Int'l Tax News

President Barack Obamawill revive his pitch to revamp business taxes in his budget vision on Monday ÔøΩ including a mandatory 14 percent tax on corporate profits now stashed abroad ÔøΩ to fix roads, bridges and other infrastructure, according to awhite House document.

Obamawill propose tapping taxes on the $2 trillion in profits sitting outside the U.S. to "to make critical new investments in our roads, bridges, transit systems and freight networks as part of a $478 billion, six-year surface transportation reauthorization," according to a summary of the plan.

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President Barack Obama is making an opening bid on overhauling corporate taxes and linking it to boosting infrastructure spending, a move that could clear a rare path toward common ground in a deeply divided capital.

Mr. Obamawants U.S. companies to pay a 14% tax on the approximately $2 trillion of overseas earnings they have accumulated, awhite House official said Sunday. Theywould face a 19% minimum tax on future foreign profits. Companies could reinvest those funds in the U.S.without paying additional tax.

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A senior Treasury Department official involved in the Organization for Economic Cooperation and Development's project to combat base erosion said the first draft on risk and recharacterization should be released in a "week or so"ÔøΩand that he anticipates significant areas of continued disagreement over it, including on issues of "moral hazard."
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The IRS is 'very confident' in its authority to issue guidance regarding inverted companies to prevent the avoidance of section 956 as enunciated in its recent anti-inversion notice (Notice 2014-52, 2014-42 IRB 712), an IRS official said December 11.
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The OECD might exempt taxpayerswith consolidated group sales below a threshold amount from country-by-country reporting requirementswhen it releases its CbC reporting implementation package, a Treasury official said December 11.
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The OECD included areas of non-consensus on risk and recharacterization in its base erosion and profit-shifting discussion draft to spur comments from stakeholders, according to Michael McDonald, financial economist (business and international taxation), Treasury Office of Tax Analysis.
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The European financial transaction tax (FTT) is unlikely to be implemented by January 1 2016 as planned.
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The Spanish government, on November 27, 2014, passed Laws Nos. 26 and 27 amending the Personal Income Tax Law, the Nonresident Income Tax Law, and the Corporate Income Tax Law. The new provisionswill generally come into force for tax years beginning on or after January 1, 2015.

While the amendments to the corporate income tax regime reduce the tax rate, they also introduce measures to limit the deductibility of certain costs and the use of net operating losses. The amendments also introduce some measures in linewith the OECD's base erosion and profit shifting (BEPS) project.

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The Canadian Parliament gave final approval to legislation containing measures intended to avoid erosion of the tax base by preventing the shifting of domestic income to no- or low-tax jurisdictions.
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The U.S. government should do more to stop abusive corporate inversions and earnings stripping, a coalition of organizations seeking "an honest and fair tax code" is urging the Treasury Department.

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The Obama administration's efforts to recoup more tax revenue from cross-border financial arrangements may be hard to coordinatewith other countries, the congressional Joint Committee on Taxation said.

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Public comments are invited on this discussion draftwhich dealswithwork in relation to Action 10 ("Assure that transfer pricing outcomes are in linewith value creation" in relation to "other high risk transactions") of theAction Plan on Base Erosion and Profit Shifting(BEPS).

For the OECD release, go here.

Public comments are invited on this discussion draftwhich dealswithwork in relation to Action 10 of the OECDAction Plan on Base Erosion and Profit Shifting(BEPS).

For the OECD release, go here.

The Organization for Economic Cooperation and Development has issued a discussion draft on the use of profit splits in the context of global value chains and another on the transfer pricing aspects of cross-border commodity transactions.
Both drafts, issued Dec. 16 under Action 10 of the international project to tackle base erosion and profit shifting (BEPS), have the support of developing countries and suggest a pendulum swing in favor of source-country taxation.
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New tax legislationwill be a prominent feature of the European Commission's 2015 legislative agenda,with a proposed law requiring European Union member states to automatically exchange information on corporate tax deals negotiatedwith multinational companies, and a reworking of a pending EU common consolidated corporate tax base (CCCTB) proposal that has been blocked for nearly five years.
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The Treasury Departmentwill continue focusing on a business tax overhaul and the Organization for Economic Cooperation and Development's base erosion and profit shifting project along parallel tracks in 2015, Treasury Assistant Secretary for Tax Policy Mark Mazur said.
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The Organization for Economic Cooperation and Developmentwill issue five discussion drafts on base erosion and profit shifting (BEPS) action items thisweek, an official said.
The OECD's Raffaele Russo, head of the BEPS project, said Dec. 15 that assuming the Committee on Fiscal Affairs approves the drafts thisweek, theywill be published by the end of theweek.
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The Organization for Economic Cooperation and Developmentwill issue a discussion draft Dec. 19 on how to prevent base erosion and profit shiftingwhen groups allocate interest expenses among their members, a Treasury Department official said.
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The Treasury Department is looking atwhether inverted groups are getting inappropriate treaty benefits as itworks to stop abusive corporate inversions, a department official said.
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An Internal Revenue Service official said the agency is looking at possible tweaks to the so-called skinny-down provisions included in the anti-inversion regulations first announced in September.
"It's a fair question.we have been thinking about this, and a lot of other questions, most ofwhich have been focused on the anti-slimming rule of the notice," said Daniel McCall, special counsel in the IRS's Office of Associate Chief Counsel (International). "We may verywell think about adding a de minimis rule."
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EY's Bob Carroll, Kevin Bloomfield and Meaghan Maherwrite that corporations from emerging economies are nowwell represented in the Fortune Global 500ÔøΩtheir numbers having grown from 21 in 2000 to 132 in 2014. The authors look at how the U.S. and other advanced economies are faring, China's outlook after a significant uptick in its share of the FG500 and trends in countries' corporate tax rates.
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by: Luca Gattoni-Celli

An unreleased Joint Committee on Taxation report

obtained by Tax Analysts shows that the United States gives more favorable tax treatment to passthroughs than other developed economies, complicating the prevailing narrative that a high corporate rate best illustrates U.S. tax uncompetitiveness.

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The government is looking atways to address concerns raised by insurance companies and others on new guidance to curb corporate inversions, a Treasury Department official said.

Possible changes to the "cash box" and "skinny-down" rules under the anti-inversions Notice 2014-52 are under consideration, Douglas Poms, senior counsel in Treasury's Office of International Tax Counsel, said Jan. 30.

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by: Joint Committee on Taxation

A Joint Committee on Taxation report from October 2013, obtained by Tax Analysts andwritten at the request of the Senate Finance Committee, outlines data on the taxation of passthrough entities in Australia, Canada, Germany, Japan, and the United Kingdom.

The JCT built on reports by the OECD in 2009 and summarized the use of passthroughs by size and industry in each country. The report breaks down the data for each country according to tax rates and different business structures permitted in each country, and it summarizes influences on the choice of entity in each country.

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In news analysis, Lee A. Sheppard discusses how the European Union might dealwith the competing intellectual property tax regimes used by its members. For the article, go here. (subscription required)

by: Steven Mufson

President Obama's budget request set for release Monday includes plans for a six-year, $478 billion publicworks program thatwould be paid forwith a one-time 14 percent tax on overseas corporate profits. For the story, go here.

by: Keith Brockman

Keith Brockman, global tax director at Mars and author of the International Tax Best Practices blog, analyses BEPS Action 6 on preventing treaty abuse, calling for more balance in seeking to avoid double taxation and double non-taxation, and more guidance on the interplay between domestic law and treaty interaction. For the story, go here.

by: Joe Stanley- Smith

The 11 EU member states involved in the financial transaction tax (FTT) aim to broaden its base and lower its rates, in a bid to get the initiative back on track.For the story, go here.

President Barack Obamawill propose that U.S.-based companies pay a minimum 19 percent tax on their future foreign earnings, capturing profits that are now often beyond the government's reach.

Obamawill also seek a 14 percent mandatory tax on about $2 trillion in stockpiled offshore profits, said two people familiarwith his budget proposals, declining to be named because the documentwon't be made public until Feb. 2. Companieswould pay that tax regardless ofwhether they bring the money back to the U.S., the two said, creating a revenue stream the presidentwould use to pay for roads, bridges and other infrastructure projects.

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The OECD's December 19 discussion draft on risk, recharacterization, and special measures "is not a document that the United Stateswould agree to in its current form," Brian Jenn, attorney-adviser, Treasury Office of International Tax Counsel, said January 30.
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The administration proposal to tax foreign earnings U.S. companies have parked offshore fills in important details of a plan that officials have been discussing in broad terms for several years.
One prominent feature is that itwould be mandatory. Instead of relying on ultralow tax rates to induce companies to bring their money home voluntarily, as some lawmakers have recently proposed, President Barack Obamawants to impose a 14% tax on those profits. He alsowould tax future foreign profits at 19% -- far lower than his proposed 28% top rate for corporate profits and the existing 35% top rate.
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Claiming troublesome chapters could undermine the arm's-length principle, a Treasury Department official said the U.S.won't support the current issued by the OECD under its Base Erosion and Profit Shifting (BEPS) plan.
"This isn't a consensus document," said Brian Jenn, an attorney-adviser in Treasury's Office of International Tax Counsel and a U.S. delegate to the Organization for Economic Cooperation and Development's BEPS project.
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In addition to espousing various principles to guide the enactment of comprehensive tax reform, Spitzer askswhywe should only lightly tax an activitywe seek to discourage (consumption of carbon-based sources of energy)while heavily taxing an activitywe seek to encourage (employment). The views expressed here are strictly his own.
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The Swedish tax agency haswarned that tax planning undertaken by companies involving external loans related to acquisitions may pose a threat to the Swedish corporate tax base.
In 2009, Sweden introduced rules imposing restrictions on the deductibility of interest on intragroup loans used for intragroup acquisitions of shares. In 2013, these ruleswere tightened so that under the main rule, tax deduction for interest payments on all loans from affiliated companies may be denied
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Spain's secretary of state for the Treasury announced that in 2015 the governmentwill adopt the Organization for Economic Cooperation and Development's proposed country-by-country reporting template, under Action 13 of the international project to combat base erosion and profit shifting (BEPS), according to EY LLP.
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European Union finance ministers completed an overhaul of EU parent-subsidiary legislation designed to eliminate double taxation from hybrid loan mismatches aswell add an anti-abuse rule to curb tax avoidance and aggressive tax planning by corporate groups.
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by European Commission

With the Council's adoption of the anti-abuse clause of the Parent Subsidiary Directive today, the European Union is living up to its pledge of tackling tax evasion and aggressive tax planning. Today,we are building on the existing EU legislative framework to ensure a level-playing field for honest businesses in the EU's Single Market andwe are closing down loopholes that could be exploited for aggressive tax planning. This achievement paves theway for other measures in this area. In particular,we are committed to extending the automatic exchange of information on tax rulings andwewill present a legal proposal by Spring 2015," said Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs.

For the release, go here.

Thomas J. Brennan and Robert L. McDonald show that the delta test in prop. reg. section 1.871-15 can be affected by superficial labeling, and they propose improved alternatives.
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Perhaps surprisingly, this Article has shown that the debate over formulary apportionment is little more than an alternative path to the larger debate overworldwide taxation versus territorial taxation. The present U.S. international income tax regime for U.S. MNEs is an implicit, overly-generous, and incoherent quasi-territorial system that relies on residence rules, source rules, and the arm's-length approach to apportion international business profits between domestic income that is currently taxable by the United States and foreign income that is effectively exempt, or nearly so, from U.S. taxation because of deferral and cross-crediting. This version of territoriality is quite ugly because it is highly complex and it imposes only modest restraints on the ability of U.S. MNEs to shift income out of the U.S. tax base to low-tax foreign countries.

For the paper, go here.

by PwC

The March 1, 2015, implementation date for South Africa's newwithholding tax on interest is fast approaching. Thewithholding taxwas initially intended to take effect January 1, 2015. However, itwas further delayed to give domestic debt issuers and the South African Revenue Service time to put administrative compliance measures in place. This Tax Insight covers some aspects of the new tax that South African interest payers and foreign recipients should consider before March 1.

For the PwC Tax Insight, go here.

President Barack Obama lastweek called on Congress to close tax loopholes that allow some corporations to avoid paying their fair share of taxes at the expense of hardworking Americans.

Congress must act now to close a loophole that could allow corporate tax dodgers towalk awaywith $34 billion over the next 10 years. For the article, go here.

The ECJ has provided precision to the technical debate on fixed establishment around article 44 of the VAT directive, relating specifically to fixed establishment in the context of an e-commerce activity, inwelmory v Dyrektor Izby Skarbowejw Gdansku (C-605/12). For the story, go here.

The IRS has chosen to pursue a hard-line economic substance litigation strategy that treats transactions structured to take advantage of foreign tax credits the same as earlier tax shelters, such as Son-of-BOSS, but hasn't achieved the same level of success.
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Diana Furchtgott-Roth suggests that eliminating the corporate income taxwould reduce the complexity of the tax code, attract investment to the United States, and increase economic growth.
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The tax laws in Ukraine have been changing rapidly. Several new laws introduce significant amendments to the Ukrainian Tax Code. These amendments are designed to (1) simplify Ukrainian tax administration to ease the conditions of doing business in Ukraine and improve the country's investment climate, and (2) raise revenue to finance government expenses. Thus, these measures could have both positive and negative impacts on Ukrainian taxpayers.

This Tax Insight focuses on the most significant changes to the Ukrainian corporate profits tax rules.

For the PwC Tax Insight, go here.

Tax reform proposed by former Houseways and Means Committee Chair Dave Campwould discriminate against the intangible property (IP) of foreign affiliates of U.S.-based multinationals, raise taxes on IP income, and stimulate inversions, Matthew J. Slaughter said in a January report sponsored by the Tax Innovation Equality Coalition.

For the report, go here.

The Korean Supreme Court ruled that payments made for the use of patents registered outside Korea for domestic use is not considered Korean-source income. Thus, royalty payments made by Korean-based payers to foreign persons for the use of certain patents registered outside Korea for manufacturing, distribution or other functionswithin Korea is not subject to tax in Korea. As a result, some US taxpayers should consider seeking refund claims for taxeswithheld on payments from Korea.
For the PwC Insight, go here.

Although the international project to combat base erosion and profit shifting (BEPS) is only half finished, thework done so far by the Organization for Economic Cooperation and Developmentwill trigger radical changes in multinational structures in 2015 and beyond, practitioners said. Among the high-profile casualties anticipated are intellectual property cash boxes in zero-tax jurisdictions; 2015 could be the year they go away.

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The growth of global tax transparency is expected to leap ahead in 2015ÔøΩmeaning companies, individual taxpayers and financial institutions must exercise new levels of caution, practitioners told Bloomberg BNA.
With more than 100 intergovernmental agreements under the Foreign Account Tax Compliance Act and dozens of countries signing on to participate in the Organization for Economic Cooperation and Development's common reporting standard, the groundwork is being laid for a new level of cross-border information sharing, they said.
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Multinational enterprises (MNEs) may be concerned about various aspects of the six Discussion Drafts released lastweek as part of the Base Erosion and Profit Shifting (BEPS) Action Plan.

Three of the papers arewithin Action items 8 to 10 of the BEPS Action Plan dealingwith assuring that transfer pricing outcomes are in linewith value creation. One of the other papers is the first step towards producing best practice rules to address base erosion and profit shifting through the use of interest expensewithin Action item 4 of the Plan. The latest proposed additions to the draft International VAT/GST Guidelines relate to supplies of services and intangibles to consumers, raised in the initial report on the digital economywithin Action 1. The final paper is an overarching look at the resolution process involving cross-border tax disputes.

For the PwC Bulletin, go here.