2014

The landlocked European duchy of Luxembourg has been called a "magical fairyland" for brand-name corporations seeking to drastically reduce tax bills.

For the report, go here.

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.

The proposed modifications to Chapter VII of the OECD Guidelines seek to achieve a necessary balance between appropriate charges for low value-adding services and the need to protect the tax base of countries inwhich entities are established that pay the service fees.

For the PwC Bulletin, go here.

Both parties in Congress agree the U.S. tax code is a mess and needs to be revamped. That doesn't mean itwill happen.
For the story, go here.

The 2014 midterm election season is (mercifully) just about over. The eyes of the politicalworld now turn to the "lame duck" Congressional session starting nextweek, but even more so towhat a new, likely unified GOP Congresswill look like in January.
There's a lot of hope that the next Congresswill be the one that finally tackles fundamental tax reform. A number of key building blocks are in place. The issues have been discussedad nauseuminwashington policy and political circles.
Sowhat could hold this up?
For the blog post, go here.

Autumn is upon us. In addition to leaf color tours, pumpkins and cider, this fall has brought a political frenzy to Michigan as numerous members of the congressional delegation retire. Among the departing lawmakers is a real tax policy heavyweight, U.S. Rep. Dave Camp (R.)

Camp soonwill leave his position as chairman of the powerful U.S. House of Representativesways & Means Committeewithout having accomplished his chief goal of comprehensive tax reform. His languished swansong proposal to update the tax code, though flawed in manyways, offered some bold moves, like taxing banks and limiting executive pay.

In his remaining time, Camp should continue to push for such bold proposals. He also should focus on closing international tax loopholes that cost the U.S. an estimated $90 billion per year, andwhich allow some highly profitable companies pay no federal corporate income tax.

For the story, go here.

As the Irish government moves to close one door to corporate tax avoidance, it is opening another.
Tucked into legislation to eliminate a much criticized tax structure known as the "Double Irish" is a separate provision thatwould allow companies to pay no corporate tax on profits earned from patents, licenses and other intellectual property.
For the story, go here.

A discussion draft released by the Organization for Economic Cooperation and Development calls for an "allocation key" to determine fees for intra-group, low value-added services.
The draft, issued Nov. 3 byworking Party No. 6, addresses item 10 of the OECD's action plan on base erosion and profit shifting (BEPS),which calls for rules to prevent base erosion through "transactionswhichwould not, orwould only very rarely, occur between third parties," andwhich require "special measures" for their prevention.
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b david D. Stewart (Tax Analysts)

The OECD on November 3, as part of its base erosion and profit-shifting project, released a discussion draft proposing a simplified approach for transfer pricing on low value-adding services.
David Ernick of PricewaterhouseCoopers LLP said the draft came as a relief. He noted that in the description of action 10, the OECD appeared to take a negative view of management fees and head office expenses,which many companies use for business purposes to centralize services. He said observerswere concerned that the debate at the OECDwould be less about the transactions' pricing and more aboutwhether those expenses and deductions should be disallowed as base-eroding payments.
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Republican victories in Tuesday's U.S. midterm elections are unlikely to rattle equity markets, but could lead to significant changes in corporate tax policy and mark the beginning of the end for popular tax inversion deals that saw Burger Kingworldwide Inc.'s proposed mergerwith Tim Hortons Inc.
S&P 500 companies earn 40% of their profits abroad, up from 15% in the mid-1990s. As a result, most large U.S. multinationals are exasperated by high U.S. corporate tax rates and more so by the taxes imposed on foreign profitswhen repatriated.
For the story, go here.

Tax avoidance and evasionwill be at the top of the agenda at the G20 Leaders' Summit this month,when the leaders of many of theworld's biggest economieswill meet in Brisbane. In particular, the G20will discuss measures to combatwhat is known as base erosion and profit shifting (BEPS) by multinational corporations.
For the story, go here.

The Australian and New Zealand governmentswillwork to the same schedule in implementing new automatic information sharing requirements to tackle cross-border tax evasion, the New Zealand government announced.
The information sharing procedures, announced Oct. 29,will underpin efforts by the Organization for Economic Cooperation and Development and the Group of 20 countries to prevent base erosion and profit shifting (BEPS).
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If Republicanswin control of the Senate in the midterm elections, the first thing they should pass in January is a permanent repatriation holiday, Sen. Rand Paul, R-Ky., said November 2 on three political talk shows.
"There's awaywe can reduce taxes, bring a trillion dollars home, do it quickly, sowe can start stimulating the economy and get people back towork," Paul said on CNN's State of the Union. "But Iwould do it in January, because the longer youwait after an election, the less your mandate is. And it takes awhile for things towork."
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A fundamental change to the existing PE rules,with a potentiallywide impact on many structures and Fundamental changes to the existing Permanent Establishment rules,with a potentiallywide impact on many structures currently in use by MNCs are proposed in the OECD discussion draft on BEPS Action Step 7 (Preventing the Artificial Avoidance of PE Status) published on 31 October 2014. Although one of the shortest papers so far released, the various options proposed in the draft,which includewidening the dependent agent provisions and narrowing both the independent agent exemptions and the specific activity (e.g.,warehouses, etc.) exemptions, go beyond the PE areas identified for review under Action 7 in the original BEPS Action Plan.
For the PwC Insight, go here.

Action 10 of the Action Plan on Base Erosion and Profit Shifting(BEPS) directs the OECD to develop transfer pricing rules to provide protection against common types of base eroding payments, such as management fees and head office expenses.
Adiscussion draft of proposed modifications to Chapter VII of the Transfer Pricing Guidelines relating to low value-adding intra-group serviceswas released for comment by interested parties today. This document is also available in French and Spanish.
For the OECD release, go here.

The IRS Office of Chief Counsel said in a second chief counsel advice memorandum that additional foreign taxes paidwith respect to "pre-1987 accumulated profits" of a U.S. parent's foreign subsidiary aren't taken into account by adjusting the foreign corporation's pools of post-1986 foreign income taxes and undistributed earnings.
Instead, under Section 902(c)(6) and related regulations, the additional foreign taxes are accounted for by adjusting the annual layers of pre-1987 accumulated profits and foreign taxes, the Internal Revenue Service office said in CCA 201444039, released Oct. 31. It reached the same conclusion on a similar fact pattern in CCA 201441015.
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International Tax News is designed to help multinational organisations keep upwith the constant flow of international tax developmentsworldwide. Among the topics featured in this month's edition are:
Canadian legislative developments
The OECD's report on Action 2 - hybrid mismatches
Brazil's extended list of activities receiving beneficial treatment under new CFC rules
The amendment of the France-Luxembourg double tax treaty


For the November 2014 edition, go here.

The British government has found it hard to resist a damaging race to lower corporate tax, in spite of plans to crack down on multinational avoidance, an influential committee of MPs said on Thursday.

Margaret Hodge, chair of the public accounts committee, told a London conference that governments should not adopt a "two-faced" approach by signing up to international rules on tax in principle but undercutting them in practice.

For the story, go here.

It is no secret that Apple, Starbucks and Amazon are among several high-profile companies that have faced political and public pressure over their tax affairs recently.

What is lesswell known iswhether the institutional investors that back these companies sharewidespread consumer concern about corporate tax practices.

For the story, go here.

Any guidance the government issues on earnings stripping in thewake of a recent anti-inversions notice is likely to take aim at inverted companies, but its impact may be broader, a Treasury Department official said.
"It's fair to say that inverted groupswould definitely be targeted," Brenda Zent, a taxation specialist in Treasury's Office of International Tax Counsel, said during an Oct. 31 panel sponsored by the USA Branch of the International Fiscal Association.
The reach of the possible guidance might go further, she said.
The earnings stripping guidance could apply to companies that invert on or after the Sept. 22 effective date of recent Notice 2014-52, Zent told Bloomberg BNA. "Youwill be impacted as thoughwe had issued all the guidance at the same time," she said.
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The OECD on October 31 released a discussion draft that proposes changes to the definition of permanent establishment in article 5 of the OECD model tax treaty. The draft outlines proposed fixes to commissionnaire structures, fragmentation of activities to fitwithin PE exceptions, and inbound insurance sales. The OECD suggested changes towording of article 5 clauses.
Comments must be submitted by January 9, 2015, and a public consultationwill be held at OECD headquarters in Paris January 21.
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The relevant committees of the German Bundesrat (the states council of the German parliament) have issued a joint recommendation to include certain tax provisions in a draft bill thatwould amend the General Tax Code as it pertains to the European Union (EU) Customs Codex and other tax provisions (ZollkodexAnpG).
For the PwC Insight, go here.

The Organization for Economic Cooperation and Development is considering four alternative proposals to change thewording of paragraphs 5 and 6 of Article 5 of the OECD model tax treaty in order to address the taxation consequences of commissionaire structures.
The OECD's Focus Group on the Artificial Avoidance of PE Status said in an Oct. 31 discussion draft that it "is clear that in many cases commissionaire structures and similar arrangementswere put in place primarily in order to erode the taxable base of the Statewhere sales took place."
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Whether any future guidance on earnings strippingwould be limited to inverted companies only or apply more broadly to corporate taxpayerswill not be determined by the type of limitations Treasury seeks to impose, a department official said October 31.
"It's possible that [any] earnings stripping rules could be limited to inverted companies. And it's also possible that itwouldn't be limited," Brenda Zent, taxation specialist, Treasury Office of International Tax Counsel, said at an event inwashington sponsored by the International Fiscal Association.
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Public comments are invited on a discussion draftwhich includes the preliminary results of thework carried onwith respect to issues related to the artificial avoidance of PE status and includes proposals for changes to the definition of permanent establishment found in the OECD Model Tax Convention.
The OECD Action Plan on Base Erosion and Profit Shifting,published in July 2013, identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions.
For the OECD release, go here.

The media may be abuzzwith Apple CEO Tim Cook's essay in BusinessWeek yesterday, but they also should be paying attention to the company's Securities and Exchange Commission filing thisweek. In its annual 10-K report, Apple reveals that, despite congressional hearings on its offshore tax dodging, the company continues to divert profits to tax havens.
For the analysis, go here.

We arewitnessing profound changes in theway that theworld economyworks. As a result of the growing pace and intensity of globalization and digitization, more and more economic processes have an international dimension. As a consequence, an increasing number of businesses are adapting their structures to domestic and foreign legal systems and taxation laws.
Thanks to technical advances in the digital economy, companies can serve marketswithout having to be physically present in them. At the same time, sources of income have become more mobile: There is an increasing focus on intangible assets and mobile investment income that can easily be "optimized" from a tax point of view and transferred abroad.
Tax legislation has not kept pacewith these developments.
For the article, go here.

Here's an excellent argument for the abolition of corporate taxation. The oddity though is the source that it comes from, that source being one of the UK's leading tax experts. And it's also not something he's normally prone to saying, that corporations should not be taxed but that people should be. It's of course possible that he's not quite grasped the implications ofwhat he's saying here but thatwould be most unusual in such an expert,wouldn't it?
For the blog post, go here.

U.S. tax law creates perverse incentives for American companies to hold cash offshore, and the U.S. Treasury recently announced proposals to deter the practice. The proposals have triggered an outcry that ranges from criticisms that the Obama administration has overstepped its authority, on one side, to criticisms that the proposals have not gone far enough, on the other.
Lost in the outcry, however, is the fact that tax avoidance represents a global problem, and therefore requires a global solution.
For the article, go here.

Foreign companies financing U.S. investment should consider a debt capacity study to focus on a variety of complexities and avoid pitfalls, said advisers at Deloitte Tax LLP.
The reason relates to questions that tax authorities might raise over financing acquisitionswith debt, Deloitte partner Beth Mueller said on awebcast.
Purchases in the U.S. are often financed through a mix of equity and debt, the latter ofwhich can be used to reduce a company's U.S. tax liability by deducting interest expenses. But a U.S. company receiving the loan needs to show the debt is supportable, or it could get reclassified as equity.
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Politico reports that in a recent interview House Majority Leader Kevin McCarthy indicated he iswilling to seek tax changes in the next Congress even if the GOP has yet to agree on more comprehensive tax reform legislation. That is good news because comprehensive reform should be the goal, not necessarily one piece of comprehensive legislation. Incremental reforms could make a big difference.

For the blog post, go here.

In aweek of rapid developments on the now-scrapped Hungarian internet tax, amendmentswere added in the hope of appeasing taxpayer and public opposition. However, they did not go far enough.
For the story, go here.

The impact of a US Treasury Notice to reduce the benefits of tax inversion deals is taking effect. AbbVie has scrapped its proposed $54 billion takeover of Shire, and Salix and Cosmo have decided not to combine either.
For the story, go here.

The European Commission announced its directive proposal for a common consolidated corporate tax base (CCCTB) more than three and a half years ago, on March 16 2011. Andreas Eggert discusses how the proposal has developed since then.
For the story, go here.

In the last two decades, there have been sweeping reforms of the corporate income tax in many countries around theworld,with many countries lowering corporate income tax rates and broadening the corporate tax base. In addition, several countries, including the U.K. and Japan, have moved from aworldwide (taxing profits of domestic companies both at home and abroad) to a territorial (taxing profits of firms locatedwithin its borders) corporate tax system. The United States, however, has not significantly reformed its corporate income tax since the Tax Reform Act of 1986. As a result, given thewidespread reductions abroad, the U.S. has the highest corporate income tax rate of all developed countries.

More recently, a growing number of U.S. companies have considered inverting so that they can more effectively competewith foreign-based companies. This process is referred to as a "corporate inversion,"which occurswhen a domestic company buys a foreign company and then chooses the foreign location as its new corporate headquarters. The Obama administration recently imposed new rules on firms that invert in an effort to limit the tax benefits of corporate inversions.while these rules may reduce the potential number of inversions, theywill also make it more difficult for American firms to compete at home and abroad. These issues underscore the need for Congress and President Obama to tackle corporate tax reformwhen the next Congress convenes in January.

For the blog post, go here.

Further guidance on inversions as related to earnings stripping may take the form of either a reduction in the available interest deduction or a reclassification of a debt instrument as equity, a Treasury official said October 29.
"We're looking at earnings stripping rules. That could either look atwhetherwewould do something to reduce the [interest] deduction similar to [section] 163(j) or . . . maybewe'll do something under section 385 that goes to the character of the instrument as debt versus equity," Brenda Zent, taxation specialist, Treasury Office of International Tax Counsel, said at an event sponsored by the District of Columbia Bar Taxation Section. "We are looking at all those items," she added.
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Reacting to a recent Organization for Economic Cooperation and Development paper on comparability, an AstraZeneca Plc official said his companywouldwelcome the development of comparables databases to cover developing countries, either on a regional or local level.
Ian Brimicombe, AstraZeneca's vice president of corporate finance, said in a comment letter released by the OECD on Oct. 28: "We note that regional databases in particularwould provide a cost-effectiveway for developing countries to access reliable comparable data."
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The European Union must determine how to handle revenue from a proposed financial transactions tax to meet a year-end deadline for moving aheadwith the levy in participating nations.
Ten nations pledged in May to seek agreement on a "progressive" tax on equities and "some derivatives" by the end of 2014,with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News.
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The government is considering several possibleways to limit earnings stripping, a Treasury Department official said.
Brenda Zent, a taxation specialist in Treasury's Office of the International Tax Counsel, said Oct. 29 talks are ongoing as officialswork on guidance to follow the controversial Notice 2014-52, the department's September guidance intended to curb corporate inversions.
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United Nations Subcommittee on Base Erosion and Profit Shifting (BEPS) had invited the developing countries to provide feedback by answering the UN Questionnaireincluding 10 questions. This summary focuses on the responses provided by China and India.
For the analysis, go here.

On 15 October 2014, the Luxembourg Minister of Finance presented the bill of law containing the budget for 2015 to the Luxembourg parliament. The tax measures in the package of legislation demonstrate that Luxembourg is committed to a transparent tax ruling practice and to the arm's length principle. The budget packagewill now be discussed in parliament and may be subject to changes. This tax flash highlights the key aspects of the package for corporate taxpayers.

For the report, go here.

The new OECD/G20 standard on automatic exchange of informationwas endorsed today by all OECD and G20 countries aswell as major financial centres participating in the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin. A status report on committed and not committed jurisdictionswill be presented to G20 leaders during their annual summit in Brisbane, Australia on November 15-16.
For the OECD release, go here.

Whatever the results of the election, Congress is planning to reconvene on November 12 for a lame duck session, so-called because the days in office of some memberswill be numbered. Aswell as passing a budget for fiscal year 2015, the 113th Congresswill try to finish up other bills, including the extension of tax provisions that expired on January 1, 2014.
Congress should not pass a tax extenders bill. Rather, the new 114th Congress should take a careful look at the U.S. tax system and propose permanent reforms.
For the story, go here.

Last month,while Treasurywas rolling out new rules to clamp down on corporate inversions, the Chair of the President's Council of Economic Advisors, Jason Furman, gave a speech at NYU titled Business Tax Reform and Economic Growth. Furman acknowledged that the U.S. corporate tax rate, at 39 percent, is the highest in the developedworld. However, he then argued that "more generous depreciation allowances and other structural features of the U.S. tax system combine to result in effective marginal tax rates on U.S. investment roughly in linewith, and even slightly lower than, other G7 countries."
For the blog post, go here.

As the 2014 midterm elections approach, speculation iswidespread as towhether tax reform can be successfully pursued in 2015. The successful 1986 Tax Reform Act navigated through a politically divided Congress a full generation ago over a sustained two-year period. Make no mistake about itÔøΩnothing short of a determined bipartisan effort and shared commitmentwill be required again.
At present, the fundamental building blocks for a successful tax reform effort are not in place.
For the story, go here.

In the run-up to nextweek's congressional elections, Republicans are saying that if theywin control of the Senate, theywill try to pass business tax reform as part of an ambitious "we can get things done" agenda. Is there any possibility that a GOP-controlled Congress couldrewritethe business provisions of the tax code?
The chances are not zero. But the odds are very long.
For the story, go here.

Some U.S. lawmakers are exploring a post-election deal thatwould lock in permanent tax cuts for major corporations and low-income families.
For the story, go here.

In "Grassley, Ernst at Oddswith Iowans on Tax Fairness Issues" thewriter purposely misses the point.
I don't celebratewhen a U.S. company looks to move overseas. I never have. I didn't likewhatwas happening in 2004,when companieswere setting up a mailbox in a tax haven like the Cayman Islands to escape U.S. taxes.
Therewas no business substance involved. The only thing that changed for the companywas its mailing address. As chairman of the committee overseeing taxes, I drafted and pushed through legislation to stop that egregious practice.
Due to my 2004 law, companies must have business substance in play or the transactionwill be disregarded. The president and some in Congress have advocated proposals that seek to force companies to remain headquartered in the United States regardless of business realities. That approachwould backfire by making U.S. companies targets for acquisition by foreign companies. This likelywould cost American jobs, especially good jobs at corporate headquarters.
For the letter, go here.

European Union (EU) Member States cannot grant 'aid' (e.g., subsidies or tax reliefs) to certain companies on the internal marketwithout prior authorization by the European Commission. Aid grantedwithout authorization must be repaid by the recipients.

The European Commission announced a new focus on Fiscal State aid at the beginning of 2014. This focus comes at the same time as the Organisation for Economic Co-operation and Development's unfolding Base Erosion and Profit Shifting Action Plan and also reflects the EU's own agenda to crack down on 'aggressive' tax planning by multinational companies.

For more information, go here.

The European Union must figure out how to handle revenues from a proposed financial-transaction tax to meet a year-end deadline for moving aheadwith the levy in participating nations.

Ten nations pledged in May to seek agreement on a "progressive" tax on equities and "some derivatives" by the end of 2014,with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News.

For the story, go here.

In comments released October 28 on the OECD's Transfer Pricing Comparability Data and Developing Countries discussion draft, practitioners and businesses praised efforts to expand comparability data available to developing countries but argued that simplified administration should not undermine transparency or arm's-length outcomes.
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