2017

The pressures of peer review and the attention of G-20 finance ministries have already led to better collaboration and overall performance in tax authorities' administration of mutual agreement procedures, according to Achim Pross, head of the OECD's International Cooperation and Tax Administration Division.

Calculating the interest deduction limitations proposed in the House tax reform billwould be easier for multinationals than the alternative offered by the Senate. The House's version of the Tax Cuts and Jobs Actwould limit interest expense to the lesser of 30 percent of earnings before interest, taxes, depreciation, and amortization or, forworldwide groups, 110 percent of allocation of net third-party interest expense to the U.S. corporation, based on EBITDA. The Senate, by contrast,would limit interest to the lesser of 30 percent of earnings before interest and taxes or, forworldwide groups, or 110 percent of the amount of debt that the U.S. memberwould hold if the U.S. debt-to-equity ratiowere proportionate to theworldwide debt-to-equity ratio.

The OECD has published the 2017 update to the OECD model tax convention. The update, approved by the OECD Council on November 21, mainly comprises changes developed as part of the base erosion and profit-shifting project. Itwill be incorporated into a revised version of the model to be published in the coming months.

The OECD is planning to give countries policy direction on short-term individual tax measures for internet-based companies, according to a senior official.

EU finance ministerswill give the green light Dec. 5 for the European Commission to propose, in early 2018, an equalization tax on internet companies and also to make online marketplaces responsible for collecting VAT on sales by non-EU based online merchants to EU residents. On November 29th, EU member nations agreed on final terms for the digital taxation provisions and the VAT e-commerce legislation, and itwill be approvedwithout discussion, according to a spokesman for the Estonian presidency.

The European Union restrictions on member-nation aid in the form of company tax breakswhen applied to the export of goods are invalid because they violate EU fundamental freedom of free movement of goods in the single market, a senior legal adviser to the EU's highest court has said.

The government believes in the principle that a multinational group's profits should be taxed in the countries inwhich it generates value.And it has taken significant steps, at both a domestic and international level, to ensure that this principle is being delivered. It initiated the OECD-G20 Base Erosion and Profit Shifting (BEPS) project to tackle multinational tax avoidance, led the implementation of that project's outputs, and took bold unilateral actionwhere needed, including the introduction of the Diverted Profits Tax in 2015which is forecast to raise £1.35 billion by 2019.However, there is still more to be done. Countries must continue towork together to identify areaswhere the international tax framework still leaves them exposed to multinational tax planning, and consider how that framework is being challenged by changes in how global businesses are managed and structured.

Taxoverhaul proposalswinding theirway through Congress may look great for U.S. corporations. For foreign firms, not so much. Excise and base-erosion taxes create a border-based system thatwould be difficult for multinationals to navigate. For most foreign multinationals, the U.S. still represents one of theworld's biggest, most important markets--sotaxhits there can have outsize impact on global profit.

Australian Prime Minister Malcolm Turnbull and Federal Treasurer Scott Morrison have separately in recent days been drumming up support for the government's Enterprise Tax Plan and the long-standing proposal to reduce the corporate tax rate from 30 to 25 percent by the 2026-27 income year.

The IRS proposed regulations on how itwill treat some foreign tax credits, tax treaty-related issues, and foreign-corporation issues in the context of a forthcoming centralized partnership audit regime. The international regulations are the first of several proposed rules on the centralized audit regime expected over the next fewweeks.

The European Union is about to release a blacklist of uncooperative tax jurisdictions as part of the international effort to crackdown on tax avoidance. The blacklist has sparked speculation overwhich countries are most under threat.

The OECD has invited comments on issues regarding access to mutual agreement procedures (MAPs), clarity and availability of MAP guidance, and the timely implementation of MAP agreements; interested parties should respond by December 22.

Countries are pushing back the deadline for multinational companies to submit their first global reports in a sign that governments may be struggling to implement the required filing systems. Known ascountry-by-country reporting, the filings are the mostwidely adopted policy from the OECD's 15-action project to curb tax avoidance from multinationals.

With deferral eliminated under H.R. 1, any residual U.S. tax on foreign profitswould be due currently.we can cheer the demise of the lockout effect, butwith that comes accrual basis taxation for any foreign profits that don't fall outside the U.S. tax net. Many taxpayers expected corporate tax reform to involve a major paradigm shift, and they expected it to be the replacement of our rusty oldworldwide regimewith a shiny new territorial system. Under section 4301,what they seem to be getting is accrual treatment replacing deferral. Other commentators have questionedwhether the cross-border outcomes under H.R. 1 are properly described as a territorial system. This article attempts to explain how the tax on foreign high returnswould operate and hints at the possible factors that influenced its design elements.

On November 17, 2016 the House of Representatives passed the Tax Cuts and Jobs Act (the House bill). The House vote came a day after the Senate Finance Committee (SFC) approved a Senate version of tax reform legislation (the SFC bill). On November 20, 2017, the text of the SFC billwas released. Prior to the release of the SFC bill, the Joint Committee on Taxation (JCT) had released a description of the SFC bill. The full Senate is expected to consider the SFC bill during theweek of November 27, 2017. Both the House bill and the SFC bill (collectively the 'Proposed Legislation') if enacted,would represent the largest overhaul of the US tax code (the Code) since the Tax Reform Act of 1986. The Proposed Legislationwould lower corporate and individual tax rates, reform US international tax rules, and simplify the Code.

The Italian Senate is considering introducing a digital sales tax to tackle the problem of tax avoidance by tech companies. Thiswould take the form of an equalisation tax on the turnover of digitalised companies.

The Chancellor did not spring any major surprises but the government's "position paper" continues the focus on the digital economy. The budget includes proposals to impose awithholding tax on digital services provided to the U.K. from abroad, to the extent that these services are dependent on intellectual property held in a tax haven, to make online platforms jointly and severally liable for VAT on sales, and to abolish its indexation allowance for companies, among other things.

The U.K. Treasury is seeking public input on 11 measures for large corporations in the 2017 Autumn Budget, including a levy on earnings sent to tax havens that are linked to U.K. customers and on the taxation of internet-based companies.

U.S. multinationals are scrutinizing their global business operations to soften the blow of a "deemed repatriation" tax on offshore earnings theywould have to bring home under fast-moving House and Senate tax reform bills.

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. Acorporate 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.

In this article, the authors discuss the revised transfer pricing guidelines developed alongwith the final reports on actions 8-10 of the OECD's base erosion and profit-shifting project, examine the interplay of the OECD's frameworkwith U.S. regulations, and consider how a hypothetical multinational enterprise could limit its transfer pricing risk.

German Chancellor Angela Merkel's failure to form a governing coalition has put Europe's strongman on shaky political ground as both it and the continent at large try to map out needed long-term fiscal reforms.with a booming economy and a sizable budget surplus, Germany is poised to implement sweeping tax reforms: abolishing the solidarity surcharge, adjusting income taxes, simplifying the tax code and making large-scale investments that could guarantee its financial security for years to come. However, the country's uncertain political future means such long-term plans have to be benched for now, according to a German economist.

Efforts by the Israel Tax Authority to assess the Israel-based earnings of digital multinationals are unlikely to proceed smoothly, local practitioners said, even as the authority's leader said hewas determined to issue demands to Alphabet Inc.'s subsidiary Google, Facebook Inc., and other internet giants.

China is set to expand corporate tax cuts and extend a duty-free policy for technology imports in an effort to encourage foreign technology investment and imports. The corporate tax on qualifying high-tech companieswill be reduced to 15 percent from a standard rate of 25 percent,while an exemption from tariffs and value-added taxes for purchases of technological equipmentwill be continued.

U.S. tax reform bills passed by the House (the Tax Cuts and Jobs Act (H.R. 1)) on November 15 and Senate take a uniquely U.S. approach to combating base erosion and profit shifting by U.S. multinationals. The legislation proposes the most dramatic changes to U.S. international tax rules since those ruleswere first enacted. For the most part, the bills offer a solution thatwill give the United States ÔøΩ rather than the many other countries that thought theywould profit from BEPS ÔøΩ the first cut at taxing the profits of both U.S.-headquartered companies, and foreign companies operating in the country.

The Coffey Reportwas carried out in response to increased international attention on Ireland's corporate tax regime following the Apple ruling. The Coffey Report is broadly supportive of the corporate tax system but sets out a number of key recommendations.

Italy is putting forward plans for adigitalsales levy as a European crackdown on how large U.S. internet groups pay tax gathers momentum. The measurewould force Italian buyers of services such as advertising on Google or Facebook ÔøΩ "intangible digital products" ÔøΩ towithhold 6 per cent of the value of the purchase and pay it instead to the Italian Treasury.

The private tax reports that global businesseswill send to governments this yearwill become public, according to Vodafone Group Plc's group tax director, John Connors,who assumes that the informationwill leak. The comments from Connors, a former U.K. tax official, come as U.K.-based multinational companies prepare to file their first global tax reports by the end of this year.

The House of Representatives passed a bill thatwould usher in the most far-reaching overhaul of the U.S. tax system in 31 years, a plan thatwould reduce the corporate tax rateto its lowest point since 1939 and cut individual taxes for most households in 2018.

Estimating the causal effect of offshoring on domestic employment is difficult because of the inherent simultaneity of multinational firms' domestic and foreign affiliate employment decisions. The authors conclude that greater offshore activity raises net employment by U.S. firms, albeitwith underlying job loss and reallocation ofworkers.

This paper investigates the influence of controlled foreign corporation (CFC) rules on cross-border merger and acquisition activity on a global scale. Using three different methods, the authors find that CFC rules distort ownership patterns due to a competitive advantage of multinational entitieswhose parents reside in non-CFC rule countries.

The European Commission has determined in preliminary conclusions that the United Kingdom's exemption of intragroup interest thatwould otherwise be taxable under its controlled foreign company rules violates EU state aid law.

By: Michael Devereux

When Margaret Hodge complained about how little tax Amazon paid in the UK, the tax cognoscenti rather patronisingly pointed out that the existing system does not generally give the right to tax profit to the country inwhich a sale in made. But since then the US House of Representativesways and Means Committee, the European Commission, and also the OECD have all put forward proposalswhich move the system in this direction

France's Parliament definitively adopted on November 14th a bill that forces large businesses and multinational groups to pay a one-off "contribution" to help cover a multi-billion euro budget gap stemming from an October ruling that voided a controversial tax on dividends.

European Union presidency holder Estonia has ruled out agreement by the end of 2017 on the pending EU tax intermediary framework designed to clamp down on aggressive tax planning. According to officials, despite pressure to reach agreementÔøΩin thewake of the Paradise PapersÔøΩnegotiations are bogged down on issues such as scope, client confidentiality laws, penalties, retroactivity, the date of implementation, and the hallmarks thatwill definewhich cross-border tax arrangements have to be reported.

Single Malt directs profits to countrieswithwhich Ireland has a double taxation agreement but that do not have any corporation tax

Proposed corporate tax reforms in the U.S. are putting pressure on Canada to consider how to continue to attract business investment. Lower corporate tax rates have given Canada a significant competitive advantage over the U.S. for more than a decade, providing sufficient incentive for companies to shift income and profits to lower-tax Canada and expenses to the U.S. But if the proposals before Congress become law, the tidewould shift in favor of the U.S.

Some experts say the House and Senate plans could be a boon to mergers and acquisitions. Provisions in the bills that may set the stage for awave of acquisitions include provisions that slash the levy that companies pay on repatriated foreign earnings and that let buyers immediately deduct the entire value of the tangible assetsÔøΩequipment, buildings, land, inventoryÔøΩof the businesses they acquire.

Reallocating the global profits of U.S. multinationals using a formula based on sales or employee compensationwould have increased U.S. GDP by $3.5 trillion over the 1994-2014 period, according to economist Kim Ruhl of Pennsylvania State University.

Proposals on related-party intangible transfers included in the Senate Finance Committee's tax reform billwould confirm the IRS's authority to use valuation methods, price interrelated transactions on an aggregate basis, and tax transfers of foreign goodwill and going concern value.

The Tax Cuts and Jobs Act bills introduced lastweek in the House (H.R. 1) and Senate propose dramatic changes to both domestic and international U.S. income tax rules, including to international tax principles that have stayed mostly intact for 100 years.Regardless of the bills' fate, the changes proposed represent a radically new approach to taxing the foreign earnings of U.S. companies and the U.S. earnings of foreign companies, pointing to a new direction for U.S. international tax policy. Other countries and international organizationswill need to consider how to respond, both in terms of fiscal impact and the attractiveness of other jurisdictions to multinationals.

While the Senate chair's mark on tax reform envisions a territorial regime and one-time transition tax on accumulated earnings that is akin to the House's proposal, some of its more prominent international base erosion measures bear only thematic similarities to its counterpart,with significant operational differences standing between the two.

The European Economic and Social Committee has published an opinion on taxing the collaborative economy, calling for "the rapid construction of a uniform, integrated European system that ensures common rules for the different Member States regarding the digital economy" andwarning against unilateral approaches.

Late Thursday evening, the Senate Finance Committee releasedits versionof the Tax Cuts and Jobs Act. The Senate Tax Cuts and Jobs Act shares many thingswith the House counterpart: both plans reduce the corporate income tax rate, move to a territorial tax system, provide full expensing of certain capital expenditures (on a temporary basis), repeal the alternative minimum tax, provide more favorable tax treatment of pass-through businesses, and eliminate many targeted tax preferences in favor of lower rates and a higher standard deduction.

The Base Erosion and Anti-Abuse Tax (BEAT) is a surprising and innovative part of the Senate's proposed international tax reform package. The BEAT helps level the playing field between U.S.-headquartered and foreign-headquartered companies. It raises enough revenue so that the outbound minimum tax rate is probably lower than itwould otherwise need to be given revenue constraints.

Both the House and Senate tax reform bills include significant rules to limit inbound base erosion. Therefore, the BEAT also functions as the Senate's answer to section 4303 of the House Tax Cuts and Jobs bill. This article compares the BEATwith the House inbound base erosion proposal along various dimensions. It focuses in particular on issues associatedwith administrability and potential foreign responses. I conclude that the BEAT – unlike the House approach to inbound reform – represents a pragmatic, administrable, and geopolitically savvy policy that helps level the playing field between U.S. and foreign MNCs.

Senate Republicans plan to propose a new 12.5% tax on the foreign income that U.S. companies generate from patents, copyrights, and other intellectual property. The tax is meant to address U.S. companies-especially pharmaceutical and technology businesses-that transfer intangible assets to low-tax countries outside the U.S. to reduce their overall tax bills.

Multinational companies that generate significant non-U.S. profits from intellectual propertywould be hit by a new U.S. tax regime under aplan from Senate Republicans that has created fresh uncertainty over international tax.The Senate planwould impose a tax of at least 10 percent on income from intangible assets such as intellectual property, though itwould be levied differently on U.S. companies and the American subsidiaries of foreign companies.

A move to roll back a major anti-base-erosion mechanism in the House tax reform plan has sparked criticism that the billwould dramatically increase the offshoring of corporate profits, but some tax professionals argue that the provisionwas unnecessarily harsh to beginwith.

The U.K.'s diverted profits tax on multinational companies has been a "game changer" in forcing them to adopt less aggressive tax planning, according to a senior government official. The comments come amid concern from large businesses that the U.K. tax agency iswielding its DPT more aggressively than expected.

The U.S.won't hold a place on a forthcoming EU tax haven blacklist despite not fulfilling transparency criteria for bank information exchangesÔøΩan absence that critics saywill undermine the credibility of the EU process.