2016

Corporate inversions, the recently controversial corporate tax maneuver inwhich a U.S.-based multinational group restructures itself so that the U.S. parent of the group is replaced by a foreign corporation ÔøΩ typically in a low-tax jurisdiction ÔøΩ allow companies to reduce their overall level ofworldwide taxation.
A company that inverts continues to pay the U.S. corporate rate on profits earned through U.S. operations, and foreign profits brought back to the U.S.will get taxed by the U.S. However, the profits earned abroad escape being taxed by the U.S.
For the Accounting Today story, go here.

Houseways and Means Committee Chairman Kevin Brady (R-Texas) hosted a hearing last monthexploring how to reform the U.S. corporate tax system. The country's tax rate of 35 percent, the highest in the developedworld, and its unique application to foreign profits put U.S. companies at a competitive disadvantagewith their foreign competitors.
For The Hill story, go here.

The Hong Kong Government recently gazetted a Billwhich introduces a concessionary profits tax rate for qualifying corporate treasury centres (qualifying CTCs), new rules to deem certain interest income and other gains as Hong Kong-sourced and amendments to the existing interest deduction provisions to enable a deduction for interest on certain intra-group lending transactions.
For the ITR story, go here.

Advocacy groups including ActionAid, Christian Aid, Oxfam International and the Tax Justice Network said public reporting of large multinational companies' information about assets, earnings and tax burdens for each country of operation "is a must" for combating tax avoidance.
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Luxembourg's leading banking and business groups called corporate tax proposals announced earlier in theweek "poisonous" to foreign investment and called for the government to rethink the proposal to avoid damaging the economy.
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The challenges of the base erosion and profit-shifting project feel much larger and more immediate than the opportunities, Theodore Setzer, IRS assistant deputy commissioner (international), said March 3 at the Pacific Rim Tax Institute in Redwood City, California.
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The OECD's project to combat base erosion is in a "fragile state" in Congress, and faces potentially lethal pushback, a University of Southern California law professor said.

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Following the financial crisis and ensuing austerity, politicians discovered the problem of tax avoidance. In response, the OECD and G20 launched the Base Erosion and Profit Shifting (BEPS) project in 2013, and this has in October, 2015 culminatedwith the release of a series of action steps that the OECD and G20 countries have undertaken to adopt. OECD Secretary-General Angel Gurria has stated that "Base erosion and profit shifting affects all countries, not only economically, but also as a matter of trust. BEPS is depriving countries of precious resources to jump-start growth, tackle the effects of the global economic crisis and create more and better opportunities for all. But beyond this, BEPS has been also eroding the trust of citizens in the fairness of tax systemsworldwide. The measures the authors are presenting represent the most fundamental changes to international tax rules in almost a century: theywill put an end to double non-taxation, facilitate a better alignment of taxationwith economic activity and value creation, andwhen fully implemented, these measureswill render BEPS-inspired tax planning structures ineffective".

For the paper, go here.

On 1-3 March 2016, the OECD hosted two important events for the international tax community. The Task Force on Tax and Development and the Global Forum on Transfer Pricing gathered over 230 participants representing 84 jurisdictions and 11 international and regional organisations.

For the OECD release, go here.

The U.S. expects to finalize its rules on country-by-country reporting by June 30, Treasury Deputy Assistant Secretary for International Tax Affairs Robert Stack told Bloomberg BNA, adding that he hopes other countrieswill be flexible about the effective date of their own rules.
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The Treasury Department expects to issue final regulations requiring country-by-country reporting by June 30, in time to apply to tax years beginning in the second half of 2016, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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Allowing taxpayers to provide amounts in their country-by-country reports that can't be reconciledwith those reported in their financial statements or tax returnswould undermine the IRS's ability to effectively use the information, according to a group monitoring the OECD's base erosion and profit-shifting action plan.
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The New Zealand Government passed awide-ranging taxation Bill on February 24 2016,which includes measures that clarify GST and R&D tax rules for companies.

For the ITR story, go here.

Congress can take steps now to stop corporate inversionswhile itworks on a more permanent solution, Council of Economic Advisers Chair Jason Furman told Joint Economic Committee members March 2.
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One of the most beneficial stepswe can take to grow our economy is to reform our broken, outdated tax code.
International tax reform is an important part of this overhaul to make the United States a more competitive place to invest and create jobs.
For the York News-Times op-ed, go here.

The Group of 20 finance ministers has endorsed the OECD's new framework thatwould allow all interested countries and jurisdictions to join in implementing the final recommendations of its BEPS project.
For the DTR story, go here. (subscription required.)

Ken Brewer exploreswhether an anti-inversion measure recently announced by Treasury and the IRS could be invalidated under the non-delegation doctrine or the presumption against extraterritorial effect.
For the Tax Notes article, go here. (subscription required)

The IRS has issued Rev. Rul. 2016-8, 2016-11 IRB 1, removing the previously applicable restrictions under sections 901(j) and 952(a)(5) that denied a foreign tax credit for income taxes paid to Cuba and disallowed deferral on income earned in Cuba through a controlled foreign corporation.

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The U.S. may opt out of new standards for permanent establishment from the OECD regardless of how this year's debate on applying the new standards plays out, a U.S. official said.
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The European Union's competition chief sought to dispel "misunderstandings" and rebut U.S. claims that her clampdown on preferential tax deals unfairly targets American companies as regulators prepare to rule on Apple Inc.'s fiscal pactwith Ireland.
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Requiring member states to recover unlawful aid given to multinational enterprises in the form of favorable transfer pricing treatment is intended to remove economic distortion rather than to penalize the affected companies, EU Competition Commissioner Margrethe Vestager argued in a February 29 letter to Treasury Secretary Jacob Lew.
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G-20 finance ministers on February 27 endorsed the OECD's proposal for an inclusive framework for all other countries and jurisdictions towork on base erosion and profit-shifting project implementation on an equal footingwith OECD and G-20 countries.
For thewWTD story, go here. (subscription required)

States considering tax haven legislation to address the taxation of foreign-source income are headed in awrong -- and possibly unconstitutional -- direction, according to a March 1 report from the research foundation of the Council On State Taxation.
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Ajay Gupta examines the allegations of political motivation against the European Commission's state aid investigations into the transfer pricing agreements reached by U.S. multinational enterpriseswith tax authorities in several member states.
For the TNI News Analysis, go here. (subscription required)

The Netherlands,which holds the rotating European Union presidency, insisted itwill push to get an agreement by the end of June on the recently proposed Anti-Tax Avoidance Directive (ATAD), but in order to do so itwon't oppose splitting the legislation in two.

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Lowell D. Yoder of McDermottwill & Emery examines revised temporary regulations (T.D. 9733) that expand the tax code Section 956 indirect investment rule. The revised rules "require taxpayers to evaluatewhether any transfer of funds made by a CFC to a related foreign corporation that holds an investment in U.S. property might be subject to the indirect investment rule," hewrites.

For the BNA Insight, go here. (subscription required)

The Brookings Institute has a briefing paper out on the financial transactions tax ideas floating around. And sadly,while much of the paper is entirely reasonable, they manage to miss the most important point about an FTT.which is thatwhilewewill all be able to see the revenues that come from the taxwewon't be able to see the fall in revenues that come from our having a smaller economy as a result of the tax.
For the Forbes article, go here.

Margrethe Vestager, the EU's powerful competition chief, has rebuffed claims fromwashington that a series of tax probes she has launched into multinationals such as Apple and McDonald's amount to unfair discrimination against US companies.

Ms Vestager haswritten to Jack Lew, the US Treasury secretary, saying the probes "aim at a proper, non-discriminative, application of tax laws in Europe" and are "based on firm legal ground".
For the Financial Times story, go here.

Some multinational companies operating in Belgium are considering shifting part of their business out of the country after the European Union declared a government tax discount illegal and is requiring the companies to pay back hundreds of millions of euros in unpaid taxes.

The European Commission, the bloc's antitrustwatchdog, in January ordered Belgium to recoup about 700 million euros ($765 million) from some 35 companies after concluding that a Belgian tax-discount plan for multinationalswas distorting competitionwithin the EU's single market.

Butwith the program overturned, some companies are consideringwhether to transfer part of their operations out of Belgium.
For thewall Street Journal story, go here.

Despite the U.S. failure to serve as a model for taxation of multinationals in recent years, it is providing a model for taxation of financial transactions.
For the Tax Notes article, go here. (subscription required)

Action 7of the OECD's base erosion and profit-shifting project has broadened the rules for defining a permanent establishment to make it easier for countries to determinewhether a PE exists, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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The recently updated U.S. model income tax conventionwas drafted to conform more closely to the OECD model treaty but does not introduce any type of primary purpose test, according to Treasury International Tax Counsel Danielle Rolfes.

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The U.S.would halt the exchange of country-by-country information to a jurisdiction that makes the reports public, a top Treasury official said.
"There is no circumstance inwhich the U.S. CBC information that's given by the IRS can be made public as a general matter, or as a matter of compliancewith some other legislative rule," said Robert Stack, deputy assistant secretary for international tax affairs at Treasury. "If they take IRS information and make it public,wewill stop sending it, because it violates our treaties."
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In discussions about changing the U.S. tax system, one topic almost always arises: the possibility of adopting a value-added tax.
After all, most of the industrializedworld uses a VATÔøΩwhich is not to say they all like it.
For thewall Street Journal article, go here.

Multinational companies that don't provide adequate information to subsidiaries for mandatory country-by-country tax and profit reporting to tax authoritieswould face subsequent transfer pricing probes, under a proposal to be considered by EU finance ministerswhen they meet March 8.

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U.S. corporations doing business overseaswere able to take a big chunk out of their income taxes in 2011ÔøΩmore than 41 percentÔøΩby claiming the foreign tax credit, the IRS said.
The data comes at a timewhen controversy continues to percolate on Capitol Hill surrounding tax breaks for U.S. multinationals.
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In Finland, any new interpretations of the OECD transfer pricing guidance issued under the organization's project to combat tax base erosion and profit shiftingwill need to adhere to existing law, the country's tax administration said.

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The Treasury Department should rework its anti-inversion rules to require a foreign acquirer to conduct substantial business activities in the countrywhere it is a tax resident, rather thanwhere it is organized, the New York State Bar Association Tax Section said.

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The U.S. business community has lost the global public relations battle on international tax planningÔøΩand should considerwhether a proposed global minimum taxwould be better for their interests than continuingwith the status quo, a top Treasury Department official said.

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The OECD is actively looking at three provisions in the newly released U.S. model treatyÔøΩincluding those on special tax regimes, limitations on benefits, and an anti-abuse provision involving permanent establishmentÔøΩas talks go forward on its own model treaty and a multilateral instrument, a top official told Bloomberg BNA.
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The Treasury Department doesn't plan to renegotiate tax treaties currently before the Senate even though it recently published a new model treaty, a top official said.
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U.S. multinationals are losing the public debate on international tax reform by continuing to play games and shift income between low-tax jurisdictions, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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A senior Treasury official on February 25 remained noncommittal regarding a recently published proposal inTax Notescalling on Treasury to expand the anti-hopscotch rule enunciated in 2014's anti-inversion guidance beyond the inversion context.
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Amid questions aboutwhy the IRSwaited nearly two decades to release guidance under section 721(c) on cross-border partnership transfers, an IRS official on February 25 cited an unlikely source as providing the necessary "momentum" to issue the new notice announcing the coming regs: 2014's anti-inversion notice.
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As other countries gear up to protect their tax bases, U.S. taxpayerswith foreign income need to seriously considerwhat may happen to their foreign tax credits, according to Bretwells, a professor in international tax at the University of Houston Law Center.
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The Senate's top Democratic taxwriter on February 25 announced that he isworking on an international tax reform package, offering it in explicit contrast to Republican visions of reform for attendees of an Urban-Brookings Tax Policy Center conference inwashington.
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