Int'l Tax News

The OECD plans to achieve an international consensus by 2020 on taxing the digital economy, but this ambitious timeline is unrealistic, say experts. The OECD's David Bradbury defends the organisation's approach in an exclusive conversationwith International Tax Review.

German media group Bertelsmann haswarned that European Commission plans to impose a digital tax on internet companies such as Google, Apple and Facebook could hit European businesses harder than the US technology groups.

The U.S. is firmly opposed to any proposals that single out digital companies for taxation, the Treasury Department's international tax counsel said. Short-term or interim proposals, such as those put forward by the European Union, create the risk of double taxation, and could discourage innovation and harmworkers and consumers, said Treasury's Douglas Poms.

A new German law closing tax loopholes for royalty payments on patent licenses and other potentially harmful practices could spur a backlash from poorer EU nations already resistant to bloc harmonization measures, attorneys told Bloomberg Tax.

Foreign companieswith Indian subsidiaries aren't required to file country-by-country reports in India by March 31, according to a government notification released days ahead of the anticipated deadline. The March 31 deadline for country-by-country reporting now only applies to India-headquartered multinationals.

Beijing has announced taxwaivers for foreign investors in the country's new crude oil futures contracts due to launch March 26, bringing them in linewith international practices. Similar taxwaivers are expected for Chinese commodities futures launches likely to begin in the coming months.

European Union officials insist that most EU member nations agree large internet companies pay an unacceptably low amount of tax and U.S. President Donald Trumpwill block any solution from the OECD to resolve the issue.

The European Union may add the U.S. to its blacklist of tax havens if an OECD panel concludes its new tax law breaks bloc rules. Earlier this month the EU asked the OECD Forum for Harmful Taxation to conduct a "fast-track" review of the tax changes.

The Spring Statement confirmed the U.K. government's commitment to introducing an extension of corporation tax for digital businesses. The statement included an updated version of the consultative document on the taxation of digital companies. The proposed form of the tax is, however, far from clear as are the means bywhich the technical complexities in framing a tax on the value created by digital business tax can realistically be overcome. The proposed solution to this difficulty in the short-term is to propose a temporary turnover based tax. This proposal has already been criticized.

Investors are scratching their heads aboutwhy a key measure of distress in financial markets is at its highest level since the financial crisis in 2009, even though there isn't any panic about banks' health. The answer may be the U.S. tax bill, and how it has penalized U.S. branches of foreign lenders for borrowing cash from their headquarters.

A new tax aimed at overseas income earned by U.S. technology and pharmaceutical firms is hitting unexpected places, includingKansas City Southern,a U.S. railroad company. The new minimum tax on foreign earningswill cost Kansas City Southern $25 million a year, according to the company,whichwarns the measure also encourages it to borrow money outside the U.S.

Evidence of the impact of tax incentives in developing countries is scarce, and more analysis is needed for better policymaking, according to researchers at the Institute for Fiscal Studies (IFS).

New York budget negotiators could decidewithin the nextweekwhether the state and New York City business tax lawswill decouple from specific foreign-source income provisions of the federal Tax Cuts and Jobs Act.

In the BEPS action plan, the OECD emphasized that the projectwas focused on multinationals' tax avoidance, and "not directly aimed at changing the existing international standards on the allocation of taxing rights on cross-border income." But that artificially narrow focus on tax avoidance,which ignored larger changes in the conduct of global business that facilitated multinationals' using rules to achieve lower tax rates, meant the project's recommendations addressed only the most superficial problems facing an international tax regime thatwas developed early in the last century.

EU governmentswant EU-wide equalization taxes, like the ones that the Italian and Hungarian governments have enacted. The OECD doesn'twant them to have these taxes ÔøΩ and if they do have them, they should be temporary and narrowly targeted. The OECD Centre for Tax Policy and Administration and the European Commission are battlingwith dueling reports on the merits of an equalization tax for Europe and expansion of the permanent establishment standard beyond physical presence. The OECD is losing those battles but prevailed in skirmishes over the details.

In this article, the authors discuss the recent increase in the Korean corporate tax rate and the government's reaction to the country's appearance on the EU blacklist of noncooperative tax jurisdictions.

In this article, the author examines India's new goods and services tax to determinewhether it has, in practice aswell as under theworld Bank's measurement system, helped ease the process of doing business in India.

The multilateral instrument, a key outcome of the OECD's base erosion and profit-shifting project,will enter into force on July 1 after the OECD received the requisite fifth instrument of ratification from Slovenia.

Forthcoming regulations on the Tax Cuts and Jobs Actwill focus on allowing the foreign tax credit towork aswell as possible given damage caused by the TCJA, according to an IRS official.

The OECD has released additional guidance on the attribution of profits to permanent establishments created as a result of a broader PE definition. The OECD announced on March 22 a report clarifying the application of the rules on attribution of profits to PEs under article 7 of the OECD model tax convention to PEs resulting from the changes to article 5 of the model recommended in the final action 7 report of the base erosion and profit-shifting project. The guidance focuses on high-level concepts and the application of the authorized OECD approach ("the AOA," as contained in article 7 of the 2010 version of the OECD model) to PEs arising from articles 5(4) and 5(5).

A top House Republican saidwednesday that Republicans are considering a second tax-reform package later this year, boosted by "optimism" about the GOP tax plan passed at the end of 2017.

Lastweek, Ohio-based Dana Inc. announced that it is planning on moving its headquarters to the United Kingdom. In Thewall Street Journal, the CFO said that "evenwith the new tax legislation, there is a benefit for us." The company expects that even under the Tax Cuts and Jobs Act (TCJA), this movewill reduce its tax liability by around $600 million over several years.

European leaders are scheduled to gather at a summit March 22-23 for a first discussion on the European Commission's proposals to tax the digital economy, but agreement seems unlikely. Irish Prime Minister Leo Varadkarwas the first EU leader to go on the record about the commission's plans. He told his national Parliament on March 21 that hewould "be making clear my views that any such measurewill be ill-judged."

New guidelines released by the European Commissionwill limit the transmission of EU funds through countries on the EU's list of noncooperative tax jurisdictions. The commission released new guidelines March 21 in the form of a communication that incorporates the goal of tackling tax avoidance in rules governing the use of EU external development and investment funds so those funds cannot be routed through entities in countries on the EU's blacklist.

The Swiss Federal Council approved a compromise tax reform bill thatwould require patent box beneficiaries to pay tax on at least 30 percent of their profits and limit reductions in tax on dividends.

No European companieswould be hit by the digital tax proposed by the European Commission because the proposal's turnover thresholdwould exempt all but the most obvious American tech giants, tax observers argue.

Sweden's government proposed to tighten corporate interest rate deductions to prevent profits from leaving the country, combinedwith a cut to the overall corporate tax rate in bid to boost competitiveness.

The New Jersey Tax Court didn't find reason to reverse its earlier ruling that the state couldn't impose a corporate business tax on foreign source income that isn't taxable at the federal level.

Germany has cooled on ambitious EU plans for a turnover tax that hits big US digital companies, dealing a blow to a policy championed by President Emmanuel Macron of France. As the European Commission unveiled its proposals for a pan-EU tax to raise ÔøΩ5bn annually, Berlin qualified its initial support for the idea, expressing skepticism about the principle of a narrow levy targeting digital earnings.

Ireland is resisting EU plans for a provisional 3 percent tax on the revenues of digital giants such as Google, saying Brussels should insteadwait two years for a global tax measures from the OECD.

The European Union's justification for a new tax on technology companies hinges on a novel view of how profits are generated, one that the U.K. Treasury has espoused. European officials say that means value is generatedwhere users are locatedÔøΩand the tax system should change to reflect that. The European Commission onwednesday proposeda tax set at 3% of revenueson some of the digital activities of a small cadre of tech superpowers, including FacebookInc.andAlphabetInc.'sGoogle.

The U.S. is open to participating in a global discussion of how to adapt the international tax system to the modern economy, including how to allocate profitsÔøΩas long as the discussion is about the broader economy and not just about digital businesses, a Treasury official said. "I'd say that U.S. tax reform has addressed, in our view, many of the concerns that existed about digital business models," Chip Harter, Treasury's deputy assistant secretary of international tax affairs, told Bloomberg Tax March 20.

Finance Minister Bill Morneau said Canada recognizes the potential disruption major technology companies can have on government revenue andwill studywhether a new tax regime is required for the industry.

Nancy McLernon of the Organization for International Investment has expressed support for Treasury's plan to remove the documentation rules under reg. section 1.385-2 and has suggested that Treasury alsowithdraw the reg. section 1.385-3 per se recast rule and the reg. section 1.385-4 U.S. consolidated group rules, saying that the Tax Cuts and Jobs Act (P.L. 115-97) addressed Treasury's policy concerns underlying those rules.

The pace of policy reforms to boost productivity is lagging among G-20 countries, but some bold tax policies stand out, and progress is being made to limit tax avoidance by multinationals, according to the OECD.

This chapter evaluates the recent OECD Base Erosion and Profit Shifting (BEPS) initiative directed at global digital income, and concludes that tax planningwill not be inhibited by any significant extent. Tax planners and academics nevertheless should take into account prospective reforms surrounding permanent establishments, hybrid entities, treaty shopping, transfer pricing and controlled foreign corporations,which may challenge certain practices.

Despite divergent views among countries on how to tax highly digital businesses, the OECD's interim report attempts to guide countries contemplating further unilateral action,while laying the foundation for reaching a consensus-based solution by 2020.

Forecasts of foreign-based multinationals, including some that inverted in recent years, suggest that their tax rates may not be helped, and are sometimes hurt, under U.S. tax reform. Their U.S. counterparts are reporting better results.

The European Parliament has endorsed plans for a harmonized corporate tax regime that includes a digital presence standard for determining if a company is taxable in a member state.

The number of advance pricing agreements EU governments have entered intowith multinational companies increased 57 percent during 2016,with recent EU statistics showing Belgium more than doubling its APAs during that time.

The U.K. and the European Union have struck an agreement over a 21-month transition period forwhen the country leaves the bloc, taking pressure off the British government on its cross-border tax system.

Foreign corporationswill likelywait to determine how political and tax developments in the U.K., the U.S. and Europe influence the domestic tax landscape before following the example of Unilever and relocating to the Netherlands.

Claims by European governments that large digital companies such as Google, Amazon, and Uber don't pay their fair share of taxes are false, a European think tank said. At the same time, leading tax academics havewarned that European Union plans for a 3 percent turnover tax on themwould be a "populist, flawed" measure that risks exacerbating transatlantic trade tensions.

Governments may need to increase property and consumption taxes if theywant to maintain current spending amid falling revenue, the OECDwarned. Nations are struggling to generate revenue as individuals are continuing to turn to the gig economy, a labor market that pays far less in employment taxes.

Multinational companies may face less confusion now that the Chinese tax authority has integrated its national and local tax offices. The shift, taking place below the provincial level, is meant to make the system more efficient. Itwill allow taxpayers toworkwith one tax bureau, instead of dealingwith offices at both local and state levels.

The reduction of corporate taxation from 29 percent to 20 percent in two years and the implementation of an aggressive reform agendawill be priorities for Kyriakos Mitsotakis, leader of Greece's main opposition party, if he comes into power.

A transatlantic rift over tax and tradewidened on Friday afterwashington opposed the EU's plans for a levy on digital revenues and Brussels set out its retaliatory measures over the US's steel and aluminium tariffs.

Criticswarn the sheer volume of such agreements hampers the Commission's ability to identify theworst tax-avoidance cases.