2016

by PwC

The Israel Tax Authority (ITA) on April 11, 2016, published Circular 4/2016 (the Circular),which addresses taxation of foreign companies that operate in Israel through e-commerce and online services (also known as the 'digital economy').

For the PwC Insight, gohere.

Now that corporate integration is back on Congress's agenda, this paper makes the case forwhy corporate integration is an important component of tax reform. It also outlines twoways to integrate the individual and corporate tax codes and discusses the opportunities and challenges presented by each.

For the Tax Foundation article, go here.

This Article focuses on a single organizing question, namely how should a dividend paid deduction regime be designed so that it achieves acceptable international tax outcomes. By focusing on the international tax implications attendantwith a dividend paid deduction regime, the author is not attempting to minimize the broader benefits of achieving shareholder-corporate integration. The dividend paid deduction proposal, as to distributed earnings,would equate the tax treatment of debt and equity, and in so doing itwould reduce distortions that current law createswith respect to debt and equity in the corporate context. Furthermore, recent economicworks suggest that the incidence of the corporate income tax burden is partially shifted to labor and away from shareholderswhereas a properly designed integration proposal puts the incidence of business taxation squarely on shareholders. Furthermore, shareholder-corporate integration for C corporations harmonizes the divergent tax treatment that currently exists between C corporations and pass-through entities. Thus, a corporate integration proposal provides a broad spectrum of potential benefits, and so not surprisingly significant scholarship has been dedicated towards how to best achieve shareholder-corporate integration. But, in today's era, the overwhelming tax policy problem that must be solved rests on finding a solution to the systemic international tax challenges that face the country, and so that iswhere this Articlewill focus.

For the paper, go here.

Lowell Yoder of McDermottwill & Emery examines the "substantial assistance" rules that can require a controlled foreign corporation's services income to be treated as Subpart F income. The best reading of Notice 2007-13 is that "only costs of assistance furnished by U.S. related persons that directly assists the CFC in performing the contracted-for services should be taken into account as assistance"when applying the 80-percent-cost test, hewrites.

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A senior Treasury Department official in charge of international tax policy is seeing a greater role being played by the Group of 20 finance ministers in setting the agenda for tax laws around theworld.

For the Accounting Today story, go here.

In the seventh in a series of articles on intangibles and finance, Tom Braukmann, Philip de Homont and Alexander Voegele, NERA Frankfurt, show how to implement a profit split system.

Bermudawill exchange country-by-country tax reportswith other countries beginning in 2017, after signing a multilateral information-sharing agreementwith the OECD.

Houseways and Means Committee Chairman Kevin Brady (R-Texas) seems to have one answerwhen asked about the prospects for an international tax draft this year.

"To be determined," Brady said April 20 as he emerged from a meetingwith Republican committee members. Brady had the same answerwhen askedwhether a revised patent box is part of the mix.

Proposed rules intended to curb companies' "stripping" of income out of the U.S. through tax-favored loan transactions from foreign companies to U.S. subsidiarieswill have an "intense" comment period, a Treasury Department official said.

The European Commission has developed a proposal for a directivewhich, if approved by the European Parliament and Council of Ministers,will require public country-by-country reporting (CbCR) of tax and other financial data by large companies in the European Union (EU). The proposed directivewill amend the existing EU Accounting Directive.

The OECD's action plan for an international project to combat tax base erosion and profit shiftingwill fuel the "growth business" of mutual agreement procedures between tax authorities, practitioners said.

Whether the tax authoritieswill have the resources to keep upwith the growth, however, remains uncertain at best, they told those attending a tax conference in New York on April 19.

The U.S. Treasury has yet to receive comments addressing the revised "active trade or business test" under the 2016 U.S. Model Tax Convention's limitation-on-benefits test, a Treasury official said.

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Despite their concurrent release on April 4, Treasury's new anti-inversion rules may not necessarily be finalized simultaneouslywith its debt-to-equity reclassification rules, a Treasury official said April 19.

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Practitionerswrestlingwith new proposed regulations thatwould recharacterize some related-party debt as equity for federal tax purposes questioned Treasury officials April 19, focusing in large part on the transaction rules that have potential application to debt instruments issued today.

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In news analysis, Lee A. Sheppard analyzes recent comments by Robert Stack, Treasury deputy assistant secretary (international tax affairs), regarding the new section 385 regulations and state aid procedures.

The OECD's action plan for an international project to combat tax base erosion and profit shiftingwill fuel the "growth business" of mutual agreement procedures between tax authorities, practitioners said.

Whether the tax authoritieswill have the resources to keep upwith the growth, however, remains uncertain at best, they told those attending a tax conference in New York on April 19.

Tax practitioners seeking to understand the direction of international tax policy should carefully parse communications from the Group of 20 finance ministers, including itsApril 15 missivedescribing the continuation of the global recovery, a Treasury Department official said.

Deputy Assistant Secretary for International Tax Affairs Robert Stack said April 19 thatwhile the communiquesÔøΩissued four times a year after the G-20 finance ministers meetÔøΩcontain "a lot of inside baseball," they are also "very predictive ofwhere things are going."

With its headline corporate tax rate of 12.5 percent, a generous research and development credit, a new knowledge development box and robust protection of intellectual property rights, Ireland has much to offer as a location for holding intellectual property.

The governmentwon't recharacterize transactions immediately under controversial new regulations designed to stop companies from "stripping" income out of the U.S., a Treasury Department official said.

Millions of families are filing their 1040s this extended Tax Day, and,while the entire tax code certainly needs reform, there's an especially pressing tax problem that affects nearly all Americans.
The problem is that our corporate tax system puts American businesses at a competitive disadvantage against the rest of theworld, suppressing U.S. capital investment, economic growth, and reducing jobs andwages. The money U.S. companies earn from their foreign operations is "stranded" overseas rather than being deployed at home for new factories, research, and hiring. To access those profits and to compete on a level playing fieldwith foreign companies some U.S. firms have turned to a process known as inversion, mergingwith companies based abroad and moving headquarters to a foreign country.
For the Real Clear Markets story, go here.

Multinational corporations operatingworldwide businesses managed from their U.S. offices may have inadvertently created a partnership for U.S. tax purposes in connectionwith their profit-shifting strategies.when this happens, foreign group members treated by the IRS as partnerswill be engaged in a trade or business in the United States,which is the threshold test for application of the effectively connected income rules. Kadet and Koontz argue that affected multinationals and their auditors should reexamine existing tax structures to determine if they canwithstand an assertion by the IRS that the arrangement constitutes a partnership and therefore results in taxable ECI.
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In this report,webber explains the Fama-French model and assesseswhether that model is appropriate for determining a cost-sharing agreement's discount rate.
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A group of 18 former US Treasury Department officials today sent a letter to Treasury Secretary Jacob Lew, urging the government to reconsider recently issued tax regulations aimed at stopping US companies from inverting.
For the MNE Tax story, go here.

The government should drop controversial guidance to curb corporate inversions and push for tax overhaul instead, 18 former Treasury Department officials urged Treasury Secretary Jacob J. Lew.
Calling the regulations "a route that bypasses the legislative process" in atax day letter, the officials said the guidancewon't fix the problem of U.S. companies changing their tax residence to lower their tax bills, and "will likely make mattersworse."
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Lawmakers from both the European Parliament and the legislatures of European Union member states backed a raft of new tax legislation designed to implement the OECD's recommendations under its project to combat tax base erosion and profit shifting, but insisted the U.S. also must adopt the measures.
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Companies should prepare for public country-by-country reportingÔøΩat least in Europe, according to practitioners.

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A cadre of former Treasury officials, mostly from previous Republican administrations going back more than 40 years, is urging Secretary Jacob Lew to reconsider Treasury's recent anti-inversion guidance and instead pursue international tax reform.
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Ajay Gupta finds parallels between the United Kingdom's Google tax and Puerto Rico'swal-Mart tax, and suggests that the invalidation of the latter may bode ill for the former.
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Popular anger against an unfair or opaque tax system is fueling the growth of politicalwill,which could lead to the creation of a new tax haven blacklist, according to Stephen Quest, director general of the European Commission's Directorate-General for Taxation and Customs Union.
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The IMF, theworld Bank, the OECD, and the United Nationswill announce details of their joint tax collaboration platform on April 19, among the goals ofwhich is helping developing countries build their tax administration capacity.
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Controversial inversions guidance may already be affecting tax planning for companies in the U.S. and around theworld, and it's raising huge concerns as the regulations hurtle toward possible finalization by summer's end.

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David Haworth and Helen Mackey of Freshfields Bruckhaus Deringer consider theways inwhich the European Union influences U.K. tax policy andwhat the impact of the U.K. leaving the EU might be.
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The blueprint of a comprehensive tax overhaul planwill likely be ready by June after a tax task force appointed by House Speaker Paul D. Ryan (R-Wis.) looks at a range of ideas, the Houseways and Means chairman said.

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Like the folkswho arrive at the theater 10 minutes after the movie starts, newcomers to the debate about earnings stripping arewonderingwhat they missed. Treasury is cracking down hard on inversions. It is cutting tax benefits for U.S. businesses that mergewith smaller foreign firms and move their legal residences out of the United States.
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The Treasury Department's aggressive rules to curb corporate inversions could affect tax overhaul plans taking shape in tax-writing committees in Congress.

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In news analysis, Lee A. Sheppard breaks down the April 4 proposed regulations under section 385 designed to combat earnings stripping and deter inversions.
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In this article, Pauls and Schoen analyze proposed regulations intended to address Treasury and IRS concerns about indebtedness between related entitieswithin a larger corporate group and that apply regardless ofwhether the parties are domestic or foreign.
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In this article, Hariton addresses the broad scope of the new proposed earnings-stripping regulations, in light of their placement under section 385.
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High-net-worth individuals and multinational companies are not entirely to blame for the evolution of complex tax evasion schemes, according to Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration. He said governments are also accountable for failing to update their tax laws.
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Mindy Herzfeld reviews U.S. Treasury's recently issued proposed regulations to limit earnings stripping, notes how they are inconsistentwith the U.S. support of BEPS action 14, and discusses the challenges they pose for partnerships and corporations.
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Thewidespread adoption and quick implementation of both the OECD's base erosion and profit-shifting project recommendations and the automatic exchange standards set by the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes are high on the list of G-20 priorities, according to Lou Jiwei, China's finance minister.
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Jenny Elliott, Clementine Thompson, Kathryn O'Brien, and Elizabeth A. Sweigart of PwC discuss how the OECD's final base erosion and profit-shifting report on transfer pricing documentation and country-by-country reportingwill affect how multinational enterprises handle intercompany agreements.
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Alain Lamassoure, chair of the European Parliament's TAXE II special committee on tax rulings, expressed optimism that therewill be an agreement on a common consolidated corporate tax base by the end of the year.
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News broke this month of an unprecedented data leak: Some 11.5 million documents containing detailed, confidential information about more than 200,000 offshore companies involvedwithMossack Fonseca, a Panamanian law firm, had fallen into the hands of theInternational Consortium of Investigative Journalistsvia an anonymous informant. Collectively known as the Panama Papers, the files revealed just howwidespread the abuse of offshoretaxhavens is among theworld's elite politicians and business people. Still, myths persist about the supposed benefits of offshoretaxhavens, both for the countries that stashwealth there and for the havens themselves.
For thewashington Post article, go here.

Negotiators are pushing aheadwith tax reform talks in hopes of reaching a deal by the end of the year even though Senate Majority Leader Mitch McConnell (R-Ky.) has made clear he's opposed to the effort.
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President Barack Obama's proposed rules to stop U.S. companies from reincorporating abroad, if only on paper, to avoid U.S. income taxes appear to overstep legal authority, a top Republican lawmaker said on Friday.

For the Reuters story, go here.

The Swiss National Council on March 16-17, 2016, confirmed the Swiss Corporate Tax Reform III (CTR III) package aswell as changes to the proposals presented by the Economic Committee of the National Council (Committee) in February 2016.

CTR IIIwould abolish some currently existing tax regimes, such as the rules for holding or mixed companies).

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The international community has made Panama a scapegoat for thewrongdoing revealed in the Panama Papers, Ivan Zarak, Panama's deputy minister of economy, said during a panel inwashington on April 14.

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