2014

An attempt by Pfizer to purchase U.K. pharmaceutical company AstraZeneca shows the need for Congress to stop corporate inversions to avoid taxes, and a corporate minimum tax could further end incentives for companies to use tax havens, the Center for American Progress said in a May 13 report.

For the report, go here.

The top Republican taxwriter in the US Senate has quashed the idea of a quick move in Congress targeting tax "inversion" deals in thewake of Pfizer's $106bn bid for AstraZeneca, saying the problem should only be solved through a broader tax reform plan.

Orrin Hatch of Utah, his party's senior member on the Senate finance committee, on Tuesday sent the clearest signal yet that Republicanswill not embrace proposals by congressional Democrats and thewhite House to enact legislation thatwould make it much harder for companies such as Pfizer to redomicile overseas for tax reasons.

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A bill to limit tax-driven corporate mergers should "hopefully"emerge by May 16, Sen. Carl Levin (D-Mich.) said.
Levin, chairman of the Senate Permanent Subcommittee on Investigations, has pledged to crack down on companies that redomicile abroad for tax purposes through buyout transactions, but maintain management and operations stateside.
"Hopefully thisweek," he said May 13when askedwhen hewould introduce his bill. Levin said he has generated "a lot of interest" among Senate colleagues.
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Businesses can play a key role in helping tax administrations in developing countries apply their "scarce" resources to areaswith the highest risk of base erosion and profit shifting, the global tax director of Royal Dutch Shell said in a recent panel discussion.
Alan McLean, executive vice president taxation and corporate structure at Royal Dutch Shell plc, spoke at an Organization for Economic Cooperation and Development forum on "tax for development."
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Transfer pricing is the leading source of tax risk for multinational companies, according to a survey of 830 tax and finance executives conducted by EY,which listed rapid changes driven by an international project to combat base erosion as a specific transfer pricing concern.

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For the survey, go here.

In a speech on the Senate floor today, Finance Committee Ranking Member Orrin Hatch (R-Utah) called on Congress to address inversions by creating an internationally competitive tax code thatwould make the United States a more desirable location to headquarter one's business. Hatch also highlighted how the punitive taxes in the President's own signature health care law, Obamacare, have caused medical device companies to move overseas.

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Pfizer's chairman and chief executive, Ian Read, is in London thisweek trying to sell a skeptical public there on his $106 billion takeover plan for rival AstraZeneca.
The real question, however, iswhy Mr. Read is not being called to testify inwashington to explain the real purpose of this megadeal: a mega-tax-dodge.
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Increasing disparity between tax rates and systems in the United States and the rest of theworld, alongwith economic incentives, encourages corporations to circumvent anti-inversion rules, panelists said May 9 at a tax conference inwashington.
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A plan by Senate Finance Committee Chair Ronwyden, D-Ore., to stem the tide of U.S. multinational inversions by raising the minimum required foreign ownership of a newly inverted company could have serious consequences for current inversions.

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The U.S. delegate to the Organization for Economic Cooperation and Development's Committee on Fiscal Affairs gave an update on five of the international base erosion and profit shifting (BEPS) action items.
Robert Stack, deputy assistant secretary for international tax affairswith the U.S. Treasury, on May 10 described the progress of the OECD's recent discussion drafts on intangibles, country-by-country reporting, hybrids, treaty abuse and the digital economy.

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When Pfizer Inc. Chief Executive Officer Ian Read faces U.K. lawmakers to justify his proposed takeover of AstraZeneca Plc, one questionwill underpin the debate:whether the more than $100 billion offer is really about drugs or about taxes.
A review of AstraZeneca's pipeline assets suggests the latter may be true. AstraZeneca lacks first- and best-in-class experimental drugs in the core cardiovascular, diabetes and cancer sections Pfizer cited as grounds for the offer.
"It doesn'twork financially on most people's calculationswithout the tax benefit," said Mark Clark, a London-based analyst for Deutsche Bankwho called AstraZeneca's estimates "blue sky"in a note to investors lastweek. "Without a doubt, tax is a major motivation."
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The U.S. is ready to join China and four other countries in an alliance to fight efforts by multinational corporations to avoid paying taxes, according to people familiarwith the matter.

The alliance, an Australian initiative,will also include Japan and Britain. The U.S. could sign on thisweek during a two-day meeting in Tokyo on fighting corporate tax avoidance, people familiarwith the U.S. position told Thewall Street Journal.

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It's not time to leave the U.S. just yet, say the leaders of two top drug companieswho are facedwith their biggest domestic competitors fleeing abroad for more competitive business tax rates.

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The policy basis for recommended rules should be "more fully articulated so that the advisability and content of the rules can be better evaluated," the National Foreign Trade Council said in comments to the OECD on its base erosion and profit-shifting action 2 discussion draft on neutralizing the effects of hybrid mismatch arrangements.

For the comments, go here.

The OECD should adopt a bottom-up approach, increase the threshold for relatedness, and clarify the definition of a structured arrangement, the New York State Bar Association Tax Section said in comments on the base erosion and profit-shifting action 2 discussion draft on neutralizing the effects of hybrid mismatch arrangements.

For the report, go here.

Two senior Democratic lawmakers are preparing legislation thatwill closely follow the Obama administration's plan to disallow for tax purposes corporate inversions underwhich the U.S. subsidiary is larger than the foreign parent company.
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In pursuit of lower tax rates, American multinationals are mergingwith smaller foreign companies and moving their headquarters overseas. About 50 U.S. companies have leveraged this "inversion" tactic in the past 30 years -- and more than 20 have done so in the past two years. And just recentlywe have seen Pfizer make a bid for AstraZeneca thatwould move its tax domicile to the United Kingdom.
While they may not be breaking U.S. laws, many of these companies are navigating a loophole in America's broken and dysfunctional tax code. Andwhile their shareholders may secure a temporarywin,workers, taxpayers and this country all lose. America's tax base erodes at a cost of hundreds of millions of dollars in revenue, increasing the burden on other companies and individuals. America also loses good jobs, talent, investment, and the ability to compete on a global stage.
Legal or not, this loophole must be plugged.
For the editorial, go here.

Pfizer's attempt to escape the United States corporate tax rate by acquiring a British drug maker has set off a flurry of activitywithin other big companies across the country, at investment banks onwall Street and in offices on Capitol Hill.
In New York, investment bankers and lawyers are urging clients to act quickly if they are serious about such a move, knowing that rules could change soon. Inwashington, lawmakers have started to examinewhat legislation could be drafted to stop the outflow of tax dollars.
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The international action plan for addressing base erosion and profit shiftingwill include a mechanism for fixing unforeseen problems that could turn up in the global tax system as a result of the plan's rapid implementation, the Organization for Economic Cooperation and Development's top tax official told Bloomberg BNA.
U.S. business representatives have expressed concern that the BEPS action plan,which the OECD and the Group of 20 countries have vowed to complete by the end of 2015, is moving too quickly and could create unexpected new problems in the international tax system.
Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration, said May 6 that the OECD and the G-20 are aware that problems could arisewith the BEPS planwhen it is implemented, and are developing a mechanism to dealwith that possibility.
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Senator Carl Levin said he iswriting legislation to curb the practice of U.S. companies moving out of the country to lower their tax bills, the first sign of a congressional response to deals like one proposed by Pfizer Inc. (PFE)

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The European Commissionwill intensify its ongoing investigation on the legality of the U.K. patent box tax scheme as it begins to attract companies, including pharmaceutical giant Pfizer Inc.,which has cited the U.K. patent box tax rate of 10 percent as a motivating factor for its proposed $100 billion takeover of drug-maker rival AstraZeneca Plc.
Having drawn preliminary conclusions in 2013 that the U.K. patent box scheme violates EU code of conduct rules on unfair corporate taxation, a commission official told Bloomberg BNA that the proposed Pfizer merger has made it all the more urgent to complete the investigation.
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Several Republicans on the Houseways and Means Committee stopped short of endorsing a plan by Senate Finance Committee Chairman Ronwyden (D-Ore.) to discourage tax-driven corporate mergers.
In fact, they generally indicated they had yet to read his proposal, inwhichwyden said hewould increase a stockholder threshold that allows expatriating U.S. companies to be treated as foreign corporations.
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Stakeholders' responses to the OECD's discussion draft on transfer pricing documentation reflect a perceived need to improve the rules and a recognition that governments and taxpayerswill both have to comply, a Treasury official said May 9.
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The OECD's base erosion and profit-shifting programwill cause the IRS to reevaluate its compliance program balance and shift its focus from outbound taxation to inbound taxation, a senior IRS official said May 9.
Michael Danilack, deputy commissioner (international), IRS Large Business and International Division, and U.S. competent authority, said, "LB&I spends a lot of time looking at U.S. taxpayers. But, a lot ofwhatwe see happeningwith BEPS is driven to favor source countries.well, the U.S. has a pretty big market and the U.S. has quite a bit of foreign investment."
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A September 2013 chief counsel advice (CCA) memorandum that found that transfer pricing principles should be used to determine if foreign tax credits should be denied for noncompulsory paymentswas necessary to address confusion on the interaction of international tax rules, according to Anne Devereaux, IRS deputy associate chief counsel (international).
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The intersection between the U.S. consolidated group rules and international tax provisions is an area of growing concern for U.S. multinational companies, according to John Merrick, special counsel to the IRS associate chief counsel (international). In particular, taxpayers run into difficulties regarding the dual consolidated loss (DCL) rules, foreign tax credits, and separate return limitation year (SRLY) rules.
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When it comes to international taxation, Houseways and Means Committee Chair Dave Camp, R-Mich., and professor Daniel N. Shaviro of New York University Law School have a lot in common. In the age-old debate between the two poles ofworldwide and territorial taxation, theywant compromise. Theywant to achieve a balance between promoting competitiveness and preventing excessive profit shifting to tax havens.
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Congressional Republicans on May 9 said that tightening corporate inversion rules, as Senate Finance Committee Chair Ronwyden, D-Ore., and other Democratic lawmakers have recently proposed,would not stop companies from attempting to locate their headquarters overseas for tax purposes.
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If U.S. companies aim to save on taxes through cross-border mergers, they better be ready to pay up.

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When Vidara Therapeutics International Ltd. put itself up for sale this year, it sparked a biddingwar among U.S. companies interested in one of the small drug maker's most-promising assets: its Irish address.

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The U.S. should make it harder for companies to reap tax benefits from mergingwith foreign corporations, former Treasury Secretary Tim Geithner said in awide-ranging interview on CNBC that aired Monday.

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New draft guidelines on applying value-added taxes to cross-border business-to-business (B2B) transactionswill help reduce VAT burdens on multinational companies, but some tough questions remain on how to apply these taxes to international electronic sales to consumers, practitioners told Bloomberg BNA.

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AstraZeneca rebuffed Pfizer's takeover attempt lastweek, but the threatened relocation of Pfizer's corporate residence served as the catalyst for someworthwhile public reflection on the U.S. tax system. If Congress decides to pursue legislation, it needs to look beyond quick mechanical fixes.

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Jason Furman, Chairman, Council of Economic Advisers, delivered a speech to The Institute of International and European Affairs in Dublin, Ireland, on May 7, 2014, entitled, "Global Lessons for Inclusive Growth."

For the speech, go here.

Corporate mergers and takeovers have reached their highest levels since 2007, driven in part by companies' desire to leave the U.S. to save tax dollars.
Harvard economist Ken Rogoff says to beginwith, the business tax code is too complicated, like the rest of the U.S. tax code, and itwaswritten for a 20th century economy.
He discusses the issuewith Here & Now's Jeremy Hobson.

For the interview, go here.

It's not easy to find a countrywith a higher corporate tax rate than America's 40%. Andwhat's remarkable is the number of truly oppressive governments that somehow manage to maintain a more competitive tax policy than the U.S.

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While significant progress continues to be made by the Organisation for Economic Co-operation and Development (OECD) on its Action Plan on Base Erosion and Profit Shifting (BEPS), tax executives at many U.S. multinational companies do not believe the OECD has allowed adequate time to accomplish the plan's goals, according to a survey by KPMG LLP, the U.S. audit, tax and advisory firm.

For a summary of the survey results, go here.

Ten of the 11 EU member stateswhich supported the financial transaction tax (FTT) are set to introduce it by 2016, following the dismissal of a UK legal challenge by the European Court of Justice.

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Allowing the full and immediate deductibility of capital investmentwould spur growth and raisewages.

There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capitalwould be deductible from profitswhen paying taxes, and the deduction could be used now or against future or past tax liabilities.

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In this report, Samuel C. Thompson Jr.demonstrateswhy the approach to the taxation of controlled foreign corporations under the international business tax reform discussion draft of former Finance Committee Chair Max Baucus does not reflect sound tax policy and should be rejected. He argues that Congress should instead adopt an imputation system and use the revenue generated from that system to significantly reduce the corporate tax rate for all corporations.

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European Union finance ministerswill try to close down an important corporate tax "loophole" and at the same time make progress toward an agreement on a financial transactions tax (FTT) to be imposed in 11 EU member stateswhen a Council of Economic and Financial Affairs takes place May 6.
Following a proposal from the European Commission in November of 2013, EU member stateswill seek agreement on a revision of the EU Parent-Subsidiary Directive (EEC/2011/96) in order to eliminate corporate tax evasion via a hybrid loan arrangement.

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J.D. Foster presents the arguments in favor of territoriality in intuitive termswhile highlighting the flaws in the case favoring aworldwide system. Territoriality is steadilywinning the day, much as free trade continues to prevail, and the parallels are not accidental.

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Economists at a May 2 event said that to avoid corporate inversions of the kind proposed by Pfizer Inc., theywould reduce or eliminate the corporate income tax, but they did not agree on how to replace the lost revenue.
Speaking at a roundtable discussion at the Fordham University School of Law in New York, Hank Gutman of KPMG LLP said that to avoid inversions, hewould reduce the corporate income tax rate to about 15 percent and remain on aworldwide international system of taxation to reduce the pressure on transfer pricing.

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Politicians, officials and taxpayers spelled out the need for the outcomes of the BEPS project towork for companies and governments at the European Tax Policy Forum annual conference in London thisweek.

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The ethics of tax planningwere the subject of some lively conversation during the Lord Mayor of London's conference on tax competition and cooperation.

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The proposed takeover of UK-listed drug group AstraZeneca by Pfizer of the US has reignited the debate over tax competition between countries.

A study by KPMG, the professional services group, published lastweek found that nearly one in six countries had cut their corporate tax rates over the past 15 months, but that the size of the cutswas smaller than in the past.

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Randall Hogan chairs the Federal Reserve Bank of Minneapolis. Sandy Cutler ran the Greater Cleveland Partnership. Tony Petrello donated $5 million to the Texas Children's Hospital.

They're all chief executive officerswho have given back to their communities. They oversee thousands of Americanworkers. And they run companies that have opted out of the U.S. tax system.

For the story, go here.

The Obama administration is focused on findingways to curb tax-motivated reincorporations to other countries by U.S. businesses, a U.S. Treasury official told Reuters onwednesday.

"Cracking down on companies that reincorporate overseas to reduce their U.S. taxes is a priority for the administration," a Treasury official said in an emailed statement.

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The top court in the European Union onwednesday cleared a legal obstacle to a proposed tax on financial transactions, a plan bitterly opposed by bankers in London.
European Union finance ministers plan to meet early nextweek to discuss next steps for setting up the tax, though the British governmentwarned it could bring a further case against the plan.

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As it is currentlywritten, the Organization for Economic Cooperation and Development's proposal for country-by-country reporting can likely be implemented by the U.S.without a change in current law, a Treasury official said.

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