2017

Republicans struck a deal on a sweeping tax overhaulwednesday, including steep corporate and individual rate cuts, and hope to have legislation on President Donald Trump's desk by nextweek.The agreement includes a 37 percent top tax rate for individuals, Senate Majoritywhip John Cornyn (R-Texas) said, lower than either the House or Senate called for earlier. The corporate tax ratewould be 21 percent, higher than the 20 percent in each chamber's separate legislation, andwould start in 2018 instead of being delayed until 2019 as the Senate proposed.

The European Union has issued a code of conduct onwithholding tax to provide member stateswith guidance on reducing costs and simplifying procedures for cross-border investors.

The OECD has opened a consultation on mandatory disclosure rules intended to target promoters and service providers involved in the design, marketing, or implementation of common reporting standard avoidance arrangements or offshore structures; interested parties should submit comments by January 15, 2018.

The OECD has issued a public discussion draft on possible approaches to address arrangements designed to circumvent the common reporting standard and the use of offshore structures to conceal actual beneficial ownership.

One major feature of the tax bills moving through Congress at the end of 2017, aswell as the proposals of all major Republican presidential candidates in recent years, is a provision thatwould create a territorial tax system for the United States. Both territorial andworldwide systems for taxing income of multinational companies are difficult to implement because the concepts of income source and corporate residence onwhich the systems are based have become less economically meaningful.

Aparna Mathur and Cody Kallen of the American Enterprise Institute analyzewhat effect the proposed business tax legislation may have on investment, gross domestic product, andwages. The authors conclude that their model predicts modest but non-negligible growth impacts from the business tax reform.

Some investors are betting governments around theworldwill find away to start taxing meat production as they aim to improve public health and hit emissions targets set in the Paris Climate Agreement.

As House and Senate Lawmakers continue hashing out differences between their tax overhaul bills, the prospect lingers that they could push the new corporate tax rate to 22%. Even though both chambers passed bills thatwould have cut the rate to 20%, pressure is growing to find money for a variety of interests.

Facebook has become one of the first large technology companies to shake up its tax structure and book less of its revenue in Ireland, as multinationals come under pressure to pay tax in the countrieswhere they operate. Next year, advertisements soldwill be booked as revenue in the 25 countries across theworld rather than at its international headquarters in Ireland.

France's tax authority published a note aimed at easing "transitional" compliance problems for French subsidiaries of multinationals from countries that have lagged France in adopting international guidelines on country-by-country reporting of corporate tax data.

Guidance for U.S. multinational companies required to bring back overseas cash "is probably at the top of our list" if a current version of the tax reform legislation moving through Congress becomes law, an IRS official said.

As the U.S. prepares to take China to task over trade imbalances, economic mandarins in Beijing are focusing on a potentially more immediate threat fromwashingtonÔøΩDonald Trump's tax overhaul. Chinese officials are putting in place a contingency plan to combat consequences for China of U.S.taxchanges aswell as expected interest-rate increases by the Federal Reserve.

The finance ministers from Europe's five largest economies havewarned the Trump administration that Republican tax cut planswould flout international agreements and undermine trade, threatening to turn awashington policy battle into a transatlantic row.

The close-to-disclose cycle for most publicly traded corporations is a matter ofweeks. CFO magazine reports that the median time is 15 days (Mary Driscoll, "Metric of the Month: Close-to-Disclose Cycle Time," CFO, Aug. 10, 2015). Problemswith accounting for taxes have been among the most frequent reasons for restatements ("Restatements and Materialweakness ÔøΩ Income Tax Matters Are Under the Spotlight," Andersen Tax, May 2012). That phenomenon is likely to increase ÔøΩ perhaps by leaps and bounds ÔøΩ after the probable passage of the Tax Cuts and Jobs Act that now needs only a House-Senate compromise to become law.

Because the corporate AMT rate of 20 percent is identical to the new regular corporate tax rate, the unintended effect is to eliminate the benefit of any new deduction or credit in the tax reform legislation. This effect occurs because under section 55(b)(2), the tax base for corporate AMT purposes is generally determined by increasing the tax base by 75 percent of any deductions that do not reduce earnings and profits except for a list of deductions enumerated in section 56(g)(4)(C), and none of the deductions introduced by the tax reform legislation are enumerated. A similar effect occurs for credits under section 38(c),which limits business credits by reference to the taxpayer's AMT liability.

Tax advisersworldwide are scrambling to understand the effect that recently proposed changes to U.S. tax rules could have on their clients and companies. But of at least equal importance to many tax professionals is the impact the legislation might have on their own careers. Many have spent years studying the complex U.S. tax rules and how to apply them to maximize their clients' tax benefits. Congress's proposed dramatic rewrite of the rules raises the questionwhether tax professionals stand towin or lose from the changes, andwhich specialty areaswill benefit or suffer the most.

The United States needs to prepare for immediate challenges from thewTO member states and its tax treaty partners if it adopts the international provisions in either the House or Senate version of the Republican tax reform plan, a tax law professor told Tax Analysts. The inbound regimes outlined in both bills presentwTO problems, said Rebecca Kysar, a law professor at the Brooklyn Law School and a visiting professor at the Fordham University School of Law. The United States' trading partnerswill likely characterize the anti-base erosion measures in the bills as forbidden charges on importation or discriminatory international taxes, she said.

International tax changes in the Tax Cuts and Jobs Act could be phased in to allow corporations time to adjust to the new law, Houseways and Means Committee Chair Kevin Brady, R-Texas, told reporters December 7. Brady said lawmakers on the tax reform bill's conference committee,which hewill chair,willwork to address the complex international tax provisions in the tax bill, noting that some industries have asked for a transition period to provide more certainty. "Most of the requests have been very fair," Brady added, but declined to be more specific, saying only that he planned to meetwith Senate lawmakers to compare notes.

This article analyzes the U.S. Tax Court's judgment in Topsnik v. Commissioner and the U.S. Federal Court of Claims' judgment in McManus v. United States, focusing on the definition of theword "resident" under the Germany-U.S. and Ireland-U.S. income tax treaties.

By: Reuven Avi-Yonah

The Tax Cut and Jobs Act (TRA17) as passed by the House on November 16 and by the Senate on December 2, 2017, contains multiple provisions that incorporate the principles of the OECD/G20 Base Erosion and Profit Shifting (BEPS) into domestic US tax law. Togetherwith the changes in the 2016 model US tax treaty, these provisions mean that the US is following the EU and China in implementing BEPS and in particular its underlying principle, the single tax principle.

This report describes various tax games, roadblocks and glitches in the tax legislation currently before Congress. This report highlights particular areas of concern that have been identified by a number of leading tax academics, practitioners, and analysts, including unanticipated costs, potential legal roadblocks, and glitches that may improperly and haphazardly penalize or benefit individual and corporate taxpayers.

First, the combination of corporate tax cuts and the inducements to repatriate funds parked inoffshore subsidiarieswill increase businesses' purchasing power, and some of that money could find itsway into M&A.

Republicans have renewed a fraught debate over the scale of planned corporate tax cuts as a series of eleventh-hour obstacles forces them to reconsider the generosity of giveaways to business. Lawmakers seeking new sources of revenue as they try to merge two separate tax bills are reluctantly discussingwhether to lower the corporate tax rate to 22 percent rather than the 20 percent they had promised, said aides.

The European Commission is examiningwhether a proposed 20 percent excise tax in the U.S. tax reform bill is discriminatory and therefore a violation ofworld Trade Organization rules. The excise tax, contained in a bill the House passed last month (H.R. 1),would apply to certain payments, including royalties, made to foreign units, butwouldn't apply to payments between two domestic affiliates.

Republican lawmakers have told multinational companies they are prepared to resolve their concerns about international tax issues as the party races to finalize the most sweeping package of reforms in 30 years. Company lobbyists said business concerns centered on the proposed treatment of cross-border payments related to debt, intellectual property and goods and materials,which add up to billions of dollars for multinationals.

The U.K. government has 14 large businesses in its highest risk category for suspected tax avoidance, indicating that multinational companies are still engaging in abusive tax planning.

South Korean lawmakers voted to raise corporate taxes for very large companies and private income taxes for top earners late Dec. 5, ending a drawn-out battle over the Moon Jae-in administration's budget bill.

EU finance ministers have blacklisted 17 countries for refusing to co-operatewith its crackdown on tax havens but havewelcomed reform promises from 47 other nations.

U.S. companies, and some households, look likely be celebrating lowertaxesnext year. In China, President Donald Trump's first big legislative accomplishment is likely to prompt less good cheer. The immediate danger--a giant sucking sound as U.S. businesses take advantage of a lower rate to repatriate profits earned in China--is likely manageable. Moreworrying is the proposedtaxoverhaul's impact on U.S. inflation and interest rates,which could complicate China's own monetary policy, and on foreign investment in China,which is already near its lowest level since the financial crisis.

Comments are presented by:AneriDani&Associates, BIAC, BEPSMonitoringGroup, CBI, ChinaStateAdministrationofTaxation, Deloitte, InternationalChamberofCommerce(ICC), GovernmentofIndia InternationalTaxandInvestmentCenter(ITIC), JubileeUSANetwork, KPMG, PwC, Repsol, SergioGuida, SiliconValleyTaxDirectorsGroup(SVTDG), TaxExecutivesInstitute(TEI), TransferPricingEconomistsforDevelopment(TPED), UnitedStatesCouncilforInternationalBusiness(USCIB)

The EU Council has listed 17 jurisdictions as non-cooperative for tax purposes in its latest blacklist, and also released a grey list of 47 countries, but, it has played it safe by excluding known tax havens.

The U.S. Senate votedwednesday to start formal tax-bill negotiationswith the House of Representatives as lawmakers began grapplingwith the delicate balance they must strike to advance final legislation through both chambers and to the president by Christmas.

It is a feature of most countries' tax systems that non-residents are taxable on certain types of income that arise in that country. Royalties are typically one such type of income and, to enforce their taxing right, countrieswill generally require the payer of the royalty towithhold tax from the payment and account for it to the tax authorities. The UK is no exception to this approach,which is subject to international agreements, such as Double Taxation Agreements (DTAs), that allocate taxing rights over such payments.

On November 29, the Centre for Business Taxation (CBT) convened a conference in London on The Future of the Arm's Length Principle (ALP)with speakers drawn from business, the OECD and academia. Thiswas also an opportunity to mark the publication of a new book by CBT Associate Fellow Richard Collier and a previous head of Transfer Pricing at the OECD, Joe Andrus, entitled Transfer Pricing and the Arm's Length Principle After BEPS (OUP).

U.S.-owned tech companies are among the targets of the proposed U.K. royaltieswithholding tax set out in a December 1 consultation,while several changes to U.K. corporation tax feature in a 184-page finance bill also published on December 1.

A last-minute decision to keep the corporate alternative minimum tax may undo several significant benefitswritten into the Senate's tax reform bill, including those related to international reform. "Everyonewas taken by surprise by the retention of the corporate alternative minimum tax," Eric Solomon of EY said. "Taxpayers have been scrambling to understand the implications for them," he said, adding that "questions that have never been asked before are being asked."

The Tax Cuts and Jobs Act has moved through Congress faster than mostwashington observers thought possible. Practitioners, taxpayers, and foreign governmentswill be attempting to understand ÔøΩ and complywith ÔøΩ fundamental changes to the international tax rules, many ofwhich have not undergone rigorous analysis by policymakers or the public.

In mid-November, the Republican majority in the US House of Representatives has passed its version of the Tax Cuts and Jobs Act bill. Last Saturday, the Senate has followed suit and has cast a 51:49 approval vote on the parallel tax reform bill introduced by its Republican members. Admittedly, it is still not entirely clearwhether the progress made so farwill allow President Trump to sign his signature reform project into law before Christmas. The two versions of the bill still need to be reconciled, and an eventual compromise requires the approval of both chambers of Congress. However, prospects for success have now improved considerably, not the least because stakes are high for Republican members of Congress facing re-election in 2018. The rest of theworld should therefore brace itself for massive implications that the reformwill have for global trade and the international tax system.

India's tax authority has relaxed its position on transfer pricing disputes, clarifying itwill permit multinational companies to invoke mutual agreement procedures and advance pricing agreements in countries that hold double tax treaties but lack provisions for settling disputes.

The U.S. is concerned about the growing measures around theworld for separately taxing the digital economy, especially regarding a digital permanent establishment. "The United States continues to be of the view that it is not appropriate to single out such a digital economy for a special regime or treatment," according to a U.S. Treasury Department official.

Japanese manufacturerswill benefit from the country's new corporate productivity-driven tax breaks. Prime Minister Shinzo Abe and his government unveiled a plan to extend a 5 percent to 10 percent tax credit to companies that have developed schemes to boost productivity by investing in "the internet of things" (IoT) and artificial intelligence (AI). Details of the planwill be announced on Dec. 14.

The European Union's leading business lobby groupwarned EU finance ministers against an equalization tax on internet companies, saying itwould breakwith international standards and tax turnover instead of profits. BusinessEurope issued itswarning as EU finance ministers Dec. 5 are expected to give the green light for the new tax on large internet companies such as Facebook Inc., Alphabet Inc.'s Google, and Amazon.com Inc., as part of part of upcoming digital taxation legislation.

The proposedtaxoverhaulwinding itsway through Congress could have significant consequences for the corporate-debt market, changing theway many companies raise capital and boosting the prices of existing bonds. Under the competing versions of the legislation that Congress needs to reconcile, multinationalswould pay a one-timetaxon their accumulated foreign earnings. But therewould be no extrataxon transferring that money across borders, giving them an immediate alternative to the bond market the next time theywant to invest or buy back shares.

The tax bill passed by Republicans in the U.S. Senate over theweekend may boost profits for industries from banking to retail to fossil fuels. It also could put the squeeze on hospitals and renewable energy firms. The centerpiece of the bill is to reduce the corporate income tax rate to encourage companies to bring back to the U.S. hundreds of billions of dollars in foreign profits. This article considers the following industries: asset managers, banks, pharmaceuticals, hospitals/insurers, private equity, real estate, tech, telecom, industrial, fossil fuels, renewables, retail, and agriculture.

The Senate-passed tax reform measurewould give U.S. multinationals more time than in an earlier Senate version before the full force of a limit on their cross-border interest deductions takes effect, according to practitioners. This measure gives U.S. multinationals more time to restructure their global debt.

Regardless ofwhat it ultimately contains, any tax reform legislation passed in the United Stateswill require concerted engagementwith treaty partners, and in multilateral forums like the OECD, to help the new U.S. rules fitwithin the international tax framework, according to Lafayette G. "Chip" Harter III, Treasury deputy assistant secretary for international tax affairs.

The arm's-length principle for international transfer pricing continues to havewidespread support, a senior OECD official told a London conference amid concerns about the effectiveness of the base erosion and profit-shifting project. A discussion on the future of the arm's-length principle on November 29was hosted by the Oxford University Centre for Business Taxation,whose director Michael Devereux noted that the BEPS project has "triggered a material hike in the complexity of applying the" principle. Richard Collier, a former PwC partnerwho is now an associate fellow at the Centre for Business Taxation,warned that "a continued vulnerability to avoidancewill present recurrent and profound difficulties."

The Treasury is not ready to issue any new guidance and is continuing to study President Trump's executive order requiring that two regulations bewithdrawn for each new one issued, but is identifying deadwood regulations that could potentially be revoked in the future, according to a Treasury official.

A provision in the GOPtaxplan giving U.S. companies a one-time cut for repatriation of earnings and cash held overseas could ripple through financial markets, including currencies, foreign savings vehicles and dollar funding for global banks. It could distort currency markets and squeeze funding for firms that benefit from the money held abroad.

Multinational corporations have a lot to like in both the House and Senate tax-overhaul proposals. Depending on a company's structure and operations, there could be a lot toworry about aswell. Companieswith bigger U.S. operations, big capital budgets and less debt stand to benefit more,taxexperts say. Those that have spent years shifting intellectual property and profits overseas are likely to see less benefit.