2015

The OECD base erosion and profit-shifting project's draft on profit-split methods appears to place a "thumb on the scale" in favor of those methods, and upcoming revisions might not correct that, according to Chris Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International).
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An IRS official blasted the most recent Organization for Economic Cooperation and Development discussion draft on the use of a profit split method, claiming that prioritizing the profit split over other methods for a global value chain could lead to "chaos."
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U.S. support for the OECD draft on hard-to-value intangibles is part of an effort to reach agreement on better rules in the organization'swider revisions to the Chapter VI guidelines on intangibles, according to Brian Jenn, attorney-adviser, Treasury Office of International Tax Counsel.

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The final report on risk and recharacterizationwill revise the standard for nonrecognition, but governmentswill probably take the drastic step of recharacterizing a transaction only in a limited set of circumstances, Joseph Andrus, former head of the OECD's transfer pricing unit, said June 12.
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U.S. participation in the OECD's planned country-by-country reporting regimewill be beneficial to U.S. multinationals, Brian Jenn, attorney-adviser in the Treasury Office of International Tax Counsel, said June 11.
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Parties involved in the OECD's base erosion and profit-shifting country-by-country (CbC) reporting project must be mindful of the risk that informationwon't be properly used by tax administrators, according to Douglas O'Donnell, deputy commissioner (international) in the IRS Large Business and International Division.
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The IRS may require businesses to file their country-by-country reportswith their U.S. tax returns -- three months earlier than the OECD has recommended, a Treasury official suggested June 12.
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In economic analysis, Martin A. Sullivan proposes an alternative policy choice for lawmakerswhowant to encourage U.S. research and development.
For the Tax Notes article, go here. (subscription required)

While the Organization for Economic Cooperation and Developmentwill continue to refine its latestwork on risk and recharacterization, its members aren't likely to budge soon from their view that heavily capitalized entitiesÔøΩso-called cash boxesÔøΩwill need to demonstrate significant substance to justify high rates of return, an OECD adviser said.
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A Chinese State Administration of Taxation official has reiterated his 15 compliance "expectations" for multinational enterpriseswith subsidiaries in China.
Liao Tizhong, director general of the SAT's International Taxation Department, said June 12 that the SAT's first expectation is that foreign parents structuring their China subsidiarieswon't engage in base erosion and profit shifting.
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Up-Cs are becoming more exotic and this trend is raising concerns in the government, a Treasury Department official told practitioners.
The use of an Up-C structure has been gaining popularity in recent years because it provides for tax benefits and a higher purchase price for limited liability companies preparing for an initial public offering. The traditional Up-C is straightforward, and an increasing number of these are being structuredwith "added bells andwhistles," Craig Gerson, attorney-adviser in Treasury's Office of Tax Legislative Counsel, said June 12 at a Texas Federal Tax Institute conference.
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U.S. officials are consideringwhether to require U.S. companies that must file a country-by-country template to do so alongwith their tax returns, according to Brian Jenn, an attorney-adviser in the Treasury Department Office of Tax Policy.
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When it comes to a new plan to combat international tax avoidance by corporations, it's the United States versus theworld.

For the most part, Big Business, the Obamawhite House and Republican lawmakers are on the same side, battling to keep foreign tax administrators from snatching American money.

For the Politico story, go here.

On 15 May 2015, interested partieswere invited to comment on a revised discussion draft on Action 7 (Prevent the Artificial Avoidance of PE Status) of the BEPS Action Plan. The OECD is grateful to the commentators for their input and now publishes the comments received.
For the OECD release, go here.

Policymakers are still talking about corporate tax reform, but it increasingly seems that the only piece of tax reform that still has a chance for this Congress are changes to our system of international taxation.
This is partly because the problemswith our current international tax regime, like corporate inversions and the disincentive to repatriate foreign earnings, have gotten a lot of attention. It's also because lawmakers continue to hold out hope that international tax reform is away to pay for the perennial shortfalls of the Highway Trust Fund (HTF).
For the Taxpayers for Common Sense article, go here.

Senate Majority Leader Mitch McConnell (R-KY) lastweek said in an interviewwith Reidwilson of Politicowhat many both inside and outside ofwashington have been unwilling to admit to themselves or anyone else: A comprehensive tax reform plan isn't going to happen this year.

McConnell said reformwouldn't happen "with this president," that is, not until 2017, or at least two years from now.

But McConnellwas actuallyway too optimistic. The soonest comprehensive tax reformwill occur is 2019, twice as long as McConnell's quote leads you to believe.

For the Forbes article, go here.

On 8 June 2015, the OECD released a "Country-by-Country Reporting Implementation Package." The package includes model legislation the OECD suggests could be used by countries to mandate filing of country-by-country reports (CbCRs). The model legislation does not attempt to address the filing of the so-called master file or local file reports. The implementation package also includes three model competent authority agreements that could be used by each country, depending on how it intends to effect exchange of CbCRs.
For the PwC Tax Policy Bulletin, go here.

The European Commission (EC) has published in its Official Journal a notification about its investigation intowhether Belgium's excess profit tax ruling system constitutes state aid and has ordered Estonia and Poland, alongwith 15 other member states, to provide more information on their tax ruling practices.
For the International Tax Review story, go here.

The U.S. thinks that in the event of a fixed ratiowithin the OECD's BEPS action on interest deductions, it is appropriate to use a 10 percent earnings before interest, taxes, depreciation, and amortization limit on interest deductions, even if one-third of companieswouldwant to rely on a groupwide ratio, a Treasury official said June 11.
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At the June 11 OECD International Tax Conference inwashington, practitioners joined tax officials to discuss action 6 (prevention of treaty abuse) of the OECD base erosion and profit-shifting project.
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On June 11 tax practitioners representing multinationals learned thatwhat gets discussed at Australian barbecues matters to the rest of theworld.
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U.S. and U.K. delegates to the OECD's Committee on Fiscal Affairs differ on the extent towhich the international project to combat base erosion and profit shifting should be judged a success.
Robert Stack, the U.S. deputy assistant treasury secretary for international tax affairs, said June 10 that "the U.S. is extremely disappointed in the output, and our collective failure in the BEPS project to do more, and to do betterwork thanwe have done."
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The question ofwhat constitutes a "special tax regime"will continue to be a big issue aswork goes forward on stopping treaty abuse under the OECD's base erosion and profit shifting project, Treasury officials and practitioners said.

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The divergentways different countries implement proposals from the OECD's base erosion and profit-shifting projectwill pose a big challenge for policymakers, and governmentswill have to cooperate to avert complete chaos in a post-BEPS projectworld, panelists said June 11 at the OECD International Tax Conference inwashington.
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Tax officialswith the U.K. and South Africa said the U.S.'s departure from the Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting project undermines its implementation from recommended policy to practical law.
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An international economic development body has published proposed changes to how interest payments are taxed to combat the artificial shifting of profits by multinational companies.

For the Out-Law.com article, go here.

BIAC continues to support the G20 mandated Base Erosion and Profit Shifting (BEPS) project, and has always sought to provide constructive and detailed input
from the international business community across the full spectrum of OECD's Action Items. As the project enters its final phase, BIAC is releasing its BEPS Position Paper detailing specific concerns of the business community over the full range of BEPS Actions.
For the BIAC position paper, go here.

The implementation package has brought country-by-country reporting closer for taxpayers.
For the International Tax Review story, go here.

The concept of "moral hazard" is likely to disappear from the Organization for Economic Cooperation and Development's revised guidelines on risk and recharacterization, a former OECD official said June 10.

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Interest in patent boxes remains strong as a potentially viable option on Capitol Hill as lawmakers continue theirwork on tax reform, Joint Committee on Taxation Chief of Staff Thomas Barthold said.
The issue has been highlighted by the Organization of Economic Cooperation and Development's base erosion and profit shifting project,which has dealtwith the issue of patent boxes, and the question of "modified nexus" that accompanies the concept, among a broad range of issues.
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Multinational companies in Switzerland are unlikely to leave the country en masse even if the nation's parliament abolishes preferential tax statuses for holding companies that earn their primary income abroad.
Although the shiftÔøΩspurred by increased pressure from the European UnionÔøΩcould prompt some companies to re-evaluate their Swiss residency, tax advisers told Bloomberg BNA there are more incentives for larger companies to stay.
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The Swiss Federal Council on June 5, 2015, released the eagerly awaited updated draft bill of the Swiss Corporate Tax Reform III (CTR III) for further parliamentary discussion.with CTR III, the Federal Council aims to maintain and improve the international competitiveness of the Swiss corporate tax systemwhile eliminating certain preferential rules.

For the PwC Insight, go here.

On 12 May 2015, the Director-General for Taxation and Customs Union appointed the Members and the Chairperson of the EU Joint Transfer Pricing Forum (JTPF) for the next two year mandate starting on 1 April 2015 till 30 March 2017. For the first time since its set up in 2002, the European Commission has appointed organisations rather than individuals.

The new composition of the JTPF also includes non-governmental institutions alongside multinational enterprises, Professional Services Firms, industry organisations and government representatives of each Member State.

For the PwC Tax Policy Bulletin, go here.

The Italian tax authorities issued guidelines on June 3, 2015which address the anti-avoidance rules that apply to the notional interest deduction (NID) regime.

The guidelines take the position that contributions are taintedwhen they are made directly or indirectly (look-through approach) by tax-haven-resident investors. Based on thewording of the guidelines, the existence of a single 'black-listed' shareholder in the ownership chain potentially could taint the entire amount of the contribution, unless the funds are traced back to 'white-listed' (i.e., non-tax-haven investors).

This new stricter approach of the Italian tax authorities is likely to have a broad impact.

For the PwC Insight, go here.

The Organization for Economic Cooperation and Development's aggressive timeline for the base erosion and profit shifting project is leaving important business concerns unaddressed and encouraging countries to take unilateral actions, Dave Camp, former chairman of the Houseways and Means Committee,warned.
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Congress could break a tax overhaul into two pieces, a senior Republican on the Houseways and Means Committee said, if lawmakers arewilling to tackle international aspects of the tax code first.
Rep. Charles Boustany Jr. (R-La.) said June 10 that he expects to release a proposal soon to revamp international provisions of U.S. tax policy, including moving toward a more territorial system and proposing a so-called "innovation box" to treat income from intangible property, for instance, more equitablywith systems in other countries.
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Former Houseways and Means Committee Chair Dave Campwarned June 10 that delays in U.S. tax reform effortswould serve to broaden the amount of U.S. business income subject to tax because U.S. employerswould be "disproportionately impacted" by the OECD's base erosion and profit-shifting project.
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While noting that time is running outwith many issues yet unresolved, Michael McDonald, financial economist (business and international taxation), Treasury Office of Tax Analysis, said several of the more controversial aspects of the OECD risk and recharacterization draftwould improve the final report.
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Houseways and Means Committee member Charlesw. Boustany Jr., R-La., said June 10 that hewants to lower the cost of his international tax reform proposal,which includes an innovation box plan applicable to multiple industries.
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The Treasury Department believes it has the authority under existing law to implement country-by-country reporting and some of the other transfer-pricing-related action items being developed by the OECD's base erosion and profit-shifting project, Treasury International Tax Counsel Danielle Rolfes said June 10.
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Someone had to do it. U.S. multinationals hate the new British diverted profits tax, and someone had to give vent to their frustrations and say itwaswrong to get ahead of base erosion and profit-shifting agreements. That someonewas Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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The Obama administration signed on to the BEPS Project in the expectation that itwould strengthen the American tax base and enablewashington to hold on to more corporate tax revenues. But as the project heads for its end-of-year deadline and the basic shape of the BEPS principles becomes clear, nobody inwashington is paying attention to a simple fact: The United States lost, and lost big.
For the New York Times article, go here.

Tax reformers and economists usually hate tax breaks. Theway they see it is like this: Unprincipled politicians can't resist giving away goodies. So our tax code is litteredwith complications designed to channel subsidies to thewell-connected. This makes a mess of the free market. The economy's efficiency suffers. And the rest of us are stuckwith higher tax rates.
There are rare exceptions, however, to the general rule. Sometimes ÔøΩ andwe must emphasize how rare it is ÔøΩ targeted tax breaks can help growth.
For the Forbes article, go here.

The Republicans leading the US Congress' two tax-writing committees have called on Jacob Lew, Treasury Secretary, to "remain engagedwith Congress" as proposals related to the OECD base erosion and profit shifting (BEPS) project continue to be developed.
For the International Tax Review story. go here.

Several leading multinational companies have come a longway towards dismantling structures they have used to minimise their tax bills, according to an official leading an international crackdown on avoidance.

The moveswere a sign that the "very aggressive tax planning of the past is over", said Pascal Saint-Amans, the top tax official at the Paris-based OECD.

For the Financial Times story, go here.

Oliver Hoor and Keith O'Donnell say the OECD's discussion draft on BEPS action 7 (preventing the artificial avoidance of permanent establishment status),which proposes broadening the definition of PE in the OECD model treaty, may have a major impact on global business models and the allocation of taxing rights over business profits.
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Members of EY's tax team discusswith Tax Analysts how multinationals are dealingwith the challenges of the U.K. diverted profits tax.
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The U.S. Senate Finance Committee international tax reformworking group is developing detailed policy proposals and is planning to make recommendations to the larger committee that could end up in legislation,working group co-chair Rob Portman, R-Ohio, said June 9.
For theworldwide Tax Daily story, go here. (Subscription required)

The European Parliament's Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect is stepping up its "shame campaign" to get multinational enterprises to appear before the committee by naming companies that declined the invitations -- and publishing their excuses, according to a June 9 release.
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Senate Finance Committee Chair Orrin G. Hatch, R-Utah, and Houseways and Means Committee Chair Paul Ryan, R-Wis., in a June 9 letter to Treasury Secretary Jacob Lew regarding the OECD's base erosion and profit-shifting project,warned that "precipitous decisions to impose constraints on U.S. policy . . . are not desirable."
For the letter, go here.