2015

The Internal Revenue Service erred in partially disallowing taxpayer BMC Software Inc.'s repatriated dividends tax deduction under tax code Section 965, a federal appeals court held (BMC Software, Inc. v. Commissioner, 5th Cir., No. 13-60684, 3/13/15.

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The U.K. treasury agency has launched a "radical" review of the country's business rates system in an effort to modernize it and change theway domestic businesses pay the tax, aiming to make it fairer to smaller businesses.

Announcing the review March 16, Chief Treasury Secretary Danny Alexander said the 30-year-old system needs to better reflect changes in property values.

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by International Tax Review

Articles on the impact of BEPS on Switzerland's overhaul of its corporate tax system; the Swiss VAT treatment of financial services; andwhat steps Switzerland is taking to adapt to exchange of information are among the articles in this year's edition of the popular country focus.

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by Joint Committee on Taxation

The Senate Committee on Finance has scheduled a public hearing on March 17, 2015, titled "Building a Competitive U.S. International Tax System." This document, prepared by the staff of the Joint Committee on Taxation, covers a number of topics related to the U.S. taxation of cross-border income.

For the report, go here.

by Marc Heller (Burear of National Affairs)

The congressional Joint Committee on Taxation summarized U.S. international tax policy, including implications of corporate inversions, in a report to the Senate Finance Committee.

Among other features, the report (JCX-51-15), released March 16, lists inversions completed or proposed from 2009 to Nov. 15, 2014, ofwhich therewere at least 30, the JCT said. The committee prepared the report in advance of a March 17 hearing on international tax issues.

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Stephen E. Shay challenges the assertion that lockout is a primary reason to exempt multinational corporations' foreign dividends from active business income.

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In news analysis, Mindy Herzfeld examines how recent trends in cross-border deal-making illustrate the importance of U.S. international tax reform, beyond current efforts to halt corporate inversions.

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In economic analysis, Martin A. Sullivan looks at various studies that have calculated the corporate effective rate for the United States and its major economic competitors.

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by David Crew, James Fontanella-Khan and Megan Murphy (Financial Times)

A crackdown by the Obama administration on "tax inversion" deals,which allowed US companies to slash their tax bills, has had the perverse effect of prompting a sharp increase in foreign takeovers of American groups.

In September the US Treasury all but stamped out tax inversions,which enabled a US company to pay less tax by acquiring a rival from a jurisdictionwith a lower corporate tax rate, such as Ireland or the UK, and moving the combined group's domicile to that country.

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Countries should consider jointly developing a special rule to allow tax administrations to "share" corporate profits of giant multinational Internet companies, as a replacement for today's "obsolete" rules for transfer pricing and territory-based taxation, according to a French government report.

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Reducing corporate tax rates and introducing a territorial tax system should be centerpieces of reform andwould help U.S. competitiveness. studies suggest.
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The OECD's base erosion and profit-shifting project has yielded numerous unilateral actions that have been roundly criticized as undermining the very initiatives that inspired them, but according to one OECD official, there's a silver lining.
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Korea is targeting global online retailers in its expanded VAT legislation,whichwill tax the non-resident distributors of digital content to Korea customers. From July 1 2015 electronic service providerswill be charged 10% VAT on all sales made to Korean consumers, regardless ofwhether they have a Korean presence.
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A report released today by Business Roundtable reveals that the competitive disadvantage caused by an outdated tax code led to a $179 billion net loss of American companies and business assets to foreign buyers from 2003-2013. Thestudyalso finds that a 25 percent U.S. corporate tax ratewould have prevented foreign purchases of 1,300 companies during that same period.

For the release, go here.

Business Roundtable

The United States' high statutory corporate income tax rate andworldwide system of taxation have disadvantaged U.S. businesses in the global market for cross-border mergers and acquisitions,which could have long-lasting effects on U.S. productivity,wages, and living standards, EY said in a March 10 report prepared for the Business Roundtable.
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OECD guidance on the application of the nexus approach for preferential intellectual property regimes should be flexible on the definition of qualifying IP assets, scope of qualifying research and development expenditures, and procedures for tracking and tracing of expenditures, stakeholders say.
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The Finance Act 2014 introduced substantial changes to Ireland's general anti-avoidance rule (New GAAR).

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Big businesses are gearing up to make the case for overhauling the U.S. tax system, armedwith a new study arguing that it is encouraging foreign takeovers of American firms.

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Egypt said itwill cut its top rate of income tax, three days before the start of a conference to boost investment in North Africa's largest economy.

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The Investment Industry Association of Canada is adding its voice to a growing chorus of financial groups asking for extensions of time to implement rules intended to stop foreign investors from skirting the U.S.withholding tax on dividends.

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Giving U.S. companies a tax incentive to bring home overseas earnings may do more to spur growth in dividends and stock repurchases than business investment, according to a JPMorgan Chase & Co. analysis.

A one-time tax break thatwas adopted in 2004 had relatively little effect on the pace of capital spending, according to data compiled by the Federal Reserve and the Commerce Department.

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The Senate Finance Committeewill hold a hearing on improving the international tax system and improving U.S. competitiveness on March 17, at 10 a.m., in Room 215 of the Dirksen Senate Office Building, Chair Orrin G. Hatch, R-Utah, announced in a March 10 release.

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The European Commission has launched an infringement procedure against France regarding the 3% tax on dividend distributions that entered into force in 2012. The 3% tax applies to dividends and other distributions (including deemed dividends for French tax purposes) paid by French companies or French branches of non-European Union (EU) companies.

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The prospect of a corporate tax holidayfor repatriated foreign earnings is unlikely, and even if itwere to become law, itwould have minimal impact on the economic outlook, notes JPMorgan Chase & Co.

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There have been many state legislative proposals in recent months that impact international business organizations doing business in the US. Various forms of tax haven laws are already enacted in Alaska, D.C., Montana, Rhode Island, Oregon, andwest Virginia. This legislative sessionwe have seen Massachusetts, Kentucky, Maine, and New Hampshire introduce tax haven billswhile Oregon and Montana attempt to broaden their tax haven laws.

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Read this month's special features on North America and Ireland,which cover issues such as derivative forward agreements and exchangeable share transactions in Canada, US transfer pricing rules and life after the double Irish.

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Kartikeya Singh,w. Joe Murphy and Christine Saliba of PricewaterhouseCoopers present a critique of the latest proposed guidance published by the Organization for Economic Cooperation and Development on allocations of risk in connectionwith intercompany transactions. The authors argue that the OECD's proposal of "imputing moral hazard" to an intercompany transaction is a flawed application of the arm's-length principle.

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The international project to combat base erosion and profit shifting poses dangers for developing countries if it causes a shift away from a principled approach to the valuation of transactions, a Treasury official said.

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By Bret N. Bogenschneider (Tax Analysts)

Bret N. Bogenschneider argues that corporate inversions result primarily from the inability of shareholders to replace ineffective corporate management under Delaware corporate law, rather than from a failure of capital export neutrality.

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Although the United States is not prepared to support the current OECD risk and recharacterization draft, it isworking hard to find consensus that could also resolve conflicts on related drafts, said Michael McDonald, financial economist (business and international taxation), Treasury Office of Tax Analysis.

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ITR haswritten a report on the 2015 India Budget.

The first full Budget from Narendra Modi's Indian governmentwas keenly awaited by corporates, partly because of the pro-business sentiment presented by Modi and his finance minister, Arun Jaitley. The two did not disappoint, bringing clarity to taxpayers and foreign investors on a number of fronts.

For the report, go here.

HM Revenue & Customs raked in £1.1bn from challenging the pricing of multinational companies' internal deals in 2013-14 ÔøΩ more than twice as much as in the previous year.

The increase came as HMRC stepped up its "transfer-pricing" investigations ÔøΩ scrutinising the prices charged on transactions between different parts of the same company ÔøΩ following a public outcry over multinational tax planning.

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by International Tax Review

In the last quarter of 2007, the European Commission notified Spain of its decision to open a formal investigation procedure under article 88(2) of the EC Treaty concerning the tax regime for the amortisation of financial goodwill. Jose Maria Garcia-Valdecasas Alloza, partner of Balaguer – Morera & Asociados and associate lecturer at the University of Barcelona, explores the EC's "negative tax harmonisation."

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by Keith Brockman (International Tax Review)

Keith Brockman, global tax director at Mars, lecturer and author of the Strategizing Multinational Tax Risks blog, looks atwhy countries are enacting unilateral legislation to limit interest deductibility, the shift in focus from eliminating double taxation to eliminating non-taxation, andwhy, as a result, double taxation via interest limitations is here to stay.

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by International Tax Review

Taxpayers should beware of the knotty problems that can result from the supply of services by a non-resident to a New Zealand resident, explains Tim Stewart of Russell McVeagh.

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The U.S. Treasury Department is rethinking parts of its recent crackdown on " inversions" after complaints that the rules are crimping legitimate mergers in the insurance sector.

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by Tony Nitti (Forbes.com)

Hey, I've got a neatidea…why don'twe take a break from futilelyattemptingto understand theexisting tax law and devote sometime to futilelyattempting to understand proposed tax law thatwill, in all likelihood,never become a reality?Sound good? Great. Lastweek, Republican Senators Marco Rubio (Fla) and Mike Lee (Utah) released a fairly detailed plan to overhaul the existing Code. The creatively-coined "Rubio-Lee" planhasgarnered a lot of attention, and considering Republicans currently control both the House and Senate, itshould certainly be taken seriously.Let's take a look at the plan's most interesting talking points.

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Twenty jurisdictions are covered in the latest international updates from our correspondents around theworld. Topics include BEPS in South Africa; the US Budget; limited partnerships in Luxembourg and Italy's Patent Box regime.

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The Treasury Department and IRS have taken note of the existing authorities on adopting an aggregate or entity view of a partnership as they develop guidance on the section 956 rules on controlled foreign corporation loans to foreign partnershipswith U.S. partners, said Douglas Poms, acting Treasury deputy international tax counsel.

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Treasurywill consider a carveout from the cash box rule for upstream assets in regs thatwill follow the anti-inversion notice (Notice 2014-52, 2014-42 IRB 712), a Treasury official said March 6.

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by Alex M. Parker (Bureau of Nationa Affairs)

Government officials defended their plans to sharpen tax code Section 956 regulations to combat so-called post-inversion hop-scotching, claiming their proposed regulations arewellwithin their powers granted under Subpart F rules.

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by Lee A. Sheppard (Tax Analysts)

In news analysis, Lee A. Sheppard looks at the accounting rules that might affect how companies such as Apple dealwith the European Commission's state aid investigations.

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U.S. officials are concerned that the trillions of dollars companies park overseas are doing more than just helping them skirt taxes. They'reworried the practice leaves investors in the dark.

Whenwalt Disney Co. investorswere trying to anticipate the company's performance in late 2012, the company told them to expect taxes to take a bigger bite out of earnings than the previous year.

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Houseways and Means Committee member Lloyd Doggett, D-Texas, and Rep. Rosa L. DeLauro, D-Conn.,will continue their legislative effort to ban federal contracts from going to companies that invert, continuing last year's partially successful strategy of adding legislative riders to House spending bills.

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Following the momentum generated by recent meetingswith the US, India now has the opportunity to significantly improve investor confidence.

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Eight of the biggest U.S. technology companies added a combined $69 billion to their stockpiled offshore profits over the past year, even as some corporations in other industries felt pressure to bring cash back home.

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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: The decision of the Dutch Court of Appeals regarding the deduction of cross-border forex result Changes in the Brazilian transfer pricing rules The US Internal Revenue Service's release of R&D credit regulations on internal use software China's public notice regarding certain corporate income tax matters on indirect transfer of properties by non-tax resident enterprises

To read this issue, go here.

Abhishek Shah, of Caterpillar in Asia, explainswhere he thinks the Indian Budget should have gone further on indirect tax.

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Onwednesday morning, senators Marco Rubio and Mike Lee releasedtheir long-awaited plan to overhaul both the individual and corporate tax codes. Like traditional Republican plans, it consolidates tax brackets, lowers the top rate, and eliminates a host of deductions. Rubio and Lee have put forward a credible, conservative tax proposal that could lay the groundwork for comprehensive tax reform in the futureÔøΩwith one glaring flaw.

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The Indian Budget 2015was the new government's first and focuses on growth and creating an enabling environment.

On the tax front, the government addressed concerns of multinational companies. This includes clarifying certain aspects of offshore share transfer taxation, deferring the implementation of general anti-avoidance rules to provide certainty and a non-adversarial environment, and announcing the intent to simplify the law and reduce the corporate tax rate to 25% over four years.

For the PwC Insight, go here.