Int'l Tax News

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.

For the article, go here.

The Tax Foundation has published an international tax competitiveness index that evaluates and ranks the degree towhich the 34 OECD countries' tax systems promote competitiveness and neutrality through low tax burdens on business investment and awell-structured tax code.

For the index, go here.

Taxpayers and Treasury are playing a game of cat and mousewith inversions. The partnership structure used in the Burger King-Tim Hortons inversion is the latest twist in this game. Indeed, the mouse seems to be taunting the cat. This article discusses that partnership structure,which is being used to give electing Burger King shareholders tax-free treatment, and it explainswhy Treasury should challenge the transaction.

For the article, go here. (subscription required)

Politicians and some academics have identified erosion of the corporate tax base as the reason for the political furor over inversions. Treasury Secretary Jacob Lew has called again and again in recent months for stopping the transactions,which he said "function to hollow out the U.S. corporate income tax base."
But Lew also said in a September 8 speech that there is nothingwrongwith "genuine cross-border mergers." That comment reveals an inconsistency in the rhetoric about inversions, one that is illustrated by the very different public reactions to two recently announced cross-border deals. Those reactions suggest that the problemwith inversions may be one of politics and public perception of unfairness in the corporate tax system, rather than protection of the U.S. fisc.
For the story, go here. (subscription required)

When it comes to international tax competitiveness, the U.S. ranks near the bottom of 34 developed nations, according to a report from the Tax Foundation.
In the study, released Sept. 15, thewashington-based group rated the U.S. 32nd out of 34 countries that are part of the Organization for Economic Cooperation and Development.
The OECD offers a forum for governments to discuss and promote policies that improve economic and socialwell-being around theworld, according to itswebsite.
For the story, go here. (subscription required)

Any day now thewhite House and Sen. Charles Schumer (D., N.Y.)will attempt to raise taxes on business,while making the U.S. tax code even more complex. The Obama and Schumer plans to punish businesses for moving their legal domicile overseaswill arrive even as a new international ranking shows that the U.S. tax burden on business is close to theworst in the industrializedworld.way to go,washington.

On Monday the Tax Foundation,which manages thewidely followed State Business Tax Climate Index,will launch a new global benchmark, the International Tax Competitiveness Index. According to the foundation, the new index measures "the extent towhich a country's tax system adheres to two important principles of tax policy: competitiveness and neutrality."

The index takes into account more than 40 tax policy variables. And the inaugural ranking puts the U.S. at 32nd out of 34 industrialized countries in the Organization for Economic Co-operation and Development (OECD).

For the editorial, go here.

The U.S. has one of theworst tax codes in the industrializedworld, according to a new study released Monday.

The Tax Foundation, a free market group, found that the U.S. tax code ranked 32 out of 34 ÔøΩ ahead of only Portugal and France ÔøΩ among countries in the Organization for Economic Cooperation and Development (OECD).
Estonia came in first in the Tax Foundation rankings, followed by New Zealand and Switzerland. The Paris-based OECD is a collection of 34 advanced and emerging economies that offers advice on awide range of economic issues.
For the story, go here.

As the OECD prepares to deliver the first phase of its BEPS action plan in Australia thisweek, the Grant Thornton International Business Report (IBR), a survey of 2,500 senior executives in 34 economies, finds the majority of businesses calling for more transparency on acceptable planning, updated tax rules for a modern, digital economy and the harmonisation of global corporation tax rates.
Francesca Lagerberg, global leader for tax services at Grant Thornton, said: "We have been tracking business sentiment on the need for more transparency in tax planning since news surrounding the tax practices of large multinationals such as Amazon, Google and Starbucks, broke last year. And the response has been pretty clear: business leaderswant things in black andwhite. They have a responsibility to their investors and shareholders to keep costs down. In theirwords, simply telling them to pay their 'fair share' is not proving to be a viable alternative to a clear set of rules or principles."
For the release, go here.

Reactionary regulations and legislation passed in the heat of the moment may provide immediate gratification for some inwashingtonwho simplywant to punish companies that move overseas to avoidwhat is now the highest corporate tax rate of any industrialized nation and, arguably, the most complicated and convoluted Tax Code in all of history.
However, modernizing and simplifying our antiquated Tax Code is the only effective solution for stopping U.S. companies from shifting their corporate headquarters, their capital, and possibly, American jobs.
For the blog post, go here.

The ability for deferral of home country taxation on multinationals' foreign earningswithin the U.S. tax code creates an incentive for firms to avoid or delay repatriation of earnings to the U.S. Consistentwith this notion, prior research has documented a
substantial lockout effect resulting from the current U.S.worldwide tax and financial reporting systems. The authors hypothesize and find that U.S. domiciled M&A target firmswith more locked-out earnings are more attractive M&A targets for foreign bidders and are
more likely to be acquired by foreign bidders, compared to domestic bidders.

They also examine the impact of the home country tax system of the foreign acquirers. They find that foreign acquirers of U.S. target firmswith locked-out earnings are more likely to be residents of countries that use territorial tax systems.

For the paper, go here.

At this stage of globalization, most American consumers, investors and politicians have tacitly accepted that if a company is profitable, doesn't violate the law and produces appealing products and services, it can operatewherever and however it likes. That'swhy the furor over tax inversions is so intriguing.
For the story, go here.

Kimberly S. Blanchard argues thatwhile Edward D. Kleinbard and otherswant to change the rules that apply to foreign-parented corporations, she believes those changes should not lead to more anti-inversion rules.

For the letter, go here. (subscription required)

In this article, Furchtgott-Roth suggests that inversions are patriotic and that they benefit the U.S. economy because the earnings can be repatriated tax free. Thus, all those earnings can be used for investment or job creation. Despite threats from President Obama, inversionswill not vanish until corporate tax rates are lower and the United States moves to a territorial tax system.

For the viewpoint, go here. (subscription required)

Republicans and business allies such as Houseways and Means Chairman Dave Camp (R-Mich.) and the U.S. Chamber of Commerce say they know theway to stop companies from changing addresses to cut their tax bills: Overhaul the tax code.
Yet that call for the first major revision of the U.S. tax system in three decades hasn't translated into action andwon't anytime soon. There's no consensus onwhat changeswould prevent companies from fleeing the system. And the inertia inwashington is opening theway to further deals, known as inversions.
For the story, go here. (subscription required)

Clark Chandler, Stephen Blough, and Michael Plowgian of KPMGwrite that the OECD guidance on base erosion and profit shifting expected Sept. 16will affect U.S. multinationals regardless ofwhether changes in U.S. rules or practices result. Beyond simple compliancewith local law changes for MNEs' foreign operations, also likely to be affected are transfer pricing, intangibles ownership and other aspects of global operations.

For the report, go here. (Subscription required)

As practitioners await possible action from the Department of Treasury to stem the tide of corporate tax inversions, many observers think that a modified Subpart F ruleÔøΩrather than more sweeping rules to combat earnings strippingÔøΩis the likeliest route for regulations.
For the story, go here. (subscription required)

An OECD economic report on Spain has highlighted the need for the country to continuewith reforms to its fiscal framework and tax system.

For the story, go here.

A top Senate Republican on Thursday denounced the Democrats' push to curb a recentwave of offshore tax deals as "despicable," saying Democratswere more interested in scoring political points than actually solving the problem.
Sen. Orrin Hatch (Utah), the top Republican on the Finance Committee,was particularly incensed that Treasury Secretary Jack Lew and other top Democrats had questioned the "economic patriotism" of companies that sought to reincorporate abroad, slashing their tax bills in the process.
For the story, go here.

Inversions are under fire because many American corporations undergo them to subsequently reduce their U.S. tax bill, either through earnings stripping to avoid U.S. taxes on future profits, or, by avoiding U.S. taxes on profits already earned and accumulated offshore.
This document focuses on the latter, tax avoidance on profits already accumulated offshore, and argues that this problem can be addressed by requiring payment of the U.S. tax that has been deferred on these offshore profits at the pointwhen a corporation officially becomes controlled by a foreign company,whether through inversion or through other means.

For the report, go here.

As the highly anticipated release of the OECD's first set of recommendations under its base erosion and profit-shifting project draws near, Treasury International Tax Counsel Danielle Rolfes said she expects treaty abuse guidance to include a main purpose clause as an option -- one that the United Stateswill probably decline.
Rolfes spoke at a Practising Law Institute seminar on international tax issues in Chicago September 10 about the potential fate of the controversial entitlement to benefits article proposed in the March 14 BEPS discussion draft on action 6 (treaty abuse). The OECD recommends including in the model treaty both a limitation on benefits provision and a general antiabuse rule, and Rolfes said the U.S. remains committed to LOB provisions.
For the story, go here. (subscription required)

Eric Solomon, co-director of EY LLP's National Tax Department, told tax practitioners any immediate federal action curbing corporate inversionswould more likely come from the Treasury Department than Congress.
Solomon said Sept. 10 that several interesting legislative proposals have emerged in recentweeks, but the House and the Senatewould be reluctant to act in advance of the Nov. 4 general election.
Meanwhile, Solomon said the Obama administration is pledging to use its executive authority to discourage the recent pattern of tax-driven corporate mergers.
For the story, go here. (subscription required)

Republicans and business allies such as Houseways and Means Chairman Dave Camp and the U.S. Chamber of Commerce say they know theway to stop companies from changing addresses to cut their tax bills: Reform the tax code.

Yet that call for the first major revision of the U.S. tax system in three decades hasn't translated into action andwon't anytime soon. There's no consensus onwhat changeswould prevent companies from fleeing the system. And the inertia inwashington is opening theway to further deals, known as inversions.

For the story, go here.

President Barack Obama and his Democratic allies hoped to capitalize on the recentwave of companies ditching the U.S. to slice their tax bill as a populist issue to fire up the progressive base and bash Republicans as slaves to corporate interests.

So far, rather than becoming the politicalwhopper that Democrats dreamed of, the issue has turned out to be pretty much a massive dud.

For the story, go here.

Reiterating his preference to slow the corporate inversion trend through lower tax rates and more harmonized taxes on foreign earnings, Senate Finance Committee ranking member Orrin Hatch (R-Utah) said the fix lies in broadly rewriting U.S. tax law.
He has been making those points since earlier this summer.
Any inversion-focused legislation ahead of a comprehensive bill can't include retroactive elements, as Democratic proposals have, and should establish more of a territorial tax system on international earnings rather than the currentworldwide structure, Hatch said. He also demanded a revenue-neutral plan to serve as a bridge to revising the tax code.
For the story, go here. (subscription required)

Thisweek Iwent to an event held by the Urban-Brookings Tax Policy Center to hear Treasury Secretary Jacob Lew talk about the administration's disdain for corporate tax inversions – deals inwhich U.S. companies arrange to become subject to foreign tax jurisdiction through acquisition arrangements.

Lewwarned that the Treasury Departmentwould make a decision "in the very near future" onwhat action to take regarding inversions. Lew said that any action from Treasury on the issuewould be based on strong legal and policy grounds, but that thatwould be no substitute for meaningful legislation. He said thatwithout action from Congress, Treasurywill act to stem the so-called tide of inversions.

So, the Treasury secretary had nothing really new to add to the discussion on corporate tax and inversions, and I'm leftwonderingwhy anybody cares about this stuff anymore.
For the blog post, go here.

In a speech at the U.S. Chamber of Commerce today, Finance Committee Ranking Member Orrin Hatch (R-Utah) criticized the Obama Administration for attempting to politicize the recent uptick in corporate inversions and called for bipartisan congressional talks to continue.
For the Hatch release, go here.

Legislation thatwould limit earnings stripping by inverted companies by limiting future interest deductions for those companies to 25 percent of revenuewould be a helpful step forward in addressing corporate inversions and tax evasion, the Financial Accountability and Corporate Transparency (FACT) Coalition said in a September 10 release.

For the release, go here.

A senior IRS attorney told tax practitioners that the government remains committed to implementing regulations under tax code Section 367(d) regarding transfers of intangible property to foreign corporations.
John Merrick, special counsel to the Associate Chief Counsel (International), said the guidance project is designed to halt transactions intended to repatriate earnings from foreign corporationswithout appropriate recognition of income.
The guidancewould cover outbound asset reorganizations that raise significant tax policy questions.
For the story, go here. (subscription required)

Congressional Republicans appeared sour on a bill that seeks to curb corporate inversions, released by Sens. Charles E. Schumer (D-N.Y.) and Richard J. Durbin (D-Ill.), as the likelihood for a legislative deal in September dimmed further.
Released Sept. 10, the proposalwould attack corporate inversion deals, overseas mergers and acquisitions for tax purposes, by denying companies certain deductions after the deal is completed.
For the story, go here. (subscription required)

Leveling the playing field for American businesses andworkers. Making the United States more attractive for investment. Maintaining a broad tax base.
These are sound policy goals both Republicans and Democrats can agree on ÔøΩgoals that are a topic of discussion today precisely because our country's obsolete corporate tax policy is in desperate need of overhaul.
For the blog post, go here.

Today,ways and Means Committee Chairman Dave Camp (R-MI) issued the following statement on the Administration's comments on inversions and tax reform:
"Everyone agrees that tax reform is the only solution thatwill both keep companies from moving their headquarters out of the United States, and encourage more businesses to grow, hire and increasewages for Americanworkers. That iswhy I put forth an overhaul of our broken tax code,whichwould lower rates by simplifying the code and eliminating special interest loopholes.
For the statement, go here.

Two new developments in negotiations over taxes could signal improving prospects for legislation to restrict inversion deals, as lawmakers seek bipartisan solutions to address growing problems in the U.S. tax system.
For the story, go here.

Stuart L. Rosow and Martin T. Hamilton argue that Stephen E. Shay's section 385 proposal is notwithin the scope of the contemplated regulatory authority and that any normative approach to inversion transactions should come from Congress and not through regulatory proposals.

For the viewpoint, go here. (subscription required)

Congress's top taxwriters remain noncommittal about rolling out new anti-inversion legislation this month.
Talks are continuing between Senate Finance Committee Chairman Ronwyden (D-Ore.) and ranking member Orrin Hatch (R-Utah), but they have yet to yield results. Houseways and Means Committee Chairman Dave Camp (R-Mich.) called for morewhite House participation, but ranking member Sander Levin (D-Mich.) said Republicans are too entrenched to forge a bipartisan inversion bill.
For the story, go here. (subscription required)

Questions continue about possible actions by Congress and the administration to address inversions, said David Lenter, legislation counsel for the Joint Committee on Taxation.
Calling the inversions issue "a hot topic," Lenter said one such question iswhether lawmakers might act to curb these deals as part of the continuing resolution they must pass by Sept. 30 to fund government operations.
Lenter spoke at a Sept. 9 luncheon sponsored by Bloomberg BNA Tax & Accounting and hosted by Buchanan Ingersoll & Rooney PC.
For the story, go here. (subscription required)

Senator Charles Schumer may scale back his plans to limit the future deductions of U.S. companies that took foreign addresses to reduce their tax bills.

A draft bill by Schumerwould limit interest deductions for companies that inverted after April 17, 1994, a date that could mean higher taxes for companies including Tyco International Ltd. (TYC) andweatherford International Plc.

"We may change the time frame," the New York Democrat told reporters in the Capitol today.

For the story, go here.

The Obama administration can make tax inversions less economically attractive to U.S. companies if Congress doesn't act to curb the practice, Treasury Secretary Jacob J. Lew said.

Lew said a "broken" tax system iswhat prompts U.S. companies to reduce taxes by moving their addresses abroad. He reiterated today that the administrationwill decide on possible action in the "very near future" to limit inversions.

For the story, go here.

Senate Majority Leader Harry Reid said he doesn't expect the Senate to vote on legislation revamping corporate inversions this month.

"I kind of doubt it," Reid saidwhen asked if therewould be a vote in September.when askedwhy not, Reid only chuckled as hewalked into the chamber after hisweekly Tuesday press conference.

For the story, go here.

Burger King's recent decision to pursue a corporate inversion to Canada is the culmination of years of maneuvering to dodge paying its fair share in corporate taxes. In fact, Burger Kingwas able to cut its averageworldwide effective tax rate by more than 60 percent over the past few years likely through complex accounting maneuvers.
How did Burger King accomplish such a substantial tax cut?
For the blog post, go here.

The European Banking Federation launched a new attack on the plans of 11 European Union member states to adopt a financial transactions tax on the eve of new negotiations designed to try to settle differences on the scope of a levy targeted for implementation in 2016.
Citing the overwhelming opposition expressed by some EU member states led by the U.K. aswell as the European Central Bank and other independent research analysts and tax experts, the European Banking Federation said the 11 EU member states "still underestimate" the negative economic impact of the levy.
For the story, go here. (subscription required)

Inversions. Corporate tax reform. Unpatriotic companies.
It seems as if the insane tax code has finally driven everyone over the cliff. But before you break out the champagne and start celebrating the rationalization of a totally dysfunctional corporate tax structure, rememberwhat happenedwhen the budget deficit skyrocketed and everyone clamored for budget reform:
Therewas a lot of talk but no action.
While tax inversions might seem like good business for some, they have real implications for the rest of us. Just remember Naroff's First Law of Taxes: "There is no such thing as a free tax break."
For the story, go here.

The U.S. corporate tax base is slowly leaking out of the country. U.S. multinational corporations have increasingly begun to mergewith much smaller foreign corporations so as to move the corporation to a lower-tax countryÔøΩa maneuver known as a corporate inversion. In essence, the corporations are giving up U.S. "citizenship" to avoid paying U.S. taxes.
This report examines some of the issues and policy options regarding corporate inversions. It explainswhat corporate inversions are, explores common tax features of proposed inversions, analyzeswhy many corporations are now pursuing inversions, and assesses various policy options to prevent inversions.
For the report, go here.

Treasury Secretary Jacob Lew urged Congress on Monday to close tax loopholes that allow U.S. companies to avoid U.S. taxes by mergingwith foreign companies and shifting their headquarters overseas.
That tax-saving strategy is known as an inversion, and Lew said Congress should end it.
"This may be legal, but it iswrong, and our laws should change," Lew told an audience of tax experts at the Urban Institute, awashington think tank. "Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions."
For the story, go here.

Peter L. Faber contends that the IRS should not attempt to "twist" existing regulations to prevent inversions, noting that it is perfectly legal for a taxpayer to move businesses between states to avoid taxes, as long as the move actually happens.

For the letter, go here. (subscription required)

The No. 3 U.S. Senate Democrat has circulated a draft proposal to crack down on U.S. companies that invert, or mergewith foreign competitors to get lower tax rates, and itwould apply to deals as far back as 1994.
The plan developed by Senator Chuck Schumer of New Yorkwould reduce the incentives for companies to invert, according to a draft document that Reuters viewed.
For the story, go here.

Americanswanting to follow in the footsteps of Facebook co-founder Eduardo Saverin or pop diva Tina Turner and renounce their citizenshipwill have to pay five times as much thisweek as they did lastweek.
And as it is getting more expensive for individuals to cut their tieswith the US, some politicians are trying to make it more expensive for companies to leave aswell. The controversy Mr Saverin enduredwhen he quit the country before Facebook's flotation in 2012 is nothing to the brouhaha swirling around corporate tax inversions.
For the story, go here.

With tax synergiesweighing heavily into the analysis, price premiums paid in inversion deals are higher than those paid in other mergers and acquisitions.
Some of the largest M&A premiums in the last year have come from U.S. companies acquiring foreign targets to maximize tax savings and capitalize on operational synergies.while the average premium paid for U.S. targetswas at a record low for 2013 at 20 percent, inversion premiums remain highwith some near 50 percent, according to data compiled by Dealogic.
The average one-week premium paid by U.S. acquirers in 2014 is currently 29 percent, a Dealogic spokesperson told Tax Analysts. For inversions inwhich the U.S. entity is the acquirer it's 36 percent.
The difference is not entirely attributable to the value of the chance to re-domicile in a lower-tax jurisdiction, according to analysts.
For the article, go here. (subscription required)

The IRS should be more flexible for some transactions under the anti-inversion regime of tax code Section 7874 and ease the impact of January temporary and final rules, the New York State Bar Association Tax Section said.
The code section shouldn't apply in caseswhere a foreign parent corporation contributes a domestic entity to another foreign corporation and then sells the stock of that foreign corporation, the NYSBA tax section told the government in a Sept. 5 letter and report.
In its letter, the tax section said a central theme of its 60-page report is that the rules should allow for more consistent Section 7874 treatment of transactions that are economically equivalent, or at least very similar.
For the letter and report, go here. (subscription required)

A proposal from a top Senate Democrat could limit deductions for companies that moved their tax addresses out of the U.S. as long ago as 1994, according to a draft obtained by Bloomberg News.

The legislative proposal,which faces high hurdles in a deadlocked Congress, may become part of Democrats' attempts to penalize companies that cut their tax billswith cross-border maneuvers known as inversions and get added to their political strategy to blame Republicans.

The draft proposalwould try to make inversions less economically attractive by applying future interest-deduction limits to companies that reincorporated abroad. Because itwould apply to any inversion after April 17, 1994, the plan threatens dozens of corporations including Ingersoll-Rand Plc (IR) and Tyco International Ltd. (TYC)

For the story, go here.

You and yourwallet have a big stake in huge tax-dodging deals being crafted by big American companies, like Burger King mergingwith Tim Hortons, the Canadian coffee and doughnut chain.

Burger King is looking to swap the 35 percent corporate tax rate in the U.S. for Canada's 15 percent rate, even though itsworking headquarterswill remain in Miami. The little peopleÔøΩthe millions of uswho pay our taxesweek toweekÔøΩwill pick up some of the tax burden Burger King and other multinationals shirk through these so-called inversions, inwhich they move their headquarters, on paper, to escape taxeswhile continuing to enjoy all the benefits of doing business in America.

It's just one of severalways multinationals don't pay their fair share, and they get awaywith it because the federal government encourages such behavior. If Congress taxed you theway it taxes multinational corporations, youwould have a much fatterwallet.

For the story, go here.