Int'l Tax News

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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The European Union's probe of tax deals expanded as the competition regulator asked all EU countries to give it information about financial agreementswith multinational corporations.
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European Union regulators said theywouldwiden a high-profile probe into alleged sweetheart tax deals, stepping up an investigation that already has ensnared four multinational companies including Apple Inc. and Amazon.com Inc.
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The United States Council for International Business (USCIB) condemned proposed UK rules to impose a new tax on so-called "diverted profits," saying the measurewould, if implemented, have a major impact on U.S.-based multinational companies.

For the USCIB release, go here.

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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by Zachary R. Mider(Bloomberg)

The only operetta everwritten about Subpart F of the Internal Revenue Code made its debut on a rainy Sunday evening in May 1990, in a Fifth Avenue apartment overlooking Central Park. In bow ties and spring blazers, partners of the law firm of Davis Polk &wardwell dined on lobster prepared by a Milanese chef. Then everyone gathered around a piano, and a pair of professional opera singers, joined by the few Davis Polk menwho could carry a tune, performedwhat sounded like a collaboration of Gilbert & Sullivan and Ernst & Young.

For the story, go here.

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.

Around theworld, countries are desperately seekingways to stop multinational companies from earning profitswithin their borderswithout paying taxes on them,while stashing trillions in tax havens like the Cayman Islands. The British government, after a search, says it knows how to tax the profits Google earns in the United Kingdom. Its solution is simple and elegant, and it probablywon't change a damn thing.

The proposal has come because Britain and many other countries are tired of getting just the table scraps after companies enjoywhat tax lawyers call Dutch Sandwicheswashed downwith a Double Irish. Those are popular names for tax strategies that let companies earn profits in countrieswith high taxes, but report profitswhere little or no tax is paid, such as Ireland.

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The Council of the European Union has approved an amendment to the EU Parent-Subsidiary Directive in a clampdown on aggressive corporate tax avoidance.
For the story, go here.

While the OECD considers special measures to address perceived improprieties in risk-based income allocation, stakeholders continue to disagree on fundamental issues such as the appropriate return on investment for intangibles.
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The OECD on December 16 released two discussion drafts under action 10 of its base erosion and profit-shifting project on potential guidance on the use of transactional profit-split methods and the pricing of commodity transactions.
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Daniel N. Shaviro explores the relationship between taxing corporate income at the entity level and the difficulties in evaluatingwhether a corporate rate cutwould be desirablewithout significant structural changes.
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While the media has been feasting onLux Leaksand other stories of "multinational tax dodging", academic accountants have determined that U.S. multinational corporations (MNCs) have no particular tax advantage over U.S. domestic firms.
In fact, anew studyfinds the average effective tax rate for U.S. MNCs is slightly higher than that of U.S. domestic firms: 28 percent versus 24 percent. The study calls into question policymakers' emphasis on international "profit shifting," including the elaborate efforts by theOECDand rich-country governments to crack down on MNCs exclusively.
For the story, go here.

Is it possible that today's acronym-laden, conceptually dense tax reform proposalwill become one of the biggest business stories of 2015? It's already happening.
The proposal in question is the Organization for Economic Cooperation and Development's (OECD) Action Plan on Base Erosion and Profit Shifting. This mouthful of a plan – known in tax circles as BEPS – is a tough topic for most business people towrap their arms around. But soon they'll have little choice but to become BEPS experts.
For the story, go here.

The announcement by the UK government that it is introducing a 25 per cent so-called Google tax on "contrived arrangements"within multinationalswas one of the issues raisedwith the OECD during awebcast yesterday.
The Paris-based organisation's Pascal Saint-Amans said the UK movewas "extremely interesting" as it served to illustrate the level of political concern that exists about the practice of tax avoidance by multinationals.
For the story, go here.

The OECD on Monday provided an update via awebcast of its BEPS (Base Erosion & Profit Shifting) corporate tax reform proposals.
The leading tax officials at the Paris-based Organisation for Economic Co-operation and Development, Pascal Saint-Amans , director, Centre for Tax Policy and Administration; Raffaele Russo, head of BEPS Project (left); Marlies de Ruiter, head of Tax Treaty, Transfer Pricing and Financial Transactions and Achim Pross, head of International Cooperation and Tax Administration Division, spoke of developments in the project that is due to be completed next year.
For the story, go here.

The OECD expects to release as early as December 16 discussion drafts dealingwith transfer pricing, dispute resolution, and interest deductibility as part of the base erosion and profit-shifting project.
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The European Union is braced for a legal battlewith governments embroiled in its probe of sweetheart tax deals for multinationals from Apple Inc. (AAPL) to Amazon.com Inc. (AMZN), the group of nations' new antitrust chief Margrethe Vestager said.

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There's big news from across the pond. The U.K. government'sAutumn Statement(formerly known as the pre-Budget report), released December 3, promises to change how multinational corporationswill be taxed – and offers a cautionary tale forwould-be U.S. tax reformers.

Britainwill introduce a "diverted profits" tax, targeting corporations that use "artificial arrangements" to shift profits overseas. The rate of tax on diverted profits, 25 percent,will exceed the basic U.K. statutory rate,which falls to 20 percent in April 2015.

For the story, go here.

The fourth-quarter issue of PwC;s Tax & Investment in the US covers:
• Mike Danilack joins PwC
• Paying Taxes 2015: Key aspects of the US tax system
• Captive insurance: Recent favorable US Tax Court decision
• Share-based compensation: understanding the tax accounting.

For the PwC Quarterly, go here.

As the Treasury Department considers further guidance to limit inversion transactions that are contrary to the purposes of section 7874, itwill examine the appropriateness of applying a zerowithholding tax rate under a U.S. tax treaty to interest payments made to foreign members of an inverted group, a Treasury official said December 12.
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The IRS is considering raising the de minimis threshold under its anti-inversion temporary regs (T.D. 9654), an IRS official said December 12.
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The Internal Revenue Service must remain focused on U.S. tax laws and regulations even as other countries begin adopting provisions to limit the credibility of foreign taxes similar to those being examined under the Organization for Economic Cooperation and Development's base erosion and profit shifting project, an IRS official said.

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