2016

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Profit-Shifting Structures: Making Ethical Judgments Objectively, Part 2

by Jeffrey M. Kadey & David L. Koontz
This is a two-part report; Part 1 appeared in the June 27 issue of Tax Notes. In the first part, Kadet and Koontz set out an ethical benchmark that multinational corporations can use to objectively test the propriety of their profit-shifting structures. This second part suggests several steps that should be considered by multinational boards, professional tax advisers, Congress, Treasury, and the IRS to improve tax strategies, corporate governance, and the equitable collection of taxes.
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News Analysis: Wake Up and Smell the Coffee: State Aid Power Grab

by Ajay Gupta
On June 27 the European Commission released the nonconfidential version of the final decision of its formal investigation intowhether the advance tax rulings that the Netherlands issued to Starbucks constituted illegal state aid. From reading that decision, it is evident that the commissionwould like to have the final say onwhat constitutes the proper method for determining arm's-length transfer prices, usurping not just the authority of member states but also the influence of intergovernmental bodies like the OECD.
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U.S. Tax Review (1) (2)

by James P. Fuller
In this article, the author discusses recent U.S. international tax developments, including the Medtronic case, the EU state aid investigation, and the New York State Bar Association's comments regarding the proposed application of section 956 to partnership transactions.
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No Loan Recasts in Debt-Equity Rules, D.C. Bar Group Urges (1)

Bloomberg

Pressure is building on the Treasury Department towithdraw language in its controversial earnings-strippings regulations allowing the IRS to recast entire loans as debt,with the D.C. Bar Association Taxation Section adding its voice to the outcry.
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Public comments received for the discussion draft on the development of a multilateral instrument to implement the tax treaty related BEPS measures

  • By OECD

On 31 May 2016, public commentswere invited on technical issues identified in a request for input related to the development of a multilateral instrument to implement the tax-treaty related BEPS measures. The OECD is grateful for the input and now publishes a compilation of the comments received.

To read more go here

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Reclassification of Related-Party Corporate Debt:

Bloomberg

by Douglas Nakajima
Douglas Nakajima of Marcum LLP looks at the operation of the IRS proposed rules (REG-108060-15) thatwould allow related-party corporate debt to be reclassified as equity, alongwith implications and considerations for affected taxpayers if they are made final. Announced as part of the ongoing effort to curb corporate inversions, the authorwrites that the new rules "will have implications to the treatment of corporate interests in the targeted cross-border environment, but also in a number of purely domestic situations."
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3M's Challenge to Blocked Income Regulations Draws on Altera

by Ryan Finley (Tax Notes)
The IRS improperly disregarded a foreign law restricting related-party royalties because thesection 482regulations on recognition of foreign legal restrictions suffer from some of the same procedural defects as the regulation at issue inAltera, 3M said in its latest court filing in its transfer pricing disputewith the IRS.
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ECOFIN agrees EU-wide rules in Anti-Tax Avoidance Directive

  • By PwC
by PwC
The EU Member States, via ECOFIN, reached agreement on the Anti-Tax Avoidance Directive on 17 June. ATAD is part of the Anti-Tax Avoidance Package presented on 28 January 2016. The agreement requires Member States to enact laws that largely implement BEPS outcomes on interest limitation rules, hybrid mismatches and CFCs, plus additional measures on exit taxation and a general anti-abuse rule (GAAR). The switch-over clause to require a tax credit rather an exemption on certain incomewas dropped.
ATAD may have a bigger impact in some Member States than others (particularly those that don't currently have CFC rules for example). But most Member Stateswill have to make some changes to their existing tax regimes.
To read more go here

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OECD anti-tax avoidance efforts gain traction at Kyoto meeting

  • By Reuters
by Reuters
More than 80 countries and jurisdictions gathered in Kyoto on Thursday to push for global efforts to stop harmful corporate tax avoidance, the Organisation for Economic Cooperation and Development (OECD) said on Thursday.
To read more go here

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Sweden planning overhaul of VAT law

by Anjana Haines
Companies can look forward to simpler VAT rules as the government begins reviewing legislation.
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Will processes and procedures designed to address 'midnight rule-making' impact the proposed Section 385 regulations

  • By PwC
by PwC
The Proposed Section 385 Regulations, issued April 4, 2016, address the extent towhich an interest in a related corporation is treated as stock or debt. The IRS and Treasury plan to finalize these Regulations quickly, raising concerns because the new rules are complex, expansive, and very controversial. Could this be considered 'midnight rule-making,'where a federal agency issues important regulations in an Administration's final months? How might Congress or the next Administration respond?
To read more go here

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International Tax News - Edition 39, May 2016

  • 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:

  • The 2016 Canadian Federal Budget
  • The UK Budget and Finance Bill's new international and business tax measures
  • Portugal's 2016 State Budget Law
  • Improvements to China's administrative measures for high and new technology enterprises
To read more go here

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Brazil increases certain capital gains tax rates

  • By PwC

Brazil on March 16, 2016, converted Provisional Measure 692/2015 (PM 692) into Law No. 13,259/2016 (Law 13,259). The law amends the capital gains tax rates applicable to individuals and non-resident entities.

Multinational companies that own Brazilian entities should consider how these changes could affect their investments.

To read more go here

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Canada proposes country-by-country reporting it its 2016 federal budget

  • By PwC
On March 22, 2016, the Canadian federal government tabled its annual budget,which proposes implementing annual country-by-country (CbC) reporting for Canadian-parented multinationals (MNEs). This requirement is recommended in Action 13 of the base erosion and profit shifting (BEPS) initiative launched by the Organisation for Economic Co-operation and Development (OECD),which addresses transfer pricing documentation for MNEs.
To read more go here

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Rise in Robotics Requires New Tax Approach, EU Report Warns

by Linda A. Thompson
European lawmakerswarn that the growing use of robots and artificial intelligence may cause job losses across the continent, threatening to result in plummeting tax revenue if current tax frameworks aren't revised to account for the rise of the roboticworkforce.
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CbC Regs Finalized as OECD Issues Voluntary Filing Guidance

by Ryan Finley
On the same day Treasury and the IRS released final country-by-country reporting (CbC) regulations, the OECD issued guidance recommending that other countries accept for years beginning on January 1 reports filed voluntarily in the United States and in other countries that do not require reports.
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Country-by-Country Rules Final; More IRS Guidance to Come

by Kevin A. Bell
by Kevin A. Bell
Final rules on country-by-country reporting contain few changes from regulations proposed in December, but the IRS promises further guidance on a mechanism to allow voluntary filings for companies required to complywith both the U.S. rules and those in a foreign countrywith an earlier effective date.
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Reinsurance Group to Meet With Treasury on Debt-Equity Rules

by Alison Bennett
Insurance companies and reinsurerswould suffer a harsh burden and should be exempt from controversial new rules intended to combat earnings stripping, industry representatives are expected to tell the IRS and Treasury Department in a June 30 meeting.
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New OECD guidance on country-by-country reporting of multinational companies' tax and profits tackles thornytransition issues that arise when jurisdictions' reporting regimes have different effecti

by Rick Mitchell
New OECD guidance on country-by-country reporting of multinational companies' tax and profits tackles thorny "transition issues" that arisewhen jurisdictions' reporting regimes have different effective dates.
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Throw Out Loan Recasts Under Debt-Equity Rules: NYSBA Group

by Alison Bennett
The government shouldn't go forwardwith rules that allow entire loans to be recast as equity in an attempt to stop earnings stripping, the New York State Bar Association Tax Section said in nearly 200 pages of comments to the government.
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D.C. and New York Bars Submit Comments on Debt-Equity Regs

by Amy S. Elliott & Lee A. Sheppard
The District of Columbia Bar Taxation Section and the New York State Bar Association Tax Section both submitted comments on the proposed debt or equity regulations June 29, urging Treasury not to finalize the recast rules in prop. reg. section 1.385-3.
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U.K. Lawmakers Approve Corporation Tax Cut

by Andrew Goodall
The U.K.'s low corporation tax rate attracts jobs and investment, and itwould be a grave mistake to cancel a further cut to 17 percent planned for 2020, Financial Secretary to the Treasury David Gaukewarned members of Parliament before they approved the cut by a vote of 308 to 255.
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U.K. Tax Code Could Entice Companies

by Richard Rubin
While some companies consider moving operations from the United Kingdom after its expected exit from the European Union, the U.K. could use its tax code to entice businesses.
The U.K. outside the EUwould be liberated of the bloc's coordinated tax rules, giving the country an opportunity to cut taxes for companies, grant more financial aid to ailing firms and dangle breaks to attract corporations.
To read more go here

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Loss Symmetry for Start-Ups With an Anti-Inversion Chaser

by Patrick Driessen
In this article, Driessen suggests that the typical inversion script might be sidestepped by allowing new corporations to temporarily receive immediate cash payments from the U.S. government in lieu of carrying forward net operating losses -- an election of early refundability thatwould require companies to permit the Treasury secretary to veto any potential future inversion.
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Brexit: UK could legislate against application of ECJ case law

by Anjana Haines
The UK's exit from the EU means that case law from the European Court of Justice (ECJ) may cease to apply.
To read more go here

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IRS inversion rules face blowback

A regulatory effort by the Obama administration to crack down on tax deals is facing backlash from business groups and lawmakers on both sides of the aisle.
To read more go here

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CbC Measure Defeated by Narrow Margin in U.K. Parliament

by Andrew Goodall
Transparency advocates expressed optimism in the face of defeat after members of the U.K. Parliament defeated by just 22 votes a Finance Bill amendment calling for public country-by-country (CbC) reporting of large multinationals' profits and taxes.
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Ways & Means GOP to Treasury: Proposed Regulations Threaten Jobs & Economic Growth

by Jacob Lew (Committee onways and Means)
The Treasury Department exceeded its authority by issuing proposed debt-equity regulations under section 385 to clamp down on corporate inversions and earnings stripping, Republican members of the Houseways and Means Committee said in a June 28 letter to Treasury Secretary Jacob Lew.
To read more go here

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Article IV Consultation with the United States of America: Concluding Statement of the IMF Mission

  • By International Monetary Fund
by International Monetary Fund
A comprehensive reform of the U.S. tax system should aim to remove tax exemptions, simplify the system, rebalance from direct taxes to indirect taxes, and reduce statutory rates for individual and corporate income taxes, the IMF said in a June 22 release on the conclusion of the its Article IV consultation.
To read more go here

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Switzerland passes final corporate tax reform package to enhance global competitiveness

  • By PwC
by PwC
The Swiss parliament on June 17, 2016, passed the final corporate tax reform package (CTR III) to strengthen Switzerland's competitiveness as a business location. C
To read more go here

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Gaming the System,' Border Taxes Questioned in GOP Tax Plan

  • By Laura Davison
by Kaustuv Basu, Laura Davison, & Aaron E. Lorenzo
Early concerns about the House Republican tax blueprint have centered on the plan's potential for gaming the system, its proposed shift to full expensing, and border adjustments, though supporters believe the various changeswould boost U.S. economic growth.
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W&M Republicans to Send Letter to Treasury on Debt-Equity Regs

by Dylan F. Moroses
Houseways and Means Committee Republicans plan to send Treasury a letter June 27 expressing their concerns over proposed debt-equity regulations and asking for an extension of the comment period.
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News Analysis: BEPS and EU Progress Report

by Lee A. Sheppard
In news analysis, Lee A. Sheppard looks at the next set of developments in the OECD's base erosion and profit-shifting project, and how EU efforts are already changing how multinationals operate.
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News Analysis: Clues to Trump's International Tax Policy

by Mindy Herzfeld
Donald Trump, presumptive Republican presidential nominee, has provided little detail about how hewould address pressing issues of international tax policy.
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Technical Work on EU Interest and Royalties Directive Suspended

by Ryan Finley
Citing persisting disagreement overwhether and how to apply a minimum effective taxation (MET) condition to thewithholding exemption of the EU interest and royalties directive (2003/49/EC), the EU Council's High Levelworking Party on Tax Questions has recommended that further technicalwork on the proposal be suspended.
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Will Republican Tax Blueprint Meet Trade Rules? Views Differ

Bloomberg

by Alison Bennett
Big questions remain on how other countries might treat a provision in the new Republican tax policy blueprint thatwould tax imports but not exports.
For the DTR story, gohere. (subscription required)

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UK votes to leave EU; impact on US income tax treaties

  • By PwC

PwC

by PWC
In a referendum on June 23, 2016, voters in the United Kingdom chose to leave the European Union. Although the exact timing and impact of a departure is yet to be determined and seems likely to take more than two years, the impact on certain US income tax treatieswith European countries may be significant.
To read more go here

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Five Takeaways From the House GOP Tax Plan

by Richard Rubin (Thewall Street Journal)
House Republicans unveiledwhat they called a "bold" tax agenda Fridaywith lower rates, immediatewriteoffs for capital investment, shorter tax forms and a rethinking of international rules.why? Andwhat comes next?
To read more go here

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Ireland introduces formal bilateral APA program

  • By PwC

PwC

by PwC
The Irish Revenue Commissioners have introduced a formal bilateral advance pricing agreement (APA) programwhichwill be effective from July 1, 2016. The new programwas introduced in response to Action 14 of the Base Erosion and Profit Shifting (BEPS) initiativewith a view to providing certainty to taxpayers in relation to the taxation of cross-border transactions and is in linewith OECD Best Practice Guidelines.
To read more go here

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LB&I Has No Foreign Payments Campaigns Teed Up Yet

by Andrew Velarde (Tax Notes)
The IRS Large Business and International Division's foreign payments practice plans to follow the lead of the division's other practices by shifting to an issue-based campaign model for compliance purposes, but it is not ready to make that shift just yet, an official said June 24.
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Republicans Pressure Treasury on Debt-Equity Regulations

Bloomberg

by Kaustuv Basu
Houseways and Means Republicans are adding to criticism of the Treasury Department's controversial debt-equity regulations, calling the retroactive April 4 effective date for the regulations "inappropriate."
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Subpart F Loopholes' Described in the President's FY 2017 Budget

Bloomberg

Lowell Yoder of McDermottwill & Emery looks at current law Subpart F "loopholes" described in the president's 2017 budget. "Subpart F planning techniques involving the 30-day rule, toll manufacturing arrangements and digital income are currently available," the authorwrites.
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Profit-Shifting Structures: Making Ethical Judgments Objectively

This is a two-part report; Part 2will appear in the July 4 issue of Tax Notes. In this first part of the report, Kadet and Koontz set out an ethical benchmark that multinational corporations can use to objectively test the propriety of their profit-shifting structures. This benchmark focuses more on business operations and less on tax rules.
To read more go here Subscription Required

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The True Economic Effects of Corporate Inversions

by Doron Narotzki (Tax Notes)
In this report, Narotzki argues that corporate inversions are not as harmful as they are portrayed to be and that government efforts may be better spent by allowing inversions or reforming the tax code to encourage businesses to remain domiciled in the United States.
To read more go here Subscription Required

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Tax challenges, disruption and the digital economy

by Pascal Saint-Amans (OEDC Observer)

The digital economy is a transformative process, brought about by advances in information and communications technology (ICT)which has made technology cheaper and more powerful, changing business processes and bolstering innovation across all sectors of the economy, including traditional industries. Today, sectors as diverse as retail, media, manufacturing and agriculture are being impacted in someway by the rapid spread of digitalisation. In the broadcasting and media industry, for instance, the expanding role of data through user-generated content and social networking have enabled internet advertising to surpass television as the largest advertising medium.

To read more go here

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As U.S. Works to Curb Inversions, Talk of Pre-Inverting'

Bloomberg

by Alex M. Parker
As the Internal Revenue Service and Treasury Department seek moreways to keep U.S. companiesÔøΩand their intellectual propertyÔøΩfrom leaving these shores, lawyers and accountants are beginning to ask a question thatwould have seemed nonsensical a few decades ago:why don't companies incorporate outside the U.S. to beginwith?
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Offshore Earnings Tax Seen as Troubling Under GOP Plan

Bloomberg

byAlison Bennett
U.S. companieswould be far less likely to invert under the territorial tax system proposed by House Republicans, attorneys sayÔøΩbut a tax on more than $2 trillion in earnings currently held offshore is raising eyebrows.
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Surprise Brexit Vote Casts Uncertainty on U.K. and EU's Future

by Stephanie Soong Johnson (Tax Notes)
The unprecedented and unexpected vote in favor of the United Kingdom leaving the EU has sent political and financial shockwaves throughout theworld, leaving serious questions about the tax systems and economic futures of both Britain and Europe in itswake.
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Swiss IP Structures Attractive to U.S. Tax Directors (1)

by Kevin A. Bell
Switzerland, a sophisticated, mountainous nation of 8 million already attractive to U.S. tax directors seeking a European jurisdiction for their group intellectual property, is likely to maintain its competitive position in the post-BEPSworld.
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European Commission's CbCR Proposal Raises Serious Concerns

by Xaver Ditz
The OECD's BEPS project has increased the focus on country-by-country reporting, resulting in several countries adopting it in domestic legislation. Xaver Ditz of Flick Gocke Schaumburg explainswhy the European Commission's proposal for EU-wide disclosure of such information faces greater resistance.
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