Int'l Tax News

Uncertainty on policy and the chances of intense media focusÔøΩespecially over issues of international base erosion and profit shiftingÔøΩhave elevated tax issues from a compartmentalized concern to a key issue in corporate decision-making, according to two chief financial officers.
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Taking more and better cases to court is the best route for the Internal Revenue Service to advocate for its position on the transfer of high-value intangibles in cost sharing, the agency's former chief economist, R.william Morgan, told Bloomberg BNA.
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A discussion draft on risk, recharacterization, and special measures issued by the Organization for Economic Cooperation and Development could be made more clearwith the addition of direct language on the role of contracts, a U.S. Treasury official said.
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Do multinationals pay their fair share of taxes? The European Commission is not convinced; it has launched investigations targeting member states that in its view give multinationals preferential tax treatment. On 12 February, Parliament decided to conduct its own inquiry by setting up a special committee on tax rulings.

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The European Commission today launched itswork on its ambitious agenda to combat tax avoidance and aggressive tax planning. The College of Commissioners held a first orientation debate on possible key actions to ensure a fairer and more transparent approach to taxation in the EU.

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Industry groups have criticized a new law that caps access to a tax offset scheme designed to encourage corporate investment in research and development in Australia.

The Tax Laws Amendment (Research and Development) Bill, first introduced in 2013with the aim of scaling back the R&D incentive,was passed by parliament Feb. 12,when the House of Representatives, the lower chamber, accepted major amendments made by the Senate two days earlier.

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A U.S. parent corporation must increase its earnings and profits by the amount of its foreign income inclusionwith respect to a subsidiary regardless of the year of inclusion.

In an Internal Revenue Service Office of Chief Counsel advice memorandum (AM 2015-001) released Feb. 13, the IRS said that the appropriate time to increase a U.S. shareholders's earnings and profitswith respect to a foreign subsidiary is at the time of the foreign income inclusion under tax code Section 951, not at the time of a previously taxed income distribution from the subsidiary to the parent.

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Repatriation policy changes should be left as part of broad tax reform thatwould include a shift to a territorial system because otherwise such changeswould have questionable revenue effects and could make tax reform more difficult, Curtis Dubay of the Heritage Foundation said in a February 17 report.

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At a public consultation on the OECD's discussion draft on interest deductions, participants lamented the impracticality of a groupwide allocation approach and debated how a fixed ratio test could provide the flexibility needed to address base erosion and profit shiftingwithout hurting legitimate financing arrangements.

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While admitting there is no specific time frame for the release of the much-anticipated anti-inversion regulations, a Treasury official said February 17 that the regs could be released this year.

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Rather than adopt a fixed ratio or group-wide test to determine the deductibility of interest on related-party debt, the Organization for Economic Cooperation and Development should combine both tests, business delegates said at a public consultation in Paris.

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The Treasury Department dropped a heightened "substantial business activities" test from a legislative proposal to counteract inversions after receiving feedback from taxpayers that the rules could capture legitimate mergers, according to a Treasury official.

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The Treasury Department possibly could issue rules implementing its anti-inversions Notice 2014-52 by the end of 2015, a key agency official said.

"This is a priority of ours andwewill definitely be issuing regulations," Brenda Zent, a taxation specialist in Treasury's Office of International Tax Counsel, said at a Feb. 17 forum.

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The U.K.will continue strong support for the Organization for Economic Cooperation and Development's project on base erosion and profit shifting even as itworks to make the country attractive for business and investment, an official said.

"The U.K believes in low taxes, but taxes that are paid," Benedictwagner-Rundell, first secretary (economic) at the British Embassy inwashington, said Feb. 12. During the past five years, he said, alongwith a tax overhaul to help the business environment, there has been "a real effort to clamp down more on tax avoidance."

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When economist Jason Furman looks at the U.S. economy, he sees a bunch of distortionsÔøΩdecisions made for tax reasons, rather than business ones.

"I like to refer to our system right now not asworldwide, but as a stupid territorial tax system," Furman, chair of thewhite House Council of Economic Advisers, said at a Feb. 12 event hosted by the Tax Council Policy Institute.

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Deferral's day has passed, said Senate Finance Committee ranking member Ronwyden (D-Ore.).

The system needs change, he said in a speech to the Tax Council Policy Institute on Feb. 12.wyden said hewants to retain the credits multinational companies get for the taxes they pay overseas, but made no secret of his distaste for the same companies' ability to keep profits abroad to escape U.S. taxes.

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Treasury's 'Green Book,' released February 2, 2015, outlines the Administration's FY16 Budget proposals. It explains a new proposal for a 19% minimum tax on foreign income and a one-time 14% transition tax on previously untaxed foreign income. It also significantly changes some international tax proposals made in previous Budgets. The Budget reaffirms President Obama's support for 'business tax reform' thatwould lower the top US corporate rate to 28% (25% for domestic manufacturing income).

For the PwC Insight, go here.

On February 2, 2015, the Obama Administration released its fiscal year 2016 Budget (the Budget) and companion Green Book. This Tax Insight summarizes the US inbound-specific proposals in the Budget. Some of the more noteworthy proposals include restrictions on US interest deductibility generally, restrictions on deductibility of interest and royalties in certain hybrid arrangements, aswell as a broadened controlled foreign corporation definition.

For the PwC Insight, go here.

President Obama's proposed budget envisions a nearly half-trillion-dollar transportation construction spree thatwould seek to upgrade the nation's roads, bridges and ports by imposing new taxes on overseas earnings by American companies.

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American companies are happy to see President Barack Obama get the ball rolling on corporate-tax reform. They just don't likewhere it's going.

The president has proposed letting companies bring back the approximately $2 trillion of profits now held at overseas subsidiaries at a tax rate of 14%. His proposalwould then tax their ongoing foreign earnings at a minimum of 19% -- a discount to the 35% standard corporate rate, but still higher than zero.

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The U.S. supports a framework that allows multiple countries to examine one taxpayer simultaneously, but challenges remain, a top IRS official said.

"I think joint and multilateral audits make good sense," Large Business & International Division Deputy Commissioner Douglas O'Donnell told Bloomberg BNA Feb. 13 following a discussion of "cooperative compliance" at a global tax symposium hosted by the Tax Council Policy Institute.

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The Organization for Economic Cooperation and Development is more favorably disposed toward mandatory binding arbitration than a recent discussion draft on dispute resolution indicates, an OECD official said.

"This is one of the issues discussed extensively in the OECD," said Grace Perez-Navarro, deputy directorwith the Center for Tax Policy and Administration, speaking Feb. 13 on a panel at the Tax Council Policy Institute's annual symposium.

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The country-by-country reporting template now being developed by the Organization for Economic Cooperation and Development could be a vehicle for serious misjudgments, an Internal Revenue Service official said Feb. 13.

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Companies should anticipate that some countrieswill leak the country-by-country reporting template developed by the Organization for Economic Cooperation and Development to the press, three U.S. corporate tax officials said.

Ronald Dickel, vice president of global tax and tradewith Intel, said Feb. 13 that once the country-by-country reporting template is adopted, "we are just assuming that it is going to get leaked."

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The Organization for Economic Cooperation and Developmentwill continue to pursue an "aggressive timetable" for completingwork on the action plan for its base erosion and profit shifting project as more countries begin to take unilateral action, an OECD official said.

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The IRS and Treasury Department may lack authority under existing information reporting and collection mechanisms to implement country-by-country reporting, according to Michael Danilack, former deputy commissioner (international), IRS Large Business and International Division, nowwith PricewaterhouseCoopers LLP.

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Country-by-country reporting is "going to be a nightmare, a real game-changer" for corporate tax departments, said Ronald D. Dickel, vice president of finance and director of global tax and trade at Intel Corp., at a tax conference inwashington February 13.

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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.