Int'l Tax News

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.

India's tax authority traveled towashington at the end of October to meetwith IRS officials and concluded a number of transfer pricing agreements between the two countries. Advance pricing agreements help avoid tax disputes by enabling a company and one or more taxing authorities to agree on a transfer pricing method and application for a period of time.

Australia started a multi-jurisdictional tax authority projectÔøΩcalled "E6"ÔøΩto target the e-commerce industry, the tax authority revealed, but it declined to name the other governments involved. The Australian Tax Office initiated E6 in June 2013 to bring together six jurisdictions to focus on tax risks and multinationals operating in the digital economy.

Four years after the action plan on base erosion and profit shifting called for updated guidance on the profit-split method, an OECD consultation on transfer pricing demonstrated that stark differences remain on how andwhen to apply it.

The leak of the "Paradise Papers," a trove of 13.4 million documents claiming to show how "the rich get richer through offshore manoeuvres," quickly inflamed both politicians and campaigners. Some tax experts say that the conclusions to be drawn from the documents are not as clear as the politicians suggest.

U.S. multinationals including Apple and General Electric are suddenly looking at as many as three new taxesÔøΩestimated to raise $454.1 billion over a decadeÔøΩunder the House tax bill released Nov. 2.

Stakeholders from government, business, academia, and nongovernmental organizations across the globe gathered for the OECD's public consultation on the tax challenges of the digital economy. The November 1 consultation at the University of California, Berkeley, follows up the OECD's request for input,whichwill feed into an interim report to G-20 finance ministers due out in April 2018.

Glencore Plc, the mining conglomerate andworld's largest commodities trader, has failed in its bid for a judge to review a 21.3 million-pound ($28 million) U.K. "Google tax."Glencore's failure to obtain a judicial review comes as other multinational companies dealwith the diverted profits tax (DPT), nicknamed the "Google tax,"which the U.K. introduced two years agoamid concern that global tech companieswere engaging in aggressive tax planning to shift profits to offshore havens.

A House-proposed 20 percent excise tax on foreign imports from subsidiaries has been called "BAT-lite" and already faces opposition from U.S. multinationals and treaty partners.The provisionwould affect any multinational group inwhich foreign affiliates provided more than $100 million annually in goods, services, intellectual property, and other items to U.S. corporations.

The Tax Cuts and Jobs Act of 2017 (H.R. 1), introduced by Houseways and Means Committee Chair Kevin Brady, R-Texas, seeks to eliminate the lockout effect by establishing a 100 percent dividend exemption for foreign-source dividends paid by foreign corporations to U.S. corporate shareholders owning at least 10 percent of the foreign entity. Foreign tax credits and deductionswould be disallowed, and expenses allocated to the dividendwould not be deductible. The provisionswould take effect starting in 2018.

U.S. drug and technology giantswith overseas operations could pay more under House Republicans' sweeping international tax overhaul plan, according to practitioners. As a base erosion prevention measure, the billwould impose a U.S. tax on 50 percent of "foreign high returns." The tax is 20 percent, so that total taxwould be 10 percent on those returns. The tax could affect companies that aren't capital-intensive, practitioners saidÔøΩcompanies that don't have a lot of physical property and do a hefty amount of business centered on intangibles.

The Republican tax planwould impose a 20 percent "excise tax" on payments between affiliates of the same company, payments that are commonly made as international divisions trade materials, services, and royalties for intellectual property. This anti-avoidance provision may hurt foreign-owned multinationalswith American affiliates and U.S. companies that used inversion deals to move their headquarters overseas.

The macroeconomic effects of tax reform are a subject of significant discussion and controversy. In 2015, the House of Representatives adopted a new "dynamic scoring" rule requiring a point estimatewithin the budgetwindow of the deficit effect due to the macroeconomic response to certain proposed tax legislation. The revenue estimates provided by the staff of the Joint Committee on Taxation (JCT) for major tax bills often play a critical role in Congressional deliberations and public discussion of those bills. The JCT has long had macroeconomic analytic capability, and in recent years, responding to Congress' interest in macrodynamic estimates for purposes of scoring legislation, outside think tank groups ÔøΩ notably the Tax Policy Center and the Tax Foundation ÔøΩ have also developed macrodynamic estimation models. The May 2017 National Tax Association (NTA) Spring Symposium brought together the JCTwith the Tax Foundation and the Tax Policy Center for a panel discussion regarding their respective macrodynamic estimating approaches. This paper reports on that discussion. Below each organization provides a general description of their macrodynamic modeling methodology and answers five questions posed by the convening authors.

To read more gohere

The Swiss Federal Council has announced the entry into force dates for new rules on the automatic exchange of country-by-country (CbC) reports.
Under the current rules, multinationals can voluntarily submit a CbC report for the 2016 and 2017 fiscal years. Any such reportswould then be transferred to Switzerland's partner states from 2018. The Convention on Mutual Administrative Assistance in Tax Matterswill apply for the 2016 and 2017 fiscal years, butwill be restricted to the exchange of voluntarily submitted CbC reports.

Piergiorgio Valente

A Directive on Tax Dispute Resolutionwas adopted by European Member States early in October 2017. It had been proposed by the European Commission 1 year ago as part of the Corporate Tax Reform Package, alongwith the Common Consolidated Corporate Tax Base (CCCTB) and the amendment of the Anti-Tax Avoidance Directive (ATAD) regarding hybrid mismatcheswith third countries. Underlying purpose of the new Directive is to enhance the attractiveness of the Single Market to investment and business and boost growth. Specifically, it seeks to ease taxpayers' burden resulting from inadequate coordination of Member States' interpretations of bilateral tax treaties and the EU Arbitration Convention. It establishes effective tax dispute resolution, building on the existing system – as per in the Arbitration Convention – but releasing it from certain flaws and updating it to comprise other forms of alternative dispute resolution. The new system,which must be adopted in Member States by 30 June 2019, is also considered key to promoting fair taxation in the EU.

The most anticipated tax reform vehicle in decades, released by the House November 2, envisions far-reaching changes to international provisions of the U.S. tax code and represents the latest and possibly strongest attempt yet to move toward a territorial system.

The Tax Foundation on October 31 released its annual ITCI,which ranks OECD countries' tax codes. The U.S. rose from No. 32 in 2016 to No. 30 in 2017 as a result of Chile and Poland enacting tax provisions that hurt their overall competitiveness. The ITCI considers more than 40 tax policy variables that take into account the tax rates aswell as theway the taxes are structured. The ITCI examines corporate taxes, individual income taxes, consumption taxes, property taxes, and the treatment of profits earned overseas.

In this fifth part in a series of reports on state aid, Ruth Mason explains that tax reductions violate EU lawwhen they are selective rather than generally available to all taxpayers. Although the selectivity doctrine is in flux, Mason describes the status quo and attempts to classify types of selectivity that the European Commission and EU courts have identified in prior cases.

Argentina plans to cut corporate income taxes to 25 percent by 2021 for companies that reinvest profits, it said on Tuesday, part of awide-reaching tax reform bill intended to accelerate investment in Latin America's no.3 economy.

Free Trade Zones in the U.K. may be a possibility after the U.K. leaves the EU. In addition to freedom from import duties, they could also offer additional benefits such as tax and regulatory incentives, both to retain U.K. businesses and to attract additional investment.

Politicians and advocacy groupsworldwide are pushing tax reform plans, promising that changes in tax lawwill cure all manner of ills. In the United States, the Trump administration and Republican congressional leaders promise that tax cutswill help the middle class and bring back jobs that migrated overseas. In Europe, politicians are pushing for additional taxes on U.S. tech giants supposedlywielding monopolistic power. Finally, international and nongovernmental organizations, claiming to speak for developing countries, tout tighter base erosion and profit-shifting rules as a solution for those countries' many societal problems.

The Baltic nation ÔøΩwhich has the fourth-smallest population in the European Union after Malta, Luxembourg, and Cyprus ÔøΩ has seized the opportunity offered by its turn at the EU presidency to set an extremely challenging, digitally focused agenda for the regular EU meetups.Estonia is introducing to the EU the range of services and savings availablewith digital government. It is a countrywhose citizens can vote, review their medical records and pensions, and pay their taxes online.

Whilewalls,wire fences and border checks proliferate around theworld, the EU is looking to liberalise VAT rules to break down barriers to tradewithin its borders. Joe Stanley-Smith explores the EU's proposals for a new definitive VAT regimewith Maria Teresa Fabregas Fernandez, director for indirect taxation and tax administration at the European Commission.