2014

"When the facts change, I change my mind.what do you do, sir?" Though oft attributed to him, John Maynard Keynes probably never uttered thosewords. Keynes's prolixity attracts several spurious ascriptions. Or, as Yogi Berra once put it, "I didn't really say everything I said."
By comparison, the 130-page report on action 8 of the base erosion and profit-shifting project, "Guidance on Transfer Pricing Aspects of Intangibles," released September 16, is properly ascribed to the OECD. But all that text doesn't amount to much. And unlike Keynes, changing facts don't seem to change the OECD's institutional mind. Even as the scope and scale of intangibles in multinational enterprises' businesses continue to undergo a rapid transformation, the OECD's instruction on the appropriate transfer pricing standard remains unyielding -- arm's length continues to be the polestar for OECD guidance in this area.
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The Organization for Economic Cooperation and Development has released the first components of its comprehensive plan for creating an agreed set of international rules for fighting base erosion and profit shifting and ending opportunities for double non-taxation.
Pascal Saint-Amans, director of the OECD's Center for Tax Policy and Administration, said in a briefing prior to the documents' release that their effectwill be felt quickly. Companies, he said, "plan in advance, so the tax planningwill be impacted immediately."
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Score one for the Treasury Department and U.S. multinationals:while the resultwasn't a total shock, they successfully persuaded the OECD towater down its anti-treaty-shopping proposals under the base erosion and profit-shifting initiative.
In a reportreleased September 16 outlining its final recommendations for carrying out action 6 (preventing the granting of treaty benefits in inappropriate circumstances), the OECD offered a more flexible approach to tackling treaty shopping. The report says that as long as countries have a minimum level of protection against treaty abuse, they can use the policy choices that are most appropriate for them. The U.S. approach -- a limitation on benefits article combinedwith domestic antiabuse rules --will satisfy that minimum standard.
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Executives at U.S. companies say uncertainty over tax overhaul initiativeswill put a crimp in investment spending and hiring in the third quarter compared to the second quarter of 2014, according to a survey from the Business Roundtable.
The survey, released Sept. 16, included responses from 135 member chief executive officers. It pointed to overall steady growth, but executives' outlook has been dampened bywhat the roundtable said is uncertainty over U.S. policy, tax reform in particular, and global unrest.
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The OECD's agreed recommendations for changing the international tax rules arewide-ranging under its first stage ofwork in connectionwith base erosion and profit shifting (BEPS). Seven of the fifteen areas of the BEPS Action Plan are covered by this first stage.while agreed, the proposed measures are not yet finalised as they may be impacted by the 2015 deliverables, the OECD states.

For the bulletin, go here.

Governments have thrown theirweight behind sweeping rules to crack down on corporate tax avoidance, including steps to increase transparency, close loopholes and limit the use of tax havens.

However, countries could not agree on the design of a measure aimed at curbing unfair competition for patent income,which iswidely viewed as contributing to the problem of tax avoidance.

For the story, go here.

If the all-American fast food chain Burger King,with its thousands of restaurants in the United States, can claim to be a foreign company for tax purposes, our corporate tax system is in real trouble.
The crisis of corporate inversions is now apparent even to thosewho aren't connected to the boring details of tax policy. The public outrage is so apparent thatwalgreen Co. backed off its plans to invert.
This ire stems from the justified belief that there's a separate set of rules for powerful corporations. So here's a thought.
For the story, go here.

The Tax Foundation thisweek released a new index measuring the tax competitiveness of the largest 34 nations in theworld.
The bad news is that the United States ranks #32. There is no good news.
Well, that's not entirely true. There'ssome good news, but not much.

For the story, go here.

Onwednesday, six coalitions representing hundreds of American businesses hosted a bipartisan conversation on tax reform thatwas moderated by CNBC Senior Contributor Larry Kudlow and featured Houseways and Means Chairman Dave Camp and the Chairman of the President's Council of Economic Advisers, Jason Furman.

The event focused on the need for corporate tax reform to help grow our economy and level the playing field for American businesses in the global economy.

Camp, Furman, and Kudlow discussed the lessons learned from recent efforts to fix the tax code and the path forward for reform heading into the midterm elections and beyond.

For the story, go here.

In aworldwhere principled bipartisanship is often disregarded in favor of political rhetoric, I have a simple proposition for House Speaker John Boehner: Let's sit down together and figure out how to get tax reform done.
Fewwould disagree that it's time to reform the outdated U.S. Tax Code. It's a broken, dysfunctional mess. Twenty-eight years after the most recent overhaul of the U.S. Tax Code,we are falling behind other countries that have evolved their tax policies to reflect the changing dynamics of the global economy and create an environment favorable to growth.
For the article, go here.

The OECD Centre for Tax Policy and Administration today issued the first seven reports required as part of the Base Erosion and Profit Shifting (BEPS) project.

For the seven BEPS deliverables, an explanatory statement, and other resources, go here.

In this exclusive article for International Tax Review, Pascal Saint-Amans and Raffaele Russo of the OECD explain how the first half of the BEPS Project'swork starts the task of bringing coherence, substance and transparency to international tax rules around theworld.

For the article, go here.

The Tax Foundation has published an international tax competitiveness index that evaluates and ranks the degree towhich the 34 OECD countries' tax systems promote competitiveness and neutrality through low tax burdens on business investment and awell-structured tax code.

For the index, go here.

Taxpayers and Treasury are playing a game of cat and mousewith inversions. The partnership structure used in the Burger King-Tim Hortons inversion is the latest twist in this game. Indeed, the mouse seems to be taunting the cat. This article discusses that partnership structure,which is being used to give electing Burger King shareholders tax-free treatment, and it explainswhy Treasury should challenge the transaction.

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Politicians and some academics have identified erosion of the corporate tax base as the reason for the political furor over inversions. Treasury Secretary Jacob Lew has called again and again in recent months for stopping the transactions,which he said "function to hollow out the U.S. corporate income tax base."
But Lew also said in a September 8 speech that there is nothingwrongwith "genuine cross-border mergers." That comment reveals an inconsistency in the rhetoric about inversions, one that is illustrated by the very different public reactions to two recently announced cross-border deals. Those reactions suggest that the problemwith inversions may be one of politics and public perception of unfairness in the corporate tax system, rather than protection of the U.S. fisc.
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When it comes to international tax competitiveness, the U.S. ranks near the bottom of 34 developed nations, according to a report from the Tax Foundation.
In the study, released Sept. 15, thewashington-based group rated the U.S. 32nd out of 34 countries that are part of the Organization for Economic Cooperation and Development.
The OECD offers a forum for governments to discuss and promote policies that improve economic and socialwell-being around theworld, according to itswebsite.
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Any day now thewhite House and Sen. Charles Schumer (D., N.Y.)will attempt to raise taxes on business,while making the U.S. tax code even more complex. The Obama and Schumer plans to punish businesses for moving their legal domicile overseaswill arrive even as a new international ranking shows that the U.S. tax burden on business is close to theworst in the industrializedworld.way to go,washington.

On Monday the Tax Foundation,which manages thewidely followed State Business Tax Climate Index,will launch a new global benchmark, the International Tax Competitiveness Index. According to the foundation, the new index measures "the extent towhich a country's tax system adheres to two important principles of tax policy: competitiveness and neutrality."

The index takes into account more than 40 tax policy variables. And the inaugural ranking puts the U.S. at 32nd out of 34 industrialized countries in the Organization for Economic Co-operation and Development (OECD).

For the editorial, go here.

The U.S. has one of theworst tax codes in the industrializedworld, according to a new study released Monday.

The Tax Foundation, a free market group, found that the U.S. tax code ranked 32 out of 34 ÔøΩ ahead of only Portugal and France ÔøΩ among countries in the Organization for Economic Cooperation and Development (OECD).
Estonia came in first in the Tax Foundation rankings, followed by New Zealand and Switzerland. The Paris-based OECD is a collection of 34 advanced and emerging economies that offers advice on awide range of economic issues.
For the story, go here.

As the OECD prepares to deliver the first phase of its BEPS action plan in Australia thisweek, the Grant Thornton International Business Report (IBR), a survey of 2,500 senior executives in 34 economies, finds the majority of businesses calling for more transparency on acceptable planning, updated tax rules for a modern, digital economy and the harmonisation of global corporation tax rates.
Francesca Lagerberg, global leader for tax services at Grant Thornton, said: "We have been tracking business sentiment on the need for more transparency in tax planning since news surrounding the tax practices of large multinationals such as Amazon, Google and Starbucks, broke last year. And the response has been pretty clear: business leaderswant things in black andwhite. They have a responsibility to their investors and shareholders to keep costs down. In theirwords, simply telling them to pay their 'fair share' is not proving to be a viable alternative to a clear set of rules or principles."
For the release, go here.

Reactionary regulations and legislation passed in the heat of the moment may provide immediate gratification for some inwashingtonwho simplywant to punish companies that move overseas to avoidwhat is now the highest corporate tax rate of any industrialized nation and, arguably, the most complicated and convoluted Tax Code in all of history.
However, modernizing and simplifying our antiquated Tax Code is the only effective solution for stopping U.S. companies from shifting their corporate headquarters, their capital, and possibly, American jobs.
For the blog post, go here.

The ability for deferral of home country taxation on multinationals' foreign earningswithin the U.S. tax code creates an incentive for firms to avoid or delay repatriation of earnings to the U.S. Consistentwith this notion, prior research has documented a
substantial lockout effect resulting from the current U.S.worldwide tax and financial reporting systems. The authors hypothesize and find that U.S. domiciled M&A target firmswith more locked-out earnings are more attractive M&A targets for foreign bidders and are
more likely to be acquired by foreign bidders, compared to domestic bidders.

They also examine the impact of the home country tax system of the foreign acquirers. They find that foreign acquirers of U.S. target firmswith locked-out earnings are more likely to be residents of countries that use territorial tax systems.

For the paper, go here.

At this stage of globalization, most American consumers, investors and politicians have tacitly accepted that if a company is profitable, doesn't violate the law and produces appealing products and services, it can operatewherever and however it likes. That'swhy the furor over tax inversions is so intriguing.
For the story, go here.

Kimberly S. Blanchard argues thatwhile Edward D. Kleinbard and otherswant to change the rules that apply to foreign-parented corporations, she believes those changes should not lead to more anti-inversion rules.

For the letter, go here. (subscription required)

In this article, Furchtgott-Roth suggests that inversions are patriotic and that they benefit the U.S. economy because the earnings can be repatriated tax free. Thus, all those earnings can be used for investment or job creation. Despite threats from President Obama, inversionswill not vanish until corporate tax rates are lower and the United States moves to a territorial tax system.

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Republicans and business allies such as Houseways and Means Chairman Dave Camp (R-Mich.) and the U.S. Chamber of Commerce say they know theway to stop companies from changing addresses to cut their tax bills: Overhaul the tax code.
Yet that call for the first major revision of the U.S. tax system in three decades hasn't translated into action andwon't anytime soon. There's no consensus onwhat changeswould prevent companies from fleeing the system. And the inertia inwashington is opening theway to further deals, known as inversions.
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Clark Chandler, Stephen Blough, and Michael Plowgian of KPMGwrite that the OECD guidance on base erosion and profit shifting expected Sept. 16will affect U.S. multinationals regardless ofwhether changes in U.S. rules or practices result. Beyond simple compliancewith local law changes for MNEs' foreign operations, also likely to be affected are transfer pricing, intangibles ownership and other aspects of global operations.

For the report, go here. (Subscription required)

As practitioners await possible action from the Department of Treasury to stem the tide of corporate tax inversions, many observers think that a modified Subpart F ruleÔøΩrather than more sweeping rules to combat earnings strippingÔøΩis the likeliest route for regulations.
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An OECD economic report on Spain has highlighted the need for the country to continuewith reforms to its fiscal framework and tax system.

For the story, go here.

A top Senate Republican on Thursday denounced the Democrats' push to curb a recentwave of offshore tax deals as "despicable," saying Democratswere more interested in scoring political points than actually solving the problem.
Sen. Orrin Hatch (Utah), the top Republican on the Finance Committee,was particularly incensed that Treasury Secretary Jack Lew and other top Democrats had questioned the "economic patriotism" of companies that sought to reincorporate abroad, slashing their tax bills in the process.
For the story, go here.

Inversions are under fire because many American corporations undergo them to subsequently reduce their U.S. tax bill, either through earnings stripping to avoid U.S. taxes on future profits, or, by avoiding U.S. taxes on profits already earned and accumulated offshore.
This document focuses on the latter, tax avoidance on profits already accumulated offshore, and argues that this problem can be addressed by requiring payment of the U.S. tax that has been deferred on these offshore profits at the pointwhen a corporation officially becomes controlled by a foreign company,whether through inversion or through other means.

For the report, go here.

As the highly anticipated release of the OECD's first set of recommendations under its base erosion and profit-shifting project draws near, Treasury International Tax Counsel Danielle Rolfes said she expects treaty abuse guidance to include a main purpose clause as an option -- one that the United Stateswill probably decline.
Rolfes spoke at a Practising Law Institute seminar on international tax issues in Chicago September 10 about the potential fate of the controversial entitlement to benefits article proposed in the March 14 BEPS discussion draft on action 6 (treaty abuse). The OECD recommends including in the model treaty both a limitation on benefits provision and a general antiabuse rule, and Rolfes said the U.S. remains committed to LOB provisions.
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Eric Solomon, co-director of EY LLP's National Tax Department, told tax practitioners any immediate federal action curbing corporate inversionswould more likely come from the Treasury Department than Congress.
Solomon said Sept. 10 that several interesting legislative proposals have emerged in recentweeks, but the House and the Senatewould be reluctant to act in advance of the Nov. 4 general election.
Meanwhile, Solomon said the Obama administration is pledging to use its executive authority to discourage the recent pattern of tax-driven corporate mergers.
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Republicans and business allies such as Houseways and Means Chairman Dave Camp and the U.S. Chamber of Commerce say they know theway to stop companies from changing addresses to cut their tax bills: Reform the tax code.

Yet that call for the first major revision of the U.S. tax system in three decades hasn't translated into action andwon't anytime soon. There's no consensus onwhat changeswould prevent companies from fleeing the system. And the inertia inwashington is opening theway to further deals, known as inversions.

For the story, go here.

President Barack Obama and his Democratic allies hoped to capitalize on the recentwave of companies ditching the U.S. to slice their tax bill as a populist issue to fire up the progressive base and bash Republicans as slaves to corporate interests.

So far, rather than becoming the politicalwhopper that Democrats dreamed of, the issue has turned out to be pretty much a massive dud.

For the story, go here.

Reiterating his preference to slow the corporate inversion trend through lower tax rates and more harmonized taxes on foreign earnings, Senate Finance Committee ranking member Orrin Hatch (R-Utah) said the fix lies in broadly rewriting U.S. tax law.
He has been making those points since earlier this summer.
Any inversion-focused legislation ahead of a comprehensive bill can't include retroactive elements, as Democratic proposals have, and should establish more of a territorial tax system on international earnings rather than the currentworldwide structure, Hatch said. He also demanded a revenue-neutral plan to serve as a bridge to revising the tax code.
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Thisweek Iwent to an event held by the Urban-Brookings Tax Policy Center to hear Treasury Secretary Jacob Lew talk about the administration's disdain for corporate tax inversions – deals inwhich U.S. companies arrange to become subject to foreign tax jurisdiction through acquisition arrangements.

Lewwarned that the Treasury Departmentwould make a decision "in the very near future" onwhat action to take regarding inversions. Lew said that any action from Treasury on the issuewould be based on strong legal and policy grounds, but that thatwould be no substitute for meaningful legislation. He said thatwithout action from Congress, Treasurywill act to stem the so-called tide of inversions.

So, the Treasury secretary had nothing really new to add to the discussion on corporate tax and inversions, and I'm leftwonderingwhy anybody cares about this stuff anymore.
For the blog post, go here.

In a speech at the U.S. Chamber of Commerce today, Finance Committee Ranking Member Orrin Hatch (R-Utah) criticized the Obama Administration for attempting to politicize the recent uptick in corporate inversions and called for bipartisan congressional talks to continue.
For the Hatch release, go here.

Legislation thatwould limit earnings stripping by inverted companies by limiting future interest deductions for those companies to 25 percent of revenuewould be a helpful step forward in addressing corporate inversions and tax evasion, the Financial Accountability and Corporate Transparency (FACT) Coalition said in a September 10 release.

For the release, go here.

A senior IRS attorney told tax practitioners that the government remains committed to implementing regulations under tax code Section 367(d) regarding transfers of intangible property to foreign corporations.
John Merrick, special counsel to the Associate Chief Counsel (International), said the guidance project is designed to halt transactions intended to repatriate earnings from foreign corporationswithout appropriate recognition of income.
The guidancewould cover outbound asset reorganizations that raise significant tax policy questions.
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Congressional Republicans appeared sour on a bill that seeks to curb corporate inversions, released by Sens. Charles E. Schumer (D-N.Y.) and Richard J. Durbin (D-Ill.), as the likelihood for a legislative deal in September dimmed further.
Released Sept. 10, the proposalwould attack corporate inversion deals, overseas mergers and acquisitions for tax purposes, by denying companies certain deductions after the deal is completed.
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Leveling the playing field for American businesses andworkers. Making the United States more attractive for investment. Maintaining a broad tax base.
These are sound policy goals both Republicans and Democrats can agree on ÔøΩgoals that are a topic of discussion today precisely because our country's obsolete corporate tax policy is in desperate need of overhaul.
For the blog post, go here.

Today,ways and Means Committee Chairman Dave Camp (R-MI) issued the following statement on the Administration's comments on inversions and tax reform:
"Everyone agrees that tax reform is the only solution thatwill both keep companies from moving their headquarters out of the United States, and encourage more businesses to grow, hire and increasewages for Americanworkers. That iswhy I put forth an overhaul of our broken tax code,whichwould lower rates by simplifying the code and eliminating special interest loopholes.
For the statement, go here.

Two new developments in negotiations over taxes could signal improving prospects for legislation to restrict inversion deals, as lawmakers seek bipartisan solutions to address growing problems in the U.S. tax system.
For the story, go here.

Stuart L. Rosow and Martin T. Hamilton argue that Stephen E. Shay's section 385 proposal is notwithin the scope of the contemplated regulatory authority and that any normative approach to inversion transactions should come from Congress and not through regulatory proposals.

For the viewpoint, go here. (subscription required)

Congress's top taxwriters remain noncommittal about rolling out new anti-inversion legislation this month.
Talks are continuing between Senate Finance Committee Chairman Ronwyden (D-Ore.) and ranking member Orrin Hatch (R-Utah), but they have yet to yield results. Houseways and Means Committee Chairman Dave Camp (R-Mich.) called for morewhite House participation, but ranking member Sander Levin (D-Mich.) said Republicans are too entrenched to forge a bipartisan inversion bill.
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Questions continue about possible actions by Congress and the administration to address inversions, said David Lenter, legislation counsel for the Joint Committee on Taxation.
Calling the inversions issue "a hot topic," Lenter said one such question iswhether lawmakers might act to curb these deals as part of the continuing resolution they must pass by Sept. 30 to fund government operations.
Lenter spoke at a Sept. 9 luncheon sponsored by Bloomberg BNA Tax & Accounting and hosted by Buchanan Ingersoll & Rooney PC.
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Senator Charles Schumer may scale back his plans to limit the future deductions of U.S. companies that took foreign addresses to reduce their tax bills.

A draft bill by Schumerwould limit interest deductions for companies that inverted after April 17, 1994, a date that could mean higher taxes for companies including Tyco International Ltd. (TYC) andweatherford International Plc.

"We may change the time frame," the New York Democrat told reporters in the Capitol today.

For the story, go here.

The Obama administration can make tax inversions less economically attractive to U.S. companies if Congress doesn't act to curb the practice, Treasury Secretary Jacob J. Lew said.

Lew said a "broken" tax system iswhat prompts U.S. companies to reduce taxes by moving their addresses abroad. He reiterated today that the administrationwill decide on possible action in the "very near future" to limit inversions.

For the story, go here.

Senate Majority Leader Harry Reid said he doesn't expect the Senate to vote on legislation revamping corporate inversions this month.

"I kind of doubt it," Reid saidwhen asked if therewould be a vote in September.when askedwhy not, Reid only chuckled as hewalked into the chamber after hisweekly Tuesday press conference.

For the story, go here.

Burger King's recent decision to pursue a corporate inversion to Canada is the culmination of years of maneuvering to dodge paying its fair share in corporate taxes. In fact, Burger Kingwas able to cut its averageworldwide effective tax rate by more than 60 percent over the past few years likely through complex accounting maneuvers.
How did Burger King accomplish such a substantial tax cut?
For the blog post, go here.