Int'l Tax News

Mindy Herzfeld reviews the recently concluded annual meeting of the United Nations tax committee and discusses the reactions of the committee and nations in the developingworld to the final reports released in the OECD's BEPS project.
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Plans by 11 European Union member states to agree on a financial transactions tax (FTT) base by the end of the year face an important crossroads Nov. 9,when finance ministerswill try to resolve differences on exemptions.
Pushed by France to reach an agreement in advance of the upcoming United Nations climate change summit in Paris on Nov. 30–Dec. 11, the 11 EU finance ministerswill try to resolve differences overwhether the scope of the FTT should exempt pension funds and life insurance trading, aswell as some derivatives used by businesses to hedge against currency exchange and other risks.
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The OECD focus group taskedwith overseeing the negotiation of a multilateral tax treaty, under Action 15 of the international project to combat base erosion and profit shifting, has established a subgroup on arbitration.

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Kimberly Tan Majure and Monica Zubler of KPMG look at country-by-country reporting requirements under the OECD's base erosion and profit shifting program, and at questions multinational groups face in characterizing partnerships and entities that have made U.S. check-the-box elections. "It doesn't take long for the difficulties posed by partnerships to play out on the CbyC report," the authorswrite.
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The rules that subject some services income earned by controlled foreign corporations of U.S. multinationals to current tax under subpart F do not make sense in a modern service-based economy and should be repealed as part of international tax reform, practitioners said November 6.
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The University of Chicago put about 150 of the smartest tax lawyers in a room to debate the merits of a minimum tax on U.S. multinationals' foreign earnings -- something Congress is considering as more and more U.S. corporations relocate overseas -- and therewas little love for the idea.
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The European Commission's October announcement that Fiat and Starbucks violated state aid rules indicates the commission is taking on a dual role as both a supranational tax auditor enforcing the OECD guidelines and a regulator free to impose its own standards, according to Géry Bombeke of Baker & McKenzie in Brussels.
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IRS examiners get new instructions on how to audit situations involving the licensing of intangibles and the transfer of intangibles offshore in two sets of training materials issued by the Large Business and International Division. One unit tells agents how to look at situationswhere a U.S. parent has licensed intangible property to a foreign subsidiary , and the other provides audit instructions for caseswhere taxpayers have tried to reduce or eliminate tax under tax code Section 367(d)when transferring intangibles offshore.

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Lowell Yoder of McDermottwill & Emery examines operation of the Subpart F "30-day exception" for short-term loans between controlled foreign corporations and U.S. parents,which applies only if the CFC doesn't hold for 60 or more days obligations of related U.S. persons thatwould otherwise be subject to Section 956.
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Despite news that Pfizer Inc. is considering inverting to engage in a debt push-down strategy thatwould generate interest deductions allowing the pharmaceutical company to reduce its U.S. tax bill, Treasury's position on future earnings stripping guidance hasn't changed since the IRS issued its 2014 anti-inversion notice.
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The time of gaming the international tax system is over for big business, following the endorsement of the OECD's Base Erosion and Profit Shifting (BEPS) project
For the economia story, go here.

The latest meeting of the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes took place in Bridgetown, Barbados between October 29 and October 31.

For the ITR story, go here.

When I contemplate the spectacle of a New York City company combiningwith a company based in Parsippany, N.J., to form a company based in Ireland, I can't decidewhether to laugh or rant. So Iwill do a little of both.
What I'm talking about, of course, is the attempt by New York-based Pfizer to lower its income tax bills by buying New Jersey-based Allergan,which is a faux-Irish firm nominally based in Dublin. Pfizerwould become an Irish company, presumably called Pfizer PLC.
Polite people call this a corporate inversion ÔøΩ but I call it desertion. Pfizerwants to keep all the benefits of being in the United States ÔøΩ our rule of law, deep financial markets, great places for employees to live, first-rate education systems ÔøΩwithout having to pay for them.
For thewashington Post story, go here.

The European Commission is reportedly investigating Dutch tax rulings for Microsoft Corp., Pfizer Inc., GlaxoSmithKline PLC, and Kraft Foods Inc. (now Mondelez International Inc.), but neither the commission nor the Dutch Ministry of Financewould confirm the information reported by a Dutch newspaper.
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Dutch government tax rulings signedwith Microsoft Corp., Kraft Foods Inc. and pharmaceutical companies Pfizer Inc. and GlaxoSmithKline Plc are among more than 300 being reviewed for offering illegal state aid. According to officials, the EU is seeking to determinewhether they provide the kind of illegal transfer pricing arrangements and corporate tax rate reductions the Netherlands gave to Starbucks Corp.
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The government is exploring its options on the controversial area of earnings stripping as itworks on regulations to implement the anti-inversions Notice 2014-52, a senior Treasury Department official said.
Douglas Poms, senior counsel in the Treasury Office of International Tax Counsel, said the agency continues to consider earnings stripping possibilities "in a manner consistentwith the notice," but no definite course of action has been decided, includingwhether earnings stripping might be addressed as part of the inversions guidance now underway.
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Treasury is open to narrowing its rule that eliminated the foreign goodwill exception in the context of recognition of gain upon outbound transfers so that such an elimination does not apply in cases inwhich there is no likelihood of abuse, a Treasury official said November 4.
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As Brazil endures economic and political instability, the valuation of businesses for M&A purposes is suffering.
For the ITR story, go here.

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has issued a statement of outcomes on its October 29-30 meeting held in Bridgetown, Barbados, duringwhich participants reiterated their commitment to implementing automatic information exchange and agreed on a framework for the next round of peer reviews.
For the summary, go here.

Eurodad has issued a report on the role of the European Union and its member states in supporting an unjust tax system, finding that the EU continues to allow awide range of options for tax dodging by multinational corporations and excludes developing countries from decision-making processes regarding international tax standards.
For the report, go here.

An international tax climate that has grown increasingly hostile to U.S. multinationals is an outgrowth of corporate tax planning strategies run amokÔøΩand enabled by ineffective transfer pricing enforcement, a former IRS official said.

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Over the last seven years, America has flexed its muscles at tax havens everywhere.withSchwarzenegger-like bulk, the U.S. has crushedSwiss banks and rootedout U.S. account holdersworldwide.with its ambitious FATCA undertaking, the U.S. has cowed theworld into submission. making foreign banks and foreign governments handoverwhatwould be secret bank data about depositors.
Yet ironically, a new reportby the Tax Justice Network says that the U.S. doesn't practicewhat it preaches. Indeed, the report ranks America as one of theworst. How bad?worse than the Cayman Islands.
For the Forbes story, go here.

Measures he championed in a comprehensive tax reform bill in Congress last year are still needed to grow the U.S. economy and improve its global competitiveness, former Rep. Dave Camp told AICPA members Monday at the 2015 National Tax Conference inwashington.
For the Journal of Accountancy story, go here.

Ajay Gupta compares the Court of Justice of the European Union's recent ruling that bitcoin is currency for EU VAT purposeswith IRS Notice 2014-21 declaring the cryptocurrency to be property, and considers how to determine its situs for U.S. transfer tax purposes.
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In 1968, McClay started a drug company in Craigavon, a half-hour's drive from Belfast. Not one to stand on ceremony, he sometimes held employee meetingswhile he peeled potatoes in the company kitchen. After McClay took his Galen Holdings public in 1997, he became one of his country's most active philanthropists andwas knighted by the Queen.

But his company may have a bigger impact than McClay,who died in 2010, everwould have guessed. Galen has turned into a vessel that has allowed four successively larger American drug companies to pull their operations out from under the U.S. tax regime. Pfizer, theworld's largest drug company, could be the fifth to renounce its U.S. corporate citizenship and reduce its corporate taxes.

For the Bloomberg story, go here.

The OECD has published its final report on the base erosion and profit shifting (BEPS) Action Plan item 4 dealingwith interest deductibility. The aim of Action 4 is to produce recommendations for best practice rules to prevent BEPS through the use of interest expense, although they do not represent a minimum standard.

For the PwC Tax Policy Bulletin, gohere.

In the first of a two-part article, James P. Fuller comments on U.S. tax developmentswith international implications, focusing this month on the 13 base erosion and profit-shifting final reports released by the OECD October 5.
For the TNI article, go here. (subscription required)

Mindy Herzfeld reviews the tax aspects of two recently announced business deals -- the Yum! Brands Inc. spinoff of its Chinese business and Dell Inc.'s proposed acquisition of EMC Corp. -- and discusses how the base erosion and profit shifting final reports might lead to unintended consequences.
For the TNI article, go here. (subscription required)

The IRS issues its agents a slew of training materials on foreign areasÔøΩsuch as the treatment of foreign base company sales and services incomeÔøΩin seven new international practice units. The units are intended to teach agents about how to approach and audit cross-border issues.
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In news analysis, Marie Sapirie says that the effect on U.S. multinationals of the OECD's base erosion and profit-shifting projectwill depend on the degree of consistency achieved in implementing the proposed changes.
For the Tax Notes article, go here. (subscription required)

In economic analysis, Martin A. Sullivan notes the growing interest in taxing normal and excess profits differently, and he sorts out the confusion overwhether excess profits should be penalized or promoted by examining the different reasons excess profits arise and the policy implications of those reasons.
For the Tax Notes article, go here. (subscription required)

In news analysis, Lee A. Sheppard discusses how the OECD's base erosion and profit-shifting project can change cash management in Europe and affect income stripping using loans.
For the Tax Notes article, go here. (subscription required)

The Obama administration is moving towards finalising measures to deter mergers designed to slash US companies' taxes as further outrage over the deals is stoked by Pfizer, the drugmaker.

After a 13-monthwait, the US Treasury could announce a second round of action to deter the inversion deals before the end of this year, saywell-connectedwashington tax experts.
For the Financial Times story, go here.

Philip Morrison of McDermottwill & Emery looks at how efforts of multinationals to shield intangible property income from U.S. taxation have evolved, and questions the potential impact of proposed "patent box" legislation intended to encourage domestic R&D.
For the BNA Insight, go here. (subscription required)

The U.S. premiere in New York on October 28 of the film The Pricewe Pay,which documentswhat the director says iswidespread tax avoidance by multinational enterprises,was followed by a panel discussion inwhich the participants said serious steps must be taken to allow shortchanged governments to meet vital social need
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Currently pending amendments to the Switzerland-U.S. tax treatywould allow for information exchange between tax authorities under a broader range of circumstances, according to testimony provided at a Senate Foreign Relations Committee hearing October 29.
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Moving between the various portions of recently issued regs that seek to address issues regarding subpart F inclusion in the context of loans involving foreign partnerships, officials from the IRS and Treasury explained their rationale for the new rules on October 29.
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One of the largest U.S. pharmaceutical companies, New York-based Pfizer Inc., may have finally found a merger partner thatwould enable it to move its domicile to Ireland and reduce its U.S. tax bill, even though the dealwould likely trigger the surrogate foreign corporation rules and be subject to limitations in a 2014 anti-inversion notice.
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Ian Read, meet Donald Trump and Hillary Clinton.

If the Pfizer Inc. chief executive officer does eventually make a dealwith Ireland-domiciled Allergan Plc, it could be away for the biggest U.S. drugmaker to finally escape the country's high corporate tax rate throughwhat's known as a tax inversion.

It could also put the drugmaker squarely in the middle of a political tug ofwar.
For the Bloomberg story, go here.

To start his new monthly column, Ralph Cunningham, the Hong Kong-based managing editor of International Tax Review, argues that capacity buildingwill be critical to BEPS implementation in the Asia-Pacific region if piecemeal, unilateral measures are to be avoided.
For the ITR column, go here.

Malta's Budget 2016was presented to parliament on October 12. See how your businesswill be affected.
For the ITR article, go here.

Read about the Swiss response to BEPS recommendations, including plans to implement the country-by-country reporting (CbCR) and information exchange provisions put forward by the OECD.
For the ITR article, go here.

In the third of a series on intangibles, Philip de Homont and Alexander Voegele, both of NERA Frankfurt, look at brand management centres in the age of BEPS.
For the ITR article, go here.

Dutch legislators published draft proposals for consolidation (fiscal unity) in the Netherlands on October 16, 2015. The legislation proposes:
a Dutch fiscal unity between a Dutch parent company and a Dutch sub-subsidiary owned by an intermediary company established in another EU member state, and
a Dutch fiscal unity between Dutch sister companies owned by an EU parent
For the PwC Insight, gohere.

Although U.S. states have been dealing for yearswith domestic issues related to base erosion and profit shifting, the OECD's BEPS project has now spurred an explosion of interest in addressing foreign-source income, particularly tax haven legislation, panelists said October 28.
For thewWTD story, go here. (subscription required)