Int'l Tax News

Treasury can and should deny the tax benefits resulting from planned inversions by Johnson Controls and Pfizer Inc. by modifying a rule from 2014 that requires payment of taxes on offshore profits if the inverted U.S. corporation's foreign affiliate gives it a "hopscotch loan," Americans for Tax Fairness said in a January 27 release.
For the release, go here.

When UK chancellor George Osborne took to the stage at theworld Economic Forum in Davos to announce that revenue authority HMRC had agreed a dealwith Google to claim unpaid tax from the last decade, he probably expected plaudits – or, at least, some recognition of HMRC'swork.
For the ITR story, go here.

The Commission's proposals aim for a coordinated EUwide response to corporate tax avoidance, following global standards developed by the OECD. New rules are needed to align the tax laws in all EU countries in order to fight aggressive tax practices by large companies.
For the EC release, go here.

The Israeli Parliament on January 4, 2016, amended the Income Tax Ordinance to reduce the corporate income tax rate from 26.5% to 25%, effective January 1, 2016.

For the PwC Insight, gohere.

You may have heard that a fair number of American corporations aren't so keen on being American anymore.
Just thisweek, Milwaukee-based Johnson Controls announced itwould merge Tyco,which is based in Ireland, allowing it to take advantage of the country's lower corporate tax rate. It's a gambit called a "tax inversion." Basically, a bigger American company mergeswith a smaller company located elsewhere so that, on paper, it's "based" in the lower tax country. This generally changes little-to-nothing of the company's operations.
For Theweek article, go here.

During the lunch break at a tax conference in Lisbon last January, Iwas fortunate to be seated next to a brilliant tax professor from the U.K., Rita de la Feria. Shortly afterwe exchanged the usual pleasantries, she asked me a pointed question. Although it required little thought to answer, the question itself raised issues that have colored how I view recent events – including developments in international taxation – in Europe.
For the Forbes article, go here.

Last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how theworld'swealthy elite can avoid paying taxes.
His messagewas clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments.
For the Bloomberg story, go here.

New rules are needed to align the tax laws in all 28 EU countries in order to fight aggressive tax practices by large companies efficiently and effectively.
The European Commission has today opened up a new chapter in its campaign for fair, efficient and growth-friendly taxation in the EUwith new proposals to tackle corporate tax avoidance. The Anti Tax Avoidance Package calls on Member States to take a stronger and more coordinated stance against companies that seek to avoid paying their fair share of tax and to implement the international standards against base erosion and profit shifting.
For the related documents, go here.

Today, the European Commission issued proposed directives related to the Organisation for Economic Co-operation and Development's (OECD) final recommendations on its base erosion and profit shifting (BEPS) project.ways and Means Chairman Kevin Brady (R-TX) explained how the documents prove once again thatwashington must move forward on international tax reform.
For the release, go here.

During the lunch break at a tax conference in Lisbon last January, Iwas fortunate to be seated next to a brilliant tax professor from the U.K., Rita de la Feria. Shortly afterwe exchanged the usual pleasantries, she asked me a pointed question. Although it required little thought to answer, the question itself raised issues that have colored how I view recent events – including developments in international taxation – in Europe.
For the Forbes article, go here.

Although government rulemakers have heard anecdotally that some planned inversions "haven't happened" as a result of restrictions in IRS guidance, "wewon't know for awhile how effective the guidance has been," an agency official said.

For the DTR story, go here. (subscription required)

At the New York State Bar Association Tax Section annual meeting, members of Treasury and the tax bar discussed the newwave of corporate inversions, including Johnson Controls-Tyco, aswell as current and future anti-inversion guidance to address those inversions.
For the TNT story, go here. (subscription required)

The muted cheers that greeted the announcement of Google's British tax deal at the end of lastweek have rapidly turned into a chorus of boos from all sides of the political arena.

The British public can be forgiven for raising a sceptical eyebrow at this settlement. True, HM Revenue & Customs has squeezed more corporation tax from the US technology group's groaning coffers. Under the agreement, Googlewill pay roughly £30m a year rather than the £20m it coughed up before.
For the Financial Times story, go here.

In the early 21st century most cross-border income is untaxed. In the case of multinationals, this is because the source jurisdiction either lacks the authority to tax because in the age of electronic commerce it is easy to avoid the required physical presence in the source country; or because source jurisdictions grant tax holidays to multinationals. Residence jurisdictions do not tax active income currently for fear that multinationalswill establish their headquarters elsewhere, as the current US inversion saga confirms. In the case of individuals, exchange of information has not proven effective in deterring tax evasion via offshore secrecy jurisdictions, and nowithholding taxes are levied by source jurisdictions.

The problemwith this state of affairs is that in the absence of taxation of cross-border flows, the progressive income tax cannot be maintained, because it is easier for thewealthy to earn cross-border income. The result has been aworld-wide shift to taxing consumption rather than income. But consumption taxes are regressive, and cannot by definition reach the unconsumed income of the rich. Andwithout progressive taxation, itwill not be possible to maintain the public's commitment to social insurance that is globalization's main defense against growing inequality.

While both the MAATM and the BEPS projects are helpful, neither is likely to solve the underlying issues described above. In both cases the problem is that too many countries need to cooperate for the regime to be effective. In the case of MAATM, every tax haven has to sign on because otherwise all the funds can be routed through the non-cooperating haven.we are far from there, and the US has not implemented MAATM (it has implemented FATCA, but that applies only for US residents and can be avoided by using financial institutionswith no US presence.)

For the paper, go here.

The European Commission's anti-tax avoidance package is expected to contain provisions aimed at preventing unfair competition from countries outside the European Union, including sanctions against companies that use tax havens, according to documents obtained by Bloomberg BNA.
For the DTR story, go here. (subscription required)

A hotly anticipated anti-tax-avoidance package scheduled to be released by the European Commission January 28 contains a proposed antiavoidance directive that includes a limit on interest deductibility and an exit tax but omits provisions for a permanent establishment standard, according to a copy of the proposals obtained by Tax Analysts.
For thewWTD story, go here. (subscription required)

In the fall of 2008,withGeneral MotorsandChrysleron the precipice of bankruptcy, executives at the car parts supplierJohnson Controlsflew towashington. The company's president testified before a Senate panel and implored lawmakers to bail out the auto industry.
''Speaking for our company, and, I am sure for all auto parts suppliers,we respectfully urge the members of this committee, and the Congress as awhole, to provide the financial support the automakers need at this critical time,'' Keithwandell, then the president of Johnson Controls, said,warning that the failure of even one automobile companywould ''implode'' the supply chain and lead to broad job losses
For the New York Times story, go here.

In this report, Clausing summarizes her recent research estimating the effect of profit shifting on corporate tax base erosion in the United States. She also extends her analysis for a speculative estimate of base erosion consequences for other countries and discusses the policy implications of the steadily increasing base erosion and profit-shifting problem.
For the report, go here.

After being in effect for 15 years, Ghana's Internal Revenue Act, 2000 (IRA) has been replaced by Income Tax Act, 2015.

The new Act,whichwas published in the Official Gazette on September 1, 2105, and took effect January 1, 2016, differs significantly from the IRA in many areas, such as taxation of resident persons on aworldwide basis, special tax rules for specified industries, presumptive taxes for individuals, indirect transfers, thin capitalization, transfer pricing, employment taxes,withholding taxes, and transitional tax administration provisions.

For the PwC Insight, gohere.

When UK chancellor George Osborne took to the stage at theworld Economic Forum in Davos to announce that revenue authority HMRC had agreed a dealwith Google to claim unpaid tax from the last decade, he probably expected plaudits – or, at least, some recognition of HMRC'swork.
For the ITR story, go here.

Differenceswithin Belgium's ruling coalition over a European financial transaction tax cast further doubt on the proposal,which is championed by a group of 10 EU states but opposed by the financial industry.

For the Politico story,go here.

Downing Street distanced itself on Monday from George Osborne's claim that the tax dealwith Google represented "a major success", amid growing criticism of the settlement.

Google's agreement to pay £130m in back taxes to the UK government has reignited a controversy that pushed tax avoidance to the top of the international agenda three years ago.

For the Financial Times story, go here.

MPs and tax experts are calling for more explanation of a deal between Google and tax authorities that ended a long-running probe.

Mike Devereux of the Oxford university Centre for Business Taxation, said the outcome ÔøΩ a payment of £130m for the 10 years to 2015 ÔøΩ mightwell be reasonable. But he called on HM Revenue & Customs to reveal the basis of the settlement. "Why can't they make a statement: these are the principleswhichwe are applying?"

For the Financial Times story, go here.

In November of 2014, hundreds of advanced tax agreement (ATAs) issued by Luxembourg's Administration des Contributions Directes (Luxembourg's Inland Revenue, or LACD) to multinational corporate taxpayers (MNCs)were made public. Using an original dataset generated from a hand-coded sample of 172 leaked documents, the Article explores LACD administrative practices in issuing ATAs. The analysis demonstrates how a jurisdiction can be made a tax-haven by administrative practices, rather than by state law. LACD cannot be reasonably viewed – as some have suggested in LACD's defense – a passive player in MNCs' tax avoidance schemes. Rather, LACD is best described as a manufacturer of tax arbitrage opportunities. Specifically, evenwhen the tax laws of the jurisdictions of residence (i.e., investors) and source (i.e., investment) are harmonized, LACD produced regulatory instruments thatwere intended to artificially create legal differences between the tax laws of the source and residence jurisdictions. MNCs could then exploit the manufactured tax differences to their advantage. LACD collected a fee thatwas functionally linked to the amount of taxes avoided by MNCs in the other jurisdictions.

For the paper, go here.

The issue ofwhen companieswill be considered tax residents of foreign countries under guidance intended to curb inversions is a critical one, practitioners told Bloomberg BNA in a series of interviews.
As more companies go global, answers to that question are becoming increasingly complex, they said.
For the DTR story, go here. (subscription required)

The European Commission on Jan. 27 plans to propose a new anti-tax avoidance directive designed to implement various components of the OECD's BEPS plan, to force multinational companies to pay tax in the EU member statewhere profits are actually earned, an EU executive body official said.
For the DTR story, go here. (subscription required)

Patrick Driessen explains his fears that the recent renaissance of source-based taxes lessens the likelihood that inequalitywill be reduced by the use of residence-based taxation.
For the Tax Notes viewpoint, go here. (subscription required)

Mindy Herzfeld reviews the latest state aid decision issued by the European Commission finding that Belgium's excess profits regime violates the state aid rules, and discusseswhat that ruling could mean for the tax liabilities and earnings of taxpayers.
For the TNI story, go here. (subscription required)

Arkadiusz Myszkowski, a solicitor in England andwales, discusses the limited recommendations made in the OECD's final report on action 5 of the base erosion and profit-shifting project, saying they reflect a lack of agreement on the merits of tax competition.
For the TNT report, go here. (subscription required)

Jenswittendorff discusses the OECD's final report on actions 8-10 of the base erosion and profit-shifting project and the new arm's-length principle therein, focusing on the rules on risk allocation and intangible profit allocation.
For the TNI viewpoint, go here. (subscription required)

Top Chinese leaders have already pledged to cut taxes and expand the government budget deficit this year to support economic growth,which slowed to its lowest level in 25 years in 2015.
For the Fiscal Times story, go here.

The Treasury Department is exploringwhether to give U.S. multinational companies the option to file country-by-country reportswith the IRS in 2016 even though the Internal Revenue Service's reporting requirement does not apply to most taxpayers until after Jan. 1, 2017, an official said.

For the DTR story, go here. (subscription required)

The IRSwill characterize foreign base company sales income based on the substance of the transaction and not on how it is designated by parties to a deal, the agency's Large Business and International Division told its agents.

For the DTR story, go here. (subscription required)

Belgium, France and the Netherlands must eliminate corporate tax exemptions or tax reductions allowed to companies that manage 25 sea ports, including the two largest in Europe at Rotterdam and Antwerp, according to a Jan. 21 European Commission competition authority ruling.

For the DTR story, go here. (subscription required)

Lingering disagreement between the United States and other countries that participated in the OECD's base erosion and profit-shifting project reflect thewidespread perception that multinationals have been systematically engaged in abusive tax avoidance, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
For the TNT story, go here. (subscription required)

The European Commission has ordered the Netherlands to end its corporate tax exemptions for six publicly owned seaports and has proposed changes to Belgian and French legislation thatwould tax ports in the sameway as other enterprises.
For thewWTD story, go here. (subscription required)

A tax on securities tradingÔøΩwith the potential to raise hundreds of billions over a decadeÔøΩcould be used as an offset in tax overhaul compromises in the coming years.
The possibility of introducing a financial transactions taxÔøΩwhich usually taxes the purchase or sale of stocks, bonds or derivativesÔøΩhas gained momentumwith proposals from lawmakers and Democratic primary presidential candidates touting the tax's ability to raise significant revenue.
For the DTR story, go here. (subscription required)

All three Democratic presidential hopefuls, Hillary Clinton, Martin O'Malley, and Bernie Sanders, have proposed financial transactions taxes (FTTs). But could such a levy raise much money and reduce financial sector risk, as their supporters hope? Perhaps, according to a report by my Tax Policy Center colleagues. But if not carefully designed, the tax could do more harm than good to the financial markets and raise much less revenue than proponents hope.
For the Forbes article, go here.

On November 13 2015 the Australian and German finance ministers, Mathias Cormann andwolfgang Schauble, signed a new double tax agreement in Berlin. The agreement represents the first post-BEPS treaty agreed between two major economies.

For the ITR story, go here.

Venezuela published two decrees on December 30, 2015: one amends certain provisions of the existing Income Tax Law; the other creates a new tax on 'large financial transactions.

For the PwC Insight, gohere.

Some of the biggest changes in India's transfer pricing regimewill take place in the February budgetwhen aspects of the OECD's action plan on base erosion and profit shifting are expected to be introduced.

For the DTR story, go here. (subscription required)

Although a financial transactions taxwould raise a significant amount of revenue from a large base, itwould likely increase market volatility and "appears poorly targeted at the kinds of financial-sector excesses that led to the Great Recession," researcherswith the Urban-Brookings Tax Policy Center said in a January report.
For the report, go here.

Jonathan Leigh Pemberton and Alicja Majdanska discuss initiatives to address aggressive tax planning, focusing on the potential of the cooperative compliance model to reconcile the competing goals of tax administrations and multinational enterprises and examining the benefits of this model for developing countries.
For the TNI article, go here. (subscription required)

The UK draft Finance Bill 2016was published on December 9 2015. Sandy Bhogal, head of tax at Mayer Brown in London, focuses on two topics of particular interest – new rules on taxation of performance-linked rewards for investment managers and new anti-hybrid rules arising out of the OECD's BEPS Project.
For the ITR article, go here.

Perhaps the only consensus in U.S. politics is that the Byzantine and loophole-riddled corporate tax code needs reform. Hillary Clintonwants to curb the ability of companies to use overseas subsidiaries to shield profits from taxes, and such tax-avoidance strategies have been denounced by other candidates in the 2016 presidential election, including Donald Trump, Bernie Sanders and Jeb Bush, aswell as by President Barack Obama.
For the Bloomberg story, go here.

Plans to restrict the generous tax treatment of interest costs ÔøΩ a key aspect of Britain's business-friendly taxation regime ÔøΩ are unnecessary and potentially damaging, companies have told the Treasury.

Professional bodies and business groups are voicing fears about the restrictions that are set to be introduced as part of a global crackdown on corporate tax avoidance.

For the Financial Times story, go here.

Peter Nias, international tax specialist barrister at Pump Court Tax Chambers in London, analyses trends in international tax dispute resolution, looking at alternative dispute resolution methods andwhether the OECD's recentwork in this area represents a missed opportunity.
For the ITR article, go here.

The European Parliament has adopted a nonbinding resolution that money recovered in state aid cases should be transferred to the countries hurt by illegal tax deals or into a general EU fund.
For thewWTD story, go here. (subscription required)