Int'l Tax News

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.

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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.

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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.

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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.

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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.

The OECDwill present the latest developments in the OECD/G20 project to combat base erosion and profit shifting (BEPS) by multinational enterprises during a G20 Finance Ministers meeting on 9-10 February in Istanbul, Turkey.
For the OECD release, go here.

The European Commission has opened an in-depth investigation into a Belgian tax provision,which allows group companies to substantially reduce their corporation tax liability in Belgium on the basis of so-called "excess profit" tax rulings. In essence, the rulings allow multinational entities in Belgium to reduce their corporate tax liability by "excess profits" that allegedly result from the advantage of being part of a multinational group.

For the EC release, go here.

In a statement on the opening of an in-depth investigation into the Belgian excess profit ruling system, Commissioner Vestager said, "Today,we have opened another State aid investigation into the deals that EU tax authorities offer to certain companies – most notably to multinational corporations – that may go against EU state aid rules."

For the release, go here.

Patrick Driessen argues that the governing law requires that all forms of deferral, including deferral for foreign earnings, accrued but unrealized capital gains, and accelerated depreciation, be classified as tax expenditures.

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by: Alex M. Parker (Bureau of Nationa Affairs)

The Treasury Department is looking at a "broader" approach to addressing earnings stripping, beyond simply tightening current prohibitions against over-leverage between related parties, an official said.

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by: Richard Rubin (Bloomberg Business)

Republican lawmakers are doing something surprisingwith President Barack Obama's proposal to tax U.S. companies' overseas profits. They're calling it constructive.

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by: Keith Bradsher (New York Times)

China's tax officials plan to step up efforts to collect taxes from multinational corporations in the latest of a series of moves in the last year, mostly againstwestern companies. The activities have included police raids on the headquarters of companies' China operations and heavy fines under antimonopoly law.

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As part of the Government's aim to encourage innovation in the UK and increase tax competitiveness, a 10% tax rate now applies to profits fallingwithin the Patent Box. This provides a significant tax saving compared to the main rate of corporation tax in the UK.

Despite prospective changes to the regime, the Treasury believes that the UK Patent Box remains attractive for international groupswith significant operations in the UK aswell as for UK-based businesses. To this end, the UK tax authority (HMRC) arewilling to provide taxpayerswith some certainty over the basis, and hence, the quantum, of their Patent Box claims.

For the PwC Insight, go here.

by: Joe Kirwin (Bloomberg BNA)

Belgium became the latest European Union member state to face a legal challenge over beneficial tax regimes for multinational companies (MNCs)when the European Commission launched a probe into the country's "excess profit" tax rulings.

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The diverted profits tax, recently announced by the U.K. chancellor of the exchequer to combat profit shifting by multinational enterprises earning large profits in the U.K. but not paying commensurate tax, has provoked myriad questions regarding its applicability andworkability. Paul Rutherford of DLA Piper assesses the draft legislation and guidance.

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by: Aaron E. Lorenzo(BNA)

President Barack Obama's 14 percent repatriation tax rate proposal should be considered a starting point for negotiations, said a top aide on the Houseways and Means Committee's minority side.

A figure can be changed as talks progress, Aruna Kalyanam, Democratic tax counsel for the panel, said in response to criticism that 14 percent is not only too high but also fails to differentiate between corporate profits kept abroad in the form of cash or physically invested overseas.

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As more deals get caught up in the unsettled rules of the IRS's recent anti-inversion notice and as officials remain largely mum onwhat they'll clarify, some practitioners fear the government may keep its guidance vague to preserve the chilling effect the notice has had on tax planning.

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President Obama on February 2 submitted an FY 2016 budget to Congress that reaffirms his support for 'business tax reform' thatwould lower the top US corporate tax rate to 28 percent,with a 25-percent rate for domestic manufacturing income. The budget also proposes to make permanent certain business tax provisions, including CFC look-through and Subpart F exceptions for active financing income.

Significant new international tax increase proposals include a one-time mandatory 14-percent tax on previously untaxed foreign income and a 19-percent minimum tax on future foreign income. The budget states that 'transition' revenue from the 14-percent toll taxwould go primarily to fund surface transportation programs.

For the PwC Insight, go here.

The Obama administration's fiscal 2016 budget, released February 2, proposes changes to the U.S. international tax system thatwould result in a quasi-territorial regimewith a per-country minimum tax of 19 percent on current foreign income to act as a backstop and a mandatory 14 percent transition tax on previously untaxed foreign income.

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by: Alex M. Parker (BNA)

Pressure from all sides, including from taxpayers, might help break the logjam of treaties awaiting ratification by the Senate, a Treasury Department official said.

"Itwould be too simplistic to say, 'Well, call your congressperson, and ask them to put pressure on the right people to express your dissatisfaction,' " Douglas Poms, senior counsel in Treasury's Office of International Tax Counsel, said Jan. 30 at an American Bar Association Section of Taxation meeting in Houston.

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The IRS is taking comments on a host of issues as itworks on regulations to implement the anti-inversions Notice 2014-52, an agency official said.

It is too soon to saywhen those regulations might be completed or offer insight as to their technical content, although the rules remain a "substantial priority," said David Levine, an attorney in Branch 4 of the Internal Revenue Service Office of Chief Counsel (International).

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The two new taxes on foreign income proposed by the administration as part of its fiscal year 2016 budgetwould significantly change how the offshore earnings of U.S. multinationals are taxedÔøΩand may raise concerns for business, practitioners said.

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Bermudawill adopt a public beneficial ownership register onlywhen its major trading partnersÔøΩparticularly the U.S., the U.K. and CanadaÔøΩdo so, Finance Minister E.T. Richards said.
Richards told Bloomberg BNA on Nov. 24 that after U.K. Prime Minister David Cameron's call for British Overseas Territories to set up full, publicly available central registries to ensure corporate transparency, Bermuda undertook a comprehensive consultationwith stakeholders over several months.
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Russian authorities revised provisions of the nation's tax code related to the taxation of controlled foreign corporations.
According to a Nov. 25 statement from the presidential press-service, President Vladimir Putin signed into law Federal Law No. 376-FZ to amend parts 1 and 2 of the Russian Tax Code to counter the use of tax havens for gaining unfair tax preferences.
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Thailand has extended the corporate and personal income tax rate cuts by Royal Decrees to apply beginning in 2015. The 7% value added tax rate has also been extended for an additional year to September 30, 2015.

The Board of Investment announced a new seven-year plan and a revamp of the incentives promotion packages on August 19, 2014. The Board is expected to release specific details later this year. However,we expect the Board to scale back the tax incentives.

For the PwC Insight, go here.

PwC recently conducted an informal Base Erosion and Profit Shifting (BEPS) survey internally among a number of our PwC firms. Their overall view of the PwC partners surveyed is that it provided some useful indicators of the approaches being taken by different countries. That includes an analysis of some trends depending onwhether they are a member of the G20, the 34 OECD member states, the 44 BEPS participating countries or none of these.

For the report, go here.

Mixing a few new revenue-raising ideaswith recycled proposals, President Barack Obama's latest budget blueprint includes provisions thatwould change theway many businesses pay taxes,while financing infrastructure through new taxes on top earners and overseas earnings.

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A European Union tax official said it may be necessary for EU member states to adopt a common consolidated corporate tax base (CCCTB) in order to combat base erosion.
Hartmut Foerster, a national expertwith the European Commission's Taxation and Customs Union, said Nov. 27 that once EU member states implement the Organization for Economic Cooperation and Development's guidance on base erosion and profit shifting, the key questionwill be, "Is all of this sufficient?"
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