2016

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International Tax News - Edition 42

  • By PwC

by PwC

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:

  • Poland's draft bills to amend the CIT and PIT laws
  • China's newworking guidelines for the administration and assessment of High and New Technology Enterprises (HNTEs)
  • The new Brazilian CFC rules
  • Retroactive changes to triangular brand rules in the US-Luxembourg treaty
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U.S. Chamber of Commerce Files Suit Challenging Inversion Regs

by Andrew Velarde
The U.S. Chamber of Commerce and the Texas Association of Business filed suit against the IRS and Treasury over their inversion regulations August 4, on the grounds that they violate the Administrative Procedure Act.
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Pfizer Split Not a Quick Tax Fix, Says CEO

by Amanda Anthanaiou
A long-deliberated separation of Pfizer Inc.'s innovative and established products businesses is not a quick route to improving the company's tax situation under present tax law, according to company CEO Ian Read.
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India Unveils Road Map for Epic Tax Overhaul by April 2017

byPradhan, Bidhudayya, Iain Marlow & Madhur Singh
Indian lawmakers took a decade to agree on the nation's biggest tax overhaul in modern history, and Prime Minister Narendra Modi now is racing to put it into place in less than eight months.
"We are going to try to make it reasonably as quick as possible," Finance Minister Arun Jaitley told reporters in New Delhi Aug. 4. "It is always good to set stiff targets and try to meet them, rather than have no targets at all."
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India Passes Landmark Tax Reform in Modis Biggest Win Yet

India's upper house of parliament onwednesday unanimously approved the creation of a national sales tax a decade after the movewas first proposed, the biggest legislative victory for Prime Minister Narendra Modi since he took office in 2014.

The constitutional amendment, one of India's most significant reforms since the 1990s, now has to be endorsed by the Modi-controlled lower house and then ratified by at least half of all states, a process projected to be concluded before the year ends.

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Reform Corporate Taxes; Don't Stop Corporate Inversions

bywaynewinegarden
In this article,winegarden argues that the economic consequences from corporate inversions arewidely misunderstood andwhile not optimal are growth-enhancing, given the costs imposed by the U.S. corporate income tax system.winegarden also discusses how the positive economic benefits from corporate inversions can be understood only by examining the negative consequences of the U.S. corporate income tax code.
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Q&A: What's the Big Deal About India Goods and Services Tax?

by Unni Krishnan
India's decade-longwait for a national sales tax thatwill create one of theworld's biggest single markets is nearly over.
On Aug. 3, lawmakers in the upper house of parliament approved a constitutional amendment to enable the goods-and-services tax, known as GST (see related story in this issue).
Once fully implemented, the taxwill go a longway toward fulfilling Prime Minister Narendra Modi's pledge to make it easier to do business in theworld's fastest-growing economy.
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In a Victory for Modi, India Overhauls Its Tangled Tax System

by Ellen Barry & Hari Kumar
Lawmakers cleared theway onwednesday for India to forge a single economic zone from its thicket of overlapping federal and state taxes, the most important economic measure since India opened its markets in 1991.
Potentially one of the most dynamic economies in the developingworld, India is hampered by a bewildering array of state-by-state tax codes that discourage doing business across state borders.
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India Tax-Overhaul Bill Moves Forward

by Raymond Zhong
After more than a year of gridlock, the upper house of India's Parliament approved a contentious overhaul of the convoluted tax system, an important step in Prime Minister Narendra Modi's campaign to modernize Asia's third-biggest economy.
Lawmakers votedwednesday to replace India's jumble of federal, state and interstate sales taxeswith a nationwide goods-and-services tax, or GST.
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Cash Pooling Exception Underway for Treasury Debt-Equity Rules

by Alison Bennett
The government isworking to carve out "appropriate" cash pooling arrangements in final earnings-stripping rules, a senior Treasury Department official saidÔøΩa move hundreds of multinational companies are carefullywatching.
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Debt-Equity Loan Recast Rule Shaped by Complexity: Treasury

by Alison Bennett
The Treasury Department's decision to call for automatic loan recasts under controversial earnings-stripping ruleswas made in the face of shrinking IRS resources and tough options, a top agency official said.
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No Definitive Time Frame for Debt-Equity Rule Finalization

by Andrew Velarde
The finalization of the debt-equity regs remains a priority for Treasury, but the agency has not set a deadline for completion, a senior Treasury official said August 2.
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Segmented Foreign-Owned Corporate Record Maintenance

by Robert Feinschreiber & Margaret Kent
In this article, Feinschreiber and Kent discuss potential conflicts among the reporting requirements in Treasury regulations and those in action 13 of the OECD's base erosion and profit-shifting project, and explain how those conflicting requirements could create obstacles for a foreign-owned U.S. business, especially if it is a segmented enterprise.
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Opinion Backs EU Commission in Crucial State Aid' Tax Cases

Bloomberg

by Joe Kirwin
The European Union's high-profile state aid tax cases involving companies such as Apple, Amazon and Starbucks received a boostwhen the EU's top legal adviser insisted the tax breaks are "selective" and therefore illegal, even if they are available to other companies.
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OECD: Countries' Risks Should Dictate Approach to Interest

Bloomberg

by Ricky Mitchell
The OECD is seeking comments on a new discussion draft addressing an outstanding question from the international project to fight corporate tax avoidance: how to treat interest in the banking and insurance sectors.
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EU harmonises VAT rules on vouchers

On June 27 2016, the European Union Council adopted the Voucher Directive,which is aimed at clarifying and harmonising the relevant VAT rules. The directivewill apply from January 1 2019.

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With U.K. Out, Renewed Push for Common EU Tax Base

by Alex M. Parker
The U.K.'s surprising vote to disconnectwith the European Union has given some hope that the body's 15-year project to harmonize its tax rules and implement a formulary tax systemwill get a shot in the arm.
It still has a longway to go.
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Economic Analysis: Conservatives Challenging Long-Standing Tax Orthodoxy

by Martin A. Sullivan
In economic analysis, Martin A. Sullivan looks at how conservative tax policy is evolving in the United States and United Kingdom in response to rising economic populism.
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U.S. Tax Review (1) (1)

by James P. Fuller
In this article, the author discusses recent U.S. international tax developments, including the IRS's final regulations requiring CbC reporting, ECOFIN's agreement on the EU anti-tax avoidance directive, Brexit, and the OECD's recent discussion draft on profit splits.
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Ireland clarifies VAT exemption for fund management

by Joe Stanley-Smith
Companies receive clarity on the Irish VAT treatment for the management of special investment funds following the ECJ judgment in GfBk.
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News Analysis: Change in Chengdu: The G-20's New Tax Pillar

by Stephanie Soong Johnston
Transformation and the pursuit of successwere the underlying themes during the high-level G-20 tax policy symposium in Chengdu, China, as finance ministers and treasury officials discussedways inwhich they can use and have used tax policy to promote more inclusive, innovation-driven growth, aswell as greater tax certainty.
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OECD and EU to Align Listing Criteria, Tax Chief Says

by Stephanie Soong Johnston
The OECD and the European Commission are meeting regularly andworking closely together to ensure their respective criteria for identifying and listing noncooperative jurisdictions are not contradictory, the OECD's tax chief said.
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News Analysis: Your Summer Reading: Subpart F Treatment of Inbound Loans

by Lee A. Sheppard
In news analysis, Lee A. Sheppard analyzes a recent discussion of section 956 issues involving inbound loans.
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Financial Transactions Tax Idea Creates Buzz Among Democrats

by Kaustuv Basu & Aaron E. Lorenzo
A confluence of factors in this presidential election cycle is focusing attention on a financial transactions tax andwhat it can achieve.
And it goes beyond the Bernie effect.
Although presidential candidate Bernie Sanders has talked about a broad FTT, there is also a need for new funding sources to get to a revenue-neutral tax overhaulwhile there is tentative movement on such a tax in the European Union.
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Status Changes of Corporations Owning PFIC Shares

by Kimberly S. Blanchard
Kimberly S. Blanchard ofweil, Gotshal & Manges looks at issues raised by the IRS's proposed changes to the "next day rule" and related consolidated return regulationswhere a target corporation owns shares in a passive foreign investment company.
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News Analysis: Will the OECD's 'Pragmatic Fudge' Save Transfer Pricing?

by Mindy Herzfeld
The July 19-21 transfer pricing symposium organized by the National Association for Business Economics (NABE) left the impression that the changes to the OECD transfer pricing guidelines as part of the base erosion and profit-shifting project have not solved the problems theywere intended to, but instead left the field in a state of confusion.
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Tax fraud: 75% of Europeans want EU to do more to fight it

  • By European News Parliament
byEuropean News Parliament
Only death and taxes are certain in life - as the cliché goes - but that doesn't mean you have to like either. In the case of taxes, it's madeworse by not everyone paying their fair share. According to the latest Eurobarometer survey commissioned by the European Parliament, 75% of all Europeans believe the EU should do more to fight tax fraud.
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OECD Looks at BEPS Effect on Interest in Banking, Insurance

by Alexander Lewis
The OECD on July 28 issued a discussion draft regarding potential approaches -- including the application of modified fixed ratio and group ratio rules under action 4 of the base erosion and profit-shifting project --to address the potential impact of BEPS on interest in the banking and insurance sectors.
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A financial transaction tax would help ensure Wall Street works for Main Street

by Josh Bivens & Hunter Blair
What this report finds: Awell-designed financial transaction tax (FTT)ÔøΩa small levy placed on the sale of stocks, bonds, derivatives, and other investmentsÔøΩwould be an efficient and progressiveway to generate tax revenues.
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Officials: CbC Regs Nonspecific Because of Local Filing Concerns

by Ryan Finley
The decision not to provide more detailed and explicit guidance in the final country-by-country (CbC) reporting regulationswas based on a desire to give flexibility to taxpayers and avoid the risk that unintended inconsistencieswith OECD standardswould expose U.S. multinationals to local filing, according to Treasury and IRS officials.
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OECD seeks comments on use of a group ratio to determine limit on interest deductibility

  • By PwC
by PwC
A company may be able to deduct more of its debt finance costs if discussion draft proposals published for comment 11 July 2016, by the Organisation for Economic Co-operation and Development (OECD) are finalised and adopted by the company's residence territory.
The discussion draft considers debt finance costs in light of the company'sworldwide group position.
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Foreign Investment in U.S. Growing, Taxes Modest: IRS Data

by Allyson Versprille
The rest of theworld is investing substantially in the U.S. but the taxes being collected are minimal, a fact that might change as Congress debates several tax overhaul proposals, an analyst told Bloomberg BNA in response to newly released IRS data.
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IRS to Allow Voluntary Reporting of Global Tax, Profit

An IRS official said the agency is continuing itswork on a mechanism to allow voluntary filings of country-by-country reports for companies required to complywith both the U.S. rules and those in a foreign countrywith an earlier effective date.
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Uruguay moves toward CbC reporting, Master File documentation, and the availability of bilateral and multilateral APAs

  • By PwC
by PwC
The Uruguay Government has submitted to Congress a tax bill including adoption of the OECD's recommendations for Country-by-Country (CbC) reporting and the Master File for transfer pricing documentation, following the scope of information to be provided under the Base Erosion and Profit Shifting (BEPS) Action 13 final report.
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Brisal ECJ case examiners Portuguese withholding tax on interest payments

International Tax Review

by Tiago Cassiano Neves

Tiago Cassiano Neves of Garrigues, Taxand Portugal, examine the effect the Brisal case has on applying Portuguesewithholding tax to interest payments. @

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Austria told to amend tax rules

International Tax Review

by Anjana Haines

Non-resident taxpayers operating in Austria may benefit from tax changes the country must make to complywith EU rules. @

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UK expedites EU corporate tax race to the bottom

The OECDwill unveil its tax blacklist in 2017, but loopholes in the criteria could allow the US, Germany and Switzerland escape sanctions.

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International community continues movement towards greater tax transparency

  • By OECD

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published today 10 new peer review reports demonstrating continuing progress toward implementation of the international standard for exchange of information on request. The reports allocated ratings for compliancewith the individual elements of the international standard, aswell as an overall rating for each of the eight jurisdiction undergoing a Phase 2 review.

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Bringing International Tax Policy Into the 21st Century

by Michael J. Graetz
Michael J. Graetz delivered these remarks at the Tax Policy Center's "A Corporate Tax for the 21st Century" conference on July 14 inwashington. These remarks are substantially taken from his April 2015 Ross Parsons Lecture at the University of Sydney Law School.
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UK expedites EU corporate tax race to the bottom (1)

Businesses must assess their next moves after the UK's Brexit vote triggered plans in the UK to cut the corporation tax rate,which may have started a race to the bottom on rates among European countries.

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Tax-Advantaged Manufacturers Nearly Double Exports: IRS Data

by Laura Davison
Domestic corporations that export U.S. products nearly doubled the amount of goods sent overseas in a two-year period, according to Internal Revenue Service data.
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Domestic Partners Must Report Transfers to Foreign Corporations

by Herve M. Lewis, Sarah Staudenraus, & David F. Chan
In this article, the authors discuss how the requirement to report some transfers of property by the partnership to foreign corporations restswith the domestic partner or partners rather than the partnership.
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SAT issues new China transfer pricing compliance requirements

  • By PwC
by PwC
On June 29, 2016, China's State Administration of Taxation (SAT) issued the Public Notice Regarding Refining the Reporting of Related-Party Transactions and Administration of Transfer Pricing Documentation (SAT Public Notice [2016] No. 42, hereinafter referred to as "Public Notice 42"). Public Notice 42 provides new transfer pricing compliance requirements in China, including annual reporting forms for related-party transactions (RPT Forms), Country-by-Country (CbC) Reporting, and Transfer Pricing Documentation (TPD), all ofwhich are substantial changes to the existing rules.
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OECD releases discussion draft on approaches to address BEPS involving interest in the banking and insurance sectors

  • By OECD
by OECD
Interested parties are invited to provide comments on a discussion draftwhich dealswith approaches to address BEPS involving interest in the banking and insurance sectors under Action 4 (Interest deductions and other financial payments) of the BEPS Action Plan.
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A Way Forward on Corporate Tax Reform

by Alan D. Viard & Eric Toder
The U.S. corporate income tax is broken. Our tax rate is the highest in the developedworld, yetwe collect less corporate tax revenue as a share of gross domestic product than many of our trading partners. The tax both discourages firms from investing in the United States and enables multinationals to avoid tax by reporting profits in low-tax countries.
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Israel 1, OECD 0

  • By The Wall Street Journal
by Thewall Street Journal
Global tax hunters thought new OECD rules on corporate-tax "avoidance"would turn on a revenue spigot in high-tax countries. Not so fast. Instead, the new rules may encourage more competition to attract businesseswith lower tax rates, at least among theworld's smarter lawmakers. Look at Israel.
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Debt-Equity Challenges Must Get Associate Office Review

by Amy S. Elliott
In a sign that the IRS is preparing for finalization of the controversial debt or equity regulations, the agency posted July 25 a revised version of a chief counsel notice from June 30 making clear that any case in Exam or litigation raising an issue under section 385 must be coordinatedwith the Associate Chief Counsel offices.
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OECD R&D Suggestion Out-of-Date but More Start-Up Help Possible

by Nathan J. Richman
While a recent suggestion by the OECD on making the section 41 research credit refundable may not take account of recent expansions of the credit, other possible expansions still exist that could close the gap between the U.S. credit and the research incentives for start-ups offered by other countries, according to practitioners.
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Managing Global Tax Controversy: A Primer for the U.S. Multinational

by Nancy Chassman & Charles Nelson
Nancy Chassman and Charles Nelson offer guidance on the challenges that tax directors of U.S. multinational companies face in this age of vast information exchange among tax authorities across the globe.
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IRS Expands Scrutiny of Debt-Equity Cases Under Section 385

by Alison Bennett
The IRS iswidening the focus in its vigorous campaign to stop multinationals from using loans to strip income out of the U.S.ÔøΩan action that comes as the agencyworks to finalize rules thatwould treat some loans as equity rather than tax-favored debt under tax code Section 385.
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