2016

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Lawmakers Looking to Dial Back Treasury Debt-Equity Rules

Lawmakers and industry groups are trying to slow down a proposed IRS regulation that grants the agency the ability to recast intercompany debt as equitywhile some consider a legal challenge.
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Senate Finance Democrats Working on Anti-Inversion Package

by Alex M. Parker
Democrats on the Senate Finance Committee areworking on a package of anti-inversion measures, according to a stafferwith the committee.
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U.S. Multinationals Hurt by Debt-Equity Rules, Businesses Say

by Alison Bennett
The Treasury Department's proposed earnings-stripping rules could do significant damage to U.S. multinationals, costing millions in compliance and snarling normal operations, business groups are telling the government.
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The OECD/G20 BEPS recommendations: boosting U.S. tax reform

Most American policymakers believe the U.S. corporate tax system needs reforming – and the facts back up their view This system is bad for domestic job creation, penalizes the entire U.S. economy, and needs to be fixed urgently.

Despitewidespread agreement about these deficiencies, the push for U.S. corporate tax reform has been all talk,with no action for 30 years. But now, a project that had caused much consternation in American tax policy circles may offer away forward for this vital effort.

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Debt-Equity Rules Could Include Brother-Sister Corporations

by Paul Stinson
Brother-sister corporations could be included in the definition of an expanded group under proposed earnings-stripping rules, an IRS official said.
The question is a significant one under the rules (REG-108060-15) intended to stop multinational companies from stripping income out of the U.S. via loans to subsidiaries.
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New IRS LB&I Campaigns Approved With More Under Evaluation

by Stephanie Soong Johnston
The transfer pricing practicewithin the IRS Large Business and International Division has an audit campaign underway focused on issues related to inbound distributors, and has approved two others,with more under evaluation.
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Inbound Distributors Target of IRS Transfer Pricing Campaign

by Alison Bennett
The IRS has launched a "campaign" targeting possible transfer pricing noncompliance by inbound distributors, an official saidÔøΩthe firstword on a specific campaign under a new structure for the Large Business and International Division.
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EU Official Conditionally Endorses OECD Guidelines

by Kevin A. Bell
The European Commission's preliminary notice on how itwill regulate state aid in transfer pricing cases constitutes a conditional endorsement of the OECD transfer pricing guidelines, a commission official said.
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Working Party 6 Expecting More PEs as a Result of BEPS

by Alexander Lewis
OECDworking Party 6 (WP6),which is focusing on profit attribution rules under the authorized OECD approach (AOA) to transfer pricing for permanent establishments, expects the OECD's base erosion and profit-shifting project to lead to more findings of PEs, according to Brian Jenn, attorney-adviser, Treasury Office of International Tax Counsel.
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Legislation on Discouraging Inversions Expected Soon

The Senate Finance Committee and the Joint Committee on Taxation areworking together onways to decrease incentives for corporate inversions, and expect to produce legislation later this summer.

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European Commission State Aid 'Mess' No Closer to Resolution

by Ryan Finley
Top officials from the U.S. Treasury Department and European Commission showed no signs of softening their stances inwhat Robert Stack, Treasury deputy assistant secretary (international tax affairs), described as the "extraordinary mess" caused by the commission's investigations into transfer-pricing-related tax rulings.
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Cross-Border Partnership Transfer Rules Liberalization Possible

by Andrew Velarde
Liberalization of previously released guidance on cross-border partnership transfers is possible in forthcoming regulations, an IRS official said June 9.
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Parliament calls for crackdown on corporate tax avoidance

  • By European Parliament News

The EU Commission proposal for an EU anti-tax avoidance directivewaswelcomed by Parliament in a resolution voted onwednesday. MEPs nonetheless advocated stricter limits on deductions for interest payments and tougher rules on foreign income. They also called for more transparency for trust funds and foundations, common rules for "patent box" tax reductions on intellectual property earnings, and an EU blacklist of tax havens and sanctions against uncooperative jurisdictions.

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Guiding Principles for Tax Reform

  • By Citizens for Tax Justice
by Citizens for Tax Justice
Tax reform should raise revenue, reduce income inequality by increasing taxes on high-income taxpayers, cut back on tax breaks for large corporations, and end the deferral of taxes on corporate income, Citizens for Tax Justice said in a June 8 report recommending principles for tax reform.
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Countries May Get Together on Company Financial Reports: IRS

by Alison Bennett
Countries couldwork together to figure out tax avoidance risks by putting the nation-specific tax and profits data multinational companies are reporting under the microscopeÔøΩbut that shouldn't be the only source of information they use, a senior IRS official said.
The question ofwhat is going to happen to this data is one of the big ones under the Organization for Economic Cooperation and Development's effort to combat tax base erosion and profit shifting.
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IRS Considering Extra Time to Amend Country Reports in 2016

by Alex M. Parker
The IRS is looking at giving taxpayers more time to amend their country-by-country reports filed in the first year of the new requirement, an official said.
The agency may allow an extra three-month periodÔøΩbetween Sept. 15 and Dec. 31, 2017ÔøΩfor companies that file under a voluntary option currently under consideration by the Internal Revenue Service and Treasury Department for tax years beginning on or after Jan. 1, 2016.
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IRS Creating New Age of Uncertainty, Tax Litigators Say

Recent transfer pricing cases in the U.S. Tax Court reveal a troubling pattern on the part of the IRS, practitioners say,with the agencywalking away from long-standing agreements on matters taxpayers thought had been settled.
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Transfer Pricing Enforcement Views Entire Landscape': IRS

The IRSwill look at a company'sworldwide situation in deciding on transfer pricing enforcement under a new agency structure, a senior agency official said.
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People Missed Point of BEPS Transfer Pricing Report, Bello Says

by Ryan Finley
Consistentwith the U.S. regulations, the message regarding intangibles in the OECD's base erosion and profit-shifting report on transfer pricing is that related parties must receive arm's-length compensation for their contributions to value, according to Christopher Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International).
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LB&I's First Audit Campaigns to Be Announced Soon

by Amy S. Elliott
The first IRS Large Business and International Division audit campaigns should be announced "very shortly" andwill likely involve midmarket taxpayers, Rosemary Sereti, deputy commissioner at LB&I, said June 8 at the Texas Federal Tax Institute in San Antonio.
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India introduces new equalization levey on online advertising revenue

  • By PwC

PwC

The Indian government on February 29, 2016 introduced an equalization levy on online advertising revenue earned from India by non-resident e-commerce companies,which became effective on June 1, 2016.
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U.K. Treaty Conflict: Unintended (?) Consequences of the U.S. Debt-Equity Regulations

by Robert H. Dilworth
Robert H. Dilworth provides a summary of the provisions of the proposed section 385 regulations thatwould have the greatest impact on U.S. investment by U.K. companies and the ability of U.S. companies to make or maintain investments in the U.K.
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Country-by-Country Reporting May Help Resolve Tax Disputes

Bloomberg

by Alison Bennett
Country-by-country tax and profits reporting could help competent authoritieswork together to resolve cases faster through mutual agreement procedures, says Douglas O'Donnell, commissioner of the IRS Large Business and International Division.
As the number of MAP cases climbs, tax authorities should take advantage of all having the same information on multinational enterprises seeking case resolution, he said at the 2016 OECD International Tax Conference.
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Explosion' of Double-Tax Cases Growing, IRS Official Says

Taxing authorities around theworld are seeing "an explosion of double-tax cases" seeking resolution through mutual agreement proceduresÔøΩa trend that may be exacerbated by changes to transfer pricing guidelines under the OECD's project to curb base erosion and profit shifting, a senior IRS official said.
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CbC Regs on Schedule as Work on Optional Filing Continues

The Treasury Department isworking to resolve the "gap year" problem for U.S. multinationals through optional country-by-country (CbC) reporting for 2016, but a voluntary reporting mechanismwon't be in the final CbC regulations due by June 30, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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Mazur Still Aiming to Finalize Debt-Equity Regs This Year

by Amy S. Elliott
Treasury Assistant Secretary for Tax Policy Mark Mazur said June 2 that there haven't been any comments submitted so far thatwould persuade him against finalizing thesection 385debt or equity regulations swiftly as planned, despite the concerns of some that the tight timetable threatens the development of good tax policy.
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U.S. Seeking Certainty' in New Permanent Establishment Rules

by Alex M. Parker
The U.S. is hoping to see "more certainty" in how countries apply new OECD rules on the threshold to determine a permanent establishment before adopting it into the U.S. model treaty, a Treasury Department official said.
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Treasury Official Dismisses Hatch's Corporate Integration Idea

Bloomberg

Corporate integration doesn't seem to offer the right policy prescription to address cross-border tax problems, a Treasury Department official said.

President Barack Obama's administration has proposed shifting to more of a territorial tax system on foreign income,with a minimum tax. Meanwhile, Senate Finance Committee Chairman Orrin Hatch (R-Utah) is developing a dividend-deduction planwith awithholding tax to get rid of a double layer of tax on corporate income.
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No Discussion Draft Expected for OECD Multilateral Treaty Tool

by Alex M. Parker
The OECD likelywon't release a full discussion draft of the multilateral instrument currently being devised to implement its new measures to combat tax base erosion and profit shifting, an official from the organization said.
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U.S. May Give Multinationals Option to Report Data Early

by Alison Bennett
U.S. companies may be able to volunteer information on their revenue, profits and earnings during a six-month reporting gap under the OECD's new standard for country-by-country reporting, IRS Commissioner John Koskinen said.
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BEPS Report on Transfer Pricing 'Could Have Been Worse'

Critics of the risk reallocation principles adopted in the OECD's final transfer pricing report should appreciate that the most controversial parts of prior discussion draftswere removed, said Andrew Hickman, head of the transfer pricing unit at the OECD's Centre for Tax Policy and Administration.
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India releases draft rules on computation of income attributable to indirect transfer of assets

  • By PwC
by PwC
The Indian Central Board of Direct Taxes (CBDT), the highest administrative body for income tax in India, has issued draft rules (F No 142/26/2015-TPL dated May 23, 2016) for determining the fair market value (FMV) of both tangible and intangible assets aswell as the income attributable to assets in Indiawith respect to the taxation of indirect transfer of assets under Section 9(1)(i) of the Income-tax Act, 1961 (the Act) aswell as related reporting and document maintenance requirements.
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Fixed Ratio Rule Could Make U.S. Debt-Equity Regs Unnecessary

If the U.S.were to adopt a fixed ratio interest deductibility rule, the proposed section 385 regulations (REG-108060-15 2016 TNT 65-11: IRS Proposed Regulations) might no longer be necessary, said Jason Yen, attorney-adviser, Treasury Office of International Tax Counsel.
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U.S. Waiting for OECD's Profit Attribution Rules

Realistically, it is unlikely that the United Stateswould sign the permanent establishment provision of the OECD's multilateral instrument (MLI).

The U.S. is participating in the development of the OECD's multilateral instrument (MLI) to implement the treaty-related measures of the base erosion and profit-shifting project, but iswaiting to see the finished product before decidingwhether to sign the MLI, said Quyen Huynh, Treasury associate international tax counsel.

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U.S. Tax Review (1) (3)

by James P. Fuller
James Fuller discusses recently proposed U.S. regulations addressing inversions and domestic disregarded entities.
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News Analysis: How BEPS Brought on the State Aid Investigations

by Mindy Herzfeld
Mindy Herzfeld reviews the European Commission's latest explanation for its state aid investigations into tax rulings granted to multinationals and discusseswhy there are solid grounds to support U.S. claims of discrimination against U.S. businesses.
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Vestager: EU Must Take Action Against Unrealistic Tax Deals

by Stephanie Bodoni
European Union Competition Commissioner Margrethe Vestager justified probes into favorable tax deals given to Apple, Amazon and others, saying regulators have to actwhen countries hand out "unrealistic" pacts.
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Short Timeline for Earnings-Stripping Rules Is a Concern

by Allyson Versprille
Tax practitioners are questioningwhether the time frame the IRS and Treasury Department have laid out to answer and analyze comments on proposed earnings-stripping regulationswill be long enough for them to fully consider all taxpayer concerns.
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Claiming the Indirect Credit for Foreign Taxes of a PFIC

by Kimberly S. Blanchard
Kimberly S. Blanchard ofweil, Gotshal & Mangeswrites that the passive foreign investment company rules often operate at oddswith the rest of the tax code, highlighting issues that arise on the taxation of "excess distributions."
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Treasury Could Modify E&P Exception to Debt-Equity Rules

by Alison Bennett
The government is taking another look at the exception for earnings and profits under controversial earnings-stripping rules, Treasury Deputy International Tax Counsel Douglas Poms said.
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International Tax News Edition 40 June 2016

  • 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:
  • Changes to Brazil's capital gains tax rates
  • The US Treasury's proposed Section 385 regulations on related party financing
  • The French Supreme Court's final decision on remuneration of cash funding from a branch to its head office
  • The UK Court of Appeal upholds High Court decision regarding taxation of foreign portfolio dividends
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The key to stopping inversions is tax reform, not political rhetoric

Politicians continue to rail against corporate inversions at every opportunity. Presidential candidates repeatedly have called for a government crackdown to prevent businesses from moving overseas. Unfortunately, most of their populist rhetoric misses the mark.

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Proposed Section 385 Regulations and S Corporations: Borrower Beware!

by Horacio Sobol & Sam Starr
PwC's Horacio Sobol and Sam Starr of Bloomberg BNA look at the effects proposed tax code Section 385 regulations (REG-135734-15) could have on S corporations if they are finalized. The authorswrite that "if S corporation owners and practitioners aren't careful, they may find S corporation status has terminated due to debt being recharacterized into a second class of stock."
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The Increasing Relevance of Transfer Pricing in M&A

by Patrick Tijhuis and Marcel van den Heuvel
The authors address the transformation of tax laws and regulations currently taking place under the OECD/G-20 initiative to combat tax avoidance, base erosion and profit shifting, and how it impacts the capital structure, strategic goals and priorities of an M&A transaction.
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Section 367 Adrift: Old Statute, New Applications, Part 2

by Peter M. Daub

The first partof this two-part report showed that, beginningwith its original enactment in 1932 and through the 1980s,when the statute effectively took its current form, Congress, the courts, and the IRS understood section 367 to apply onlywhen the unmodified application of a subchapter C provision specified in section 367 to a cross-border or foreign-to-foreign transactionwould thwart a basic tax policy or provision other than one reflected in a specified provision.This part of the report shows how the IRS has began to pursue other goals such as subjecting to U.S. income tax funds or other property transferred from a foreign subsidiary to its U.S. parent, even if the property does not represent income or gain in any conventional sense, and expanding the reach of U.S. taxing jurisdiction over income earned by foreign subsidiaries that has not been repatriated.

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EU Competition Arm to Stick to OECD Transfer Pricing Guidelines

by Stephanie Soong Johnston
Despite concerns that the European Commissionwants to reinvent the OECD's transfer pricing guidelines, EU Competition Commissioner Margrethe Vestager recently reassured the OECD that the EUwill continue to follow the guidelines.
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In Transfer Pricing, Control' Defined By Power, Not Ownership

Bloomberg
by Doloresw. Gregory
The definition of "control" in federal transfer pricing regulations doesn't turn on ownership, but onwhether any one individual or party can "move or influence" a related entity, the IRS said in recent internal guidance.
In training materials for IRS examinersÔøΩISI/9422.09_02(2013)ÔøΩthe agency set out the fundamental requirements of tax code Section 482.
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Proposal for a New Institutional Framework for Mandatory Dispute Resolution

by Jeffrey Owens, Arno E. Gildemeister, and Laura Turcan
Jeffrey Owens, Arno E. Gildemeister, and Laura Turcan propose a new provision based on article 25 (alternative B) of the U.N. model double taxation convention that contains several amendments and additions, such as proposed alternative dispute resolution and mandatory dispute settlement clauses.
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Video: Exclusive interview with Pascal Saint-Amans (1)

Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD, sat downwith International Tax Review reporter Amelia Schwanke to discuss the most prominent topics in tax because although "tax isn't fun, it's absolutely fundamental if youwant to have services to the population".

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EU Financial-Transaction Tax Push May Soon Grind to a Halt

The European Union's plan to implement a financial-transaction tax may be called off soon if more countries back out, Austrian Finance Minister Hans Joerg Schelling said.

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