2016

Treasury and the IRS issued revised Section 704(b) regulations on February 3, 2016. The new rules address certain situations involving partnerships' allocations of creditable foreign tax expenditures (CFTEs), expanding and clarifying regulations first issued in 2006 and revised in 2012. The basic purpose of those regulations is to ensure that partnerships allocate foreign taxes among partners in the same manner as they allocate the income towhich those taxes relate.

For the PwC Insight, gohere.

David Ernick of PricewaterhouseCooperswrites that the OECD's new transfer pricing guidelines incorporate significant changes to the circumstances inwhich tax authorities may disregard transactionsÔøΩchanges inconsistentwith existing regulations under Internal Revenue Code Section 482.
For the BNA Insight, go here. (subscription required)

"The more you tighten your grip, Tarkin, the more star systemswill slip through your fingers."
At the February 16 International Tax Institute meeting in New York, Philipwright of Bryan Cave LLP andwill Dixon of Citigroup Global Markets Inc. supplied their own intro in the form of a quote from Princess Leia in the original Starwars. The pair dissected the inversion notices and made arguments about their validity.
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A proposal by President Obama to impose a transition tax on offshore profits of U.S.-based multinational corporationswould provide a $97 billion tax cut to 10 corporations that use tax havens, and an alternative Republican proposalwould provide a $121 billion tax cut, Citizens for Tax Justice said in a February 16 release.
For the release, go here.

European Union efforts to prevent profit shifting moved forward as governments narrowed differences on the methodology and minimum rate level for a minimum effective tax (MET) thatwould be added to the EU Interest and Royalties Directive (IRD).
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Jeffrey Owens talks to Nina Olson, U.S. National Taxpayer Advocate, and Philip Baker QC,with Field Court Tax Chambers in Gray's Inn in London, about taxpayer rights in an age of transparency.
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Today, the Treasury Department issued a newly revised U.S. Model Income Tax Convention (the "2016 Model"),which is the baseline text the Treasury Department useswhen it negotiates tax treaties. The U.S. Model Income Tax Conventionwas last updated in 2006.

For the Treasury release, go here.

The Budget season is about to start in Asia. Ralph Cunningham believes finance ministers are likely to prioritise local or regional concerns rather than get involved in any deep discussions about base erosion and profit shifting.
For the ITR story, go here.

The Italian Budget Law for 2016 introduced a presumption of permanent establishment (Section 162 of Presidential Decree no 917/1986) in the land-based betting sector aswell as reacting to the OECD's base erosion and profit shifting (BEPS) action plan.

For the ITR story, go here.

Latin America's tax treaty network is undergoing serious reform as countries implement the BEPS project deliverables and incorporate these new strategies and frameworks into double taxation agreements (DTAs) to further the region's business opportunities. For the ITR article, go here.

House of Representativesways and Means Committee Chairman Kevin Brady (R – Texas) has disclosed that, under his leadership, the Committeewill immediately draft US international tax reform legislation,while laying the framework for more comprehensive tax reform in 2017.
For the Tax-News.com story, go here.

Businesses are preparing themselves for cuts to prized tax breaks for corporate debt, in a Budget crackdown thatwould raise hundreds of millions of pounds a year.

The move to reduce tax deductions for interest costs is likely to hit scores of multinationals, aswell as companies in the utilities, property and private equity sectors.

For the Financial Times story, go here.

Treasury Secretary Jack Lew is accusing European Union officials of disproportionately targeting U.S. companies in a sweeping corporate tax investigation.

Lew leveled the heavy criticism against the EU for a new and expansive interpretation of rules aboutwhether companies are unfairly receiving state aid. He said the approach raises "serious concerns about fundamental fairness and the finality of tax rulings throughout the entire European Union."


For the Hill story, go here.

Insistence on revenue neutrality shouldn't limit efforts to remake the U.S. tax code, especially given the benefits of dynamic scoring, Houseways and Means Committee Chairman Kevin Brady (R-Texas) said.

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Kimberly S. Blanchard ofweil, Gotshal & Manges examines the IRS's updated "inversion" guidance in Notice 2015-79, outlining rules designed to characterize more transactions as inversions and new rules applicable to 60 percent to 80 percent inversions.while practitioners had expected the Service to issue regulations fleshing out provisions in prior guidance, the new notice instead presents more unresolved questions, the authorwrites.
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With new reporting requirements bound to cause more public outrage about tax planning, preparation is key to navigating potential controversies, a tax executive from Microsoft Corp. said.
"We have some history of our profit allocations being published in the press. And so, the benefit of that is, you have a little history, you have a little data onwhat the downstream impacts of that are," saidwilliam Sample, corporate vice president ofworldwide tax for Microsoft.
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U.K. Chancellor of the Exchequer George Osborne said the European Union needs to make a push for companies to publish their country-by-country tax bills.
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The U.K.will accept "surrogate" filings of the country-by-country reporting template for 2016 accounting periods by U.K. subsidiaries of U.S. multinationals, a U.K. official said.
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In economic analysis, Martin A. Sullivan discusseswhy corporate integration is incompatiblewith a switch to a territorial system.

For the Tax Notes article, go here. (subscription required)

Although interest stripping has been garnering much of the attention lately, there are more difficult inversion-related problems to solve, Danielle Rolfes, Treasury international tax counsel, said February 12.
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Houseways and Means Committee Chair Kevin Brady, R-Texas, continued his steady drumbeat on the need for international tax reform at a speech February 12, saying his committeewill move immediately to draft international tax reform legislationwhile alsoworking on a blueprint for comprehensive tax reform this year.
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Tax officials from the U.S., Canada, and the U.K. are optimistic that countrieswill be able to effectively coordinate implementation of country-by-country reporting, but the U.S. and U.K. governments disagree onwhether U.S. multinationals have been disproportionately targeted by the European Commission's state aid investigations.
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Jeffery M. Kadet explains the origin and objectives of the OECD base erosion and profit-shifting project, and he considers how the project may proceed.
For the Tax Notes special report, go here. (subscription required)

Mindy Herzfeld analyzes the details of the recently announced merger and inversion involving Tyco and Johnson Controls, and explains how that deal could serve as a roadmap for future successful inversions.
For the TNI article, go here. (subscription required)

The EU Councilwill support only a "phased approach" to fighting corporate tax evasion focused on limited legislative proposals such as country-by-country reporting of multinational enterprises' tax data, Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem said at an Economic and Financial Affairs Council meeting.
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Anna Binder, Laura Turcan, and Viktoriawöhrer of the Vienna University of Economics and Business summarize the topics discussed at the 11th session of the U.N. Committee of Experts on International Cooperation in Tax Matters, aswell as the international tax topics of relevance beyond developed countries' agendas.
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Auditors examining payments between foreign corporations and U.S. brokerages should consult IRS counselwhen determiningwhether the foreign entity is engaged in a U.S. trade or business, the agency said.

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Brazil's multinational corporations are being harmed by a lack of effective bilateral double tax treatieswith other nationsÔøΩincluding the U.S. and U.K., says an EY LLP study.

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In this paper, the authors analyze the profit shifting behavior of U.S. multinational firms using a unique panel data set of U.S. tax returns over the period 2002-2012. Prior research has found significant effects of tax rates in affiliate and parent countries on the profit shifting behavior of multinational entities,with semi-elasticities ranging from close to zero towell above one. They build on this priorwork by allowing more heterogeneity in response across the distribution of tax rates and by including affiliates located in tax havens around theworld. Their findings suggest that elasticities based on a log-linear specification may severely understate the sensitivity of profits to tax in low-tax jurisdictionswhile simultaneously overstating this elasticity in high-tax jurisdictions.
For the paper, go here.

Integrating the U.S. corporate tax code so there is no longer taxation of both the corporation and the shareholders could not only discourage inversions but also bring deferred income home and help lower the effective U.S. corporate tax rate, a policy adviser for the Senate Finance Committee said.

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Austrian Finance Minister Hans Joerg Schelling said European efforts to agree on a common financial transactions tax may fall apart if too few nations arewilling to move forward by March.
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European Union finance ministerswill meet Feb. 12 to discuss establishing terms for minimum effective taxation on royalty and interest paymentswith a possible floor of 10 percent to counter profit shifting by multinational corporations.

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A European Union spokesman rejected Treasury Secretary Jacob Lew's claims that the European Commission's state aid investigations have been biased against U.S. multinational corporations, noting that the majority of the European Commission's state aid rulings have ordered member states to recover unpaid taxes from European companies.
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Houseways and Means Committee Chair Kevin Brady, R-Texas, again called for international tax reform at a February 11 hearingwith Treasury Secretary Jacob Lew, but taxwriters continue to debate over how the reform efforts should address corporate inversions.
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Squire Patton Boggs has provided an overview of the implementation process for the OECD's country-by-country reporting recommendations in several jurisdictions, concluding that tax authorities have reached a consensus that all participating countries in the base erosion and profit-shifting projectwill implement new rules.
For thewWTD article, go here. (subscription required)

TheU.S. stepped upaspatwithEuropean officialsovertheir investigationsofU.S. companies'tax practices,warningin aletterfrom theTreasury secretarythattheyarecreatinga "disturbing"precedent.
For thewall Street Journal story, go here.

Conflict over trans-Atlantic tax practices escalated after Treasury Secretary Jacob J. Lew told European Commission President Jean-Claude Juncker that U.S. companies are unfair targets of state aid investigations.

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If Congress and the administration can't arrive at an agreement on rewriting the business tax code this year, they must still reach a deal to stop corporate inversions, Treasury Secretary Jacob J. Lew told lawmakers during a hearing.

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Advocates for revising U.S. tax laws on international income this year continue to get pushback from Senate Finance Committee Chairman Orrin G. Hatch (R-Utah).
Congress doesn't have enough time to finish such an ambitious task, he said during a hearing on President Barack Obama's budget proposal for fiscal year 2017. As an alternative to slowing the pace of tax-driven corporate relocations, called inversions, Hatch pitched his own plan to end double taxation on corporations, known as "corporate integration."
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At a timewhen the administration is voicing growing concern about the untaxed earnings of U.S. companies overseas, the IRS is instructing its agents to put businesses under the microscopewhen they claim tax breaks for dividends and interest transferred between related controlled foreign corporations.

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Senate taxwriters seemed to have more questions than answerswhen discussing the best possibleway to stop corporate inversionswith Treasury Secretary Jacob Lew at a February 10 hearing on President Obama's fiscal 2017 budget proposal.
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Foreign businesses, like Amazon.com Inc. and Netflix Inc.,would be required to collect and pay goods and services taxes on digital products and services they sell online to Australian customers from July 1, 2017, according to a government proposal.
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Australia's landmark transfer pricing ruling against Chevron Corp.will embolden governments to contest more intragroup finance arrangements, analysts predicted at the International Bar Association's annual tax conference in London.

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The UK government is being urged to open its tax settlementswith multinationals to independent scrutiny, in response to public anger about alleged "sweetheart" deals.

As MPs prepare to question senior staff and HMRC officials about Google's £130m agreement thisweek, tax experts have called for new measures to tackle public concerns over the handling of corporate tax disputes.
For the Financial Times story, go here.

The American Congress is so incompetent that it is arbitrarily handing billions of dollars of U.S. tax revenues to Europe. The issue involves tax manipulation by America's top IT and pharmaceutical companies, including Google, Apple, Amazon, Microsoft, Gilead and others. These companies should be paying U.S. taxes that instead are increasingly being collected by European countries thanks to Congressional (and IRS) gross negligence.

The issue is simple and yet hopelessly muddled in U.S. tax policy.
For the Huffington Post story, go here.

The administrationwill keep pressing Congress in 2017 for provisions to stop corporate inversions and other devices companies use to shift income and operations overseas.
With the offshore income of U.S. companies jumping and more corporations restructuring to cut their U.S. tax bills, thosewill be major priorities for President Barack Obama in the year ahead, a senior Treasury official said in releasing theadministration's 2017 budget planFeb. 9.
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The international tax provisions in the Obama administration's fiscal 2017 budget proposal, released February 9, are a near carbon copy of those in last year's budget, including provisions to impose a minimum tax on foreign income and to strengthen anti-inversion rules.
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While critics of the anti-inversion guidance's third-country rule say that it fails to account for situationswhen a third-party parent jurisdiction is desirable for nontax reasons, John Merrick, special counsel to the IRS associate chief counsel (international), said in his experience there is always a tax motive for picking a locale like Ireland.
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