Int'l Tax News

The U.K. Treasury Committee has raised concerns about the government's proposed diverted profits tax, saying the draft legislation for the tax is "long and highly complex."

It alsowarned that the initiative should "not be permitted to destabilise the international effort" on base erosion and profits shifting being carried out by the Organization for Economic Cooperation and Development, according to a report released Feb. 13.

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by David D. Stewart(Tax Analysts)

The European Commission's investigations into possible illegal state aid being granted through administrative rulings aswell as unilateral actions by countries to address base erosion and profit shifting are increasing uncertainty for multinationals, according to practitioners.

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It is critical to keep new final IRS rules on foreign credit splitter transactions in mindwhen doing business in an increasingly globalworld, practitioners told Bloomberg BNA.

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Aspects of the OECD's recent draft on transfer pricing released under actions 8, 9, and 10 of the base erosion and profit-shifting project raise the danger of reallocations of income that bring transfer pricing closer to formulary apportionment, practitionerswarned February 11.

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The answer to the problem of base erosion and profit shifting is formulary apportionment, panelists said at a February 10 Capitol Hill policy briefing.

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A proposed tax on "diverted profits" likelywill be alteredÔøΩand possibly softenedÔøΩbefore it is enacted into law in the United Kingdom, according to a practitioner.

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by Vanessa Houlder (Financial Times)

The government's corporate tax reforms ÔøΩ costing the exchequer £7.5bn a year ÔøΩ are shown to have pushed the UK up by just two places to fifth in a league table of effective tax rates.

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by Meredith McBride (International Tax Review)

Indonesia has started to imprison executives for corporate tax evasion in an attempt to improve compliance.

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China's State Administration of Taxation has released updated indirect transfer rules to replace Notice 698. Tax professionals say the more stringent tax rules are bothwelcome and concerning.

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The IRS and Treasury Department on February 9 released final regs on foreign tax credit splitting events that amend previously released guidance and retain the general scope of the rules but fail to address some mechanical issues.

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New final IRS rules on foreign tax credit splitter transactionswon praise from practitioners as a reasonable approach to implementing tax code Section 909, designed to curb such splitters.

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John M. Samuels provides an expanded version of his opening remarks at a conference on corporate inversions and tax policy sponsored by the International Tax Policy Forum and the Urban Brookings Tax Policy Center on January 23.

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In this report, Jasper L. Cummings, Jr., reprises an overview of section 7874 and delves into the problem of taxpayers stumbling into accidental inversions. The report provides a decision tree for inversion avoidance and concludes that Treasury's regulatory efforts have been flawed because the statute is fundamentally inadequate to reflect Congress's goal. It proposes a more administrable goal, but argues thatwe are not likely to get there from here.

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The Internal Revenue Service faces several challenges as country-by-country reporting requirements come into play in 2015, not the least ofwhich is figuring out how to use the information that it produces, an agency official said.

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The breadth of topics discussed in this German Focus is testament to the volume of tax challenges the country faces right now. On top of implementing a flurry of changes at domestic level, including new self-disclosure rules, Germany is a key player internationally, and performs an even bigger rolewithin Europe. Alongside France, Germany is the driving force behind most regional developments, particularly those aimed at implementing pan-European harmonisation measures.

Taxpayers operating in Germany have a number of items to juggle. This German Focuswill provide you the ammunitionwithwhich to keep those balls in the air.

For the report, go here.

On 16 December 2014, the OECD invited comments from interested parties on adiscussion drafton the use of profit splits in the context of global value chains. Thiswork relates to Action 10 of the BEPS Action Plan.

The OECD is grateful to the commentators for their input, and now publishes the comments received.

For the comments, go here.

On 16 December 2014, the OECD invited comments from interested parties on a discussion drafton the transfer pricing aspects of cross-border commodity transactions. Thiswork relates to Action 10 of the BEPS Action Plan. The OECD is grateful to the commentators for their input, and now publishes the comments received.

For the comments, go here.

On 19 December 2014, the OECD invited comments from interested parties on adiscussion drafton revisions to Chapter I of the Transfer Pricing Guidelines (Including risk, recharacterisation and special measures). Thiswork relates to Actions 8, 9 and 10 of the BEPS Action Plan.

The OECD is grateful to the commentators for their input, and now publishes the comments received.

For the comments, go here.

The Central Board of Direct Taxes (CBDT) has told Indian authorities to follow the principles outlined in the Vodafone case, in a movewhichwill bring some certainty to the sub-continent.

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Multinational enterprises (MNEs) recently received additional guidance on complyingwith certain recommendations emanating from the OECD's base erosion and profits shifting (BEPS) Action Plan. MNEswill be particularly interested in the roll-out of country-by-country tax information reporting to tax authorities. Theywill also be interested in the criteria countries should require in order for them to benefit from intellectual property (IP) tax incentive regimes.

For the PwC Insight, go here.

Data on FDI stocks help to quantify the impact of globalisation and provide a measurement of longstanding economic links between countries. They measure the accumulated value of all FDI carried out in the past.

At the end of 2013, the European Union (EU) held Foreign Direct Investment (FDI) stocks of ÔøΩ4 900 billion in the rest of theworld,while stocks held by the rest of theworld in the EU amounted to ÔøΩ3 778 bn, meaning that the EU held a net investment position vis-a-vis the rest of theworld.

For release, go here.

On 18 December 2014, interested partieswere invitedto comment on the discussion draft on Action 4 (Interest Deductions and other Financial Payments) of the BEPS Action Plan. The OECD is grateful to the commentators for their input and now publishes the comments received.

For the comments, gohere.

Finance and banking officials from theworld's biggest economies vowed to adopt final actions in 2015 to fight base erosion and profit shifting and to continuework toward global automatic exchange of information for tax purposes.

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Business groups have told the Organization for Economic Cooperation and Development in an avalanche of letters that the concept of moral hazard shouldn't be imputed into a group contextwhen determining an appropriate arm's-length price.

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Switzerland plans to phase out its bank secrecy laws and change its corporate taxation system in an effort to adapt to international financial standards.

A new government report found that despite significant progress in the international financial sector, some "risks" remain, and it sets a path for adopting new policies.

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by Margaret Burow(Tax Analysts)

The OECD on February 6 released an agreement and explanatory paper containing guidance on the approach to be taken to assess preferential tax regimes,with the goals of aligning taxation of intellectual property incomewith substantial economic activity and providing transparency.

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by Amanda Athanasiou (Tax Analysts)

Receipt of country-by-country reporting datawould be conditioned upon confidentiality safeguards, consistent implementation, and avoidance of formulary apportionment under guidance the OECD released February 6 for action 13 of its base erosion and profit-shifting project.

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The Senate should approve all pending bilateral income tax treaties and protocols because they reduce barriers to trade and promote efficient tax administration and closer economic cooperation between the United States and its treaty partners, the American Institute of Certified Public Accountants urged in a February 3 letter.

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In news analysis, Marie Sapirie discusses the history of free trade zones and the danger of overusing them as a means to attract investment.

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by PwC

The Luxembourg Parliament has approved a draft law implementing the first part of the "Zukunftspakt" (The Package for the Future),which formalises the framework for Luxembourg transfer pricing legislation, and introduces transfer pricing documentation requirements. Furthermore the new legislation restates the arm's length principle. The new measures have already taken effect as from 1 January 2015.

For the PwC Insight, go here.

by: Vanessa Houlder (Financial Times)

US multinationals have attacked George Osborne's "diverted profits" tax, amid claims the crackdown is having a chilling effect on inward investment.

The tax ÔøΩ dubbed the Google tax ÔøΩ is set to come into force in April to tacklewhat the UK chancellor describes as multinationals that "go to extraordinary lengths" to cut tax bills.

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In an op-ed to be published in the February 9, 2015 edition of Thewall Street Journal Europe, U.S. Treasury Secretary Jacob J. Lew and U.K. Chancellor of the Exchequer George Osborne discuss the importance of supporting strong, sustainable and balanced global growth.

For the Treasury release, go here.

When a series of big U.S. companies last year moved to reincorporate abroad in inversion deals, some Republican lawmakers and tax policy critics blamed the high U.S. corporate tax rate. Lowering it, they said,would keep companies from fleeing the country.

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by Victor Fleischer (N.Y. Times)

Companies' offshore cash holdings are a tempting target for American taxwriters, as President Obama's proposal thisweek to tax deferred offshore earnings proves. Those same offshore earnings may attract foreign buyers aswell.

For the blog post, go here.

by Matthew Gilleard (International Tax Review)

President Obama unveiled his FY 2016 Budget plan thisweek, seeking to replace the existing deferral system for US multinational companies and impose a minimum 19% tax on their foreign earnings, aswell as charging a 14% tax on previously untaxed foreign income.

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Thisweek the President released his fiscal year 2016 budget. One of the major changes to the tax code in the budget is its alteration of the U.S.'s international corporate tax system.

Aswewrote earlier thisweek, it represents a significant change to how U.S. corporationswill pay taxes to the United States on their foreign income.

For the blog post, go here.

by: Kevin Reed (Accountancy Age)

Countries are moving aheadwith their own cross-border tax legislation, despite plans to seek global co-ordination on cutting down on egregious profit-shifting. Some 40% of EY's tax policy leaders across the globe saw "significant" tax reforms being undertaken in their country of operation, despite final recommendation on the OECD's base erosion and profit-shifting project still awaited.

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President Obama's February 2 budget proposed a 19% minimum tax on foreign earnings.whennews broke lastweekendabout the plan, all of the headlines focused on this new levy,which is designed to minimize the benefits of shifting profits and income out of the United States and into tax havens. The president has pushed such a minimum tax before, of course, but the 19% rate is new.while the minimum tax may be grabbing most of the headlines, it's the second component of the president's plan, a one-time 14% tax on deemed repatriations, that is far more important.

For the blog post, go here.

The tax proposals in President Obama's 2016 budget combine two interesting ideas for international reformwith his often-stated–but still vague– goal of a broad-based corporate tax overhaul.

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Intelchief financial officerStacy Smithwas in New Yorkwednesday andwas kind enough to stop by Barron's offices for a chat. One of the areaswhere Smithwas most passionatewas on the topic of President Barack Obama's proposal that U.S. companies pay a 14% tax to repatriate their overseas earnings.

For the story, go here.

by: Caseywooten (Bureau of National Affairs)

A one-time repatriation of offshore cashwon't resolve the long-term challenge of bringing corporate profits stashed overseas back to U.S. shores, Treasury Secretary Jacob J. Lew said during a hearing.

"Theoretically, could you separate out the international piece? You could, but itwouldn't solve thewhole problem," Lew said at a Feb. 5 Senate Finance Committee hearing inwhich he defended President Barack Obama's fiscal year 2016 budget plan.

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The Obama administration's decision to use a 19 percent rate in its proposal for instituting a global minimum tax on future foreign earningswas based in part on revenue neutrality, Treasury Secretary Jacob Lew said February 5 at a Senate Finance Committee hearing on President Obama's budget.

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by: David Kocieniewski (Bureau of National Affairs)

President Barack Obama's proposal to tax the offshore profits of U.S. corporations could encourage all but the largest companies to follow their cash hoard overseas, according to business leaders and tax lawyers.

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President Obama's proposals for a 19 percent minimum tax on foreign income and a 14 percent one-time tax on previously untaxed foreign income could make it more difficult for U.S. companies to compete overseas, despite the fact that they may move the U.S. further away from aworldwide tax system, practitioners told Bloomberg BNA.

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by: Jack Mintz and Duanjie Chen (Tax Foundation)

If there is one point of common agreement among the Democratic and Republican parties, it is the need to reform the corporate income tax code. Congressional Republicans have recommended reducing the federal corporate tax rate from 35 to 25 percentwhile President Obama has recommended a 28 percent rate. Bothwould look at removing a number of tax preferences.

For the report, go here.

by: PWC

The OECD recently published a number of Discussion Drafts as part of the Base Erosion and Profit Shifting (BEPS) Action Plan, including proposed additions to the draft International VAT/GST Guidelines on supplies of services and intangibles to consumers.

For the latest edition of VAT News, go here.

Ike Brannon and Michelle Hanlon use data obtained from a survey of biotech and pharmaceutical companies to estimate the potential effects of implementing an innovation (or patent) box in the United States.

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If there is one point of common agreement among the Democratic and Republican parties, it is the need to reform the corporate income tax code. Congressional Republicans have recommended reducing the federal corporate tax rate from 35 to 25 percentwhile President Obama has recommended a 28 percent rate. Bothwould look at removing a number of tax preferences.
For the report, go here.

In a survey of practitioners in 32 countries, EY LLP reports that more than 40 percent of the countries are "making some form of BEPS-related tax reform" before the Organization for Economic Cooperation and Development finishes itswork in September on the international project to combat base erosion and profit shifting.