2015

International Tax News is designed to help multinational organisations keep upwith the constant flow of international tax developmentsworldwide. Among the topics featured in this month's edition are:

For the current edition of PwC's International Tax News, go here.

Reversing a 2013 US Tax Court decision, the Fifth Circuit in BMC Software, Inc. v. Commissioner, No. 13-60684 (March 13, 2015), held that an actual debt obligation implicating Section 965 limitations did not spring into existence retroactivelywhen the taxpayer established accounts receivable to facilitate repatriation of Section 482 adjustments. The Fifth Circuit ruled that that the deemed backdating of the accounts established under Rev. Proc. 99-32 did not change the reality that no actual indebtedness existed as of the close of the relevant Section 965 testing period.

For the PwC Insight, go here.

Multinational enterprises (MNEs)will be concerned about the Base Erosion and Profit Shifting (BEPS) discussion draft on controlled foreign company (CFC) rules published over the Easterweekend. This discussion draft relates to Action 3 of the BEPS Action Plan as agreed by the Organisation for Economic Cooperation and Development (OECD)with the G20 countries. The proposals are complex and, in practice, the difficulties are likely to beworsened by the degree of latitude accorded to states in applying or varying the proposed approach.
For the PwC Tax Policy Bulletin, go here.

It's beenwell documented that major U.S. multinational corporations are stockpiling profits offshore to avoid U.S. taxes. Congressional hearings over the past few years have raised awareness of tax avoidance strategies of major technology corporations such as Apple and Microsoft, but, as this report shows, a diverse array of companies are using offshore tax havens.
For the CTJ report, go here.

With the Indian tax authority's limited resources for reviewing advance pricing agreement applications and its large backlog of cases, the United States and India may need to find a "creative approach" to streamline the bilateral APA process, Michael Danilack of PricewaterhouseCoopers LLP said.

For the TNT story, go here. (subscription required)

Draft plans to remove tax benefits for cross-border funds to eradicate Base Erosion and Profit Shifting could significantly impact investment into UCITS (Undertakings for Collective Investment in Transferable Securities) funds, the Association of the Luxembourg Fund Industry (Alfi) conferencewas told.

For the AsianInvestor story, go here.

The Malaysian Ministry of International Trade and Industry on April 6 issued guidelines on incentives for multinational corporations (MNCs) seeking to establish or expand their presence in ASEAN or the Asia Pacific region through a Malaysian Principal Hub. The incentives are structured in 3 tiers based on various criteria including minimum annual sales, employment, annual business spending and other qualifying activities.

For the PwC Insight, go here.

Read April's International Tax Review cover story on how authorities around theworld are turning to tax in reaction to the oil price drop.

For the story, go here.

The Israel Tax Authority's decision to impose value-added tax and income tax on multinational Internet companies could cost them up to 1.3 billion shekels ($332 million) annually, according to the lawyerwho has long been pressing Israel's government to tax the local business activity of such companies.
For the BNA story, go here. (subscription required)

One of the pending impacts of the international project to combat base erosion and profit shifting (BEPS)will be to require practitioners to better explain how transactions treat risks and functions, an officialwith the Organization for Economic Cooperation and Development said.

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

The European Commission's three-week-old initiative to ensure the automatic exchange of advance pricing agreement and tax ruling data between its member states is the latestÔøΩand perhaps strongestÔøΩmove toward ensuring uniform tax transparency in the international corporate tax system.
But according to one practitioner, taxpayers should greet the European initiativewith open arms, not fear.
For the BNA story, go here. (subscription required)

The Organization for Economic Cooperation and Development recommended a broad definition of a controlled foreign corporation in the latest discussion draft under its base erosion and profit shifting project, butwasn't able to settle on a CFC income definition.

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

National tax laws are struggling to keep pacewith the rise of the digital economy and the progress of multinational companies. These factors leave gaps that are susceptible to misuse and lead to cases of double non-taxation,which undermine the integrity and fairness of tax systems around theworld. The Base Erosion and Profit Shifting ("BEPS") Project seeks to address this problem through measures that focus on three core principles -- coherence, substance and transparency -- andwill result in fundamental changes in international tax standards.
For the BusinessWorld article, go here.

The authorswarn that the approach in the Organization for Economic Cooperation and Development's December 2014 discussion draft on recharacterizationwill empower tax authorities to disregard taxpayers' transactions as structured, leading to an increase in double tax cases forwhich governments are unprepared. In addition to urging a change in direction, the authors recommend implementing mandatory, binding arbitration to copewith the anticipated increase in disputes.
For the BNA Insight, go here. (subscription required)

byBagadiya, Tirthesh (International Tax Review)

Read about the lingering concerns held by businesses after place of effective management (POEM) changeswere announced in the Indian Budget at the end of February.

For the story, go here.

Multinational enterprises (MNEs) should consider the details of the discussion draft published on 31 March on disclosure of tax planning arrangements to tax authorities and, in particular, the potential extension of existing regimes to incorporate 'international tax arrangements'. The discussion draft relates to Action 12 of the Base Erosion and Profit Shifting (BEPS) Action Plan agreed by the Organisation for Economic Cooperation and Development (OECD)with the G20 countries. Changes in international tax standards and other promised increases in cooperation between jurisdictions and alternative methods for addressing avoidance activity suggest a serious review of the costs and potential benefits is needed before the recommendation of any new disclosure regime for international tax arrangements.

For the PwC Insight, go here.

Tackling tax evasion should be a top EU priority. EU countries and the European Commission should play a leading role in discussing how to fight tax fraud and aggressive tax planning in the OECD and other relevant fora, says Parliament in its resolution on tax, voted onwednesday.

For the story, go here.

The OECD's discussion draft on strengthening controlled foreign corporation rules, released April 3 under action item 3 of the base erosion and profit-shifting project, is expressly not a consensus document.
For the Tax Notes story, go here. (subscription required)

In news analysis, Lee A. Sheppard discusses how a recent Chinese push to collectwithholding taxes might affect the availability of U.S. foreign tax credits.
For the Tax Notes article, go here. (subscription required)

In news analysis, Marie Sapirie explains how the OECD can use lessons from the implementation of the Foreign Account Tax Compliance Act to helpwith the creation of country-by-country reporting.
For the Tax Notes article, go here. (subscription required)

Frank Lee responds to Stephen Shay's article on the "Truthiness of Lockout," and the debate onwhether to transfer to a territorial tax system.
For the Tax Notes letter, go here. (subscription required)

Public Comments are invited on a discussion draftwhich dealswith action 3 (Strengthening CFC Rules) of the BEPS Action Plan.
In July 2013, the Action Plan on Base Erosion and Profit Shifting directed the OECD to commencework on 15 actions designed to ensure the coherence of corporate income taxation at the international level. The first seven of these actionswere presented to G20 Leaders at the Brisbane Summit in November 2014.
For the release, go here.

The European Unionwants to impose "more binding" rules against base erosion and profit shifting than are likely to come out of the Organization for Economic Cooperation and Development's project to combat BEPS, a top European Commission tax official said.

For the story, go here. (subscription required)

The OECD on March 31 released a discussion draft laying out the key features countries should includewhen designing mandatory disclosure regimes.
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Mariano Giralt and Sabine Burneleit of BNY Mellonwrite that the EU financial transaction tax project had been thought by many commenters to be a dead letter, but after a recent meeting of participating nations the member states involved have issued a joint statement renewing commitment for the introduction of the tax in January 2016. Given the outstanding issueswith implementation, the deadline may be unrealistic, the authorswrite.
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The Organization for Economic Cooperation and Development released a discussion draft on mandatory disclosure rules, scheduled for a public consultation in Paris May 11.
The document, released March 31, outlines key features of a mandatory disclosure regime and considers how effective those regimes are, based on the experiences of countries that have adopted them.
For the story, go here. (subscription required)

There is little support among the delegates toworking Party No. 6 of the Organization for Economic Cooperation and Development to adopt a "thick capitalization" special measure, eitherwithin or beyond the arm's-length principle, the chair of theworking party said.

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OECDworking Party 6 hopes to take on a long-delayed project to address cross-border financing transactions after it completes itswork on the base erosion and profit-shifting project, said Michelle Levac, chair ofworking Party 6 and a transfer pricing specialistwith the Canada Revenue Agency.
For the story, go here. (subscription required)

The IRS's final rules for tracing distributions from controlled foreign corporations to previously taxed earnings and profits (PTI) should eliminate the potential disparity between the treatment of distributive and dispositive transactions existing under the proposed rules (REG-121509-00), the New York State Bar Association Tax Section said.

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Japan's parliament approved a corporate income tax cut to help spur economic growth by encouraging companies to increase investment and raisewages.

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Thisworking paper aims specifically to add value to the debate that is ongoing in the international community on MNE tax avoidance, providing an investment and development perspective.

For the paper, go here.

EU member states must be more transparent about their national tax rulings, because unfair tax competition distorts competition among companies and could lead to a "race to the bottom",warned many MEPs inwednesday's debatewith taxation Commissioner Pierre Moscovici.
For the story, go here.

Swiss principal companies have long benefited from the rules of Swiss Federal Tax Administration (SFTA) Circular 8 (2001). On March 6, 2015, the SFTA confirmed, in an official letter to the cantonal tax authorities, that it has adopted new interpretations of Circular 8 that vary from those the SFTA issued in January 2014.

Existing Swiss principal companies may need to review their positionswith respect to the modified interpretation thatwill take effect in 2016.

For the PwC Insight, go here.

Joe Hockey, Australia's treasurer,warned taxpayers thisweek that his Budget on May 12will target corporate profit shifting, following the UK's diverted profits tax (DPT or so-called Google tax).
For the story, go here.

In an effort to place itself at the centre of venture capital and private equity investment in Asia, the Hong Kong government introduced a Bill in its Legislative Council on March 25 to extend an exemption from the territory's 16.5% profits tax to include offshore private equity funds,which is already extended to other types of offshore funds.
For the story, go here.

On March 30, Australia's treasurer Joe Hockey announced a tax reform discussion paper titled Re:think, in prelude to awhite paper expected late this year. Advisers say that reform of corporate and personal income tax hinges on changes to the rate and base of GST – an option that remains politically unpopular.
For the story, go here.

Legislation implementing the U.K.'s diverted profits tax, dubbed the "Google tax," entered into force April 1, introducing a 25 percent tax on multinational company profits that are artificially diverted from the country.
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The country-by-country reporting mechanism mustworkwell for developing countries if the outcomes of the international project to combat base erosion are going to gain general acceptanceworldwide, the UN's top tax official said.

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Congress could ensure that U.S. corporations pay their fair share of public services and infrastructure investments by closing offshore "loopholes," ending deferral, and asking corporations to pay the taxes they owe on untaxed offshore profits, the Center for Effective Government and Institute for Policy Studies said in an April 1 report.
For the report, go here.

The $2 trillion in U.S. corporate cash that is held, or "trapped," in locations overseas may be the most potent evidence for the case that the nation needs to switch to a territorial system for taxing multinational companies based here. Under the United States' so-calledworldwide tax system, U.S. MNCs face a 35% tax on cash repatriated to this country, minus credits for foreign taxes paid.
For the story, go here.

Jasper L. "Jack" Cummings, Jr., explains the selection of a less-than-30-percent threshold for complete liquidation in a recent letter ruling, and he examineswhy the taxpayerwanted the outbound liquidation to be viewed as a liquidation rather than a section 355 split-up.
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James J. Tobin of Ernst & Youngwrites that the OECD's BEPS Action 4 discussion draft on interest deductions flows from a flawed premise and takes a biased view of multinational corporations as unfettered "manipulators" of the current global tax system. Given the drastic solution proposed in the draftÔøΩand the tight time constraints on the entire BEPS projectÔøΩTobinwrites that the result "is a radical, misdirected, unworkable proposal for allocating external group interest costswithin a global group."
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The Obama administration unwisely gave a preference to foreign investment by including an allowance for corporate equity (ACE) in its 19 percent minimum tax on foreign earnings budget proposal, argued Stephen E. Shay of Harvard Law School on March 27.
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Ray Beeman recently spokewith Tax Analysts' Luca Gattoni-Celli to discuss lessons he learnedwhilewriting a 900-plus-page tax reform discussion draft, Congress's tax reform efforts, and proposals for international tax reform.
For the interview, go here. (Subscription required)

U.S. lawmakers on both sides of the aisle increasingly are finding appeal in an ambitious concept for overhauling the nation's income-tax system: a tax based on consumption, a tool long used around theworld.

For the story, go here.

The Indian Central Board of Direct Taxes (CBDT) has issued a Circular clarifying that the offshore transfer taxation ruleswill not apply to dividends distributed outside India by an overseas entity evenwhen the shares of the offshore entity derive substantial value from assets located in India. Dividend distributions by offshore companies to overseas shareholders thereforewill not be taxable in India under the offshore transfer taxation rules.

This clarification by the Indian government - stating clearly the intent behind the offshore transfer rules - is awelcome step to provide certainty to foreign investors and multinational enterprises.

For the PwC Insight, go here.

Public comments are invited on a discussion draftwhich dealswith Action 12 (Mandatory Disclosure Rules) of the BEPS Action Plan.

For the release, go here.

The recent Commission proposal for automatic exchange of tax rulings is "a revolutionary step towards international transparency on taxation and the fight against base erosion and profit shifting. Itwill change theway theworld economyworks for the better", said the Secretary-General of the OECD, Angel Gurria in a discussionwith members of the committees for Tax Rulings and Economic and Monetary Affairs on Tuesday morning.
For the story, go here.

Officialswith the Treasury Department and the Organization for Economic Cooperation and Development say the OECDwill make significant changes to its recent discussion draft on risk, recharacterization and special measures.

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The Organization for Economic Cooperation and Development's top tax official has proposed a mechanism for peer reviewing countries' implementation of the mutual agreement procedure, as part of the international program addressing base erosion and profit shifting.
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