Int'l Tax News

The OECD's base erosion and profit-shifting project has dominated the international tax scene for over a year. Ever since the G-20 tasked the organizationwith finding solutions to the perceived problem of multinationals paying low effective tax rates, the international tax community has talked about little else. The OECD hoped that BEPSwould preempt unilateral action by developing countries (particularly India, China, and Brazil) to move away from its model treaty and the arm's-length method. In that regard, the BEPS project tried to steal the thunder of another group that has yet to be taken seriously by the developedworld: the United Nations' tax committee.

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The European Commission is promoting its Tax Transparency Package, published March 18, as a tool for "healthier" tax competition aswell as for helping member states identify abusive tax practices.

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Luxembourg's status as a fortress ofwealth in the heart of Europe is in peril.
The country transformed itself from a rural economy into the European Union's richest in less than a century by swapping fields and steel mills for hedge funds and multinationals. That model may now be at risk from regulatory clampdowns, first on banking secrecy and now on the corporate tax accords that helped bring the profits of giant companies such as Amazon.com Inc. to the nation.
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Lowell D. Yoder of McDermottwill & Emery and Marjorie Rollinson, IRS deputy associate chief counsel (international), discussed the application of subpart F rules to intragroup services at the International Tax Institute luncheon on March 18 in New York.

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New tax-transparency requirements between multinational corporations and European governments may be broadened further this year to encompass public disclosure of the companies' tax arrangements in Europe.

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European Union officials onwednesday proposed new rules to try to discourage tax-avoidance dealswith multinational corporations,which critics say give some countries unfair business advantages.

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by Rebecca Christie and Stephanie Bodoni (Bloomberg Business)

The European Union launched a new salvo in its battle against tax evasionwith a slate of proposals thatwould make it harder for companies to avoid taxes.

Countrieswould need to share information on cross-border tax rulings every three months under one piece of the tax package, announced in Brusselswednesday.

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The Obama administration just can'twin. Despite a crackdown on foreign mergers that help American firms slash their tax bills, a slew of overseas takeovers continue to rob the Treasury Department of tax revenue.

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The current U.S. system of international taxation is complex and induces inefficient behavioral responses, Rosanne Altshuler of Rutgers University said at a March 17 Senate Finance Committee hearing atwhich she highlighted six areas that are important for U.S. policymakers to consider as they contemplate international tax reform.

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Countries interested in promoting mandatory binding arbitration to resolve double tax disputes may have found away forward, despite a lack of consensus from countries participating in the Organization for Economic Cooperation and Development's project on base erosion, a Treasury Department official said.

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by Jeffrey M. Kadet (Tax Analysts)

Jeffery M. Kadet suggests two approaches to identifying controlled foreign corporation earnings that should be subject to the full 35 percent corporate tax ratewhen transitioning to a new tax system.

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by Senate.gov

There is no normative reason to privilege foreign business income beyond allowing a credit for foreign income taxes, Stephen Shay of Harvard Law School said at a March 17 Senate Finance Committee hearing atwhich he recommended taxing foreign business income broadlywhile allowing a foreign tax credit, alongwith other international tax reforms.

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Anthony H. Smith of Thermo Fisher Scientific Inc. at a March 17 Senate Finance Committee hearing suggested several specific areas Congress should prioritizewhen considering U.S. international tax system reform,which he said should be designed to end the uncertainly that currently pervades the tax system for U.S. companieswith global operations.

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The European Commission today presented a package of tax transparency measures as part of its ambitious agendato tackle corporate tax avoidance and harmful tax competition in the EU. A key element of this Tax Transparency Package is a proposal to introduce the automatic exchange of information between Member States on their tax rulings.

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The U.S. international tax system has fallen behind other countries' efforts to attract investment and promote growth, and it is time for Congress to enact tax reform that reduces the U.S. rate, broadens the base, and increases U.S. competitiveness, Pamela Olson of PricewaterhouseCoopers LLP said at a March 17 Senate Finance Committee hearing.

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U.K. Chancellor of the Exchequer George Osborne announced an array of tax cuts, higher economic growth, and help for the North Sea oil industry in a push for a Conservative victory in May's general election.
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The OECD's nexus approach toward patent boxes under the base erosion and profit-shifting project should serve as awake-up call for the United States if itwishes to keep research and developmentwithin its borders, Senate Finance Committee member Charles E. Schumer, D-N.Y., said at a March 17 committee hearing.

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The treasurer of a U.S. company that is projecting a global tax rate of less than 3 percent this year said the country's tax system makes it difficult to compete in overseas markets.

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The notion of moving an overhaul of international taxes on a separate track than a business tax code rewrite may have the approval of some in the businessworld, but policy makers and practitioners say it isn't likely.

During a March 17 Senate Finance Committee hearing on making international tax law more competitive, Sen. Pat Roberts (R-Kan.) asked awitnesswhether splitting off an international tax revamp to curb base erosion and profit shifting aswell as corporate inversionswas preferable towaiting for a broader tax code overhaul.

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When the Obama administration changed the rulesto make it harder for US companies to move their headquartersÔøΩand their taxable profitsÔøΩoverseas through the reverse mergers called tax inversions, it put the kibosh on at least one such deal. But now critics of the move say rules have made it easier for foreign companies to scoop up USfirms.

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The Internal Revenue Service erred in partially disallowing taxpayer BMC Software Inc.'s repatriated dividends tax deduction under tax code Section 965, a federal appeals court held (BMC Software, Inc. v. Commissioner, 5th Cir., No. 13-60684, 3/13/15.

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The U.K. treasury agency has launched a "radical" review of the country's business rates system in an effort to modernize it and change theway domestic businesses pay the tax, aiming to make it fairer to smaller businesses.

Announcing the review March 16, Chief Treasury Secretary Danny Alexander said the 30-year-old system needs to better reflect changes in property values.

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by International Tax Review

Articles on the impact of BEPS on Switzerland's overhaul of its corporate tax system; the Swiss VAT treatment of financial services; andwhat steps Switzerland is taking to adapt to exchange of information are among the articles in this year's edition of the popular country focus.

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by Joint Committee on Taxation

The Senate Committee on Finance has scheduled a public hearing on March 17, 2015, titled "Building a Competitive U.S. International Tax System." This document, prepared by the staff of the Joint Committee on Taxation, covers a number of topics related to the U.S. taxation of cross-border income.

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by Marc Heller (Burear of National Affairs)

The congressional Joint Committee on Taxation summarized U.S. international tax policy, including implications of corporate inversions, in a report to the Senate Finance Committee.

Among other features, the report (JCX-51-15), released March 16, lists inversions completed or proposed from 2009 to Nov. 15, 2014, ofwhich therewere at least 30, the JCT said. The committee prepared the report in advance of a March 17 hearing on international tax issues.

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Stephen E. Shay challenges the assertion that lockout is a primary reason to exempt multinational corporations' foreign dividends from active business income.

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In news analysis, Mindy Herzfeld examines how recent trends in cross-border deal-making illustrate the importance of U.S. international tax reform, beyond current efforts to halt corporate inversions.

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In economic analysis, Martin A. Sullivan looks at various studies that have calculated the corporate effective rate for the United States and its major economic competitors.

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by David Crew, James Fontanella-Khan and Megan Murphy (Financial Times)

A crackdown by the Obama administration on "tax inversion" deals,which allowed US companies to slash their tax bills, has had the perverse effect of prompting a sharp increase in foreign takeovers of American groups.

In September the US Treasury all but stamped out tax inversions,which enabled a US company to pay less tax by acquiring a rival from a jurisdictionwith a lower corporate tax rate, such as Ireland or the UK, and moving the combined group's domicile to that country.

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Countries should consider jointly developing a special rule to allow tax administrations to "share" corporate profits of giant multinational Internet companies, as a replacement for today's "obsolete" rules for transfer pricing and territory-based taxation, according to a French government report.

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Reducing corporate tax rates and introducing a territorial tax system should be centerpieces of reform andwould help U.S. competitiveness. studies suggest.
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The OECD's base erosion and profit-shifting project has yielded numerous unilateral actions that have been roundly criticized as undermining the very initiatives that inspired them, but according to one OECD official, there's a silver lining.
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Korea is targeting global online retailers in its expanded VAT legislation,whichwill tax the non-resident distributors of digital content to Korea customers. From July 1 2015 electronic service providerswill be charged 10% VAT on all sales made to Korean consumers, regardless ofwhether they have a Korean presence.
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A report released today by Business Roundtable reveals that the competitive disadvantage caused by an outdated tax code led to a $179 billion net loss of American companies and business assets to foreign buyers from 2003-2013. Thestudyalso finds that a 25 percent U.S. corporate tax ratewould have prevented foreign purchases of 1,300 companies during that same period.

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Business Roundtable

The United States' high statutory corporate income tax rate andworldwide system of taxation have disadvantaged U.S. businesses in the global market for cross-border mergers and acquisitions,which could have long-lasting effects on U.S. productivity,wages, and living standards, EY said in a March 10 report prepared for the Business Roundtable.
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OECD guidance on the application of the nexus approach for preferential intellectual property regimes should be flexible on the definition of qualifying IP assets, scope of qualifying research and development expenditures, and procedures for tracking and tracing of expenditures, stakeholders say.
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The Finance Act 2014 introduced substantial changes to Ireland's general anti-avoidance rule (New GAAR).

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Big businesses are gearing up to make the case for overhauling the U.S. tax system, armedwith a new study arguing that it is encouraging foreign takeovers of American firms.

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Egypt said itwill cut its top rate of income tax, three days before the start of a conference to boost investment in North Africa's largest economy.

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The Investment Industry Association of Canada is adding its voice to a growing chorus of financial groups asking for extensions of time to implement rules intended to stop foreign investors from skirting the U.S.withholding tax on dividends.

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Giving U.S. companies a tax incentive to bring home overseas earnings may do more to spur growth in dividends and stock repurchases than business investment, according to a JPMorgan Chase & Co. analysis.

A one-time tax break thatwas adopted in 2004 had relatively little effect on the pace of capital spending, according to data compiled by the Federal Reserve and the Commerce Department.

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The Senate Finance Committeewill hold a hearing on improving the international tax system and improving U.S. competitiveness on March 17, at 10 a.m., in Room 215 of the Dirksen Senate Office Building, Chair Orrin G. Hatch, R-Utah, announced in a March 10 release.

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The European Commission has launched an infringement procedure against France regarding the 3% tax on dividend distributions that entered into force in 2012. The 3% tax applies to dividends and other distributions (including deemed dividends for French tax purposes) paid by French companies or French branches of non-European Union (EU) companies.

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The prospect of a corporate tax holidayfor repatriated foreign earnings is unlikely, and even if itwere to become law, itwould have minimal impact on the economic outlook, notes JPMorgan Chase & Co.

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There have been many state legislative proposals in recent months that impact international business organizations doing business in the US. Various forms of tax haven laws are already enacted in Alaska, D.C., Montana, Rhode Island, Oregon, andwest Virginia. This legislative sessionwe have seen Massachusetts, Kentucky, Maine, and New Hampshire introduce tax haven billswhile Oregon and Montana attempt to broaden their tax haven laws.

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Read this month's special features on North America and Ireland,which cover issues such as derivative forward agreements and exchangeable share transactions in Canada, US transfer pricing rules and life after the double Irish.

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Kartikeya Singh,w. Joe Murphy and Christine Saliba of PricewaterhouseCoopers present a critique of the latest proposed guidance published by the Organization for Economic Cooperation and Development on allocations of risk in connectionwith intercompany transactions. The authors argue that the OECD's proposal of "imputing moral hazard" to an intercompany transaction is a flawed application of the arm's-length principle.

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The international project to combat base erosion and profit shifting poses dangers for developing countries if it causes a shift away from a principled approach to the valuation of transactions, a Treasury official said.

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By Bret N. Bogenschneider (Tax Analysts)

Bret N. Bogenschneider argues that corporate inversions result primarily from the inability of shareholders to replace ineffective corporate management under Delaware corporate law, rather than from a failure of capital export neutrality.

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Although the United States is not prepared to support the current OECD risk and recharacterization draft, it isworking hard to find consensus that could also resolve conflicts on related drafts, said Michael McDonald, financial economist (business and international taxation), Treasury Office of Tax Analysis.

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