2015

At first glance the OECD's Base Erosion and Profit Shifting (BEPS) project is difficult to understand.
There has been no decline in corporate tax revenues in recent years, and nations already possess a variety of tools to respond to erosionwhen needed. BEPS is thus drawing an inordinate amount of global attention and resources for apparently low expected returns. The onlyway to thus explain the project is to recognize that it represents a new front in the OECD's long runningwar on tax competition.
For the Cayman Financial Review story, go here.

There is growing talk of Congress creating an "innovation box" instead of focusing on broad business tax reform. Thiswould be a mistake. An innovation box, often called a patent box in Europe, offers lower tax on certain types of income derived from intellectual property, or IP. Such boxes pickwinners and losers and are not substitutes for sound policies like a lower business tax rate and a territorial tax system to replace today'sworldwide system. Congress needs to refocus on passing business tax reform to revive economic growth instead.
For the Heritage Foundation backgrounder, go here.

Major corporate tax changes have been proposed in Luxembourg,whichwould bring the Grand Duchy into linewith recent changes to the Parent-Subsidiary Directive and remove certain exemptions for companies.
For the ITR story, go here.

The Treasury Department should clarify that a proposed change to the U.S. model income tax treatyÔøΩone thatwould deny benefits if a treaty partner adopts a "special tax regime"ÔøΩdoesn't apply to business income, the New York State Bar Association Tax Section said in a letter and report to the government.
For the DTR story, go here. (subscription required)

A recent decision in Altera Corporation vs Commissioner has seen a portion of treasury regulations relating to cost-sharing agreements (CSAs) on stock-based compensation ruled as invalid.
For the ITR story, go here.

The IRS on August 6 issued Notice 2015-54 (the Notice), announcing its intention to issue regulations significantly changing the treatment of partnershipswith US and foreign partners that are related parties.

For the PwC Insight, go here.

Contributing intangible property to a partnership is similar to contributing pre-existing intangible rights to a cost-sharing agreement that could indicate how government officials are conceptualizing regulations targeting appreciated property transfers to foreign partners, a practitioner said.
For the DTR story, go here. (subscription required)

International tax reform is urgently needed because companies are holding $2 trillion overseas to avoid U.S. taxes, the corporate tax base is shrinking, and U.S. companieswill likely be pressured to move more research capital overseas to take advantage of foreign patent boxes, the Houseways and Means Committee staff said in an August 13 release.
For the release, go here.

Cisco, like other tech giants, is banking on Uncle Sam to help it make better use of its cash.
In an interview following fiscal fourth-quarter earnings, CFO Kelly Kramer said the San Jose-based Cisco iswaiting for a change to tax laws to bring the majority of its $60.4 billion in cash back to the U.S.
For The Street story, go here.

The European Commission said itwill update its controversial list of uncooperative tax havens by the end of 2015 but it insisted that, to date, none of the 30 countries or independent territories on the list has been removed.
The "blacklist," released in June, has been the source of intensive lobbying by the Organization for Economic Cooperation and Development, aswell as a host of listed jurisdictions.
For the DTR story, go here. (subscription required)

The IRS finalized a pair of revenue procedures explaining the process for multinational taxpayers seeking advance pricing agreements or treaty assistance from the U.S. competent authority.
"Between notice and finalizationwe took into account the many public commentswe received, butwe also took into account the greater global tax administration environment," said David Varley, acting director of transfer pricingwith the IRS's Large Business & International Division (LB&I).
For the DTR story, go here. (subscription required)

Tax administrations continue to face the challenges of improving their performancewhile reducing costs, decreasing compliance burdens for taxpayers tackling non-compliance. Improving taxpayer services,while making non-compliance harder, is helping revenue bodies increase their efficiency and allowing governments to finance important programmes thatwill further benefit their citizens.
For the OECD report, go here.

South Korea is joining other countries rolling out the OECD's global standards on transfer pricing documentation,with additional disclosures to be required on the international transactions of domestic and foreign companies for income years beginning on or after Jan. 1, 2016, an official said.
For the DTR story, go here. (subscription required)

Christopher J.worek examines the recommendations in action 1 of the OECD's base erosion and profit-shifting project, explainswhy one is superior, and modifies and integrates them into aworkable alternative.
For the TNI article, go here. (subscription required)

Tax administrations are making positive strides, improving management of large taxpayers, decreasing outstanding tax debts, and enhancing efficiency, but they continue to face budgetary constraints and unrealized potential, especially in the area of voluntary disclosure, the OECD said in an August 11 report.
For the TNT story, go here. (subscription required)

Fear of losing tax sovereignty is one of the biggest obstacles to U.S. and other countries' support of the Organization for Economic Cooperation and Development's plan to combat base erosion and profit shifting, said a tax consultant at London-based law firm Allen & Overy LLP.
As away of "overcoming divergence of tax systems" and combating multinationals' profit shifting, the BEPS initiative "is a thoughtful and impressive response" and "shows international tax cooperation at its best," Stephen Fiamma said at an Aug. 10 media briefing.
For the DTR story, go here. (subscription required)

Patrick Cheung and Johnny Foun, of Deloitte China, go through the significant aspects of the BEPS action plan and local legislation to explore how these policies could affect multinationals' outbound payments from China.
For the ITR story, go here.

Read how taxpayers can take measures to protect themselves in a risk and recharacterisation context as global legislation realigns.

For the ITR story, go here.

Robert Cassanos analyzes the OECD's final report on action 2 of its base erosion and profit-shifting project from a technical and policy perspective and suggestsways to make the hybrid mismatch rules more effective and easier to complywith.
For the Tax Notes article, go here. (subscription required)

German Finance Ministry officials told Bloomberg BNA that the countrywon't seek to match the U.K., Netherlands or other European Union nations on business tax rates, but is listening to pressure from its business community to adopt a patent box regime.
In interviews conducted Aug. 5-7, officials provided insight into German Finance Minsterwolfgang Schaeuble's position on the EU's various tax harmonization efforts, ranging from transfer pricing to patent boxes.
For the BNA DTR story, go here. (subscription required)

In news analysis, Marie Sapirie discusses recent IRS and Treasury efforts to eliminate corporate inversions.
For the Tax Notes story, go here. (subscription required)

David Ernick delivered the keynote speech at the July 22 National Association for Business Economics Transfer Pricing Symposium, discussing the OECD'swork on international tax issues through the base erosion and profit-shifting project.
For the speech, go here. (subscription required)

The latest Front lines topic is accounting for income taxes in cross-border transactions.

Companies are seeking opportunities for growth and diversification. They are increasingly using cross border M&A activity as a mechanism for becoming established in foreign markets and to stimulate growth. Such activity is expected to increase in 2015, a result of lower foreign tax rates, a strengthening US dollar, US stock market indices reporting record levels and an accumulation of cash by foreign subsidiaries. These trends have afforded companies the opportunity to engage in M&A activity by using the strong US dollar to purchase foreign companies.

The acquisition of a foreign business can introduce complex financial reporting challengeswhen accounting for income taxes. Pre-acquisition, a company must gain a sufficient understanding of the foreign target's operations and tax structure in order to knowwhere the acquired assets reside, the relevant taxing jurisdictions, and the applicable tax rates. Post-acquisition issues may arise from internal reorganizations and the need to perform GAAP conversions.

For this issue, go here.

Houseways and Means Committee members Charles Boustany (R-LA) and Richard Neal (D-MA) on July 29, 2015 released an 'innovation box' discussion draft proposal thatwould provide a 10.15% effective US corporate tax rate on income derived from certain types of intellectual property (IP). The idea of an innovation box has gained bipartisan support in both the House of Representatives and the Senate at a timewhen several European Union countries have established preferential tax regimes for various forms of IP-related income. Designed to attract and retain research and development (R&D) investment and IP in the United States, an innovation box could be considered as part of broader international tax reform legislation.

For the PwC Insight, go here.

The OECD on August 7 published three new documents that provide guidance on the implementation of the new global standard on automatic information exchange, including a practical handbook, a model protocol to tax information exchange agreements, and an updated report on offshore voluntary disclosure programs.
For thewWTD story, go here. (subscription required)

In Part 2 of her review of the OECD'swork on the profit-split method under BEPS action 10, Mindy Herzfeld discusses the views of the tax community in China, paying particular attention to their dramatic differenceswith the non-Communist states of the G-20.
For the TNI story, go here. (subscription required)

Ajay Gupta continues his examination of the U.S. Tax Court's recent decision in Altera, focusing on its implications for the transfer pricing reforms proposed under the OECD's base erosion and profit-shifting project.
For the TNI story, go here. (subscription required)

Germany's finance ministrywill provide details of tax agreements between a dozen corporations and German tax authorities to a European Union committee investigating tax deals between multinationals and EU member governments.

For the BNA DTR story, go here. (subscription required)

The Organization for Economic Cooperation and Development issued a handbook and model protocol on tax information exchange agreements for implementing the common reporting standard for the automatic exchange of information.
The OECD said Aug. 7 that the handbook, its first edition,will provide practical guidance for government officials and financial institutions for implementing the standard,which is part of the organization's efforts to curb international tax evasion.
For the BNA DTR story, go here. (subscription required)

Almost £19bn of potential tax underpayments by large businesses are being scrutinised by HM Revenue & Customs,which considers cross-border transactions to be the biggest source of inaccuracies.

For the Financial Times story, go here.

Amendments to the Cyprus corporate and personal tax laws thatwill enhance the country's tax competitivenesswere published in the Cyprus Government Gazette on July 16, 2015. Key amendments include a tax deduction on corporate equity in the form of a notional interest deduction (NID). The NID amendment aims to reduce corporate debt by increasing the attractiveness of equity from a tax perspective. The NID amendment is retroactively effective on January 1, 2015.

For the PwC Insight, go here.

Read about the importance of matching contract terms to commercial substance in a post-BEPSworld.
For the ITR story, go here.

China's State Administration of Taxation is likely to release a draft of revised Circular No. 2 (2009) thatwould significantly revamp the nation's transfer pricing rules, adopting concepts from the international project to combat base erosion and profit shifting (BEPS), according to practitioners.

For the BNA DTR story, go here. (subscription required)

Companies continue to leave the U.S. through inversion deals, nearly a year after the Treasury Department clamped down on the tax-fueled mergers.

For thewall Street Journal story, go here.

The provisions in the tax codewith the most impact on manufacturing are deferral of the active income of controlled foreign subsidiaries, the research credit, research and experimentation outlay expensing, and accelerated depreciation for capital assets, according to an August 3 report by the Congressional Research Service.
For the CRS report, go here. (Subscription required)

The IRS and Treasury announced August 5 that they intend to issue regulations regarding transfers of property to partnershipswith related foreign partners to ensure that income or gain attributable to the propertywill be taken into account by the transferor either immediately or periodically.
For the TNT story, go here. (subscription required)

Senate Majority Leader Mitch McConnell, R-Ky., on August 6 reiterated his opposition to pairing international tax reformwith long-term highway funding and said he hopes passage of a tax extenders bill does notwait until the end of the year.
For the TNT story, go here. (subscription required)

The path to connecting international tax law changeswith highway funding continues to face a roadblock in the form of Senate Majority Leader Mitch McConnell (R-Ky.).

For the BNA DTR story, go here. (subscription required)

Further proving that inversion deals aren't a relic of the recent past, the U.S.-based fertilizer company CF Industries Holdings Inc. and OCI NV, a Netherlands-based fertilizer and industrial chemical company, announced August 6 that theywere entering into an inversion deal thatwould find them migrating to the United Kingdom.
For the TNT story, go here. (subscription required)

The US Tax Court on July 27, in Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015), invalidated the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost-sharing arrangement (CSA) to share stock-based compensation (SBC) costs. If the IRS pursues an appeal of the final decision, the matterwould come before the Ninth Circuit Court of Appeals, the same court that decided Xilinx, Inc. v. Commissioner, 598 F.3d 1191 (9th Cir. 2010), holding that SBC costswere not required to be shared under the prior cost-sharing regulations.

For the PwC Insight, go here.

An Obama administration crackdown to stop US businesses pursuing takeovers that let them escape the country's high corporate tax regimewas dealt a sharp rebuke on Thursday, after two deals paved theway for more companies to move their domicile to Europe.

Bothwill create new UK-based companies in so-called tax inversion deals, highlighting corporate America's desire to move its tax base overseas.

For the Financial Times story, go here.

The Luxembourg government released bill 6847 (the Bill) on August 5, 2015. The Bill includes proposed tax measures for corporations and follows several recent announcements from Finance Minister Pierre Gramegna.

For the PwC Insight, go here.

It isn't surprising that Republican candidates all have tax cut proposals.Taxesare too high and America's tax system is hopelessly outdated, creating a drag on an economy that has sputtered for eight years.
For the Forbes story, go here.

In an August 5 release, U.S. Houseways and Means Committee staff expressed support for an exemption system of taxing foreign corporate profits, saying that the current system used by the U.S. "creates a big, costly lockout effect" that encourages U.S. companies to keep $2 trillion in capital overseas to avoid repatriation taxes.
For the release, go here.

Royal Bank of Scotland and Deutsche Bank AG display the most potential for base erosion and profit shifting of the 26 European banks surveyed in a report released August 5.
For thewWTD story, go here. (subscription required)

The IRS gave its agents information on how to approach issues relating to branch-level interest taxes and non-services fixed, determinable, annual or periodical (FDAP) income in two new international practice units.
The units, released Aug. 4,were developed by the Internal Revenue Service's Large & Mid-Size Business Division to serve as job aids and training materials for examiners dealingwith cross-border transactions.
For the BNA DTR story, go here. (subscription required)

The OECD and country representatives inworking Party 11 (WP11) are likely to recommend in the base erosion and profit shifting (BEPS) action plan that local interest limitation rules should focus primarily on an interest/ EBITDA cap. AswP11 held intensive meetings on various BEPS action points to allow the OECD to prepare a final version in the comingweeks for proposal to the G20 in early October, it is understood that an important part of these discussionswas around Action 4. The purpose of Action 4 is to develop best practice for countries on local interest limitation.
For the PwC Tax Policy Bulletin, go here.

Senate Republicans insist they're deeply skeptical of Rep. Paul Ryan's push for an agreement on international tax reform, but acknowledge a planwith bipartisan supportwould be hard to turn aside.
For the Hill story, go here.

What's going on in theworld of tax for global companies investing in the USA today? PwC's Tax and Investment in the US examines recent issues and events relevant to your business.

Our second quarter issue of 2015 examines:
Proposed changes to US model income tax treaty
Senate Finance Committee tax reformworking groups issue reports
Insourcing reception
Doing business in the US: new edition available
PwC - OFII US Inbound Tax Roundtables

For the PwC publication, go here.

On Tuesday another foreign corporation announced another mega-bid to move control of a U.S. company offshore. Irish drug maker Shire PLC launched an unsolicited offerworth more than $30 billion to buy Illinois-based Baxalta,which is so far resisting the offer as too low. And you guessed it, the proposed transaction has a "compelling tax profile," according to Shire,which figures a combined company could enjoy an effective tax rate of 16% or 17%, down from Baxalta's recent rate of roughly 23%.
The Shire offer adds to a mountain of evidence that an un-competitive tax system has made the U.S. an undesirable location for corporate headquarters and investment. The hopeful news for U.S.workers and taxpayers is that Congress is finally paying attention.
For thewall Street Journal article, go here.