2015

The Treasury Department's May 20 release, for public comment, of proposed changes to the U.S. Model Income Tax Convention are designed to have an impact on thework of the international project on base erosion and profit shifting, a Treasury official said.

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An international project to combat base erosion and profit shifting isn't likely to produce minimum standards for rules on controlled foreign corporations, according to the U.S. delegate to the Organization for Economic Cooperation and Development's Committee on Fiscal Affairs.

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Policy makers should prepare for big shifts of companies' taxable profits and economic activity to source-taxation countries, spurred by possibly uncoordinated tax and transfer pricing rule changes growing out of the international action plan to combat base erosion and profit shifting (BEPS), a business practitioner said.

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The Organization for Economic Cooperation and Development is considering establishing a compliance framework that countries could share as theywork toward implementing the common reporting standard, an OECD adviser said.

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Calling it "the hot idea" right now in Congress, Thomas Barthold, Joint Committee on Taxation chief of staff, on May 18 highlighted the challenges facing the construction of any patent or innovation box.

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Data gathered through country-by-country reporting under action 13 of the OECD's base erosion and profit-shifting project may be better than existing data butwon't be enough to give a full picture of the size and scope of BEPS, stakeholders said during a May 18 public consultation on action 11 of the project on improving BEPS analysis.

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Chile's internal tax service, Servicio de Impuestos Internos, has clarifiedwhen loans to related companies outside of Chilewill be considered awithdrawal of profits and hence subject to income tax.

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The Organization for Economic Cooperation and Development has chosen its proposed "option B" to rewrite the permanent establishment rules on commissionaire structures.

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The OECD on May 15 revealed its preferred options on action 7 (preventing the artificial avoidance of permanent establishment status) in a revised discussion draft released as part of its base erosion and profit-shifting project.

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Public comments are invited on a new discussion draftwhich includes proposals resulting from thework on Action 7 (Prevent the Artificial Avoidance of PE Status) of the Action Plan on Base Erosion and Profit Shifting (BEPS).
This new discussion draft reflects the proposals that resulted from thatwork and onwhich comments are now invited. Comments should be sent by 12 June 2015 at the latest (no extensionwill be granted) and should be sent by email to taxtreaties@oecd.org inword format (in order to facilitate their distribution to government officials). They should be addressed to Marlies de Ruiter, Head, Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.
For the OECD release, go here.

Pascal Saint-Amans has emphasised the urgency of fixing the flaws in the international tax system.
For the International Tax Review story, go here.

Omar Moerer and Benchi Klaver of Baker & McKenzie Amsterdam examine the draft guidance on preventing the artificial avoidance of permanent establishment status issued by the Organization for Economic Cooperation and Development in October 2014, aswell as other drafts issued under its project to combat base erosion, concluding that the authorized OECD approach at least provides some certainty about the amount to be allocated to a PE in the event one is triggered.
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Multinational tech companies have been "extremely aggressive" and "pushing the boundaries ofwhat is legal"when it comes to their tax affairs and should be more conservative in their tax planning, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said May 14.
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The Australian Government's 2015/16 Federal Budget released on 12 May contained several measures targeted at multinationals.

For the PwC Insight, go here.

Making Sense of Profit Shifting is the 2015 and inaugural edition of Tax Foundation Forum, an annual interview series that aims to advance and cultivate a more informed discussion of a tax policy topic.
With its focus on the profit shifting phenomenon, this year's edition of Tax Foundation Forum seeks to make sense of an issue that has significantly influenced the international tax debate aswell as the U.S. corporate tax reform debate.
For the Tax Foundation release, go here.

In a speech on Tuesday in New Hampshire, Chris Christie, New Jersey's governor and a possible presidential candidate, used a comparison to North Korea to attack the United States' system ofworldwide corporate taxation. The federal government subjects American companies to American taxes (at least in theory) on their entire global profits.
"As it stands now America is among a tiny handful of nations, including North Korea, that has a system that taxes profits twice," Mr. Christie said. "None of our largest trading partners do this. None of them. They all have a territorial system like the one I'm suggesting."
Mr. Christiewaswrong. In fact, two of our largest trading partners (Mexico and South Korea) also levyworldwide corporate income taxes. So do three other members of the Organization for Economic Cooperation and Development: Israel, Ireland and Chile.
For the New York Times story, go here.

Technology companies need to stop "extremely aggressive" tax planning, the man chargedwith reforming global tax rules has told the BBC.
Pascal Saint-Amans,who runs the OECD's Centre for Tax Policy, said that new standardswould require companies to pay more tax in the countrieswhere they sold goods or created revenues.
For the BBC News story, go here.

The Australian government in its 2015-16 budget announced itwill implement the Organization for Economic Cooperation and Development's guidance on documentation and country-by-country reporting under its action plan on base erosion and profit shifting.
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Australia's federal budget, released May 12, provided generous tax breaks for relatively small companies,while singling out large global businesseswith double-strength penalties.
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The Australian 2015-2016 federal budget contains a number of new measures designed to enhance the integrity of the Australian tax system. The measureswould counter tax avoidance by multinationals and introduce a goods and services tax (GST) on the importation of digital products and services into Australia.

For the PwC Insight, go here.

The Organization for Economic Cooperation and Development's proposed indicators for judging the effectiveness of measures designed to combat base erosion and profit shiftingwill be ineffective in estimating the scale of BEPS, according to an Oxford University professor.

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A proposal under the international action plan on base erosion and profit shifting to strengthen controlled foreign corporation rules by treating most intellectual property income as passive fails to reflect how some business sectors use IP, practitioners said.

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On 16 April 2015, interested partieswere invitedto comment on the discussion draft on Action 11 (Data Analysis) of the BEPS Action Plan. The OECD is grateful to the commentators for their input and is now publishing the comments received.
For the comments, go here.

The European Commission's ambitious plans to improve the digital single market include changes to the VAT treatment of the cross-border supply of goods and services.
For the International Tax Review story, go here.

Australia's treasury department released draft legislation proposing to extend the country's goods and services tax (GST) to digital products and services supplied from offshore entities.
"[I]t is unfair that overseas based businesses selling services into Australia may not charge GSTwhen local businesses have to charge GST," Treasurer Joe Hockey told parliamentwhile delivering the government's annual budget proposals.
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Countries need more time towrite consensus rules on controlled foreign corporations, member of the OECD's Business and Industry Advisory Committee said.
William Morris, chairman of the advisory committee's tax group and director of global tax policy for General Electric, said May 12 that it is clear from the OECD's recent discussion draft on strengthening CFC rules "that there is not a level of consensus,whichwill not enable you to put out meaningful recommendations in any period of time."
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The corporate community is increasingly sounding thewarning to Congress: Europe is coming after us on taxes.

With tax reform talks stumbling inwashington, the fear for corporate titans is that other countries are already implementing a global set of recommendations meant to crack down on offshore tax avoidance.

For the Hill story, go here.

Ken Brewer argues that language in the Court of Federal Claims' Intersport opinion supports awidely held misconception that reg. section 1.482-1(a)(3) prohibits taxpayers from filing any late or amended returns to claim reductions in taxable income resulting from related-party transactions.
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Gabe B. Gartner argues that until the treatment of tax basis in outbound transfers of intangible property is clarified by regulations or other guidance, taxpayers shouldn't assume that their tax basis is irrecoverable.
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Tax reform should ensure competitive rates for all businesses, extend full business expensing, end double taxation by combining the corporate and individual systems, allow deferral of taxes on all saved income, and shift to a territorial system, the Tax Foundation said in an April 15 letter to the Senate Finance Committee's businessworking group.
For the letter, go here.

During a May 11 public consultation on action 12 of the OECD's base erosion and profit-shifting project regarding the design of mandatory disclosure regimes, business representativeswarned that imposing excessive tax compliance obligations on multinationalswill negate the benefits of enhanced transparency.
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An OECD analysis of 79 multinational companies regarding their ratio of net interest expense to earnings before interest, taxes, depreciation and amortization (EBITDA) is persuasive, a Treasury Department official said.

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Business delegates told an Organization for Economic Cooperation and Development consultation that, in many cases, itwould be impracticable for subsidiaries to complywith the organization's recent discussion draft on mandatory disclosure rules, if countries choose to adopt such rules.

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Indonesiawill gradually cut its corporate tax rate to discourage companies from booking profits in lower-tax countries such as Singapore, President Jokowidodo's top aide said.

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A Liberal government in Canada may need to "adjust" its corporate tax rate if the U.S. reduces levies on companies, the party's leader said.
Liberal Leader Justin Trudeau,whose party polls show is the biggest threat to Prime Minister Stephen Harper's Conservatives heading into this year's election,was asked in a television interview May 11 if hewould rule out any increase to Canada's corporate tax rate.
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Australiawill introduce legislation targeting 30 multinationals suspected of diverting billions in profits out of the country, Treasurer Joe Hockey said.
In a May 11 news release announcing the proposed legislation, Hockey also said the scope of Australia's goods and services tax (GST) regimewould be extended to apply to offshore suppliers of digital goods and services.
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Australian Treasurer Joe Hockey has said the governmentwill introduce a new tax crackdown against 30 multinational corporations.

Without identifying the targets, Mr Hockey said the big corporationswere "diverting profits earned in Australia away from Australia to no-tax or low-tax jurisdictions".

For the BBC story, go here.

Just five US companies are hoarding nearly half a trillion dollars as the country's tax code and a tepid global economy deter businesses from spending their overseas cash piles.
For the Financial Times story, go here.

The government plans to soon issue eagerly awaited rules on loans to foreign partnerships by controlled foreign corporations under tax code Section 956, Treasury Department attorney-adviser Brian Jenn said.
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Implementing a patent box has become an "almost primary" topic of the tax debates on Capitol HillÔøΩa shift in focus that happened almost overnight, according to the chief tax counsel of the U.S. Houseways and Means Committee.
"It seemed to me that in January or February of 2015, a substantial portion of the business communitywoke up one morning, and despite the goals" of a 25 percent corporate tax rate and an exemption system, "decided that a patent box or an innovation boxwas one of their top priorities," said George Callas, aways and Means stafferwhoworked under former Chairman Dave Camp (R-Mich.) to craft a tax reform proposal, and remainedwith the committee after Rep. Paul D. Ryan (R-Wis.) took over the chair earlier this year.
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Theworldwide growth of intangible income and potential for base erosion has made guidance on intangibles one of the government's highest priorities, two senior officialswith the IRS and Treasury Department said.
Another key focus is guidance on cloud computing as that, too, increases across awide swath of companies, they said, and comments from taxpayers are essential as that process goes forward.
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Quyen Huynh, Treasury associate international tax counsel, said May 8 that the next U.S. model tax treatywill include a mandatory arbitration provision.
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An expanded use of profit splits at the conclusion of the OECD's base erosion and profit-shifting project could put pressure on dispute resolution mechanisms, according to J. David Varley, acting transfer pricing director, IRS Large Business and International Division.
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Businesses' recent focus on the introduction of a patent (or innovation) box in the United States may be due to concerns about assertions of taxing jurisdiction over previously low-taxed income and an interest in access to U.S. competent authority assistance, said George Callas, majority chief tax counsel on the Houseways and Means Committee.
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A U.S. Treasury official sharply criticized the U.K.'s diverted profits tax, saying it undercuts the process of having nationswork together on the Organization for Economic Cooperation and Development's base erosion and profit shifting project.
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As the Organization for Economic Cooperation and Development's project to combat base erosion kicks into high gear, sowill taxpayer demand for assistance from the IRS, an agency official said.

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The international project to fight base erosion and profit shifting is unlikely to produce an agreement on controlled foreign corporation rules or specific measures to address the digital economy, a top U.S. tax official told Bloomberg BNA.

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India's biggest indirect tax reform since 1947 looks like it has finally arrived – the Goods and Service Tax.

For the Scroll report, go here.

Parthasarathi Shomewill become the first chairman of the International Tax Research and Analysis Foundation. The organisation,whichwill be based in Bangalore,will bring together professionals from thewhole of the tax market in India to produce commentary about the Indian tax system.
For the International Tax Review story, go here.