2015

Nongovernmental organizations campaigning for tax fairness and an end to profit shifting by multinational corporations have called on the Group of 20 finance ministers to make "deeper reforms" than those announced in the Organization for Economic Cooperation and Development's base erosion and profit shifting action plan.
The "Still Broken" report, released jointly by the Global Alliance for Tax Justice, Tax Justice Network, Oxfam and Public Services International on Nov. 10, examined the tax affairs of U.S. multinationals and showed that the gap betweenwhere companies pay tax andwhere they really do their business is huge,with G-20 countries losing out the most.
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A legislative push by the European Parliament to impose mandatory country-by-country tax reporting for all European Union listed companies as away to enhance shareholder rights has stalled and turned into a tax legislation power strugglewith EU member states, according to EU officials.

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The Organization for Economic Cooperation and Development should try to introduce a formal system to monitor any cases of double taxation that may emerge from its base erosion and profit shifting project, according to the global tax chief of a multinational consumer goods company.

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The OECD, on 5 October, 2015, issued its Final Report on Action 6: 'Preventing the Granting of Treaty Benefits in Inappropriate Cases' (the Report) as part of the complete package covering all fifteen BEPS Action Plans.

The Report broadly recommends a minimum standard for treaties, comprising a Limitation on Benefits (LOB) clause plus anti-conduit rules, a principle purpose test (PPT) or an LOB in combinationwith a PPT. It also proposes a number of additional targeted rules dealingwith specific circumstances.

For the PwC Tax Policy Bulletin, gohere.

The chief executive of Allergan, in talks about selling itself to Pfizer to form theworld's largest drugmaker, has cautioned that any attempt by the Obama administration to block a deal aimed at cutting a company's tax billwould be a "short-sighted intervention".

Pfizer is in negotiationswith Dublin-based Allergan about buying the group inwhatwould be the biggest ever "tax inversion" ÔøΩ allowing the company to report much lower tax costs by moving its domicile to Ireland. The movewould create a companywith a value of more than $330bn.

Tax experts said an inversionwould improve the presentation of Pfizer's earnings, aswell as helping it escape potential future US tax bills on more than $128bn of profits it had earned overseas.

For the Financial Times story, go here.

Countries around theworld have focused on driving increased investment, growth and job creation by lowering their corporate tax rates and modernizing international tax rules. The United States stands as an exception to thisworldwide trend at a timewhen U.S. businesses face unprecedented global competition.
America is in urgent need of tax reform to increase growth and provide greater economic opportunity for all Americans.
For the Business Roundtable Report, go here.

Proposed regulations changing the definition of property that qualifies for the active trade or business exception mark a "dramatic change" but one designed to uphold Congress' original intent, an Internal Revenue Service official said.
The proposed regulations under Section 367would limit the active trade or business exception to an enumerated list of property, including tangible property, interests in oil and gas property, and some financial assets, Robert B.williams Jr., senior counsel in Branch 4 of the IRS Office of the Associate Chief Counsel (International), said Nov. 10.
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The transfer pricing practice (TPP)within the IRS Large Business and International Divisionwill generally be the transfer pricing "final issue owner" following the LB&I reorganization, according to David Varley, acting director of transfer pricing operations.
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The forthcoming reorganization of the Large Business and International Division of the IRSwill expand the scope and staffing of the Transfer Pricing Practice, an agency official said.
David Varley, acting director of Transfer Pricing Operationswith the Internal Revenue Service, said that under the reorganizationÔøΩexpected to "stand up" in FebruaryÔøΩa number of examiners and all the economists inwhat is now the International Business Compliance unitwill be shifted to the TPP.
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At the November 11 International Tax Institute lunch in New York, Robert Cassanos of Fried, Frank, Harris, Shriver & Jacobson LLP discussed the OECD BEPS hybrid instrument recommendations and concluded that awithholding tax might be a simpler approach for governments that are offended by deduction/non-inclusion results.
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This article provides an overview of foreign base company sales income (FBCSI), the branch rule and the tax rate disparity test under the regulations, explains and evaluates the guidance provided by IRS AM 2015-002, and addresses certain issues that the AM leaves unanswered (some ofwhich are pre-existing issues left open in the regulations).
For the International Tax Journal article, go here.

Eleven European Union member states made "substantial progress" in moving toward a final agreement, set for December, on a financial transactions tax, according to Austrian Finance Minister Hans Jorg Schelling.
However, demands by some countries for exemptions, including for some derivatives aswell as foreign company shares and bond trades, are unresolved, he said.
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Sen. Rob Portman (R-Ohio) said key lawmakers agree on the basics of revamping international provisions in the U.S. tax code and that he hasn't given up on passing changes in Congress this year.
"We have remarkable consensus," Portman said Nov. 10 in a speech at the Bipartisan Policy Center, a think tank that promotes collaboration between Democrats and Republicans.
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Issuing final regulations thatwould restrict taxpayers from importing losses into the U.S. is a priority, a senior Treasury Department attorney told tax practitioners.
Krishna Vallabhaneni, Treasury deputy tax legislative counsel, said Nov. 10 that his staff isworking hard to finalize regulations under tax code Sections 334(b)(1)(B) and 362(e)(1), the "anti-loss provisions" of the tax code. The provisionswere enacted under the American Jobs Creation Act of 2004.
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Despite plans to invert to Ireland to reduce its taxes, Pfizer Inc. "appears to be dramatically overstating its corporate tax rate," has not been handicapped by the U.S. tax system, and has significant offshore profits that are not taxed, according to a November report by Americans for Tax Fairness.
For the report, go here.

Recent high-profile actions undertaken by the G-20 and OECD countries, such as the base erosion and profit-shifting project, have failed to live up to their promises to end international corporate tax avoidance, and G-20 countries are losing out as a result, according to the Tax Justice Network (TJN) and other nongovernmental organizations.
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While pulling together the final base erosion and profit-shifting reportswas a big lift, the bigger challenge isworking toward fair, effective, and rule-of-law tax administrationwith high stakes for multinationals if governments get itwrong, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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The Senate Foreign Relations Committee has approved eight pending tax treaties, allowing them to proceed to the full Senate.
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Tax-driven "inversion" deals that let companies flee the U.S. tax system by relocating abroad, if only on paper,would be curbed under legislation introduced in Congress, as Pfizer Inc pursues such a dealwith rival Allergan Plc.
Wisconsin Democratic Representative Mark Pocan's bills likely have little chance of advancing in the Republican-run Congress. But they represent renewed concern about the transactions. Awave of them peaked in September 2014when a Treasury Department crackdown slowed, but did not halt them.
For the Reuters story, go here.

The recent merger talks between New York-basedPfizerand Dublin-basedAllerganare the latest signal that America's approach to taxing international profits is luring U.S. companies to relocate abroad, or mergewith foreign companies. Unfortunately, the situation is about to get significantlyworse.
For thewall Street Journal story, go here.

EU Competition Commissioner Margrethe Vestager defended the limited nature of the European Commission's decisions on the Starbucks and Fiat tax rulings November 9, saying itwas important to establish the matter of principle that excessively generous tax rulings are an illegal form of state aid.
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India could slash its corporate tax rate sooner than expected, as the government sets out a roadmap for curtailing tax exemptions.
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The European Union's top antitrust official lauded rulings ordering two companies to repay tens of millions of euros in back taxes, as she considers similar decisions involving Apple Inc. and Amazon.com Inc.

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The Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting action plan is likely to have a major impact on tax planning at multinational corporations by both tax professionals and corporate treasurers.
Tom Driscoll, U.S. managing partner for international tax, transfer pricing, and indirect tax at Deloitte Tax LLP and Melissa Cameron, a principal in Global Treasury Advisory Services at Deloitte & Touche LLP, believe tax professionalswill be facing a "Global Tax Reset" as a result of the OECD BEPS action plan.
For te Accounting Today story, go here.

In-depth discussions took place thisweek as the international community continues to make progress on the international tax agenda. Officials from more than 100 countries drawing from tax authorities, ministries of finance, development agencies, aswell as regional and international organisations, business and civil society came together in a series of meetings hosted by the OECD. The role of tax in State building and domestic resource mobilisation, enhanced cross-border co-operation and the development of global solutions to international tax challengeswere important topics debatedamongst participants as theyworked together to shape the solutions.
For the OECD release, go here.

At the 3rd OECD Global Forum on Value Added Tax (VAT) and Goods and Services Tax (GST) held in Paris today, BIACwelcomed the endorsement of the completed OECD International VAT/GST
Guidelines and called for their consistent implementation globally to remove VAT/GST obstacles to cross-border trade in services and intangibles.
For the BIAC release, go here.

Governments have taken an important step towards ensuring that consumption taxes on cross-border transactions are effectively paid in the jurisdictionwhere products are consumed,while minimizing the risks that uncoordinated tax rules distort international trade.
For the OECD release, go here.

In the second of a two-part article, James P. Fuller comments on U.S. tax developmentswith international implications, focusing this month on the 13 base erosion and profit-shifting final reports released by the OECD October 5.
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The OECD's ad hoc group for the development of a multilateral instrument concluded its first substantive meeting on November 6, capping off aweek of consecutive meetings of various OECD groups on implementation of the OECD's base erosion and profit-shifting measures and other international tax reform issues.
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More than 100 jurisdictions on November 6 endorsed the OECD's final international VAT/goods and services tax guidelines as the international indirect tax standard to ensure that consumption taxes levied on cross-border transactions are paid in the placewhere supplies are consumed.
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Mindy Herzfeld reviews the recently concluded annual meeting of the United Nations tax committee and discusses the reactions of the committee and nations in the developingworld to the final reports released in the OECD's BEPS project.
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Plans by 11 European Union member states to agree on a financial transactions tax (FTT) base by the end of the year face an important crossroads Nov. 9,when finance ministerswill try to resolve differences on exemptions.
Pushed by France to reach an agreement in advance of the upcoming United Nations climate change summit in Paris on Nov. 30–Dec. 11, the 11 EU finance ministerswill try to resolve differences overwhether the scope of the FTT should exempt pension funds and life insurance trading, aswell as some derivatives used by businesses to hedge against currency exchange and other risks.
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The OECD focus group taskedwith overseeing the negotiation of a multilateral tax treaty, under Action 15 of the international project to combat base erosion and profit shifting, has established a subgroup on arbitration.

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Kimberly Tan Majure and Monica Zubler of KPMG look at country-by-country reporting requirements under the OECD's base erosion and profit shifting program, and at questions multinational groups face in characterizing partnerships and entities that have made U.S. check-the-box elections. "It doesn't take long for the difficulties posed by partnerships to play out on the CbyC report," the authorswrite.
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The rules that subject some services income earned by controlled foreign corporations of U.S. multinationals to current tax under subpart F do not make sense in a modern service-based economy and should be repealed as part of international tax reform, practitioners said November 6.
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The University of Chicago put about 150 of the smartest tax lawyers in a room to debate the merits of a minimum tax on U.S. multinationals' foreign earnings -- something Congress is considering as more and more U.S. corporations relocate overseas -- and therewas little love for the idea.
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The European Commission's October announcement that Fiat and Starbucks violated state aid rules indicates the commission is taking on a dual role as both a supranational tax auditor enforcing the OECD guidelines and a regulator free to impose its own standards, according to Géry Bombeke of Baker & McKenzie in Brussels.
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IRS examiners get new instructions on how to audit situations involving the licensing of intangibles and the transfer of intangibles offshore in two sets of training materials issued by the Large Business and International Division. One unit tells agents how to look at situationswhere a U.S. parent has licensed intangible property to a foreign subsidiary , and the other provides audit instructions for caseswhere taxpayers have tried to reduce or eliminate tax under tax code Section 367(d)when transferring intangibles offshore.

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Lowell Yoder of McDermottwill & Emery examines operation of the Subpart F "30-day exception" for short-term loans between controlled foreign corporations and U.S. parents,which applies only if the CFC doesn't hold for 60 or more days obligations of related U.S. persons thatwould otherwise be subject to Section 956.
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Despite news that Pfizer Inc. is considering inverting to engage in a debt push-down strategy thatwould generate interest deductions allowing the pharmaceutical company to reduce its U.S. tax bill, Treasury's position on future earnings stripping guidance hasn't changed since the IRS issued its 2014 anti-inversion notice.
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The time of gaming the international tax system is over for big business, following the endorsement of the OECD's Base Erosion and Profit Shifting (BEPS) project
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The latest meeting of the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes took place in Bridgetown, Barbados between October 29 and October 31.

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When I contemplate the spectacle of a New York City company combiningwith a company based in Parsippany, N.J., to form a company based in Ireland, I can't decidewhether to laugh or rant. So Iwill do a little of both.
What I'm talking about, of course, is the attempt by New York-based Pfizer to lower its income tax bills by buying New Jersey-based Allergan,which is a faux-Irish firm nominally based in Dublin. Pfizerwould become an Irish company, presumably called Pfizer PLC.
Polite people call this a corporate inversion ÔøΩ but I call it desertion. Pfizerwants to keep all the benefits of being in the United States ÔøΩ our rule of law, deep financial markets, great places for employees to live, first-rate education systems ÔøΩwithout having to pay for them.
For thewashington Post story, go here.

The European Commission is reportedly investigating Dutch tax rulings for Microsoft Corp., Pfizer Inc., GlaxoSmithKline PLC, and Kraft Foods Inc. (now Mondelez International Inc.), but neither the commission nor the Dutch Ministry of Financewould confirm the information reported by a Dutch newspaper.
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Dutch government tax rulings signedwith Microsoft Corp., Kraft Foods Inc. and pharmaceutical companies Pfizer Inc. and GlaxoSmithKline Plc are among more than 300 being reviewed for offering illegal state aid. According to officials, the EU is seeking to determinewhether they provide the kind of illegal transfer pricing arrangements and corporate tax rate reductions the Netherlands gave to Starbucks Corp.
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The government is exploring its options on the controversial area of earnings stripping as itworks on regulations to implement the anti-inversions Notice 2014-52, a senior Treasury Department official said.
Douglas Poms, senior counsel in the Treasury Office of International Tax Counsel, said the agency continues to consider earnings stripping possibilities "in a manner consistentwith the notice," but no definite course of action has been decided, includingwhether earnings stripping might be addressed as part of the inversions guidance now underway.
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Treasury is open to narrowing its rule that eliminated the foreign goodwill exception in the context of recognition of gain upon outbound transfers so that such an elimination does not apply in cases inwhich there is no likelihood of abuse, a Treasury official said November 4.
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