Int'l Tax News

A proposed regulation from the Treasury Department that eliminates the taxation exception for foreign goodwill in Section 367 arose from frustrations about how to define the term, a Treasury official said.

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

If the United States can't take on comprehensive tax reform, it should at least come upwith legislation to directly address inversions and earnings stripping, a top Treasury official said.
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Multinationals and the government are much morewilling to go to court to resolve transfer pricing disputes than they used to be, an IRS official said.
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There is a misconception that U.S. companies are the only participants in global tax avoidance strategies because they are the most recognized names in the news, said Thomas Neubig, deputy head of the Tax Policy and Statistics Division at the OECD's Centre for Tax Policy and Administration.
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On 16 December 2015, Japan's coalition leading parties released the 2016 Tax Reform Outline (Outline). The Outline includes both favorable proposals, such as a further corporate tax rate reduction and unfavorable proposals, such as further limitation of an annual net operating loss (NOL) deduction. A new transfer pricing documentation rulewill be introduced,which is in linewith the Organisation for Economic Co-operation and Development's (OECD) on Transfer Pricing (TP) Documentation and Country-by-Country Reporting (CbCR) as a part of the Base Erosion and Profit Shifting (BEPS) project.
For the EY report, go here.

Quarterly capitalists should gird themselves for disappointment.with post-tax earnings running around 10 percent of national income, according to the Bureau of Economic Analysis, U.S. companies are close to the peak of profitability not seen since at least the late 1960s. High levels of corporate profit are a global phenomenon, too. Competition, disruption and tax policy – not to mentionweaker growth – are set to change all that.
For the Reuters article, go here.

Australiantaxauthorities on Thursday published the records of hundreds of companies, includingGoogleand Apple,which show that they paid little or notaxon their earnings in the country.
Of more than 1,500 largely foreign-owned companies that reported total earnings over 100 million Australian dollars ($72.11 million) in the 2014 financial year, more than one-third paid notax, theAustralian Taxation Officedata showed.
For the Reuters story, go here.

The clarification of some aspects of the 2014 inversion notice (Notice 2014-52, 2014-42 IRB 712) in Notice 2015-79, 2015-49 IRB 775, should not be taken as a sign that there isn't more to come, cautioned Brenda Zent, special adviser, Treasury Office of International Tax Counsel.
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The Treasury Department hopes to release a finished copy of the U.S. model treaty in early 2016, an official said.
Quyen Huynh, associate international tax counsel for Treasury, said Dec. 17 that the U.S. hopes a completed version of the modelwill be a factor in the discussions over the limitation-on-benefits provisions in the Organization for Economic Cooperation and Development Model Tax Convention in February, but that the two documents aren't expected to be identical.
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The government continues towork on more guidance to address abusive inversions, and earnings stripping is still part of that process, a Treasury Department official said.

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While the European Commission's state aid cases are still ongoing and the U.S. government has not yet analyzedwhether any recovered state aid is eligible for its foreign tax credit, the commission's actions raise questionswhether the EU can handle political pressure on tax avoidancewhile still maintaining a fair system, a Treasury official said December 17.
For the TNT story, go here. (subscription required)

Pfizer's $160 billion acquisition of Allergan shows that highly-mobile American companies are still looking to "self-help" action such as inversion as the US tax code fails them on competitiveness.
For the ITR article, go here.

The transactional profit split method may be applied under the OECD's transfer pricing guidelines only if it is the most appropriate transfer pricing method, the head of the organization's transfer pricing unit said.

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Samuel C. Thompson Jr. argues that moving to a territorial systemwould create a stealth tax cut for U.S. corporations and likelyworsen the problem of base erosion and profit shifting.
For the Tax Notes article, go here. (subscription required)

PwC has submitted comment letters on the IRS's proposed regulations under Section 367 and temporary regulations under Section 482. Both comment letterswere submitted to the IRS and Treasury on December 15, 2015.
For the comment letters, gohere.

Proposed regulations aimed at attacking "aggressive" tax positions on the outbound transfers of intangibles is unsound, two Big 4 accounting firms said, urging Treasury towithdraw the guidance or amend it significantly.
Deloitte Tax LLPandPricewaterhouseCoopers LLPsubmitted Dec. 15 comment letters on Internal Revenue Service proposed regulations (REG-139483-13) that eliminate the foreign goodwill and going concern exceptions under Treasury Regulations Section 1.367(d)-1T.
For the DTR story, go here. (subscription required)

With the final deadlines for the OECD's BEPS Project falling at the end of this year, 2016was always going to be a year dominated by questions about implementation.while BEPS-related activity is not the only issue on the horizon, that alonewill ensure multinationals are kept busy over the next 12 months. Joe Stanley-Smith and Matthew Gilleard look through the peephole to analyse taxpayer hopes, fears and expectations for the year ahead.
For the ITR article, go here.

The Peruvian Congress recently enacted a law (Law 30341)which grants a three-year income tax exemption for capital gains realized in connectionwith the disposition of shares - or other securities representing shares - traded on the Peruvian Stock Exchange. This new exemptionwill be effective fromJanuary 1, 2016 through December 31, 2018.

For the PwC Insight, gohere.

It sounds so simple: Streamline the tax code, simplify the rules andwatch the U.S. economy blossom.
That's the message coming from just about every presidential candidate, at least. Virtually all of them contend that the U.S. tax code is broken,with too many complexities, loopholes that favor thewealthy and the highest corporate tax rate in the developedworld.
For the Yahoo! article, go here.

The U.S. needs a tax treatywith Liechtenstein, a jurisdictionwith a huge financial industry that has been classified as a tax haven by some but has been partnering in the fight against financial crime in recent years, 17 House lawmakers told the Treasury Department.

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Martin Sullivan has a good article in thisweek's Tax Notes, called "A Middle Path for Stopping Inversions.
Sullivan notes that the main issue posed by inversions such as that by Pfizer and Allergan "involves a loss of revenue, not employment .... Pfizer's operational headquarterswill remain in Manhattan - just as the operational headquarters of Allergan, legally resident in Ireland, has remained in Parsippany, New Jersey."
For the blog post, go here.

Activist investor Carl Icahn is taking on Congress over corporate tax inversions.
In a New York Times op-ed, Icahnwarns that if action isn't taken soon,we can expect more U.S. companies to follow the lead of the recent Allergan-Pfizer merger. The deal,which he notes as the largest inversion ever, moves a big U.S.-based drug company to Ireland to reduce its tax bill. Icahn claims to have spoken to many CEOswho have confirmed plans to follow in Pfizer's footsteps.
For the Fortune story, go here.

In economic analysis, Martin A. Sullivan proposes away to deter inversions by U.S. companies that is not dependent on full tax reform or narrowly targeted to only firms that invert.
For the Tax Notes article, go here. (subscription required)

Radhakishan Rawal of PricewaterhouseCoopers LLP offers his perspective on proposed Article XX dealingwith the taxation of fees for technical services in the U.N. Model Double Taxation Convention Between Developed and Developing Countries.
For the Tax Notes practice article, go here. (subscription required)

Lastweek, Hillary Clinton's campaign released an ambitious plan for curbingtaxinversions. It's a good start, even if much more is needed.
First, a little context.
For thewashington Post column, go here.

In this article, Brewer suggests that the periodic adjustment regulations under section 482 may be invalid to the extent that they override the statute of limitations for taxable transfers of intangible property.

For the Tax Notes article, go here. (subscription required)

Japan on Thursday movedcloser to cutting its corporate tax below 30%,with a plan for reducing the effective rate to 29.97% next fiscal year, clearing an important hurdle in the ruling coalition.
This rate,which represents the portion of corporate income paid in central and local government taxes, now stands at 32.11%. The ruling bloc seeks to lower it for the third year running.
For the Nikkei Asian Review story, go here.

ThePfizer-Allergan deal is a travesty.Pfizer,which is based in New York,will move overseas by mergingwithAllergan, based in Ireland, in a maneuver known as a corporate inversion. The point isn't to find corporate synergy. It is to leave behind our uncompetitive internationaltaxsystem.

Not only is this the largest inversion in history, but itwill also open the floodgates for other companies to leave the United States, further eroding ourtaxbase, damaging our economy and costing many thousands of jobs.

This is not just me speculating. I have spoken to many chief executiveswho confirm they are planning to followPfizer's lead. Butwhile this inversion has set off a firestorm of public statements by our leading presidential candidates and other politicians, Congress continues to do nothing.

For the New York Times article, gohere.

The roll out of enhanced tax exemptions for offshore private equity funds, the improvement of intellectual property and treasury centre incentives, the expansion of Hong Kong's tax treaty network and the putting in place of arrangements for automatic exchanges of information are the focus areas of this article by Ayesha Macpherson Lau, Darren Bowdern, Michael Olesnicky, and Curtis Ng.

For the ITR story, gohere.

The planned merger of Pfizer and Allergen to create an Irish parent company, a transaction often called an inversion, has rekindled concerns about U.S. multinationals that combinewith foreign corporations and move their residence overseas to reduce their income taxes. Political leaders in both partieswant to stop inversions, but their solutions differ radically, reducing the chance anythingwill happen. ManyDemocratswould make inversions more difficult orcostly. In contrast, mostRepublicanswould lower the corporate tax rate or move to a territorial system to reduce firms' incentive to leave.

But the debate misses the real point: Inversions are only one part of a larger problem.

For the taxvox article, gohere.

The OECD BEPS project has now produced its final reports. But the extent towhich the project's recommendations are eventually translated into international tax practice is still very uncertain – not least because of the potential conflict between the gains from international co-operationwith other countries and the gains from competingwith them. The conference critically reviewed the proposals made by the OECD, and discussed the appropriate responses from the UK, and other countries, to specific proposals.

Speakers came from all sides of the debate: the OECD, the UK government, multinational business, professional firms and academia.
For the conference video and booklet, go here.

Hillary Clinton arguedwednesday that executive action could be used to crack down on companies that shift profits overseas to lower their taxes.
The Democratic presidential front-runner used a campaign event in Iowa to roll out her proposal to stop corporate inversions ÔøΩ a type of transaction inwhich a U.S. corporation mergeswith a foreign company and then reincorporates the combined company in a foreign country to lower its tax burden.
For The Hill story, go here.

Estonia pulled out of the proposed European financial transaction tax (FTT) on Tuesday December 8, but the remaining 10 member states have made good progress during the latest discussions.
For the ITR story, go here.

Tax considerations have been responsible for a lot of deal flow of late, including real estate investment trust spinoffs (Darden, Sears,windstream), new energy master limited partnerships, and, of course, corporate inversions (Coca-Cola Enterprises, CF Industries, Burger King/Tim Hortons). But deal flow tends to be cyclical, and the tax phase iswaning.
For the New York Times article, go here.

Ten European Union member states took an "essential step" in narrowing their differences on the scope of a financial transactions taxwith a commitment to finalize an agreement by June 2016.
At the same time, the EU received a bluntwarning from the U.K. of a likely legal challenge if the tax has an extraterritorial impact on the nation's financial markets.

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

European Union finance ministers backed a comprehensive plan to introduce the OECD's base erosion and profit shifting plan thatwill include a new legislative package in January from the European Commission, aswell as a new mandate for the Code of Conduct Group for Business Taxation.
For the DTR story, go here. (subscription required)

Treasury and IRS officials stressed December 8 that their new anti-inversion noticewas an attempt to target high-profile tax-motivated transactions, and they answered questions about application of the anti-stuffing rule to serial inversions.
For the TNT story, go here. (subscription required)

Earnings-stripping guidance is a possibility, but not a certainty, as the government continues its crackdown on corporate inversions, Treasury Department and IRS officials said.

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When James Callaghan introduced corporation tax to Britain in 1965, the Labour chancellor proudly described it as "a new landmark in our fiscal history".

Fifty years on, enthusiasm for the tax is in short supply. It has been complicated by reams of legislation, cut back by governmentswanting to appeal to investors and tarnished by repeated scandals over avoidance.
For the Financial Times story, go here.

After the cost-sharing regulations put a crimp in expatriation of valuable intangibles, taxpayers used partnerships to get around them. They contributed intellectual property to a partnership and allocated the associated income or gain to related foreign partners thatweren't subject to U.S. taxation. They used accepted section 704(c) methods for allocation of built-in gain, but avoided the remedial allocation method.

So Treasury recently announced that itwill issue section 721(c) regulations underwhich section 721 nonrecognition treatmentwill not be permitted unless partnership allocations are made using the remedial allocation method as augmented by the new rules.
For the TNT story, go here. (subscription required)

Ninety percent of emissions in 41 countries are priced below the low-end estimate of the climate cost of carbon dioxide emissions, and 70 percent are priced at less than one-sixth of that estimate, implying there is hardly any policy-driven price incentive to reduce emissions, according to an OECD report.
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