2015

Houseways and Means Committee members Charlesw. Boustany Jr., R-La., and Richard E. Neal, D-Mass., released their much-anticipated innovation box proposal on July 29, to mixed reviews from practitioners and mostly encouragement from other lawmakers.

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During a July 29webcast, EY practitioners discussed how some countries are taking a cue from the OECD's base erosion and profit-shifting project and broadening the permanent establishment concept in an effort to tax a greater share of multinationals' profits the countries believe are connected to their territory.

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The European Commission (EC)will put forward plans to radically change the VAT Directive by allowing member states to introduce their own reduced rates of VAT, International Tax Review understands. No official announcement has been made.

For the ITR story, go here.

A bipartisan pair of House members announcedwednesday that theywant to give multinational companies a 10 percent tax rate on income derived from intellectual properties.

Reps. Charles Boustany (R-La.) and Richard Neal (D-Mass.) onwednesday rolled out a draft of their long-awaited "innovation box,"which is expected to be a central component of a broader House overhaul of the U.S.'s international tax structure. Some Republicans and Democrats have shown an interest in marrying that sort of tax revampwith a highway bill.

For the Hill story, go here.

Houseways and Means Committee members Charles Boustany, R-La., and Richard Neal, D-Mass., have released a bipartisan proposal to create a so-called "innovation box," a lower tax rate on income derived from intellectual property to encourage more multinational companies to keep intangible assets in the U.S.

For the Accounting Today story, go here.

The Senate Permanent Subcommittee on Investigations recently examinedthe effect of the U.S. tax code on the market for corporate control of Americancompanies. Through a detailed review of several important cross-border transactions, the
investigation found that the increase in after-tax profits created by escaping theU.S. tax net can (i) contribute significantly to foreign corporations' ability to acquireAmerican firms; and (ii) create powerful incentives for American firms that mergewith foreign corporations to locate their new combined headquarters abroad. Bothphenomena can lead to a significant loss of American jobs, business headquarters,and tax revenues.

For the report, go here.

The Big Four accounting firmsÔøΩKPMG LLP, PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Ernst & Young LLPÔøΩhave played a "crucial" role in helping multinational companies minimize tax in the European Union by assisting in the design and negotiation of sweetheart tax rulings, the European Parliament special tax committee said in a draft report.

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Regulations on the foreign tax credit, loans by controlled foreign corporations and intangibles under tax code Section 367(d) are all high on the government's priority list and could be ready relatively soon, a Treasury Department official said.

Acting Deputy International Tax Counsel Douglas Poms said that aswork on the Organization for Economic Cooperation and Development's base erosion and profit shifting project nears its close in September, Treasury is hoping to have more time to devote to guidance that taxpayers are eagerly awaiting on home soil.

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Jeffrey Owens and Eric Zolt discuss how tax policy can address the increasingly unequal distribution of income andwealth around theworld.

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The OECD's final report on action 4 (interest expense) of the base erosion and profit-shifting projectwill recommend that countries adopt a fixed ratio approach somewhere between 10 and 30 percent, according to Douglas Poms, acting Treasury deputy international tax counsel.

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by Stephen K. Cooper (Tax Analysts)

Houseways and Means Committee members Charlesw. Boustany Jr., R-La., and Richard E. Neal, D-Mass., are putting the finishing touches on an innovation box proposal thatwould provide lower U.S. tax rates on income derived from intellectual property.

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Organization for Economic Cooperation and Developmentworking Party No. 11, on aggressive tax planning, has completedwork on four action items under the international project to combat base erosion and profit shifting (BEPS), a U.S. Treasury official said.

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The Internal Revenue Service (IRS) Large Business and International division (LB&I) released 46 International Practice Units (IPUs) on December 15, 2014, and three more on July 17, 2015. These IPUs provide guidance to IRS examiners in addressing a range of issues involving US federal income taxation of cross-border activities. For the PwC Insight, go here.

A senior GOP lawmakerwill roll out a planwednesday to cut taxes for income spurred by intellectual property, as House Republicans lay the groundwork for a potential major highway and tax reform deal.

Rep. Charles Boustany (R-La.) said his so-called "innovation box"would be a central part of the House GOP's plan to revamp how the U.S. taxes multinational corporations,which he expectsways and Means Chairman Paul Ryan (R-Wis.) to introduce this fall.

For the Hill story, go here.

The Australian Taxation Office (ATO) has released a new practice statement, PS LA 2015/4,which outlines the process itwill follow for advance pricing arrangement (APA) negotiations. The new process applies to all ongoing APA negotiations and future APA requests (both new APAs and renewals).

For the PwC Insight, go here.

Although governments in recent years have implemented policies to promote green growth, they can learn from common challenges, particularly tax-related issues such as environmentally harmful tax system discrepancies, to speed up progress on their own green goals, the OECD said in a July 27 report.

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This report describes and assesses the principal prescriptions that have been offered for broad reform of the US international tax system.

For the report, go here.

Jill Gatehouse and Susanna Brain (Freshfields Bruckhaus Deringer) review the state of play on the OECD's project to tackle base erosion and profit shifting (BEPS), and highlight the main points of interest.

For the Tax Journal article, go here.

Multinational corporations and foreign-owned Spanish subsidiarieswill be subject to stricter reporting requirements in Spain from 2017, after a decree outlining requirements to provide country-by country reports of a group's entireworldwide activities to Spanish tax authorities entered into force.

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by Mindy Herzfeld (Tax Analysts)

Mindy Herzfeld reviews recent efforts in the U.K. and Australia to address artificial avoidance of permanent establishment and considerswhether those and similar efforts in the OECD's base erosion and profit-shifting project override existing treaty provisions.

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by Reuven S. Avi-Yonah (Tax Analysts)

Reuven S. Avi-Yonah argues that the proposals in a July 7 report by Senate Finance Committee international tax reformworking group co-chairs Rob Portman, R-Ohio, and Charles E. Schumer, D-N.Y., are not an effectiveway of addressing the lockout effect.

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A senior adviser to the Advance Pricing and Mutual Agreement Program of the IRSwarns that current debates about use of the profit split method as part of the OECD's action plan on profit shifting could lead to standards based on politics, not economics.

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The Organization for Economic Cooperation and Development'swork on base erosion and profit shifting has drawn increasing criticism from leaders of congressional tax-writing committees, in a shift from its relatively low profile over the last couple of years, a staff member of Congress's Joint Committee on Taxation said.

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Reaching consensus in an international project to combat base erosion has been made more difficult because of the involvement of Group of 20 countries that are not part of the Organization for Economic Cooperation and Development, a former U.S. Treasury official said.

China, India and Brazil have been active participants in the OECD BEPS project, but they are not members of the OECD, said David Ernick, a former U.S. delegate to OECDworking Party No. 6.

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The OECD may include a safe harbor that looks like one favored by the U.S. in itswork on hard-to-value intangibles under the base erosion and profit shifting project, an IRS official said.

It looks like a safe harbor is likely to be in the Organization for Economic Cooperation and Development's next draft on these intangibles, Kennethwood, a senior manager in the Internal Revenue Service's Advance Pricing and Mutual Agreement Program, said July 22.

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by Alison Bennett (BNA.com)

U.S. multinational banks are facing big challenges and uncertainties as the deadline for the Organization for Economic Cooperation and Development's standard for global automatic information exchange rolls closer.

Dozens of countries have signed on to participate in the common reporting standard,which calls for each jurisdiction to share information on financial accountswith many others. Early-adopter countries must start implementing the CRS on Jan. 1, 2016ÔøΩa date U.S. companies should bewatching carefully.

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The United States and the Socialist Republic of Vietnam signed an income tax treaty (with an accompanying protocol) on July 7, 2015. This is the first income tax treaty between the two countries. Unlike other recent treaties, the new US-Vietnam treaty does not eliminate source-country taxation on intercompany dividends, certain types of interest, or royalties. Importantly, the treaty provides that a building site or construction project can give rise to a permanent establishment (PE) after only six months.

For the PwC Insight, go here.

If Greece's ongoing fiscal quagmire demonstrates anything, it's that Europe's largestwelfare states live in denial. Even as the bills from decades of profligate spending came due, Greeks took to the streets, not to demand a new path but to insist on continuing the status quo. Even their European creditors, in calling for tax hikes instead of strictly pro-growth reforms,would perpetuate the tax-and-spend cycle. It thus comes as no surprise that these same nations are leading the charge through the Organisation for Economic Co-operation and Development to raise corporate tax rates globally.

For the Patriot Post story, go here.

Aligning profitswith "where value is created" is the defining issue for transfer pricing policy, Robert Stack, U.S. Treasury deputy assistant secretary (international tax affairs), said at a July 23 session of the National Association for Business Economics Transfer Pricing Symposium inwashington.

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by Kevin A. Bell (BNA.com)

Forthcoming revisions to the Organization for Economic Cooperation and Development's transfer pricing guidelineswill not include radical changes, the U.S. delegate to the OECD's Committee on Fiscal Affairs said.

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While many practitionerswelcomed the U.K. Supreme Court's recent decision that a U.K. investor in a Delaware limited liability company is entitled to double tax relief, they say the decision has created some uncertainty about the U.K. tax treatment of LLCs.

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The European Union's tax haven blacklist,which has been subject to objections from some listed nations aswell as the Organization for Economic Cooperation and Development,was based on requirements distinct from those used for an OECD list, an EU spokesman said.

Published June 17 as part of a consultation to force multinationals to declare how much tax they pay andwhere, the listwas criticized by the OECD for including jurisdictions that the organization had found to be "fully or largely compliant" based on its Global Forum on Tax Transparency standards.

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The IRS is not concernedwithwhether the structure of an intercompany financing arrangement is at arm's length, only that the pricing of the transaction is, Bao Ho, senior economist in the advance pricing and mutual agreement program, said July 23.

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The international project to combat base erosion and profit shifting has been a "huge game changer" for Eaton Corp., nearly tripling transfer pricing auditswithin a year and leading to more controversy around the globe, a tax officialwith the company said.

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Mindy Herzfeld discusses the international push to set a uniform price for carbon, reviews the reasons for conservative economists' support of a market-based solution to human-induced climate change, and explainswhy the U.S. should steer the discussion in favor of a carbon tax.
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In economic analysis, Martin A. Sullivan discusses a recent EU study that says that patent boxes do not encourage additional research activity or employment in the jurisdictions that adopt them.
For the Tax Notes article, go here. (subscription required)

In news analysis, Ajay Gupta examines the Senate Finance Committee's international tax reformworking group proposal for a patent box in light of ongoing efforts to expand and make permanent the research credit.
For the Tax Notes article, go here. (subscription required)

The Senate Finance Committee recently released a series of bipartisanworking group reports on tax reform. One of the papers, The International Tax Bipartisan Taxworking Group Report, reflected thework of a group of Senate Finance Committee memberswhose co-chairs are Sens. Rob Portman (R-Ohio) and Charles Schumer (D-N.Y.).
For the Hill story, go here.

In a speech on the Senate floor, Finance Committee Chairman Orrin Hatch (R-Utah) outlined ongoing concerns regarding the Base Erosion and Profit Shifting project that is being developed by the Organization for Economic Cooperation and Development and called on the Obama Administration toworkwith Congress to ensure proposals considered under the project keep America competitive and benefit Americanworkers and job creators.
For the Utahpolicy.com story, go here.

On 22 May 2015,interested partieswereinvited to commenton arevised discussion draftwhich includes proposals on how to dealwith the follow-upwork on Action 6 (Prevent treaty abuse) of theBEPSAction Plan. The OECDis grateful to the commentators for their input andnow publishes the comments received.
For the comments, go here.

The IRS has released three new international practice units dealingwith Subpart F issues, developed by the agency's Large Business & International Division and intended to serve as job aids and training materials for examiners dealingwith cross-border transactions.
One unit, DPL/9412.01_01, addresses a scenario inwhich a controlled foreign corporation buys tangible personal property from its U.S. parent and resells it to various parties, looking atwhether the salewill qualify for the same-country sales and use exception from foreign base company sales income. One key issue for examiners, the document says, iswhether the personal property being sold for use is consumed in the country of the CFC.
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Ramon Tomazela analyzes the potential impact of the OECD's base erosion and profit-shifting project on a harmonized international tax regime in order to help identify the project's key challenges.
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Michael Cragg, Jehan deFonseka, Ryan Tholanikunnel, and Evan Cohen discuss several valuation considerations that arisewhen tax authorities examine corporate inversions, including book values versus market values, merger valuation, the value of hook stock, intercompany debt, and guarantees.
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The head of an international tax project to combat profit shifting is looking ahead to the daywhen implementation begins andwork shifts to individual countries and European Commission regulators.
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The OECD is holding three tax events on the side-lines of the 3rd International Conference on Financing for Development in Addis Ababa, Ethiopia.
Togetherwith the UNDP, the OECD today launched the Tax Inspectorswithout Borders initiative to help the tax administrations of developing countries benefit from the expertise of skilled tax inspectors from developed and emerging economies. The initiative is a concrete deliverable for the Conference.

For the OECD release, go here.

Over the past 15 years, a number of proposals have been advanced to encourage the repatriation of foreign earnings by providing a temporary tax preference. In 2004, Congress enacted the
Homeland Investment Act (HIA) as part of the American Job Creation Act, providing an 85 percent deduction on repatriated earnings for one year. This study examines the lessons learned from that experiment
and applies them to a new plan advanced by Senators Rand Paul and Barbara Boxer (Paul-Boxer).

For the paper, go here.

The Highway Trust Fundwill be insolvent by the firstweek of September and faces a $169 billion budget shortfall in the next ten years, but Congress has been slow to find a long-term fix. In the last twoweeks, Congress finally came to a consensus that a repatriation tax holiday may be the onlyway to raise the necessary revenue for a highway bill.
For the Economics21.org story, go here.

Lee A. Sheppard outlines Treasury's plans once the OECD's base erosion and profit-shiftingworkwraps up.
For the Tax Notes article, go here. (subscription required)

Guidelines due in September from the Organization for Economic Cooperation and Development's two-year project on base erosion and profit shiftingwill call for tax administrations to respect taxpayer contracts and risk allocationswhen evaluating potential cash-box entities, a Treasury Department official said.
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The U.S. is planning strict limits on the information that can be shared under the country-by-country reporting being considered in the OECD's base erosion and profit shifting project, an IRS official said.
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