2016

We don't often agreewith President Obama's chief economist, Jason Furman, but he got it exactly rightwhen he noted earlier this month that the U.S. treatment of international business income is a "stupid territorialtaxsystem."
His point is simple. On paper, the U.S. has aworld-widetaxsystem that imposes two layers oftaxon overseas business income -- an initial foreigntaxwhen the money is earned and a second U.S.taxwhen the money is repatriated. In practice, however, companies actively avoid the U.S.taxby various means, including inversions (moving their headquarters abroad by mergingwith foreign corporations), shifting profits to foreign subsidiaries, and hoarding the cash overseas. The result is, in effect, a territorial system, but one that produces less revenue for theU.S. Treasuryand less growth for the U.S. economy.
For thewall Street Journal article, go here.

A robustworkforce and ample investment are the main ingredients of a growing economy. But the alchemy that produces truly booming economies often lies in technological breakthroughs. To foster these leaps in innovation, nations (the United States included) provide funding for basic research patent protections and tax incentives. Innovation or patent "boxes" are a growing feature of many nations' research support policies that attract research-intensive investment. Patent boxes offer preferential tax treatment of income derived from intellectual property, often patent-related income.
For the American Action Forum story, go here.

Developing countrieswill be invited by G20 governments to join talks aimed at stopping multinationals dodge taxes in a bid to defuse tensions over their limited role in global tax reform.

Finance ministers meeting in Shanghai later thisweek are expected to endorse proposals to open up talks on stopping "base erosion and profit shifting" (BEPS) to all countrieswilling to implement them.

For the Financial Times story, go here.

Separate but parallel plans to establish a more territorial tax system for U.S. companies' overseas profits and end double taxes on corporations are advancing, according to their chief champions in Congress.
Both plans should lessen pressures pushing businesses to relocate abroad for tax purposes, Houseways and Means Committee Chairman Kevin Brady (R-Texas) and Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said.
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Philip Morrison of McDermottwill & Emerywrites that the European Commission's state aid cases against U.S. multinational enterprises have potential implications for some of the standard structures used by U.S. MNEs in Europe. He says the Commission's rulings are as much a political attack as a legal one.
For the BNA Insight, go here. (subscription required)

Proposals to cut taxes on intellectual property could cost as much as $236 billion or as little as $5 billion over a decade, according to an analysis from the American Action Forum.
The range reflects differences inwhat may be considered intellectual property for the purposes of the lower tax rate, aswell aswhether the changewould happen as part of a broad reshaping of the U.S. tax code.
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Astudy by advocacy groupsTransnational Institute and Global Justice Now says a free trade deal proposed between the European Union and U.S.would hamper efforts to fight tax evasion by making it easier for corporations to challenge tax rulings before investor-state dispute settlement (ISDS) tribunals.
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An international tax reform draft from a Houseways and Means subcommittee should be ready by the end of March, the subcommittee's chair said February 24.
"For international,we are hoping to get something done this first quarter,"ways and Means Tax Policy Subcommittee Chair Charlesw. Boustany Jr., R-La., told reporters after a full committee hearing on international tax reform. "Iwant to have a bill; that'swhat the chairmanwants me to do."
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Senate Finance Committee Chair Orrin G. Hatch, R-Utah, said February 24 that his corporate integration plan and the Houseways and Means Committee's efforts on international tax reform could complement each other.
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In this article, Brewer and Antoon discuss recently proposed regulations under section 367 thatwould dramatically change the treatment of goodwill and going concern value transferred by a U.S. person to a foreign corporation.
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Taxpayers, tax advisers and politicos alike are eagerly awaiting India's 2016 Budget,whichwill be released on Monday [February 29].will BEPS be covered, andwhich Action Pointswill feature?will there be an update on GST?what other indirect tax changes might there be?
For the ITR story, go here.

Wielding a new brand of aggressive investigations, the European Commission is unduly targeting U.S. businesses to fill the budget holes of European Union countries.
For the CNBC story, go here.

Thewords 'International regulatory tax framework harmonisation' are unlikely to spark the interest of most readers – andwriters – at first sight. Few enjoy exploring the patchwork of international tax arrangements,when filling out tax returns alone can leave themquestioning the sanity of the bureaucracies that created them.Evenworse are agreements coated in layers of jargon so thick that you'd need a tax lawyerwith a pickaxe to decipher them. Therefore it is not surprising that their importance to the global economy is difficult to quantify.

For the MCGill International Review article, go here.

Between the presidential election and a gridlocked political environment on Capitol Hill, it's "probably unlikely" that lawmakerswill be able to pass an international tax overhaul bill this year, but Congress can still make progress, a top House taxwriter said.

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A bill thatwould limit how some corporations use earnings stripping as a tax avoidance strategywas introduced February 23 by Houseways and Means Committee ranking minority member Sander M. Levin, D-Mich.
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Value-added taxes across the European Union should be simplified and made less burdensome for companies and households, EU Economic Affairs and Tax Commissioner Pierre Moscovici said.
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The OECD has agreed to a new framework thatwould allow all interested countries and jurisdictions to join in implementing the final recommendations of its project to combat base erosion and profit shifting.

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Patrick Driessen is a former revenue estimator for the Joint Committee on Taxation and the Treasury Department.
In this article, Driessen praises the OECD for beginning to comprehensively measure base erosion and profit shifting. The OECD's finding that there is abundant global evidence that foreign-controlled companies shift profits out of high-tax nations contrastswith the inconclusiveness of U.S. government research onwhether earnings stripping generally happens here. Resolving the question of how much U.S. base erosion occurs should inform how the United States approaches international tax reform.
For the Tax Notes Viewpoint, go here. (subscription required)

A familiar face is expected at the Feb. 24 Houseways and Means Committee hearing on international taxesÔøΩBarbara Angus, the panel's new chief tax counselÔøΩwho should have the chairman's ear throughout the proceedings.
That private dialogue on the daiswith Rep. Kevin Brady (R-Texas)will differ from the last timeways and Means held an international tax hearing,when Angus sat at thewitness table Dec. 1.
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In a February 23 report (JCX-8-16) prepared for a Houseways and Means Committee hearing on international tax reform, the Joint Committee on Taxation described current law, policy issues, and recent global activity regarding cross-border taxation.
The JCT summarized principles behind the international tax system and current law regarding inbound and outbound taxation, taxation of nonresident aliens and foreign corporations, and taxation of U.S. taxpayers' foreign activities.
For the JCT report, go here.

The OECD unveiled an inclusive framework inviting all countries and jurisdictions towork on base erosion and profit-shifting project implementation on an equal footingwith OECD and G-20 countries, a proposal that is "quite striking," tax chief Pascal Saint-Amans told Tax Analysts.
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Two top House Democrats introduced legislation Tuesday afternoon to limit one of the main tax benefits for U.S. companies that reincorporate in foreign countries.
For The Hill story, go here.

The chairman of a House tax-policy panel said Tuesday that international tax reform is not likely to be enacted this year.
"It's probably unlikely given the short timelinewe've got, given the occupant in thewhite House, and also dealingwith the Senate," said Rep. Charles Boustany (R-La.), the chairman of the Houseways and Means Committee's tax policy subcommittee.
For The Hill story, go here.

Oscar Grisales-Racini is a partnerwith Grisales-Racini Shefer LLP, an international tax boutique law firm in Miami.
In this report, Grisales-Racini describes the misunderstanding of section 7874(b) and its application to corporate inversions and the 1980 Foreign Investment in Real Property Tax Act.
For the Tax Notes special report, go here. (subscription required)

Multinational companies investing in Australia that don't meet their full tax liability on domestic earnings could be forced to sell their Australian assets under a new plan announced by Treasurer Scott Morrison.
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Global tax rules need to be significantly revised to address a global economywhere more of the value comes from services and intellectual property, not "fields and factories," IMF Managing Director Christine Lagarde said.

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Bermudawon't bow to international pressure to introduce a corporate income tax, but iswatching how the U.S. implements country-by-country reporting before taking action, Finance Minister Everard Richards confirmed in his 2016-17 budget presentation to parliament.

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Even as it overrules tax rulings on transfer pricing in European Union countries, a European Commission official said the executive body isn't looking to become the "fiscal super-authority" for the continent.

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In determiningwhen to use a residual profit split method for evaluatingwhether a related-party transaction is priced at arm's length, IRS agents should notewhether both parties have made "significant" nonroutine contributions to the deal, the Large Business and International Division advised in new internal guidance.
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There's nothing revolutionary about the EU's state aid rules and the companies receiving adverse tax rulings should have known they had been getting favorable treatment, said Karl Soukup, director of the European Commission's Directorate General Competition,who faced intense criticism from Treasury official Robert Stack at an event February 22.
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Ajay Gupta considerswhether the U.K. diverted profits tax may have affected the tax settlement between U.K. tax authorities and Google, and examines the prospects and implications of a state aid inquiry into that agreement.
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While the base erosion and profit-shifting project has been good news for countries seeking to protect their national tax bases, the OECD's measures do not fully address the specific needs of developing countries, IMF Managing Director Christine Lagarde said in a February 22 speech to the Arab Fiscal Forum in Abu Dhabi.
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Two House Democrats plan to introduce a billon Tuesdaythatwould seek to curtail a strategy used by former American companies to cut their United Statestaxbills.
The measure takes aim at so-called corporate inversions,where American companies move their headquarters overseas through a merger to save on taxes at home. The biggest such deal isPfizer's planned $150 billion mergerwithAllergan.
For the New York Times story, go here.

The OECD today agreed a new framework thatwould allow all interested countries and jurisdictions to join in efforts to update international tax rules for the 21st Century. The proposal for broadening participation in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Projectwill be presented to G20 Finance Ministers at their next meeting on 26-27 February in Shanghai, China.
For the OECD release, go here.

The new U.S. model tax treaty may face an uncertain reception in other countries, practitioners said, despite Treasury'swork to narrow some of its anti-tax evasion provisions inwayswelcomed by the business community.
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Houseways and Means Committee Chair Kevin Brady, R-Texas, talked up the idea of international tax reform in 2016 forweeks after taking charge of the committee, but the biggest reassurance camewith the announcement that former Treasury International Tax Counsel Barbara Anguswould be the committee's new chief tax counsel.
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The Treasury Department released its long-awaited 2016 model income tax treaty,with provisions intended to curb the shifting of businesses and income around the globe to avoid taxes.
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European Tax Commissioner Pierre Moscovici urged European Parliament members to lobby their finance ministers to halt a German-led move to split apart his anti-tax avoidance proposal.

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Treasury has revised the U.S. model income tax conventionwith broad, sweeping revisions to provisions such as the limitation on benefits test, aswell as numerous small technical changes.
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House Republicans are talking about biting off a piece of a tax code overhaul this year, seeking changes in how U.S. companies' overseas profits are taxed as a first step toward a more ambitious bill next year.
The biggest U.S. companies may not be on board.
For thewall Street Journal Story, go here.

I recently attended the Capital Matters conference, presented by the Tax Council Policy Institute inwashington. The 2016 conference focused on how taxes influence the global creation, deployment, and mobility of capital. Thiswas my second year attending the conference,which showcases the best thinking of influential tax professionals and business leaders. And both years offered a glimpse into how the corporateworld views the taxworld.what a view!
For the Forbes story, go here.

The OECD recently released its final recommendations for a multi-step plan (sponsored by the G-20 governments) to reshape international tax rules. To the extent these recommendations are adopted by individual countries, the OECD's base erosion and profit shifting (BEPS) project, including its country-by-country (CbC) reporting requirements, likelywill spur the most significant changes in the tax treatment of multinational companies since the Tax Reform Act of 1986. These proposalswill require industrial products and services MNCs to reconsiderwhere to invest and how to structure their global business operations.
For the PwC Insight, go here.

New House legislation to limit earnings strippingwill follow a few familiar themes on interest deductibility, much like a number of bills and proposals offered in the past year or two.
Thenew measure, coming from Houseways and Means Committee ranking member Sander M. Levin (D-Mich.),would get rid of an existing debt-to-equity ratio ceiling of 1.5-to-1 and cut the allowable net interest expense to 25 percent from 50 percent of an entity's adjusted taxable income, according to text obtained by Bloomberg BNA.
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A recent report comparing the total amount of tax contributed to European countries' GDP has shown that tax revenue has been increasing in the EU since 2013.

For the ITR article, go here.

Global telecommunications company Vodafone Group Plc has said that multinational corporations shouldn't be blamed for taking advantage of tax incentives and rates available in countries around theworld because governmentsÔøΩnot corporationsÔøΩset the tax policieswhich multinational companies follow. For the DTR story, go here. (subscription required)

n this article, the authors reemphasize the need to reduce the U.S. tax incentives for inversion-type acquisitions and emphasize that Treasury has administrative actions available thatwould further reduce tax incentives for inversions and other foreign acquisitions of U.S. Corporations.

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The United States Council for International Business has asked both the OECD and the U.S. Treasury to support "last best offer" mandatory binding arbitration to resolve bilateral tax treaty disputes.

Businesses arewaging a fierce lobbying campaign against making new country-by-country reports public, saying details ofwhere profits are earned and taxes are paid by individual companieswould put them at a competitive disadvantage in the global economy.

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