Int'l Tax News

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.

Final U.S. anti-inversion regulations thatwould follow up on temporary and proposed regs are forthcoming, butwhat this means for a prominent case currently on appeal is uncertain. The news came to light in a request from the government in its March 9 motion for a stay of briefing in its appeal to the Fifth Circuit in the closelywatched case, Chamber of Commerce v. IRS, No. 17-51063. The opening brief is due March 16, but the government is requesting a stay until the regs are published.

EU-based online merchants insist an upcoming European Commission digital tax proposal targeting online platforms such as Amazon and Airbnbwill drive sales out of Europe to non EU-based companies, especially those in China.

Multinational companies shifted profits through Ireland – an accounting technique designed to avoid corporation tax - equivalent to almost a quarter of the country's GDP between 2010 and 2015.

The U.S. Chamber of Commerce has identified many issues arising under the Tax Cuts and Jobs Act (P.L. 115-97) that require regulatory guidance or clarification, suggesting some solutions and urging Treasury and the IRS towork closelywith the business community as it implements the recent tax law changes.

In this article, the authors discuss Japanese 2017 tax reforms thatwill become effective in April, aswell as proposed 2018 reforms.

The launch of a joint tax risk assessment pilot has been successful, and lessons from the programwill eventually be sharedwith the inclusive framework on base erosion and profit shifting, an IRS official said.

While developing countries have cited sovereignty as a reason against adopting mandatory binding arbitration in the past, many are now taking await-and-see approach instead, according to the OECD's deputy tax chief.

This article contains Chapter 1 of a book that explores a topic that has been highly controversial in recent years: the use by multinational companies of "base erosion and profit shifting" tax planning structures to reduce their tax liabilities in countrieswhere they conduct business, including theworld's lower-income developing countries. In this installment, the author provides an introduction to BEPS and an overview of the book.

The Australian government has amended its proposed hybrid mismatch legislation to address branch mismatch arrangements and introduce a targeted integrity rule to neutralize the effects of arrangements intended to circumvent the proposed rules.

Multinational group financial data support the view that some EU countries ÔøΩ especially Ireland, Luxembourg, and the Netherlands ÔøΩ have increased their own tax bases at the expense of others, according to a European Commission report.

The IRS has provided answers to questions regarding return filing and payment obligations arising under the new section 965 transition tax, noting that the provision may give rise to a 2017 tax liability for a calendar year U.S. shareholder holding an interest in a calendar year specified foreign corporation.

In its updated paper on taxing digital companies, HM Treasury has tentatively recommended allowing countries to tax social media and search engine providers on a share of residual profit determined by a user-based allocation factor.

Brussels is preparing to hit tech giants such as Google, Facebook, Applewith a "digital tax" on EU turnover thatwill raise around ÔøΩ5bn a year, according to draft proposals seen by the Financial Times. The European Commissionwill unveil a three-pronged digital tax nextweek that targets revenues rather than profits, heeding calls in France, Germany and Britain for a tougher approach to tax avoidance by tech companies.

Vietnam quietly secured a pair of concessions in a new Pacific Rim trade deal, giving it greater leeway to regulate and tax digital commerce.

The European Parliament overwhelmingly approved terms for tax alignment between the EU and the U.K. once it leaves the bloc. Members of parliament have previously said the alignment is needed to prevent the U.K. from adopting corporate tax levels far below those in the EU, as many are expecting.

The European Commission has released the final report of its study of aggressive tax planning (ATP)which has as its aim to provide economic evidence of the relevance of ATP structures for all EU Member States. It says that a solid understanding of the extent and channels of ATP is fundamental to draw policy conclusion and recommendations for the fight against unfair tax practices. Among other conclusions, it finds consistently higher profitability in MNE groups if they are located in a relative low tax country.

Some features of Estonia's corporate tax system might be used by multinational companies for aggressive tax planning, says a new report by the European Commission.

The European Union has been pushing the OECD to develop solutions for taxing the digital economy ÔøΩ andwith the lack of clear direction, it's decided to take matters into its own hands. The European Commission's official report on a proposed EU approach to taxing tech companies is expected this month (although Politico leaked a draft outline in late February). The EU proposals are intended not just to direct members on how to tax digital profits, but also to shape the OECD's path; the organization's interim report on taxing the digital economy is due to the G-20 in April, and a final report is expected in 2020.

The action 2 report from the OECD's base erosion and profit-shifting project may be instructive for taxpayers attempting to interpret the phrase "other tax benefit" under the hybrid dividend rules in IRC section 245A. Speaking March 9 on a panel on international tax developments at the Tax Law Conference of the Federal Bar Association Section on Taxation inwashington, Douglas Poms, Treasury international tax counsel, said taxpayers evaluatingwhether a payment from a controlled foreign corporation to a U.S.-based C corporation is a hybrid dividend under section 245A(e) because of the CFC's receipt of a deduction or other tax benefit for the dividend in a foreign jurisdiction may find it helpful to review the BEPS action 2 report on hybrid mismatches.

Praising the OECD's base erosion and profit-shifting project overall, an official from Singapore's Inland Revenue Authority (IRA) has revealed reasons for the country's hesitation about some provisions of the multilateral agreement.

The BEA survey of global operations of U.S. multinationalswere relatively unchanged in the most recent in 2015 according to preliminary results from the 2015 Annual Survey of U.S. Direct Investment Abroad, although noteworthy differences in activity can be seenwhen these measures are viewed by geography and by industry.

Theworld Investment Report 2017 makes an argument for a comprehensive investment policy framework for the digital economy, attempting to demonstrate how aligning investment policieswith digital development strategieswill play a role in the gainful integration of developing countries into the global economy.

The United Nations Conference on Trade and Development has released a special edition of its Investment Trends Monitor on the implications of U.S. tax reform of international investment, saying that the U.S. reform includes changes to the corporate tax regime that are likely to have significant implications for global Foreign Direct Investment. The report says that the stimulus to investment in the U.S. provided by a lower tax rate and full investment expensing could lead to higher inward investment, and possibly to further re-shoring of manufacturing activity.