2014

PayPal's announced spinoff from parent company eBay could open the door to one or both resulting entities moving offshorewith foreign merger partners. Each of these expatriations, however,would encounter statutory and regulatory hurdles -- including those presaged in Notice 2014-52, 2014-42 IRB 1.

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The much-awaited ruling of the Bombay High Court (HC) in the context of thewrit Petition filed by Vodafone India Services Private Limited (VISPL or the taxpayer) has been released.
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The "anti-dilution" provisions under tax code Section 7701(l) in the government's notice to put the brakes on inversions are intended to stop companies from "hemorrhaging" earnings and profits before the deals, a senior IRS official said.
The governmentwants to "ringfence" the E&P, Internal Revenue Service Associate Chief Counsel (International) Steven Musher said at a corporate tax conference sponsored by the Practising Law Institute Oct. 16.
Under Section 7701(l), transactionswould be recast to ensure a company's earnings and profits are appropriately taxed, Musher said.
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Breaking his silence on the anti-inversion notice issued September 22, Steven Musher, IRS associate chief counsel (international), on October 16 answered numerous practitioner questions on how to interpret the notice and, in particular, on the mechanics of the so-called 36-month rule in the excess distribution test.
Notice 2014-52, 2014-42 IRB 712, directs taxpayers to disregard some distributions for purposes of applying the 80 percent and 60 percent ownership fraction tests. The 36-month rule provides that non-ordinary course distributions made by the inverting company during the 36 months preceding the acquisition date are disregarded.
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Despite Treasury guidance intended to slow inversions, the guidance only addresses some reasonswhy corporations invert,which iswhy Congress should take legislative action to more fully address inversion incentives and avoid litigation that could challenge Treasury actions, Citizens for Tax Justice said in an October 16 release.

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The Obama Administration keepswonderingwhy businesses don't invest more andwhy it gets no credit forwhat it claims is itswonderful economic recovery. Look no further than its new and increasingly successful campaign to prevent money that corporations earn overseas from returning to the United States. That's the practical economic impact as so-called corporate-inversion deals die in thewake of Treasury's September tax raid on cross-border mergers.
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In a decision that could give relief to more than 20 other pending cases, the Bombay High Court has ruled in favour of Vodafone that in the absence of income, a share issue transaction cannot be subjected to transfer pricing.
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Apple, Amazon and Starbucks are now on high alert: Europe, unlike more plodding U.S. tax authorities, is swiftly moving to blast heavyweight corporations for playing shell games to skirt taxes on billions in profits.

In the past severalweeks alone, the European Commission accused Apple of manipulating the company's tax rate, and it called out Amazon for using royalty payments to avoid taxation in Luxembourg. The crackdown is putting pressure on low-tax European countries like Ireland ÔøΩwhich has attracted big name companieswith tax benefits ÔøΩ to tighten the rules.

"The EU has sort of justwoken up to the fact thatwithin its midst are a bunch of countrieswhose existences depends on luring" companies away from each otherwith sweet tax deals, said David Rosenbloom, director of the international tax program at New York University.

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The Irish government announced yesterday that itwas moving to close the infamous "Double Irish" tax loophole. The tax arrangement,which has sparked endless controversy for multinational corporations, involves royalty payments for intellectual propertywhich can be transferred from one Irish-registered subsidiary to anotherwith no corporate income taxes.

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On October 14, 2014 the Minister for Finance announced the Irish Budget 2015. As part of this process he also published a policy statement entitled 'A Road Map for Ireland's Tax Competitiveness,'which provides some overall international tax strategy context for the Budget announcements. The package of tax measures including 'grandfathering' of existing arrangements and a new intangible property (IP) regime should provide certainty on the Irish tax regime for both existing and new investors.
These announcements should enable Ireland to remain competitive and attractive as a location inwhich to align IP, profits, and substance.
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This article considers the IRS's continued efforts in litigation under reg. section 1.482-7A(g)(2), despite the Tax Court's rejection of the IRS's position in Veritas. The article asserts that the IRS's approach is flawed, that Veritaswas correctly decided, and that the IRS should consider refocusing its efforts.

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A subcommittee of the United Nations Committee of Experts on International Cooperation in Tax Matterswill recommend that the committee, at its annual meeting Oct. 27 in Geneva, delete a controversial paragraph from the Article 9 Commentary of the U.N. Model Tax Convention, according to a subcommittee member.
The paragraph recommends that countries follow the principles set out in the Organization for Economic Cooperation and Development transfer pricing guidelines in applying the arm's-length principle to determine the correct prices for the transfer pricing of goods, technology, trademarks and services between associated enterprises and the methods that may be applied.
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The OECD's recent transfer pricing guidance on intangibles, issued as part of the base erosion and profit-shifting project's deliverables,with large portions unfinalized, is unlikely to be finalized anytime soon. Thatwas the takeaway from a seminar, titled "Tax Issues Relating to Intangibles," held October 15 at the 68th annual Congress of the International Fiscal Association in Mumbai.

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Europe's top antitrust official criticizedwhat he called the "defensive" and "irrational" response by European politicians to his investigation of Google Inc., and said separately that his department may launch more probes into alleged sweetheart tax deals for multinational companies.
Spanish-born Joaquin Almunia --who is preparing to step down as the European Union's competition commissioner in a fewweeks -- said the political pressure that preceded his decision to reopen the four-year-old Google case for a fourth timewas unprecedented. The commission has rejected three settlement offers by the U.S.-based Internet giant.
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A simple tweak to the "Double Irish" tax structure might be enough to prolong its lifespan, advisers said as they pondered new strategies to replace the high-profile tax planning scheme axed by Ireland's government on Tuesday.

Dublin's decision to bow to international pressure by phasing out the Double Irishwas hailed as awatershed in the international crackdown on corporate tax avoidance. The structure has allowed companies such as Microsoft, Google and Abbott to route profits to tax havens such as Bermuda by exploiting different definitions of corporate residency in Ireland and the US.

But the promise to axe the "Double Irish" by 2020was greeted calmly bywall Street,where analysts noted itwould be phased out over six years and forecast itwould have, at most, a modest impact on earnings.

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The Irish government is to scrap the so-called double-Irish structure and introduce an income-based system for the taxation of intellectual property,which it is calling a knowledge development box.
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On August 6 the Korean Ministry of Finance announced initial plans to tax corporations on excess cash reserves. The government hopes the extra tax revenuewill stimulate growth but there is a risk the move could cause Korean firms to move excess reserves offshore.
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Taxpayers got some mixed news from this year's Malaysia budget, the last before goods and services tax (GST) comes into effect next April.

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According to the European Commission - the executive body of the European Union - perceived 'aggressive tax planning' is contrary to the principles of the EU's internal market. Fair competition is one of these principles. EU Member States cannot grant 'aid' - e.g. subsidies or tax reliefs - to certain companies on the internal marketwithout prior authorisation by the European Commission. If such aid is grantedwithout authorisation, the aid is unlawful. Unlawful aid has to be repaid by the companies concerned. Recently, the European Commission has made a link between State aid and BEPS. Following are answers to key questions on State aid.
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Bono may front theworld's most popular rock band, but the U2 singer did not earn many new fanswhen he recently defended Ireland's controversial tax policies,which arewidely seen as helping multinationals to avoid paying their fair share. Norwas his support for this low-tax regime enough to save the "Double Irish", the biggest of the loopholes,which Ireland's government outlined plans to close on October 14th.

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Ireland adopts first mover advantage including commitment to a best-in-class knowledge development box – a clear roadmap for the future.

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In a special report, Mike Goral and Tatyana Lirtsman complete their two-part series on state tax issues facing foreign corporationswith an examination of sourcing of income to the taxing state and how income should be apportioned.

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Israel's Tax Authority has created a "preferred" income stream for some software development companies, entitling them to preferred enterprise tax breaks under Israel's Law for the Encouragement of Capital Investment.
Taxes on income that qualifies for the new category could be as low as 9 percent,while income that does notwill continue to be taxed at regular rates, according to the conditions and limits outlined in ruling 6827/14, issued Sept. 28.
The resulting tax breakwill be of "great interest to many multinational tech concerns," according to Israeli tax consultant Leon Harris.
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Ireland's government on Tuesday responded to the clamorous criticism of its business-friendly tax arrangements by closing a loophole used by multinational giants like Google.
The European Union and the Obama administration have been increasingly vocal about the tax-avoidance strategies of multinational companies and the countries that enable them. The European Commission is conducting a broad investigation into the relationships between multinationals and perceived tax havens like Ireland, Luxembourg and the Netherlands.
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"Whatwe have now is a mess," Robert Peroni, a professor at the University of Texas School of Law, said October 10, referring to the international tax system.
Heads nodded in agreement at a conference on reforming entity taxation hosted by Boston College Law School in Newton, Massachusetts, and cosponsored by Tax Analysts. A discussion of how to go about cleaning up that mess pitted multilateralism against a U.S.-first approach. Panelists appeared to share the realpolitik view thatwhatever course is followed, dominant actors have called the shots for decades andwill probably continue to do so.
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Americans for Tax Reform has joined a coalition of taxpayer and free market groups that oppose multilateral tax agendas, signing a letter that criticizes the financial transaction tax and excise taxes ahead of theworld Health Organization's October 13 meeting.

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The United Kingdomwas able to stop corporate inversions by cutting its corporate tax rate and shifting to a territorial tax system, indicating that U.S. lawmakers should enact similar tax reform to stop inversions by U.S. corporations, Tax Foundation chief economistwill McBride said in an October report.

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Irish Finance Minister Michael Noonan announced October 14 that Irelandwill eliminate the ability of new companies to use the "double Irish" tax arrangement, effective January 1, 2015, by changing residency rules to require all companies registered in Ireland to be Irish tax residents aswell.
Noonan provided the details of a roadmap setting forth the government's international tax strategy in a financial statementfor the 2015 budgetthat calls for attracting and retaining foreign direct investmentwhile staying in alignmentwith measures being developed on a global scale to reduce base erosion and profit shifting.
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The Irish government moved on Tuesday to close one of theworld's best-known corporate-tax loopholes, in a step that could boost overseas income tax for awide range of U.S. companies, particularly in the technology sector.

Irelandwill change its tax code to require that all Irish-registered companies be tax residents in Irelandwithin the next six years, slowly ending a tax-optimization structure known as the "Double Irish," Irish Finance Minister Michael Noonan said in a parliamentary address to introduce the 2015 budget.

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The European Union expanded its crackdown on illegal tax breaks, ordering Spain to recover money from companies that benefited from rules that encouraged merger activity outside of the country.

The European Commission said the Spanish measures unfairly rewarded companies for buying stakes in foreign competitors. Telefonica SA (TEF) last year lost a court bid to challenge a related EU probe into Spanish tax breaks.

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As executives pore over the slow death of the "Double Irish" tax shelter favored by U.S. companies, the reaction seems to be: keep calm and carry on.

The tax break,which allows companies to avoid paying levies on much of their income,will be closed to new entrants from January, Irish Finance Minister Michael Noonan said in parliament in Dublin yesterday, as he laid out the 2015 budget. Companies already enjoying the tax break can continue to do so until the end of 2020, he said.

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A transfer pricing analysis has a significant advantage over the adoption of "special measures" to tackle base erosion and profit shifting (BEPS) situations involving the outsourcing of research and development to a related party, or a cost-sharing arrangement, a Dutch Ministry of Finance official said.
Harry Roodbeen, director of international tax and consumer tax, said Oct. 13 that "the arm's-length principle has the huge advantage that it can be subject to a mutual agreement procedure. Special measures are much more difficult."
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The Organization for Economic Cooperation and Development's new approach to hybrid entities, under the international plan to combat base erosion and profit shifting, doesn't conflictwith the organization's 1999 partnership report, an OECD official told the International Fiscal Association's annual congress in Mumbai.
Jacques Sasseville, head of the OECD's tax treaty unit, attempted to clarify the relationship between the OECD's Sept. 16 draft report on BEPS Action 2,which includes a proposed new model tax treaty provision for addressing hybrid mismatch arrangements, and the organization's 1999 report, "The Application of the OECD Model Tax Convention to Partnerships."
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The screw is being turned on American companies that use complex structures towhittle down their tax bills. But is the latest EU probe a paper tiger or a game changer?

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Irelandwill phase out a tax loophole that multinationals use to save billions of dollars under sweeping changes to its corporate tax structure announced in Tuesday's budget, the first in seven yearswithout new austerity measures.
The changes spell the eventual end to "Double Irish" schemes, so-called because they involve multinationals setting up two Irish subsidiaries to slash their tax liabilities.

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Ireland is to shut its so-called "Double Irish" corporate tax loophole from the beginning of next year, bowing to intense pressure to close one of the most controversial measures in international tax planning.

The strategy,which allowed US technology and pharmaceutical groups to avoid billions of dollars in corporate tax over two decades, helped to to create Ireland's Celtic Tiger economy before the financial crisis. For years Dublin resisted intense pressure from its EU partners overwhat they regarded as unfair tax competition.

Dublin's move represents a pre-emptive step to get ahead of a growing international campaign to clamp down on corporate tax avoidance. It removes a loophole thatwas starting to discredit the country's overall corporate tax rate of 12.5 per cent.

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After years of debate over tax breaks that have helped lure big multinational corporations to Ireland, the Irish government said Tuesday that itwould phase out a measure used by technology companies including Google to reduce their bills.

The tax provision,which has attracted the scrutiny of European Union regulators and is known as "double Irish,"will end next year, although companies already using itwill be able to do so until the end of 2020.

Despite the long phase-out period, the move reflects the growing pressure from regulators, international organizations and consumers to get more tax revenue from multinationals adept at exploiting different nations' tax laws.

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Ireland's governmentwill phase out a tax shelter used by U.S. companies from Google Inc. to LinkedIn Corp., amid mounting pressure from international authorities.

The "Double Irish,"which allows companies to avoid paying tax on much of their income,will be closed to new entrants from January, Finance Minister Michael Noonan said in parliament in Dublin today, as he laid out the 2015 budget. Companies already enjoying the tax break can continue to do so until 2020.

"Aggressive tax planning by multi-national companies has been criticised by governments across the globe," Noonan, 71, said. It has "damaged the reputation of many countries."

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Itwas less than 20 years ago that Daniel Yergin and Joseph Stanislaw published "The Commanding Heights,"which chronicled the triumph of free-market economics over socialism, communism and the idea that government had a big role to play in managing the economy. The years since, marked by financial crises, stagnant incomes, rising debt levels and persistently high unemployment, have raised doubts as towhether that great debate has been resolved. So it should be no surprise that the bookshelves are beginning to fill upwith revisionist critiques of how the market fundamentalists got it allwrong.

In two of the most recent contributions, Edward Kleinbard, a respected tax expert and lawyer, and Jeff Madrick, a longtime economic journalist, set out to debunk the notion that markets can always be relied on to generate the best economic outcomes. As you might imagine, Milton Friedman comes in for a heaping helping of scorn. They also chide their fellow liberals, and liberal economists, for allowing the political debate to become so cramped by misguided fixations on deficits, moochers and "job-killing" taxes that much-needed regulation, redistribution and public investments are no longer seriously discussed.

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The International Monetary Fund slashed Japan's growth forecast lastweek and put its recession odds at 1 in 4, citing a bigger-than-expected hit from a national sales-tax increase this past April. The IMF also noted Japan's "very high public debt" and said a second tax hike, scheduled for next year,was "critical to establish a track record of fiscal discipline."

The year-end decision facing Prime Minister Shinzo Abe --whether to approve the planned boost in the sales tax to 10% from 8% -- resembles debates roiling maturing economiesworld-wide.what's more urgent: growing faster or paying down debt before a country grows too old to cover it?

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The OECD published on 16 September 2014 an agreed report on hybrid mismatches. That reportwas approved by G20 Finance Ministers at their meeting on 20/21 September.

The OECD's March 2014 papers on hybrids (dealing separatelywith treaty issues and domestic law issues)were amongst the most complex and lengthy of its proposals to date. The initial proposals for changes to domestic laws dealt separatelywith hybrid instruments and transfers; hybrid entity payments; and imported mismatches and reverse hybrids.

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Much like the Trojanwar, the U.S. government's battle against corporate inversion transactions startedwith Helen of Troy. In the early 1990s, Helen of Troy Ltd., a U.S. cosmetics company, reorganized as a Bermuda corporation in one of the first inversion transactions. Subsequently, several multinational corporations followed suit and reincorporated in tax havens, such as Bermuda or the Cayman Islands. Between 1983 and 2003, only 29 companies inverted. However, between 2004 and 2014, more than 47 companies engaged in inversion transactions,with most inversions taking place after 2009, according to the Congressional Research Service (CRS). Estimates show that legislation to tighten rules to limit inversions could save taxpayers nearly $20 billion over 10 years, according to the Houseways and Means Committee.
The lack of comprehensive tax reform at the federal level has prompted some to advocate for action at the state level. "The states are much better equipped to dealwith the issue since they have had to dealwith multijurisdictional tax issues since the aftermath ofworldwar II," said Richard Pomp, a professor at the University of Connecticut School of Law.
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Multinational companies are bracing for their last serving of the "Double Irish."
Ireland is expected on Tuesday to announce changes to its tax code that could eventually close one of theworld's most famous corporate-tax loopholes, dubbed the Double Irish, after heavy pressure from governments and the European Union, tax experts say.
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The unique ownership and operating structure of Alibaba Group Holding Ltd.,which recently engaged in the largest initial public offering in history, gives rise to significant tax questions about how the ownership of Alibaba shareswill be treated for U.S. income tax purposes. It raises questions about how treatieswill apply to the structure and reveals risks in interpretation of transfer pricing rules. It also calls into question some underlying assumptions of the OECD's base erosion and profit-shifting project.
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The Bombay High Court has ruled in favor of British telecommunications company Vodafone in a transfer pricing dispute involving tax years 2009-10 and 2010-11, finding the issuance of shares in a capital financial transaction cannot be considered income.
The dispute related to the sale by Vodafone India Services of shares to the parent company. The tax authorities alleged that the shares transferred by the Indian unit to its parentwere undervalued to allow the company to avoid paying tax. Tax officials added about $490 million to the company's taxable income for the financial years 2009-10 and 2010-11.
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In news analysis, Lee A. Sheppard looks at the European Commission's recent announcement that it is investigating Luxembourg tax rulings related to Fiat that may have provided impermissible state aid.

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The Malaysian government announced plans to introduce new temporary tax incentives aimed at encouraging capital investment beginning in 2015.
In a speech outlining the 2015 budget, Prime Minister and Finance Minister Najib Razak said therewill be separate sets of tax breaks for the industrial and non-industrial sectors.
Malaysiawill offer a 100 percent income tax exemption for a period of five years "to encourage the private sector to manage, maintain and upgrade industrial estates in less developed areas," he said.
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Notice 2014-52, 2014-42 IRB 712, and coming anti-inversion regulations may be subject to challenge sooner rather than later, on both facial and administrative grounds.
Treasury's September 22 anti-inversion guidance is generally viewed as comprehensive, detailed, and rooted in broad grants of rulemaking authority. But some experts seeweaknesses in the new rules that could sustain a taxpayer action against them, despite the Supreme Court's decision in Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011),which did awaywith "tax exceptionalism" and confirmed that Treasury regulations are subject to the deferential Chevron review standard.
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Brussels is challenging the "double Irish" tax avoidance measure prized by big US tech and pharma groups, putting pressure on Dublin to close it down or face a full-blown investigation.

As part of an ambitious and contentious tax clampdown, Europe's top competition authority asked Dublin earlier this year to explain the controversial tax system used by the likes of Google, Microsoft, Facebook and Abbott Laboratories.

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Brazil has released a decree extending technology tax incentives thatwere due to expire at the end of the year.

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