Int'l Tax News

In news analysis, Lee A. Sheppard discusses the relationship between the United Kingdom's proposed diverted profits tax and the U.S. foreign tax credit.

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In news analysis, Kristen A. Parillo considerswhether the U.K. government's proposed diverted profits taxwould hurt its "open for business" message orwhether the proposal is a shrewd political move to appease voters ahead of the May election.

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Former IRS Large Business and International Division Deputy Commissioner Michael Danilack recently spokewith Tax Analysts' Amy S. Elliott to discuss his departure from LB&I, the international enforcement priorities he setwhile there, and his thoughts on how international examiners should be given more authority to control their cases.

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The latest plan in Congress to cut business tax rates faces a major obstacle: U.S. businesses.
Many Democrats and Republicans, including new Houseways and Means Committee Chairman Paul Ryan, agree that theywill try to reduce the 35 percent corporate tax rate and curb business tax breaks to help pay for it. They'll leave individual rates alone to avoid a politically charged fight.
The complication is that millions of U.S. businesses -- from the largest hedge funds to neighborhood restaurants -- don't pay taxes through the corporate system.

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The U.S. economy faces a number of structural challenges over the coming decade. A relatively simple change in tax lawwould help address two of these. The first problem is that U.S. corporations have roughly $2 trillion in foreign earnings parked overseas that they are unlikely to bring home because doing sowould subject them to high taxes. The second is that U.S. spending on basic and applied research has stagnated, making it harder to deliver the technological breakthroughs needed to increase productivity, competitiveness and living standards.
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As the newly installed Chairman Paul D. Ryan, R-Wis., convenes his first Houseways and Means Committee hearing on Tuesday about policies to boost our economy, undoubtedly, tax reformwill be a top priority.
Both parties in Congress talking about tax reform is great news for Americanworkers. It appears our system is so badly broken that virtually everyone agrees it's time to fix it.
But beforewe break out the champagne, it's important for us and the 114th Congress to definewhat meaningful tax reform looks like, andwhat it doesn't look like.
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The Luxembourg tax authorities have released circular LIR n 14/4,which includes more detailed guidance on the tax treatment of income derived by Luxembourg limited partnerships (Société en Commandite Simple - SCS) and Luxembourg special limited partnerships (Société en Commandite Simple Spéciale - SCSp).

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A senior IRS adviser expressedwariness about so-called special measures included in a recent draft of the Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting, claiming the potential for deviation from the arm's-length standard and arbitrary enforcementwould cause headaches for mutual agreement procedure negotiations.

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Implementing the OECD's proposal to permit "special measures" for some intangibleswould lead to a transfer pricing environmentwith no guideposts unless rules are put in place spelling outwhen a tax authority may invoke those measures, an IRS official said January 13.

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The Organization for Economic Cooperation and Development has released public comments on two discussion drafts under its Action Plan on Base Erosion and Profit ShiftingÔøΩa under Action 7 and a draft on preventing treaty abuse under Action 6.
The comments on the draft about avoiding PE status and the treaty abuse draft expressed concerns that the proposals couldlead to double taxation or major complications for transfer pricing.

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The extension of Myanmar's 5% commercial tax on previously exempt industries,which came into effect on April 1 2014, primarily applies to large and foreign corporations. Tax and industry professionals are generally positive about the changing tax regime,which augurswell for Myanmar as it attempts to create a competitive economy for foreign direct investment (FDI).
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From April 1, Japan is cutting its famously high effective corporate tax rate by 2.51 percentage points down to 32.1%,with further increases scheduled for 2016. The government has also approved a reduction on losswrite-offs and improved tax incentive schemes as Abenomics takes off in 2015.
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Congress should reconsider tax code Section 871(m) on dividend equivalents if it undertakes any broad overhaul of the U.S. tax system, a Joint Committee on Taxation attorney said.
Speaking Jan. 8 at a Practising Law Institute tax program on financial products and transactions, Viva Hammer, a legislation counsel on the committee staff, said that any "tax reform" package needs to include a look at Section 871(m),which she saidwas drafted hastily and is "widely disliked."

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The Swedish government recently received a formal notification from the European Commission (EC). In the November 26 notification, the Commission claims that Sweden's interest deduction limitation rules do not complywith European Union (EU) law. In addition, the Supreme Administrative Court (SAC) recently set aside two advance rulings on the application of the rules. The SAC stated that the rules are not suited to be assessedwithin the advance ruling procedure. As such, case law on the application of the rules may not be available until individual cases have made theirway through the normal tax assessment and court litigation procedure. This process could take many years.

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As practitioners await the release of final regulations under the dividend equivalentwithholding provision of section 871(m), Joint Committee on Taxation Legislative Counsel Viva Hammer gave them some food for thought by proposing alternatives to the regime.

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Instead of lowering the OECD model treaty's permanent establishment threshold, the OECD should assume that the threshold is correct, identify how some structures artificially sidestep it, and deviseways to prevent them from doing so, PricewaterhouseCoopers LLP said in comments on the OECD's discussion draft on BEPS action 7.

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The OECD's base erosion and profit-shifting project has led to more aggressive exchange of information requests between countries than has happened in the past, a former IRS official said January 8.

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The Internal Revenue Service is activelyworking on regulations to implement the anti-inversions Notice 2014-52, and may have additional guidance in theworks that could include action on earnings-stripping, a senior official said.
Erik H. Corwin, IRS deputy chief counsel (technical), addressed the pending regulations during a Jan. 5 forum sponsored by Bloomberg BNA Tax & Accounting and hosted by Buchanan Ingersoll & Rooney PC. "We are activelyworking on reg-ifying that notice," Corwin said.

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The Luxembourg Parliament on December 19, 2014, enacted new tax measures for corporations and individuals, including amendments to Luxembourg's transfer pricing legislation and documentation requirements.

Multinationals should consider the measures,which are effective as of January 1, 2015, as they address their existing and future Luxembourg operations. Guidance regarding certain practical aspects of some measures is still outstanding.

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With the administration, lawmakers, and pundits decrying the practice as unpatriotic, the redomiciling of U.S. companies abroad to lower tax jurisdictions following combinationswith foreign competitors took center stage in the past year.

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In news analysis, Lee A. Sheppard discusses how a recent Court of Justice of the European Union decision could help taxpayers recover overpaid dividend taxes.

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In economic analysis, Martin A. Sullivan compares the proposals in the OECD's base erosion and profit shifting draft on interest allocation to a proposal in the fiscal 2015 budget from Treasury.

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Peter Anderson,wes Cornwell, Yvonne Metcalfe and Alexward of EYwrite that global supply chains are changing rapidlyÔøΩand a range of emerging trendswill have significant impacts on both the physical supply chain and the broader business and tax operating model. The authors look at considerations arisingwith 3-D printing and other manufacturing developments, big data, supplier and customer collaboration, enhanced procurement, end-to-end cost optimization and supply chain segmentation.

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The Japanese government has agreed the first in a series of promised corporate tax cuts, as it tries to encourage cash-rich companies to raisewages to spur demand.

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The Colombian government has passed a major tax reform package that introduces a temporary netwealth tax assessed on net equity on domestic and foreign legal entities, repeals the previously scheduled rate decrease for the income tax on equality (CREE for its Spanish acronym), introduces a CREE surcharge until 2018, and increases domestic law income taxwithholding rates on cross-border payments, among other significant changes.

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America's corporate income tax rate, at 35%, is the highest in theworld. A rising choruswould like to bring it more in linewith foreign rates,which average around 23%. I have a better ideaÔøΩabolish the tax. The long-term benefitswould greatly outweigh the short-term costs. And revenue from other sources, especially the personal income tax,would quickly make up for it and then some.

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France has published a 2014 budget revision law that allows related French companies to opt for tax consolidationwith one another, evenwhen their parent company is located in another European Union state.
Companies affected by the change in the country's "fiscal unity" regime may be eligible for reimbursement of French corporate taxes paid in fiscal years 2011-13, practitioners said.

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On November 18, 2014, the Venezuelan government published Decrees N° 1,435 and N° 1,436 enacting several significant changes to the Venezuelan income tax and value added tax laws. The changes include new limits on the use of tax loss carryforwards, a repeal of inflationary tax accounting for certain taxpayers, and additional requirements for certain expense deductions.

These changes are effective as of the date of publication and applicable to taxable periods commencing on or after the date of enactment.

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The International Seabed Authority is in the process of preparing regulations specifying the payments to be required from foreign companies for deep-sea mining concessions. Some experts estimate that in the long term, mining concessions granted by the authority may produce trillions of dollars of minerals, so these regulations can eventually have a very large economic impact. For U.S. parent companies of foreign mining subsidiaries that engage in authority-licensed deep-sea mining, a crucial question iswhether the IRSwill allow them to claim an income tax credit for the amounts charged by the authority to those foreign subsidiaries. Alan S. Lederman of Gunster, Yoakley & Stewartwrites that under existing U.S. tax law the IRS is unlikely to concede an income tax credit for the payments required by the authority.

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If therewere such a thing as a tax celebrity, then Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration (CTPA),would be an A-lister. He fits the partwellwith his French accent, stylish glasses, finely tailored suits, and magnetic personality. However, it's his role in overseeing the OECD's base erosion and profit-shifting project -- arguably the most high-profile international tax reform initiative in recent history -- that is turning heads and grabbing headlines, aswell as making him TNI's person of the year.

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As part of its project to avert profit shifting, the Organization for Economic Cooperation and Development released draft guidance for implementing a value-added tax or a goods and services tax, focusing on how to determine the place of taxation for digital transactions.
The draft guidance released Dec. 18 as part of the OECD's Action Plan on Base Erosion and Profit Shifting follows up three chapters of guidance approved by the OECD's Committee on Fiscal Affairs in January.

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The Organization for Economic Cooperation and Development has released a discussion draft identifying 22 obstacles to the resolution of treaty-related disputes through the mutual agreement procedure.
The discussion draft, released Dec. 18, also listed more than 30 options for addressing the obstaclesÔøΩincluding mechanisms to encouragewider adoption of mandatory binding arbitration in treaties.

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The OECD on December 18 released a discussion draft that proposes various measures to address the obstacles that prevent countries from resolving disputes through the treaty mutual agreement procedure process.

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The OECD discussion draft on base erosion and profit-shifting project action item 4 regarding interest deductions and other financial payments considers various approaches, some including safe harbors, but one observer has cautioned that formulaic tax systems can be rifewith opportunities for double taxation.

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The Organization for Economic Cooperation and Development has issued a 93-page discussion draft on how countries ought to design their domestic laws to prevent base erosion and profit shifting through multinational companies' use of related-party debt.

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With foreign profits trapped offshore by an outdated,worldwide systemwhichwould hit themwith a tax on repatriation, aswell as a high tax rate, the temptation to consider an inversion is proving too much for US companies, particularly those in the highly-mobile pharmaceuticals sector. ITR's special report looks at the knock-on impacts of the 2014wave of inversions, including shareholder pressure to consider an option they see their rivals pursuing and the possible inflammation of the tax morality debate in the US.we also bring you exclusive insight as towhy Danaher is not looking to invert.

For the report, go here.

In this exclusive article for International Tax Review, Pascal Saint-Amans and Raffaele Russo of the OECD explain how the first half of the BEPS Project'swork starts the task of bringing coherence, substance and transparency to international tax rules around theworld.

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Denmark is focusing on combating tax havens. Amongst proposed measures, the most important is the introduction of a general anti-avoidance rule (GAAR)whichwill apply to any foreign transactionswith a Danish entity. In essence, the protection normally available to transactions under Danish tax treaties and EU Directiveswill no longer be available unless multinational companies meet certain substance and commercial reasons tests.Note that certain EU countries may be viewed as tax havens for Danish purposes.

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In economic analysis, Martin A. Sullivan discusses the tax reform report recently released by incoming Senate Finance Committee Chair Orrin G. Hatch, R-Utah.

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Bret N. Bogenschneider presents the effective tax rates for U.S. multinational corporations in a sensitivity analysis of permanently reinvested earnings seen as a percentage of total unexplained book tax differences.
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The OECD December 19 released a discussion draft addressingwork on actions 8, 9, and 10 of its base erosion and profit-shifting project, covering changes to transfer pricing rules for intangibles and addressing transfer pricing rules regarding risks and capital.
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The Organization for Economic Cooperation and Development is proposing to change its transfer pricing guidelines to prevent base erosion and profit shiftingwhen group members transfer risks to each other.
The discussion draft on risk, recharacterization and special measures issued Dec. 19 proposes significant revisions to Chapter 1 of the OECD guidelines. If adopted, revised Chapter 1would mean a paradigm shift for both companies and tax administrations given the draft's new focus on the conduct of the parties, rather than on related-party contracts, in analyzing an entity's functions, assets and risks and its interactionwith the group value chain.

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President Obama's framework for business tax reformwould reduce the corporate rate from 35% to 28%. Departing Houseways & Means Committee Chair Dave Camp, R-Michigan, does Obama one better, offering a plan that cuts the rate to 25%.

Both Obama and Camp cite "global competitiveness" as the principal justification for their reforms. Yet neither proposal is especially competitive by international standards. The average corporate rate among OECD nations is 24%. If tax reform isworth doing,why not aim high?

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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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In news analysis, Lee A. Sheppard reports on recent IRS Large Business and International Division audit practices and other guidance discussed at the International Fiscal Association USA New York branch seminar on December 18.

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Mike Gaffney calls for thewithdrawal of a 2012 generic legal advice memorandum that he believes inappropriately applies the economic substance doctrine in the tax ownership area of fungible securities.

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Patrick Driessen provides four reasons to be cautious about the adoption of a territorial tax system by the United States.

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On December 18, 2014, the Organisation for Economic Co-operation and Development (OECD) released itswork on Base Erosion and Profit Shifting (BEPS) Action 14: Make Dispute Resolution Mechanisms More Effective (the "Discussion Draft" or "Draft"). During the last decade, the OECD has issued guidance to improve dispute resolution mechanisms, including the Manual on Effective Mutual Agreement Procedures (MEMAP) in 2007. Today's global tax controversy environment, however, calls for a more focused effort to improve the effectiveness of the Mutual Agreement Procedures (MAP) in resolving treaty-related disputes.

For the PwC Bulletin, go here.

Jose Maria Garcia-Valdecasas Alloza, partner at Belaguer-Morera & Asociados and assistant lecturer at the University of Barcelona, explores upcoming changes to the Spanish tax regime,which has not been comprehensively reformed since 2004.
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The UK government has published draft legislation for the diverted profits tax (DPT) – dubbed the 'Google tax' – announced by George Osborne, Chancellor of the Exchequer, in lastweek's Autumn Statement. The consensus is that the UKwould be better servedwaiting for the delivery of international initiatives on tackling aggressive tax avoidance.
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