Int'l Tax News

Country-by-country reports can provide an advantage that is often overlooked in the context of the global crackdown on tax avoidance by multinationals, Douglas O'Donnell, commissioner, IRS Large Business and International Division, said during a panel discussion in Redwood City, California.
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European Union member stateswill be taking a first step toward overhauling an important regulatory body that targets harmful corporate tax lawswithin and outside the EUÔøΩthe Code of Conduct Group for Business Taxation.
On March 8, the member states plan to agree on a set of measures to make the Code of Conduct'swork more transparent and efficient.
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Jenswittendorff details the shortcomings of the European Commission's new anti-tax-avoidance package, including its counterintuitive potential to facilitate tax avoidance byway of its exit taxation provision.
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One result of the OECD's project to combat tax avoidance is that U.S. multinationals deciding to move intellectual property to such jurisdictions as Ireland and Singaporewill need to move senior management employees there aswell, three practitioners told a recent tax conference.
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The Treasury Department says it is considering "all modes of engagement" to make it clear that the European Union should reconsider its approach to investigating tax breaks provided to U.S. companies.
The European Commission, the EU's executive body, has been investigatingwhether tax breaks that European countries have provided to American companies are illegal "state aid."
For The Hill story, go here.

The European Commissionwelcomes today's political agreement by Member States on the automatic exchange of tax-related financial information of multinational companies, known as country-by-country reporting, subject to UK parliamentary scrutiny.
For the EC press release, go here.

Cross-border deals such as corporate inversions have increased urgency among taxwriters to overhaul the international tax code, and election-year politics shouldn't get in theway of a deal, a top tax official said.
"It's a challenge in an election year, but it shouldn't necessarily be an elimination of possible action," Mark Prater, chief tax counsel for the Senate Finance Committee's Republican majority, said March 4 at the Federal Bar Association Tax Law Conference.
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The European Union is expected to adopt its first OECD base erosion and profiting shifting measure March 8,when EU finance ministers are set to amend the EU Administrative Cooperation Directive and require tax authorities to automatically exchange country-by-country reports on company tax and profits.
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An unanswered question arising from the OECD's project to combat base erosion and profit shifting is exactlywhen new guidelines on transfer pricing are to take effect.
It isn't a minor point, according to practitioners attending the Pacific Rim Tax Institute in Redwood City, Calif., March 3-4.

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Country-by-country reporting promises far greater transparency about business activities than tax authorities have known in the past, but there are no guarantees countrieswill interpret the data in any uniform fashion, a panel of former and current tax officials said.

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Ninety-five jurisdictions and the OECD are attempting towrite a multilateral instrument implementing the treaty-related changes in the organization's guidance on combating base erosion and profit shifting that "balances flexibilitywith clarity," an OECD official said.
Grace Perez-Navarro, deputy director of the OECD's Center for Tax Policy and Administration, said March 4 that there are tremendous technical challenges in designing an instrument "that isworkable and meets the needs of flexibility thatwewill need to have in order to satisfy the different interests and options that countrieswant to choose."
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A report by global charity ActionAid claims that tax treaties are making the poorest countries powerless in taxing multinational corporationswhen agreements are heldwith theworld's richest countries.
The "Mistreated" report, published March 4, states that tax treaties are playing "a facilitating role" in many tax avoidance strategies used by multinational corporations to lower their tax bill.
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Before the Treasury Departmentwill agree to changes in the standard for creating a permanent establishment, a global understanding on the rules for attributing profit to a PE must be reached, according to Danielle Rolfes, Treasury international tax counsel.
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Multinational corporations need to avoid creating artificial structures to segregate activities and functions from their core businesses because the base erosion and profit-shifting project has raised auditor awareness of the practice, said Grace Perez-Navarro, deputy director of the OECD Centre for Tax Policy and Administration.
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The OECD's final action 3 report on controlled foreign company rules "was not one of our biggest successes," but it "was the bestwe could do" considering the lack of agreement in that area, Grace Perez-Navarro, deputy director of the OECD Centre for Tax Policy Administration, said March 4.
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Mindy Herzfeld reviews recent proposals to adopt a minimum tax in the United States and the EU, and discusses the advantages and disadvantages of each proposal, aswell as the questions they raise.
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James Fuller comments on U.S. tax developmentswith international implications, focusing this month on the revised U.S. 2016 model income tax treaty, concerns regarding the European Commission's recently proposed base erosion and profit-shifting measures, country-by-country reporting, and various regulations and cases.
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The concern that led Treasury and the IRS to eliminate the exception for foreign goodwill and going concern value in the proposed section 367 regulationswas the amount of value taxpayerswere attributing to them, and not the exception itself, according to Brenda Zent, special adviser, Treasury Office of International Tax Counsel.
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The introduction of language in the temporary section 482 regulations requiring taxpayers to account for "all value provided" and the "full value of compensation"was not meant to introduce a new concept, but to describewhat's required by the arm's-length standard, according to an IRS official.
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The IRS is analyzing potential problems that could arise if U.S. multinational companies opt for surrogate filing of the country-by-country reporting template, an agency official said.

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Corporate inversions, the recently controversial corporate tax maneuver inwhich a U.S.-based multinational group restructures itself so that the U.S. parent of the group is replaced by a foreign corporation ÔøΩ typically in a low-tax jurisdiction ÔøΩ allow companies to reduce their overall level ofworldwide taxation.
A company that inverts continues to pay the U.S. corporate rate on profits earned through U.S. operations, and foreign profits brought back to the U.S.will get taxed by the U.S. However, the profits earned abroad escape being taxed by the U.S.
For the Accounting Today story, go here.

Houseways and Means Committee Chairman Kevin Brady (R-Texas) hosted a hearing last monthexploring how to reform the U.S. corporate tax system. The country's tax rate of 35 percent, the highest in the developedworld, and its unique application to foreign profits put U.S. companies at a competitive disadvantagewith their foreign competitors.
For The Hill story, go here.

The Hong Kong Government recently gazetted a Billwhich introduces a concessionary profits tax rate for qualifying corporate treasury centres (qualifying CTCs), new rules to deem certain interest income and other gains as Hong Kong-sourced and amendments to the existing interest deduction provisions to enable a deduction for interest on certain intra-group lending transactions.
For the ITR story, go here.

Advocacy groups including ActionAid, Christian Aid, Oxfam International and the Tax Justice Network said public reporting of large multinational companies' information about assets, earnings and tax burdens for each country of operation "is a must" for combating tax avoidance.
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Luxembourg's leading banking and business groups called corporate tax proposals announced earlier in theweek "poisonous" to foreign investment and called for the government to rethink the proposal to avoid damaging the economy.
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The challenges of the base erosion and profit-shifting project feel much larger and more immediate than the opportunities, Theodore Setzer, IRS assistant deputy commissioner (international), said March 3 at the Pacific Rim Tax Institute in Redwood City, California.
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The OECD's project to combat base erosion is in a "fragile state" in Congress, and faces potentially lethal pushback, a University of Southern California law professor said.

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Following the financial crisis and ensuing austerity, politicians discovered the problem of tax avoidance. In response, the OECD and G20 launched the Base Erosion and Profit Shifting (BEPS) project in 2013, and this has in October, 2015 culminatedwith the release of a series of action steps that the OECD and G20 countries have undertaken to adopt. OECD Secretary-General Angel Gurria has stated that "Base erosion and profit shifting affects all countries, not only economically, but also as a matter of trust. BEPS is depriving countries of precious resources to jump-start growth, tackle the effects of the global economic crisis and create more and better opportunities for all. But beyond this, BEPS has been also eroding the trust of citizens in the fairness of tax systemsworldwide. The measures the authors are presenting represent the most fundamental changes to international tax rules in almost a century: theywill put an end to double non-taxation, facilitate a better alignment of taxationwith economic activity and value creation, andwhen fully implemented, these measureswill render BEPS-inspired tax planning structures ineffective".

For the paper, go here.

On 1-3 March 2016, the OECD hosted two important events for the international tax community. The Task Force on Tax and Development and the Global Forum on Transfer Pricing gathered over 230 participants representing 84 jurisdictions and 11 international and regional organisations.

For the OECD release, go here.

The U.S. expects to finalize its rules on country-by-country reporting by June 30, Treasury Deputy Assistant Secretary for International Tax Affairs Robert Stack told Bloomberg BNA, adding that he hopes other countrieswill be flexible about the effective date of their own rules.
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The Treasury Department expects to issue final regulations requiring country-by-country reporting by June 30, in time to apply to tax years beginning in the second half of 2016, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
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Allowing taxpayers to provide amounts in their country-by-country reports that can't be reconciledwith those reported in their financial statements or tax returnswould undermine the IRS's ability to effectively use the information, according to a group monitoring the OECD's base erosion and profit-shifting action plan.
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The New Zealand Government passed awide-ranging taxation Bill on February 24 2016,which includes measures that clarify GST and R&D tax rules for companies.

For the ITR story, go here.

Congress can take steps now to stop corporate inversionswhile itworks on a more permanent solution, Council of Economic Advisers Chair Jason Furman told Joint Economic Committee members March 2.
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One of the most beneficial stepswe can take to grow our economy is to reform our broken, outdated tax code.
International tax reform is an important part of this overhaul to make the United States a more competitive place to invest and create jobs.
For the York News-Times op-ed, go here.

The Group of 20 finance ministers has endorsed the OECD's new framework thatwould allow all interested countries and jurisdictions to join in implementing the final recommendations of its BEPS project.
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Ken Brewer exploreswhether an anti-inversion measure recently announced by Treasury and the IRS could be invalidated under the non-delegation doctrine or the presumption against extraterritorial effect.
For the Tax Notes article, go here. (subscription required)

The IRS has issued Rev. Rul. 2016-8, 2016-11 IRB 1, removing the previously applicable restrictions under sections 901(j) and 952(a)(5) that denied a foreign tax credit for income taxes paid to Cuba and disallowed deferral on income earned in Cuba through a controlled foreign corporation.

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The U.S. may opt out of new standards for permanent establishment from the OECD regardless of how this year's debate on applying the new standards plays out, a U.S. official said.
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The European Union's competition chief sought to dispel "misunderstandings" and rebut U.S. claims that her clampdown on preferential tax deals unfairly targets American companies as regulators prepare to rule on Apple Inc.'s fiscal pactwith Ireland.
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Requiring member states to recover unlawful aid given to multinational enterprises in the form of favorable transfer pricing treatment is intended to remove economic distortion rather than to penalize the affected companies, EU Competition Commissioner Margrethe Vestager argued in a February 29 letter to Treasury Secretary Jacob Lew.
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G-20 finance ministers on February 27 endorsed the OECD's proposal for an inclusive framework for all other countries and jurisdictions towork on base erosion and profit-shifting project implementation on an equal footingwith OECD and G-20 countries.
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States considering tax haven legislation to address the taxation of foreign-source income are headed in awrong -- and possibly unconstitutional -- direction, according to a March 1 report from the research foundation of the Council On State Taxation.
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Ajay Gupta examines the allegations of political motivation against the European Commission's state aid investigations into the transfer pricing agreements reached by U.S. multinational enterpriseswith tax authorities in several member states.
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The Netherlands,which holds the rotating European Union presidency, insisted itwill push to get an agreement by the end of June on the recently proposed Anti-Tax Avoidance Directive (ATAD), but in order to do so itwon't oppose splitting the legislation in two.

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Lowell D. Yoder of McDermottwill & Emery examines revised temporary regulations (T.D. 9733) that expand the tax code Section 956 indirect investment rule. The revised rules "require taxpayers to evaluatewhether any transfer of funds made by a CFC to a related foreign corporation that holds an investment in U.S. property might be subject to the indirect investment rule," hewrites.

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