2014

World leaders have backed a transparency drive against the use of anonymous shell companies and trusts, giving new political momentum to longstanding promises to tackle the secrecy behind corruption, tax evasion and money laundering.

Following talks on Sunday, the Group of 20 leading nations published a set of principles for governments that aims to make it easier to find outwho is the beneficial owner of shell companies. Experts say these entities facilitate hundreds of billions of dollars in illicit financial flows.

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Move over, Ireland.

Companies from Microsoft Corp. to China's Huawei Technologies Co. scouring Europe for fiscally attractive shores are turning to an unlikely country: France.

As a base for research and development teams, that is.

Tax breaks for R&D, 5.6 billion euros ($7 billion) this year alone, combinedwithworld-class scientists are making France a honey pot for technology companies. As the French parliament debates how to shrink the country's budget deficit this month some lawmakers are demanding reining in the R&D credits, saying some companies are abusing them. President Francois Hollande has pledged it's a budget line hewon't touch.

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Treasury has sent the OECD an alternative method of addressing the cash box problem that does not focus on rewriting transfer pricing rules, Robert Stack, Treasury deputy assistant secretary (international tax affairs), said November 10.
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Unlike the media or government,when U.S. companies consider Ireland, their attention is drawn elsewhere. Certainly tax rates matter, but they are far from thewhole story.
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Jean-Claude Juncker, the new president of the European Commission,was always a bad choice for the job, foisted on the bloc's 28 national governments by a European Parliament eager to expand its powers. It's becoming clear now just how poor a decision that appointmentwas.

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A senior aide defended European Commission President Jean-Claude Juncker on Monday against charges of having provided a haven for corporate tax avoidance in Luxembourg, saying the entire new EU executivewas committed to stamping out tax evasion.
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Although the OECD is moving quickly in developing guidance as part of its base erosion and profit-shifting project, taxpayers are likely to face varied levels of implementation of its recommendations by countries desperate to raise revenue, practitioners said at a tax conference in Philadelphia.
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Attacking the "cash box" problem of stacks of cash sitting in low-tax jurisdictions to evade home country taxes is part of the fast-moving Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting, a Treasury Department official said.
Treasury is trying "to be as transparent in our thinking as possible as the process is moving on," Robert Stack, deputy assistant secretary for international tax affairs for Treasury, told a Silicon Valley audience Nov. 10 at the High Technology Tax Institute sponsored by San Jose State University and the Tax Executives Institute.
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Dutch tax rules for multinational enterprises (MNEs) are comparablewith rules in other European countries, the Netherlands Court of Audit said in a tax evasion report released Nov. 6, adding that Dutch tax rules aren't exceptional, but still favorable for MNEs.
The Court of Auditwas commissioned by the House of Representatives, the lower house of parliament, to examine tax avoidance in relation to the tax rules. The courtwas taskedwith completing an in-depth audit of tax evasion practices in relation to the tax treaty network, aswell as determining how MNEs allocate their assets and liabilities.
Overall, the court concluded that Dutch law is favorable to MNEs because of rules in place to prevent double taxation, and that the rules aren't significantly different from those of neighboring countries.
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A United Nations tax committee has deleted language from the commentary to the UN Model Tax Convention that gives primacy to the Organization for Economic Cooperation and Development's transfer pricing guidelines.
Michael Lennard, chief of the UN's international tax cooperation unit, told Bloomberg BNA Nov. 10 that the Committee of Experts on International Cooperation in Tax Matters deleted paragraph 3 of the Article 9 commentary,which recommended that countries follow the OECD's transfer pricing guidelines in applying the arm's-length principle.
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A Melbourne attorney said implementing the Organization for Economic Cooperation and Development's plan to combat base erosion and profit shifting may cause uncertainty for companies in the short term.
Niv Tadmore of the law firm Clayton Utz,who also is a member of the Australian Treasury's BEPS tax advisory group, told Bloomberg BNA Nov. 10 that the BEPS plan's impact on Australia "was a key issue" discussed at a recentworkshopwhere business representatives and Australian Treasury officials met.
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The Treasury Department and Internal Revenue Service have officially listed corporate anti-inversion guidance among the administration's regulatory priorities that deserve additional resources.
The first bit of anti-inversion guidance, Notice 2014-52,was issued Sept. 22 and Treasury officials in recent days have said additional noticesÔøΩincluding one that could address earnings strippingÔøΩare being considered.
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Michael J. Graetz and Alvin C.warren Jr. suggest that corporate shareholder integration offers a straightforward approach that could help resolve many of the most difficult issues and provide a key to unlocking business tax reform.
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Stuartweichsel of Farrell Fritz PC looks at precisely how Notice 2014-52 limits "hopscotch transactions" that avoid U.S. tax on foreign earnings, and points out the range of transactions thatwon't be affected under its terms. "The hopscotch loophole isn't used only by U.S. corporations that engage in corporate inversions as defined by tax code Section 7874," although those transactions are the ones targeted by the notice,weichselwrites. However, he says, the IRS has authority to issue regulationswith a broader reach.
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As the governmentworks to develop regulations under section 367(d) to target transactions intended to repatriate earnings from foreign corporations, practitioners at a conference November 7 drew attention towhat they consider to be the government's use of the statute in away thatwas never intended.
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Eleven euro zone countries moved closer to agreeing on a financial transactions taxÔøΩa form of the long-debated "Tobin tax"ÔøΩby lowering the proposed tax rate, hoping for an agreement in December.
The countries have disagreed throughout the 22-month negotiations, mostly aboutwhether a greater or smaller number of financial products should be taxed. France has supported a more limited scope,with only stocks and some credit default swaps,while Germany has preferred to include almost all derivatives.
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The recent Luxembourg tax scandal is a clear sign theworld's biggest economies need to combine their politicalwill to force rule changes to combat base erosion and profit shifting (BEPS) by multinational companies and tax evasion by individuals, the head of the Organization for Economic Cooperation and Development said.
But to get little countries like Luxembourg to "play ball by the rules," big countries like the U.S. and the U.K.will also have to end practices that contribute to tax avoidance, said OECD Secretary-General Angel Gurria.
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South Koreawill introduce a streamlined version of its existing advance pricing agreement program beginning January 2015 for companieswith annual sales of 50 billionwon ($45.9 million) or less, the National Tax Service said.
The streamlined programwill help more companies, representing 7,023 (76 percent) of 9,212 foreign companies currently doing business in South Korea, get transfer pricingwaivers, the agency said Nov. 6.
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Irish Finance Minister Michael Noonan said the European Union may have to abandon a state aid investigation into the nation's tax arrangements for Apple Inc.
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In a sprawling conference center on the outskirts of the Irish capital, more than 20,000 people from the global tech industry gathered lastweek to sign deals and swap contacts.
Despite the throngs of start-ups, American heavy hitters like Peter Thiel and executives from Facebook and Twitter, talk often centered on taxes -- specifically Ireland's controversial rules that have allowed some of theworld's largest tech companies to sidestep paying billions of dollars.
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Luxembourg,with just half a million people, is the second-richest country in theworld. Its position at the heart of the EU is essential to this prosperity, enabling it to trade and exportwith the large advanced economies around it. Butwhat really underpins its economy is finance,with banking assets 20 times the size of its GDP. So much money floods across its borders that Luxembourg stands tenth in rankings of global investment.

It is becoming clearer that much of this money flow is motivated by considerations of tax.

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Banco Santander SA's court victory in a case over Spanish tax breaks may hamper the European Union's probes into unfair fiscal deals for multinational firms, lawyers said.
The Nov. 7 ruling at the EU General Court, on special treatment for companies that take a stake in overseas firms, follows the revelation of hundreds of fiscal dealswith companies in Luxembourg,which sparked calls for tougher EU action to combat corporate tax dodging.
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Luxembourg has pledged to overhaul its culture of financial secrecy, and has fought back against accusations that it helped leading multinationals avoid billions of dollars of tax.

The claims could prove highly embarrassing to Jean-Claude Juncker, the new president of the European Commission,whowas prime minister of Luxembourgwhen the corporate tax dealswere allegedly struck.

Officialswere responding to a report that more than 340 multinationals, including such global names as Pepsi, Procter & Gamble and JPMorgan, made secret dealswith the Grand Duchy between 2002 and 2010 that saved them billions of dollars in taxes.

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Multinationals are bracing themselves for more state aid investigations, following the publication of a massive cache of leaked corporate tax documents from Luxembourg.

The tax affairs of more than 300 multinationalswere dragged into the openwhen the International Consortium of Investigative Journalists, a global network based in the US, partly published a stash of nearly 28,000 pages of leaked files. These businesses include corporations such as PepsiCo, Ikea , Accenture, Burberry, Procter & Gamble, Heinz, JPMorgan, FedEx, Abbott Laboratories and Macquarie.

The revelations have lifted the lid on practices that are regarded as normal in the corporateworld,where most big businesses use Luxembourg as part of their financial structures. But tax experts said that the documents may provide more examples of caseswhere allegedly favourable tax 'rulings' – comfort letters concerning a company's future tax treatment – amounted to illicit state aid, breaching EU rules.

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The global economy remains stuck in low gear, but is expected to accelerate gradually if countries implement growth-supportive policies.widening differences across countries and regions are adding to the major risks on the horizon, according to the advanced G20 release of the OECD's latestEconomic Outlook.

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The GOP takeover of Congress is boosting the odds for a full-scale rewrite of business tax rates and rulesÔøΩfrom nil to not impossible.

Both Senate Republican Leader Mitch McConnell of Kentucky and President Barack Obama onwednesday cited a tax overhaul as one of the top issues theywant to address.
"The president has indicated he's interested in doing tax reform," Mr. McConnell said. "He's interested in that issue, andwe are too."

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Hopes of a bipartisan agreement on business tax reform in the 114th Congress might be dashed after top congressional tax staffers on November 6 publicly acknowledged the political difficulties of attempting reformwithout providing benefits for individual taxpayers.
Telling individuals they get nothingwhile cutting taxes for large corporations is politically dangerous, Cathy Koch, chief tax and economic adviser to current Senate Majority Leader Harry Reid, D-Nev., said during a Bloomberg BNA post-election tax conference inwashington sponsored by KPMG LLP.
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Luxembourg fought back after a report revealed details of hundreds of secret tax dealswith multinational companies, and Germany's finance minister said the nation haswork to do on complyingwith global standards.
Luxembourg's government called an emergency news conferencewith Prime Minister Xavier Bettel and Finance Minister Pierre Gramegna after the disclosure of tax rulings bestowing low-tax status.
"These rulings, as they have been done in Luxembourg, are in linewith international and national rules," Bettel told reporters in Luxembourg Nov. 6. Gramegna said the procedure "is not something that's particular to Luxembourg. It exists in a lot of countries."
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The International Chamber of Commerce haswarned that the Organization for Economic Cooperation and Development's action plan on combating base erosion and profit shifting could "unintentionally increase the complexity of the international tax system and risk double taxation, seriously hampering international trade and economic growth."
Members of the ICC Commission on Taxation raised concerns about the unintended consequences of the BEPS project during meetingswith the United Nations Committee on International Cooperation in Tax Matters at U.N. headquarters in Geneva, the ICC said.
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U.S. companies are pressuring their tax departments to findways to repatriate offshore cashwhile paying little or no tax, but another tax holiday isn't the answer -- comprehensive reform of the U.S. international tax system is, practitioners said November 5 at the American Bar Association Section of Taxation tax conference in Philadelphia.
The media has focused on companies failing to disclose sufficient amounts of repatriated earnings, but that concern is overplayed, said Harris M. Horowitz of BlackRock Inc.
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The Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting is beginning to "gel," according to a high-ranking Treasury Department official.
"A year ago, itwas very difficult to kind of seewhere all of these 15 action itemswould go," said Robert Stack, deputy assistant secretary for international tax affairs for Treasury. "I think there are areas nowwhere patterns are beginning to emerge."
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The OECD's base erosion and profit-shifting project in 2015will focus on the role of zero tax rate jurisdictionswithin the international system, Robert Stack, Treasury deputy assistant secretary (international tax affairs), said November 6.
"One of the thingswe are going to see in the coming year is a much more intense focus on countrieswhere extremely low effective rates or zero rates can be attractive," Stack said, speaking at a Bloomberg BNA post-election tax conference inwashington sponsored by KPMG LLP inwashington.
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Less than aweek after taking over as head of the European Union's executive arm, Jean-Claude Juncker, the former longtime leader of Luxembourg,was buffeted Thursday by a flood of leaked documents detailing his home country's role as a haven for hundreds of companies seeking to drastically reduce their tax bills.
While Luxembourg's finance minister denounced as illegal the unauthorized release of the embarrassing tax documents, pressure mounted on Mr. Juncker,whowas Luxembourg's prime minister from 1995 until last year, to clarify his involvement in tax avoidance schemes.
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Luxembourg Finance Minister Pierre Gramegna sat downwithwSJ reporters Matthew Karnitschnig and Robin Van Daalen in late September to discuss his views on international efforts to reform corporate taxation. Here's an edited transcript.
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The leaking of documents detailing tax arrangements Luxembourg has agreedwith hundreds of corporate taxpayers is adding to pressure on Jean-Claude Juncker, president of the European Commission, after last month's state aid investigation launches into deals signed by the Grand Duchywhile Junckerwas prime minister had already cast doubt on the appropriateness of his Commission appointment.

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On November 5 the US-based International Consortium of Investigate Journalists (ICIJ) released the tax rulings of 548 corporations accused of having 'secret tax agreements'with Luxembourg. A follow-up piece in the Australian Financial Reviewwent as far as to accuse the Big 4 of facilitating the agreements in an article titled 'Big four audit firms behind global profit shifting'.
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Read about the latest signs that China is stepping up efforts to collect its share of tax revenues andwhy pharma companies are being targeted in particular.
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The ECJ today annulled two EC decisionswhich had ruled parts of the Spanish shareholding regime as incompatiblewith the fundamental principles of the internal market.
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The International Chamber of Commerce (ICC) has said that the Organization for Economic Co-operation and Development's (OECD's) Base Erosion and Profit Shifting (BEPS) Action Plan may unintentionally increase the complexity of the international tax system and, if implemented in a fractured manner, could cause an increasing number of cases of double taxation.
During recent meetingswith officials from the United Nations (UN), members of the ICC Commission on Taxation said that,while they support the BEPS Action Plan, they are concerned that it may inadvertently bring about severe collateral damage for compliant tax-paying companies of all sizes as a result ofwell-meaning measures undertaken unilaterally by states to mitigate double non-taxation.
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On 3 November 2014, the OECD published its discussion draft on the proposed modifications to Chapter VII of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. These proposed modifications have been developed in connectionwith Action Point 10 of the Action Plan on Base Erosion and Profit Shifting (BEPS). The proposed modifications do not yet represent a consensus view and are intended to provide stakeholderswith substantive proposals for analysis and comment. Action Point 10 is focused on developing
rules to prevent BEPS though the use of transactionswhichwould not, orwould only very rarely, occur between third parties including adopting transfer pricing rules or special measures to provide protection against common types of "base eroding" payments, such as management fees and head office expenses.
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The Internal Revenue Servicewon't address transactions involving foreign corporations in upcoming regulations under tax code Section 336(e) revising the treatment of certain stock dispositions as asset sales, a senior IRS attorney said.
Markweiss, an attorney in the Office of Associate Chief Counsel (Corporate), said the IRSwould likely address foreign corporations in "the next go around" under Section 336(e), but cautioned the project likelywouldn't commence for a few years.
The issues are too complex to address in the current regulatory project, he told tax practitioners Nov. 4 during a Practising Law Institute program in Chicago.
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The government is likely to put out more than one additional notice on inversions in addition to regulations implementing the anti-inversion Notice 2014-52ÔøΩand earnings stripping maywait beyond that first round of additional guidance, a Treasury Department official said.
The administration is still decidingwhether andwhen itwill address earnings stripping, and that action could come following the first additional notice, Douglas Poms, senior counsel in Treasury's Office of International Tax Counsel, said Nov. 5.
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The U.S. is "cautious" about the idea of a multilateral instrument to update 3,000 bilateral tax treaties around theworld, but iswilling to consider the proposals, an official from the Department of Treasury said.
A so-called multilateral convention or instrument to immediately update treaties is one of the options under consideration in the Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting plan, as away to update treaties based on the OECD's Model Tax ConventionÔøΩa processwhichwould, according to OECD officials, take a decade to do individually.
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The Treasury Department hopes to release one or more notices to address other inversion issues in addition to the regulations promised in its September anti-inversion notice, Douglas Poms, senior counsel, Treasury Office of International Tax Counsel, said November 5.
Although it is likely that an additional noticewill be issued before the regs are released, the timing and order of their release is still uncertain, Poms said at the American Institute of Certified Public Accountants' fall Tax Division meeting inwashington. Notice 2014-52, 2014-42 IRB 712,was released September 22 and says in part that Treasury and the IRS expect to issue additional guidance to further limit inversions and in particular are considering guidance on U.S. earnings stripping.
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The list of multinational businesses accused of using European jurisdictions to cut their tax bills grew much longer onwednesdaywhen a group of investigative reporters published findings accusing more than 300 companies, including PepsiCo, Ikea and FedEx, of benefiting from preferential dealswith the government of Luxembourg.
The findings, by the International Consortium of Investigative Journalists, are based on a trove of leaked documents that included 548 so-called comfort letters that the group said Luxembourg had provided to corporations seeking favorable tax treatment.
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Leaked documents describing the Luxembourg tax arrangements of more than 340 multinationalswere published onwednesday, stoking the debate over the allegedly favourable tax deals offered by the Grand Duchy.

The International Consortium of Investigative Journalists, a global network based in the US, said it had examined nearly 28,000 pages of leaked documents that laid out special tax deals granted by the Luxembourg tax authorities to some of theworld's largest corporations.

It said its findings showed how hundreds of companies had funnelled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes.

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German Finance Ministerwolfgang Schaeuble said Luxembourg has "a lot to do" to meet global tax standards as a report alleged that hundreds of companies use the duchy's rules to minimize their tax burdens.

Addressing German lawmakers in Berlin, Schaeuble cited global efforts to combat tax avoidance by companies and an international accord on Oct. 29 for countries to automatically share income-tax data.

"Luxembourg is among the signatories from lastweek -- there remains a lot to do if you read the newspaper, that's true," Schaeuble said in the lower house of parliament, or Bundestag,when a lawmaker demandedwhether the country had signed on.

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The release of a trove of confidential corporate tax documents from Luxembourg is raising new questions about the role Europe's top official, European Commission President Jean-Claude Juncker, played in helping international companies reduce their tax bills.

The documents, disclosed by thewashington-based International Consortium of Investigative Journalists on Thursday, provide fresh detail on how hundreds of theworld's biggest companies, from PepsiCo Inc. to FedEx Corp. , have funneled profit through subsidiaries in Luxembourg, avoiding billions in taxes in other jurisdictions.

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One of the most obvious questions from Tuesday's election results is:what does this mean for tax reform?
I think it certainly enhances the prospects of Congress and the president reaching a grand bargain on overhauling the tax code, however the likelihood that itwill be this Congress and this president making such a deal seem pretty remote.
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A new report about Luxembourg again underscores the magnetworking of low tax bases for corporate money streams.while any economic agent, such as a company,would obviously seek to pay as less taxes as possiblewithin the law, countries or states that undress their tax rules in front of rich firms are robbing other countries of tax revenues.
For the blog post, go here.