2015

David Swenson, global leader of PwC's tax controversy and dispute resolution network, looks back at how megatrends in global tax controversy have developed over the past year, and ahead to the trends set to emerge in a post-BEPS environment.
For the ITR story, go here. (subscription required)

The Dutch government has released draft legislation thatwould adopt the OECD's proposed country-by-country reporting template, master file and local file under the documentation action of its international project to combat base erosion and profit shifting (BEPS).

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The Kuwaiti tax authority has begun to use a "virtual service" permanent establishment theory to deny tax relief for nonresident companies, according to an EY affiliate in Kuwait City.
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Robert Feinschreiber and Margaret Kent find several deficiencies in the discussion draft of action 12 (mandatory disclosure of aggressive tax schemes) of the OECD's base erosion and profit-shifting project.
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The Irish government plans to include a country-by-country reporting requirement for multinational companies in its next budget bill in mid- to late October, a Department of Finance press official told Bloomberg BNA.
Ireland, through its participation inwork on the international plan to fight base erosion and profit shifting, "has committed to supporting introduction of OECD BEPS recommendations on country-by-country reporting," the official said in a Sept. 23 e-mail.
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The 11 European Union member states planning a financial transactions taxwill examine measures to limit unintended consequences for companies hedging risks via derivatives and to prevent financial institutions from shifting the tax burden to others, according to documents to be discussed at a meeting Sept. 29.

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Even skilled tax experts can find themselves in a bad situationwhen it comes to helping companies enter new international markets.
Strategies like hiring local tax advisers, figuring out exit strategies and planning for cash repatriation before starting a project are all key to success in new international markets, tax professionals said during a panel discussion at the Bloomberg BNA and Mayer Brown energy tax conference in Houston.
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Look out, Thomas Piketty. Here comes Gabriel Zucman.
With a slim new book that has the feel of Piketty's bestselling "Capital in the 21st Century," Zucman, a baby-faced 28-year-old University of California-Berkeley economist, is taking his own swing at global capitalism. His target: tax havens that he says hide $7.6 trillionÔøΩabout 8 percent of theworld's net financialwealth.
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Determiningwhether or not to seek a tax ruling in the Netherlands or Luxembourgwill be a balancing act for European holding companies as new agreements to share these rulings among tax authorities goes into effect, tax practitioners said.
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The Treasury Department doesn't have the authority to require country-by-country reporting for U.S. multinationals to share employee, revenue and tax datawith foreign countries, Rep. Kevin Brady (R-Texas) said.
Brady, a senior member of the Houseways and Means Committee, said Congress has the authority to approveÔøΩor rejectÔøΩthe disclosure program that is a tenet of the Organization for Economic Cooperation and Development's base erosion and profit shifting project that seeks to increase transparency between companies and tax authorities.
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U.S. taxes on international profits need updating, but taking that action independent ofwholly rewriting the U.S. tax code risks economic upside, said former Houseways and Means Committee Chairman Dave Camp (R-Mich.).
Nevertheless, because lawmakers appear limited to addressing only international provisions for now instead of a broader tax revamp, he said they should seize the opportunity.
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The Treasury Department hopes to issue the new U.S. model tax treaty by the end of the year, said Quyen Huynh, an attorney-adviser in the Treasury Office of International Tax Counsel.
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With the OECD's two-year project to combat base erosion and profit shifting due towrap up in early October, a Treasury Department officialwarned countries not to engage in partisan tax administration thatwould cripple foreign direct investment.
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The Internal Revenue Service and the Treasury Department are hard atwork on regulations to implement the anti-inversions Notice 2014-52, said John Merrick, special counsel in the IRS Office of Associate Chief Counsel (International).
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China's top international tax official, noting that his nation is in the midst of momentous economic change, made a strong case for altering some of the rules of international taxation.

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Australia's recent moves to combat multinational tax avoidanceÔøΩincluding potential double penalties on profit-shifting schemes by multinational companies earning more than A$1 billion ($721 million) per yearÔøΩis a "very moderate approach" that simply demands a shift back to traditional tax laws, an Australian tax official said.

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Reorganization of the Internal Revenue Service's Large Business & International Divisionwill shift resources from individual audits of multinational companies to a broader consideration of overall compliance risks, LB&I Commissioner Douglasw. O'Donnell said.
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As the final BEPS deliverables approach, read about the impact the project is having on indirect tax policy in Norway.
For the ITR story, go here.

On September 16, 2015, Tax Laws Amendment (Combating MultinationalTax Avoidance) Bill 2015 (the Bill)was introduced into Australian parliament.

For the PwC Insight, go here.

WhenSalix Pharmaceuticals Ltd. last October abandoned plans to buy an Irish drug company and move its headquarters overseas, itwas chalked up as awin forwashington over "inversion" deals thatwere structured to avoid U.S. taxes.
The victorywas short-lived. In the year since the Treasury Department tightened its rules to reduce thetaxbenefits of such deals, six U.S. companies have struck inversions, comparedwith the nine that did so the year before.

For thewall Street Journal story, go here.

High levels of government support through such measures as tax breaks are hindering international efforts to decrease emissions and fight climate change, and there's plenty of room for countries to reform those measures, the OECD said in a report.
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Ajay Gupta considers the abrupt change in the public profile of U.S. Houseways and Means Committee Chair Paul Ryan, from champion of international tax reform to defender of domestic business interests against the OECD's base erosion and profit-shifting project.
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One day after the IRS offered its support of recently released guidance on the transfer of foreign goodwill and going concern value at a conference in New York, a Treasury official took the defense of the proposed regs on the road to Chicago, specifically justifying the immediate effective date of the new, dramatically more restrictive rules.
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Ordinary transactionswill not run afoul of recently modified antiavoidance rules that seek to treat a controlled foreign corporation as holding investments in U.S. property acquired by a controlled partnership, an IRS official assured practitioners on September 18.
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Douglas O'Donnell, Commissioner of the Large Business & International Division (LB&I), announced that LB&Iwould be reorganized around 'Practice Areas' at a Tax Executives Institute presentation on September 17, 2015. Commissioner O'Donnell indicated the new LB&I structurewas 'largely final' and scheduled to be implemented in early calendar year 2016.
For the PwC Insight, go here.

The U.S. Treasury Department last September issued a sternwarning to companies examining inversion deals: Tough rules are coming.

A year later, the companies and their tax lawyers are stillwaiting. The government hasn't released its first detailed rules. And a potential second set targeting maneuvers that push profits out of the U.S. isn't expected any time soon.

For the Bloomberg story, go here.

Mindy Herzfeld looks at the divergent views held by the OECD and tax practitioners on the processes employed in the OECD's base erosion and profit-shifting project and considers how the involvement of the G-20 influenced not only those processes, but also the expected outcomes.
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In news analysis, Lee A. Sheppard examines the Second Circuit's economic substance line of reasoning inBank of New York Mellon Corp. v. Commissioner, inwhich it held that valid foreign tax credits must involve genuine foreign business.
For the Tax Notes article, go here. (subscription required)

Labour MP Margaret Hodge,who led the political backlash against tax avoidance is to head a new cross-party group focusing on "responsible" taxation.

The former head of the public accounts committee,who became the scourge of big business in the last parliament,will be joined by other prominent MPs including David Davis, the former Conservative party chairman and Labour's John McFall,who formerly chaired the Treasury committee.
For the Financial Times story, go here.

European Commission President Jean-Claude Juncker faced intense questioning about transparency and Luxembourg tax rulings September 17 at a joint meeting of the European Parliament's Economic and Monetary Affairs Committee and the Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect.
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The IRS Large Business and International Division is undergoing sweeping changes designed to streamline enforcement and compliance,which includes a broad organizational change and a new risk identification and compliance program.
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David Varley, acting director of transfer pricing operations at the IRS, defended recently proposed regulations under section 367 against allegations that legislative history may prevent the IRS from including items such as going concern value,workforce in place, and goodwill as intangibles under section 367(d) guidance.
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With the exception of provisions regarding discretionary limitation on benefits relief, a panel of PricewaterhouseCoopers LLP practitioners took a generally favorable view of recently released guidance on requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority.
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The Netherlands published, on September 15, 2015, proposed corporate tax legislation that addresses the Dutch participation exemption regime, the so-called substantial interest rules, the tax treatment of cooperatives, and transfer-pricing compliance requirements.

The Dutch participation exemption regimewould alignwith changes in the EU Parent-Subsidiary Directive, resulting in taxability of income that may be deducted in foreign jurisdictions (e.g., hybrid loans). The main features of this regimewould remain unchanged.
For the PwC Insight, go here.

The Houseways and Means Committee today approved legislation to extend permanently expired tax provisions for the Subpart F exemption for active financing income, look-through treatment for payments between related controlled foreign corporations (CFCs), and three others. The staff of the Joint Committee on Taxation (JCT) estimates that the five provisionswould increase the federal deficit by approximately $411.4 billion over the ten-year budget period.
For the PwC Insight, go here.

On Thursday, The Houseways and Means Committeewill once again contemplate making permanent controversial tax breaks that overwhelmingly benefit big business at a cost of $380 billion over the next 10 years.
Most notably, the committeewill consider bills making permanent the "active financing" loopholeand theCFC look-through rule. These esoteric names may mean something only to tax policywonks and corporate accounting departments, but their impact on the federal budget has implications for us all.
For the Tax Justice blog post, go here.

Discover how developmentswith the the OECD BEPS projectwill impact the oil and gas industry.
For the ITR story, go here.

Just two days after announcing hewouldn't introduce any new taxes in his 2016 budget, Italian Prime Minister Matteo Renzi said hewould have at least one starting in 2017ÔøΩaweb tax on international Internet companies.
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Australian Treasurer Joe Hockey introduced legislation into parliament designed to combat tax avoidance by multinational companies, impose stronger penalties and adopt country-by-country reporting requirements.
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The authors assert that the approach taken by the Organization for Economic Cooperation and Development in its December 2014 draft on risk, recharacterization and special measures could result in allocations thatwould be unlikely to occur in transactions between independent enterprisesÔøΩand that such measures could distort the risk-reward trade-off that the OECD recognizes as fundamental to the proper arm's-length allocation of profit or loss.
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The largest producer of nitrogen-based fertilizer in the United States, CF Industries, is considering mergingwith a Dutch competitor and moving its headquarters overseas to avoid the "double taxation" of profits earned by overseas subsidiaries going to the domestic company.
Curtis Dubay, a tax and economic research fellowwith The Heritage Foundation, says an increasing number of companies are moving to other countrieswith friendlier tax climates, a strategy called corporate inversion.
For the Heartland Institute story, go here.

The Tax Justice Network published a report evaluating the OECD's handbook on the implementation of the new common reporting standard (CRS) on automatic exchange of information, highlighting technicalweaknesses of the CRS and making several recommendations, such as cracking down on sham residency certificates.
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The investigation by China's finance ministry that forced a subsidiary of Apple Inc. to pay more than $70 million in back taxeswas part of a bigger probe that portends tougher government measures, officials and advisers for multinational companies said.
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Momentum is growing slowly, if at all, for the closelywatched innovation box draft unveiled in late July by Houseways and Means Committee members Charlesw. Boustany Jr., R-La., and Richard E. Neal, D-Mass., according to interviewswith tax lobbyists, lawmakers, and congressional aides.
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On September 1, 2015, the IRS and the Treasury Department issued proposed regulations under Section 956 and temporary and final regulations under Sections 954 and 956. The long-awaited guidance addresses the treatment of loans from a controlled foreign corporation (CFC) to a foreign partnership under Section 956, the treatment of other non-partnership transactions under Section 956, and the foreign personal holding company income (FPHCI) provisions of Section 954.
For the PwC Insight, go here.

On September 8th, a tax reform packagewas presented by the Mexican Executive Branch to its Congress for review and approval. Although the tax reform proposals are not as exhaustive as reforms in prior years, it includes an important requirement to file Master File, Local File and Country-by-Country (CbC) reports. If approved, these provisionswould place Mexico as the fourth country (after Spain, Australia and UK) to require application of the OECD Base Erosion and Profit Shifting (BEPS) initiativewith respect to Action Plan 13: Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country Reporting.

For the PwC Insight, go here.

What is BEPS?BEPS stands for the "Base Erosion and Profit Shifting" project. It is scheduled to be completed in December 2015. It is an information sharing regime among participating European tax authorities.
Why is this a threat to U.S. taxpayers?The information being shared is, by and large, targeted at U.S. companies doing business in Europe.
For the Americans for Tax Reform blog post, go here.

A patent box regime can incentivize both domestic and foreign manufacturers to set up manufacturing in a country to take advantage of a lower tax rate on profits derived from intellectual property. Many multi-national companies have relocated intellectual property sourced assets and manufacturing to foreign countrieswithout previously having manufacturing activities in that country related to the intellectual property.
For the IPwatchdog article, go here.