2014

The United States has beenworking aggressively to ensure that the contents of the OECD's base erosion and profit-shifting discussion drafts are technically sound and accurately reflect the positions of the various countries that are party to the BEPS project, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).

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Legislativework to finalize a financial transactions tax (FTT) in 11 European Union member stateswill intensify after the European Court of Justice rejected a U.K. challenge.
The U.K. said that negotiations on the FTTwere illegally based on a legislative procedure that defied EU law requiring unanimous consent of all 28 member states on tax issues.
In an expedited April 30 ruling (C-209/13), the EU high court insisted the U.K. argued on the merits and impact of the FTT and not on the substance of the legal procedure.

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An international project to combat base erosion and profit shifting has led to increases in tax controversies, and it isn't yet clear that the BEPS effortwill pay off for taxpayers hoping for more certainty, an Internal Revenue Service official said April 30.
"If there is a deliberative process, albeit under a compressed timeline, that results in some consensus around these difficult issues,wewill have taken a giant step forward. But if not, it could easily become international tax chaos. Andwe are very concerned about that,"said Samuel Maruca, director of transfer pricingwith the IRS.

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The U.S. government probably can't take regulatory action to stop companies from lowering tax bills through deals that put their legal addresses outside the country, John Koskinen, commissioner of the Internal Revenue Service, said.
Pfizer Inc. has proposed the biggest such deal yet, a $98.7 billion takeover of AstraZeneca Plc thatwould move the largest U.S. drugmaker to the U.K. for tax purposes and lower its tax rate.

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The share of the richest 1% in total pre-tax income have increased in most OECD countries over the past three decades. This rise is the result of the top 1% capturing a disproportionate share of overall income growth over that timeframe: up to 37% in Canada and 47% in the United States, according to new OECD analysis.

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Lastweek, two former Administration officialsweighed in on the need to update our tax code so it discourages businesses from relocating overseas for tax purposes. Both Austan Goolsbee, the former Chairman of the Council of Economic Advisers and Davidwalker, the former U.S. Comptroller General addressed this issue and discussedways to make the U.S. more competitive.

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Drawing from Veritas, this article demonstrates that the value of intangibles licensed exclusively to a foreign subsidiary is properly determined by separately valuing only the preexisting intangibles over their remaining useful lives,with no added value for later developed intangibles, goodwill, going concern value,workforce in place, business opportunities, and synergies.

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As details of the OECD's base erosion and profit-shifting action plan are revealed and stakeholders consider the first rounds of OECD recommendations, questions and critiques are starting to proliferate.

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George Osborne, the Chancellor of the Exchequer, has lost his appeal against a European financial transaction tax (FTT), but further challenges over the substantive issues are expected.

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The Houseways and Means Committee should vote against reviving and making permanent the expired controlled foreign corporation look-through and active financing rules,which "benefit tax dodging corporations at the expense of the rest of us," the Financial Accountability and Corporate Transparency Coalition urged in an April 28 release.

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Pfizer, the maker of best-selling drugs like Lipitor and Viagra and a symbol of business prowess in the United States for more than a century, no longerwants to be an American company.
On Monday, Pfizer proposed a $99 billion acquisition of its British rival AstraZeneca thatwould allow it to reincorporate in Britain. Doing sowould allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitivewith other global drug makers.

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Top finance officials from the European Union's leading economies have agreed to push for EU-wide measures to implement the international action plan to fight base erosion and profit shifting, according to a statement by the French ministry of finance.
At an April 28 meeting in Paris, ministers from France, Germany, Italy, Spain and the U.K. agreed to "encourage"the European Commission to review EU corporate taxation law, assess its impact on aggressive tax planning practices and propose necessary measures to systematically implement measures to fight BEPS, the statement said.

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While participants at the OECD's April 23 consultation on the digital economy generally agreed that electronic commerce is not a separately definable sector that could be subject to ring-fencing, business and nonbusiness representativeswere divided over the need for specific rules to address the digital delivery of products.

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European Union countries thatwant a financial transactions tax remain deadlocked onwhat trades they should include, EU documents show.
With time running out before May's European Parliament elections, the 11 participating countries remain divided onwhether to tax all derivatives, only equity derivatives or no derivatives at all. The governments also haven't agreed onwhere to collect the tax,which proposals suggest could be imposed by a trading firm's country of origin or in the nationwhere trading takes place, according to the documents.

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The European Court of Justice is set to release its ruling on the UK's challenge to the proposed EU financial transaction tax (FTT).

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On 30 January 2014, the Organisation for Economic Cooperation and Development (OECD) released a discussion draft on transfer pricing documentation and country by country reporting (CBCR)which included a template for country by country reporting of income, taxes, and economic activity (CBCR template).
This publication focuses on some of the challenges MNEs may face in compiling information thatwould be required to be disclosed in the CBCR template.

For the report, go here.

This paper provides an historical overview of tax reformwith an eye toward identifying conditions thatwould make successful reform plausible in the near future. Burman begins by analyzing the environment that led to tax reform in 1986 and posits that successful reformwould require strong leadership from thewhite House, bipartisan support, and a new source thatwould make possible substantial income tax rate cuts of thiswhile addressing the concerns of Republicans that new revenueswould fuel a growth in government and of Democrats about progressivity.

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Corporate taxpayers say tax is an influential factorwhen an international business is decidingwhere to locate itself.

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French authorities have released draft guidelines for legislation enacted at the end of December targeting hybrid mismatch arrangements, an aspect of international tax practice the OECD is also seeking to tackle as part of its BEPS Action Plan.

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Taxpayers need to pay close attention to a growing focus from tax authorities both in the U.S. and abroad, EY LLP practitioners said at the firm's annual domestic tax conference.
The sharply increasing cooperation on tax information sharing between countries is likely to be "a huge burden on tax departments,"said Michael Mundaca, co-director of EY's National Tax Department.

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Recent proposals to fight base erosion and profit shifting in the so-called digital economy aren't aimed at "ring fencing" that economy but rather at identifying characteristics in it that might contribute to BEPS so that proposals for dealingwith those characteristics can be developed, a high-level U.S. tax official said.

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Trade in Italian equities has fallen by 30% since the country introduced the controversial financial transaction tax, according to Credit Suisse.

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No, not all tax policy ideas come out ofwashington, D.C. Bill (William H.) Parks, a retired finance professor and founder of NRS, Inc., an Idaho-based paddle-sports accessories makerwith $30 million plus in annual sales, has been promoting an idea for taxing the profits of multinational corporations that's borrowed from the states. Simply put, the IRSwould determine the share of a company's earnings taxable in the U.S. based solely on the share of its sales made to U.S. consumers, the biggest spenders in theworld.

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The Organization for Economic Cooperation and Development's project to combat base erosion and profit shifting (BEPS) is taking a holistic approach to addressing stateless income involving the digital economy, according to Raffaele Russo, head of the project.

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Two hundred years ago, the United States tried to annex Canada. Thewar of 1812 didn't go sowell. Canada remained independent. It became the largest U.S. trading partner. It also retained its own corporate tax system,which, drafted in the British style, manages to be even more complicated and dysfunctional than the U.S. system.
Gordonwarnke of Linklaters and Firoz Ahmed of Osler, Hoskin & Harcourt LLP talked about new rules for U.S. investments in Canada at the April 23 International Tax Institute lunch in New York. Ahmed, a Canadian, described the rules,whilewarnke commented from a U.S. planning perspective.

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Special transfer pricing measures developed in the context of the Organization for Economic Cooperation and Development's project on base erosion and profit shiftingwill have to be evaluated to ensure their interactionwith international tax treaties does not produce unintended double taxation, a top OECD transfer pricing official said during an April 15 public consultation on treaty issues.

"The [OECD]will need to assess how these measures are reflected in domestic law and how they interactwith treaty obligations. Itwas never the intention that in developing treaty rules and special measures that the end resultwould be double taxation," said Marlies de Ruiter, head of the OECD's division on tax treaties, transfer pricing and financial transactions.

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Satoru Araki, of the Asian Development Bank, argues that more regional cooperationwill help developing countries in Asia to contribute better to the discussion about changing international tax rules and to improve their tax administration capacity.

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by Matthew Gilleard (ITR)

UK Chancellor of the Exchequer George Osborne is granting HMRC new powers to prosecute thosewho evade taxes by stashing money offshore. The tax authoritywill no longer have to prove that a taxpayer intentionally evaded taxes.

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In news analysis, Lee A. Sheppard discusses the treatment of intragroup transactions in the OECD's transfer pricing guidelines.

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At the OECD's April 14-15 treaty abuse consultation in Paris, a contingent of U.S. practitioners and business representatives urged the OECD not to include a main purpose test in its proposed limitation on benefits article, but at least one top OECD official didn't seem to be swayed by their arguments.

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One thousand pages of critical comments notwithstanding, at least some practitioners view country-by-country reporting as a net positive. Transfer pricing experts are eagerly looking forward to having their clients provide quality data.
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A tougher global stance against tax evasion and profit shifting may be especially beneficial to developing nations, but issueswith corruption and politics may remain as obstacles, officials said at a summit in Mexico City.

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Philip Morrison of Deloitte Taxwrites that the OECD's discussion draft on transfer pricing documentation and country-by-country reporting raises compliance and confidentiality concerns for affected multinational enterprises.

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The French tax authorities on April 15, 2014, released draft guidelines regarding the legislation enacted on December 30, 2013, targeting hybrid mismatch arrangements.

US multinationalswith French subsidiaries or branches should review their financing structures in light of these guidelines to ensure that the interest borne by their French affiliates is tax deductible.

For the PwC Insight, go here.

While the OECD's base erosion and profit-shifting project action 1 discussion draft on the tax challenges of the digital economy raises many concerns for the U.S. technology industry, industry observers believe the discussions are taking place in the correct venue, according to Peter Skewes-Cox of PricewaterhouseCoopers LLP's San Jose, Calif., office.
Skewes-Cox said during an April 17 PwCwebcast that there is a "high level of concern" in Silicon Valley over the prospect of changes to the taxation of the digital economy. However, he noted that in conversations he has had on the subject, there is an understanding the OECD is the "right forum" for the conversation. He said that if the OECD is able towork as it has in the past, it should be able to reach a consensus that prevents the creation of new barriers to global trade.
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Most of the proposals in the Organization for Economic Cooperation and Development's recent discussion draft on the tax challenges of the digital economywon'twork in practice, two corporate tax officials said.
Reed Elsevier Plc and British Sky Broadcasting Group Plc officials, in comment letters reacting to the proposals, said that creating a new nexus for purposes of determining permanent establishment status based on "significant digital presence"would be a mistake.

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U.S. technology and other companies are concerned about some of the options set out on taxation of the digital economy in a discussion draft issued by the Organization for Economic Cooperation and Development as part of its base erosion and profit shifting project, PricewaterhouseCoopers LLP practitioners said.
A majorworry is that some of the options could lead to a company being considered to have a taxable permanent establishment in a country inways that depart dramatically from current practice, the practitioners said during an April 17webcast.

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Global leaders attending a summit in Mexico City have launched 38 new initiatives, including multiple policy strategies that seek to crack down on tax avoidance and tax evasionworldwide.
"This is not only about multinationals, but also about the broader public aswe need to broaden the tax base,"Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, told the audience April 16.

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Mention Starbucks in the U.K., and many people think of lattes, Macchiatos ÔøΩand tax dodging.The coffee giant has faced boycotts, protests and general animosity from the British public since reports emerged in 2012 that Starbuckswas paying little to no taxes in the U.K., despite having hundreds of stores in the country.
Now, Starbucks has made another move in its effort to shore up relations. Onwednesday, Starbucks announcedthat itwas moving its European headquarters from Amsterdam to London, adding a "modest number of senior executives" to the operation in London. The company also promises that the movewill mean it pays higher taxes in the U.K. (although it's not clearwhat baseline the company is using for that assertion).

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Tax Executives Institute Inc. said the Canada Department of Finance's 2014 budget proposals on treaty shopping and back-to-back loans are overly broad and "likely to interferewith legitimate commercial arrangements and transactions."
In comments submitted April 10, TEI cautioned that if adopted aswritten, the measureswould impede investments, or financing for such investments, in Canada.

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Starbucks is set to pay more tax in the UK after announcing itwill move its European headquarters from the Netherlands to London. It has also pledged to create 1,000 new jobs in the country.

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New York State Bar Association Tax Section Report 1305 provides "Comments on The Public Discussion Draft of BEPS Action 2: Neutralise the Effects of Hybrid Mismatch Arrangements (Recommendations for Domestic Laws)."

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The New York State Bar Association Tax Section said a broad "top-down" approach to putting the brakes on the use of certain hybrid financial instruments and transfers under an Organization for Economic Cooperation and Development project isn'tworkable and could hurt the markets.

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Coffee chain says itwill pay more to the Treasury after move but that relocation is because itwants to be closer to biggest market.

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Starbucks Corp. plans to move its headquarters for Europe, Middle East and Africa to London from Amsterdam andwill have to pay more U.K. tax as a result, theworld's biggest coffee-store chain saidwednesday.

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Starbucks,which has sufferedwithering criticism in Britain for avoiding taxes, said onwednesday that itwould move its regional headquarters to London from Amsterdam and pay more to the British Treasury.

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It's hard to overstate the excitement of tech people aboutwhat is on the verge of happening to the practice of medicine.

Eric Horvitz, co-director of Microsoft Research's main lab in Redmond,wash., told me about a system that could predict a pregnantwoman's odds of suffering postpartum depressionwith uncanny accuracy by looking at her posts on Twitter, measuring signs like how many times she usedwords like ''I'' and ''me.''

Ramesh Rao of the California Institute for Telecommunications and Information Technology at the University of California, San Diego, described how doctors using video and audio to remotely assess victims of stroke made the correct call 98 percent of the time.

A few years ago, this kind of technological developmentwould be treated like unadulterated good news: an opportunity to improve the nation's health and standard of livingwhile perhaps even reducing health care costs and achieving a leap in productivity thatwould cement the United States' pre-eminent position on the frontier of technology.

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On 24 March 2014, interested partieswere invited to comment on the discussion draft on Tax Challenges of the Digital Economy related to Action 1 of the BEPS Action Plan. Comments received have now been published.
Commentators' inputwill be discussed by delegates to the Task Force on the Digital Economy at its April 2014 meeting.

For the document, go here.

Despite its name, the OECD's base erosion and profit-shifting project is intended to prevent double taxation -- the most vexing of multinational problems -- and not just to prevent tax avoidance. During an interview in Paris, the head of the BEPS project espoused his views on the importance of stakeholder input as the OECD moves toward finalization.
While attending the March 31 Bloomberg BNA and Baker & McKenzie transfer pricing conference, I sat down for a conversationwith Raffaele Russo,who is heading up the BEPS project.

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The biggest US companies have added significantly to their debts over the past three years, at the same time as corporate cash piles have increased, according to Standard & Poor's, the rating agency.

The figures show how US companies have been able to raise money to pay for capital investment, dividends and share buybacks, evenwhen they have not been spending their cash holdings.

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