovation and jobs. Let us put our cards squarely on the table. No one countrywants to act alone and drive investment away. But people in our countries are rightly calling for something to be done. That'swhywe need to act together through the Group of 20.

For the letter, go here.

Houseways and Means Committee Chairman Dave Camp (R-Mich.) Oct. 26, 2011, released the Tax Reform Act of 2011 as an initial tax reform discussion draft (the "2011 Discussion Draft"); as part of a broader tax reform effort to be developed, the 2011 Discussion Draft generallywould have reformed the U.S. international tax system to move away from deferral and toward exemption,while addressing concerns about corporate tax base erosion primarily by subjecting more foreign income to immediate U.S. tax under Subpart F.
Camp Feb. 26 unveiled the Tax Reform Act of 2014 as a comprehensive tax reform discussion draft (the "2014 Discussion Draft"). The 2014 Discussion Draft generally incorporated the international tax reform framework of the 2011 Discussion Draft, butwith several significant modifications and additional proposals. The following table is intended to provide an overview of these modifications and additions.

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This OECD report calls for a very significant rewrite of both the OECD Model Tax Convention and the Commentary, including a US-style Limitation of Benefits (LoB) article aswell as a main purpose anti-abuse rule. A variety of other anti-abuse measures are also proposed. If the recommendations arewidely adopted, theywill undoubtedly reduce treaty abuse, but also create significant uncertainty for international business. Given that tax treaties play such a critical role in removing barriers to cross-border trade and investment the primary concernwith these OECD proposals is that their focus on combating treaty shoppingwill have a disproportionate impact on cross-border commercial activity.

For the PwC Insight, go here.

Margaret Hodge, the influential chair of Britain's parliamentary public accounts committee, has accused the government of talking tough against tax-avoiding corporations but failing to take effective action to reform the tax system.

The Labour MP has risen to prominence in recent years after her cross-party committee cross-examined the executives of companies such as Starbucks, Amazon and Google over the low levels of tax they pay in the UK.

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Britain has leapt ahead of low-tax rivals such as Ireland, Luxembourg and Switzerland to become multinationals' favourite tax regime, according to a poll that George Osborne hailed as a "remarkable turnaround" in efforts to make the country more attractive to foreign investors.

But the continuing debate over corporate tax avoidance is making business nervous,with 63 per cent of big companies polled by KPMG, professional services group, saying it had adversely affected UK tax competitiveness.

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The OECD has issued a revised timetablewith the dateswhen discussion draftswill be published and public consultations held in relation to base erosion and profit-shifting project reports expected in September 2014.

For the OECD communication, go here.

As part of its base erosion and profit-shifting action plan, the OECD proposed a belt-and-suspenders approach to treaty abuses,with suggested amendments to the OECD model treaty, the commentary, the introduction, and the preamble of the model.
The OECD issued a tax treaty abuse public discussion draft March 14 as part of its BEPS project. To curb treaty shopping, the OECD makes three treaty design recommendations.

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A couple years back, the British also decided to become a corporate tax haven. How can the country afford to give up corporate income tax revenue in addition to supporting an army? It has its own currency, made stronger by all those bank deposits. The British effectively repealed their subpart F rules and put on interest deduction restrictions intended to beweak. The ruling Conservative Party regularly debates leaving the EU -- the country's biggest trading partner.
Which brings us to the OECD's base erosion and profit-shifting initiative. The British -- to use one of their favorite expressions -- are busy trying to throw a spanner into the BEPSwork. They are arguing for interest deduction restrictions similar to their own. They are making inroads convincing European governments not to have meaningful controlled foreign corporation rules. Ironically, Ireland and its fellow low-tax European countries may be pressed to enact CFC rules.

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In creating a template for country-by-country reporting under its project to combat base erosion, the Organization for Economic Cooperation and Development's prime concern "must be to ensure that the template includes all the information that tax authorities may require in order to get an adequate picture of the firm as awhole," the BEPS Monitoring Group (BMG) said.
The group's letter,written by Richard Murphy, founder of the Tax Justice Network, also criticized arguments from taxpayers that reporting requirements under the draft template, released by the OECD Jan. 30,would impose excessive cost burdens on multinational companies. These arguments, he said in the letter released March 3, "cannot be taken seriously."

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A Treasury official on March 13 defended the recent section 7874 temporary regulations (T.D. 9654) on determining surrogate foreign ownership,which do not provide an exception to the disqualified stock rule for an asset acquisition, including in cases of reorganizations.

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Aiming to put an end to all the cross border tax planning strategies, in July 2013, the Organisation of Economic Cooperation and Development (OECD) released its Action Plan on 'Base Erosion and Profit Shifting' (BEPS), identifying 15 points of actionswhichwould be the focus of itswork over the following two years. These actions aim at redesigning the current set of international tax rules and adopt new consensus-based approaches, including anti-abuse provisions, designed to counter corporate tax-avoidance and enhance transparency.

For the article, go here.

President Barack Obama's proposed budget for the next fiscal year includes two broad categories of tax provisions. This report describes the provisions proposed by the President as a package of a business tax reforms. Provisions in the budget that mostly benefit individuals and families and raise revenue are described in another report from Citizens for Tax Justice.

For the paper, go here.

Miller & Chevalier Chartered and the National Foreign Trade Council (NFTC) today announced the results of their 2014 Tax Policy Forecast Survey measuring the current perspectives of leading business tax executives on the tax legislative agenda in 2014.

For the survey, go here.

The largest U.S.-based companies added $206 billion to their stockpiles of offshore profits last year, parking earnings in low-tax countries until Congress gives them a reason not to.

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International Tax Review has just published a special report - Tax Reform: An incomplete revolution.

This report outlines the main tax reform trends in 2013 and offers additional content, revealing if these trends are still having a significant impact in 2014.

For the report, go here.

Income from royaltieswas unintentionally excluded from the reduced tax rate on foreign base company intangible income (FBCII) from foreign markets enunciated in the tax reform discussion draft released last month by Houseways and Means Committee Chair Dave Camp, R-Mich., a committee staffer said March 10.

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European Union finance ministerswill try to end an embarrassing six-year legislative saga March 11when the European Council of Economic and Financial Affairs considers legislation to revamp the EU cross-border savings tax directive,which is so easy to evade it is also referred to in the financial service industry as the "dummy tax."

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Reform of the US tax system is still a longway off judging by the differences between the proposals in the 2015 Budgetwhich President Obama released lastweek and the plan of Dave Camp, the Houseways and Means Committee chairman,which came out aweek earlier.

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The G20 / OECD project on BEPS is likely to preoccupy tax executives over the next two years, even in jurisdictions that do not belong to either group.

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The IMF has called for input into how national policy and tax design choices under the current international tax architecture influence economic outcomes for other countries; interested parties should submit comments by March 31.

For the request for comments, go here.

On March 3 the OECD made public the approximately 1,200 pages of comments1 it received on the proposed draft transfer pricing documentation rules and the development of a template for country-by-country (CbC) reporting reflecting input from approximately 150 commentators, including individual businesses, business groups, nonprofit advocacy groups, academics, law and accounting firms, and other associations interested in cross-border tax issues.
The volume of commentary received reflects the enormous interest in the topic. The sharp polarity in the nature of the comments may be an indication of the difficulties the OECD faces as it attempts to finalize the new reporting guidelines and accompanying templates.

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It's unbecoming for the FBI to use criminals to entrap greedy politicians. It's also unbecoming for the IRS to help U.S. multinationals avoid tax in market countries,while Treasury officials are trying to reassure those same countries that the United States respects the goals of the OECD base erosion and profit-shifting project.
As the discussion at the recent International Fiscal Association USA annual conference in San Francisco demonstrated, multinationals' income stripping and global supply chain restructuring still present unresolved questions under subpart F.

For the story, go here.

EY has released a report titled "The outlook for global tax policy in 2014."

Taxes around theworld are on the rise. But these rises may be a bit less obvious than in the past. Governments are generally making fewer changes to headline corporate, personal and indirect tax rates in 2014 compared
with 2013 and 2012. Instead, more are putting legislative changes in place thatwill adjust and expand the tax base for 2014 and beyond, often at the net expense of taxpayers.

For the report, go here.

With foreign governments moving to enact anti-base erosion and profit shifting rules, the U.S. could be pressured to address the issue before moving on to a comprehensive tax code rewrite, practitioners said during awebcast.
A Houseways and Means Committee tax counsel, however, did not commit to the prospect during the March 7 discussion, hosted by KPMG LLP.

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A proposal by Houseways and Means Committee Chairman Dave Camp (R-Mich) to ditch the U.S.worldwide tax system could be a safe bet for MGM Resorts International.

By revamping theway the U.S. taxes foreign income, Campwould head off attempts by the Obama administration to levy heftier taxes on so-called dual capacity taxpayers such as multinational casinos or energy companies that reap specific economic benefits from other countries.

Camp's plan isn't painless. Companieswould lose some ability to claim foreign tax credits and be open to double taxation on up to 5 percent of foreign income returned to the U.S. in the form of dividends, lobbyists following the issue told Bloomberg BNA. Camp released the draft Feb. 26.

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Practitioners raised concerns about the impact of the administration's new revenue proposal to limit the ability of companies to "invert" their operations by expatriating inways thatwould avoid U.S. taxes, saying the proposal could create an incentive for firms to move their operations out of the U.S.
At a March 5 luncheon, a practitioner raised questions about situations inwhich large foreign multinationals buy small U.S. firms,with a Treasury official saying it is possible certain transactions could fall under the rules but that likely isn't the government's intent.

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There's at least one clear loser in President Obama's latest budget blueprint: U.S. multinational corporations.
The 2015 budget request Obama sent to Congress on Tuesday contains six proposals for plugging some major leaks in the international portion of the corporate tax code. All told, the budget blueprint calls for $276 billion in higher taxes on overseas earnings by U.S. multinationals - about $120 billion more than the president sought in last year's budget.

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Practitioners on March 5 highlighted the absurd results that could arisewere Congress to enact a special rule in the Obama administration's fiscal 2015 budget plan thatwould eliminate the ownership continuity test under section 7874 and focus only on the amount of business activities and management and control in the United States.

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Some members of the Organization for Economic Cooperation and Development's Business and Industry Advisory Committee (BIAC)want the "income tax paid" column to be deleted from the OECD's proposed template on country-by-country reportingÔøΩa change thatwould significantly undermine the purpose of the template.

In its Feb. 21 letter to the OECD, BIAC included "non-consensus comments" from a subset of its members stating that the "income tax paid" column,whichwould require a multinational group to report income tax paid, on a cash basis, to its country of organization, has "nothing to dowith transfer pricing."

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President Barack Obama is proposing more tax increases for U.S. multinational corporations, seekingways to prevent them from avoiding taxes by exploiting gaps in international law.

In the fiscal 2015 budget proposed yesterday, the Obama administration seeks to generate $276 billion over the next decade fromwhat it calls loophole-closing in the international tax system. The revenue -- 75 percent more thanwas sought through such changes in last year's budget plan --would be used to reduce corporate tax rates.

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Marchwill see the release of discussion drafts on data and effective tax rate methodology; the tax challenges of the digital economy and tax treaty abuse.

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Heads of tax and tax administrators should look to expand the G20 / OECD BEPS project and make it more inclusive, theworld Bank's top tax official has said.

For the story, go here.

The close of the 2014winter Olympics brought a number of reflections in theworld media on topics ranging fromwhy a summer resortwas the host city to the "trouser crisis" that faced Norway's curling team.wewould like to add our own reflection, albeit on something quite distinct from the thrill of victory and the agony of defeat: that driving force of the global economy called comparative advantage.

For the report, go here.

The Italian government, after much deliberation has quashed the Google tax,whichwas designed to retrieve missed revenues from the digital economy.

For the story, go here.

The Obama administration took aim at companies that shift income and assets overseas to avoid taxes in several new revenue proposals accompanying its fiscal year 2015 budget, including provisions to stop the creation of "stateless income"not subject to tax anywhere.

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