Int'l Tax News

Further guidance on inversions as related to earnings stripping may take the form of either a reduction in the available interest deduction or a reclassification of a debt instrument as equity, a Treasury official said October 29.
"We're looking at earnings stripping rules. That could either look atwhetherwewould do something to reduce the [interest] deduction similar to [section] 163(j) or . . . maybewe'll do something under section 385 that goes to the character of the instrument as debt versus equity," Brenda Zent, taxation specialist, Treasury Office of International Tax Counsel, said at an event sponsored by the District of Columbia Bar Taxation Section. "We are looking at all those items," she added.
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Reacting to a recent Organization for Economic Cooperation and Development paper on comparability, an AstraZeneca Plc official said his companywouldwelcome the development of comparables databases to cover developing countries, either on a regional or local level.
Ian Brimicombe, AstraZeneca's vice president of corporate finance, said in a comment letter released by the OECD on Oct. 28: "We note that regional databases in particularwould provide a cost-effectiveway for developing countries to access reliable comparable data."
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The European Union must determine how to handle revenue from a proposed financial transactions tax to meet a year-end deadline for moving aheadwith the levy in participating nations.
Ten nations pledged in May to seek agreement on a "progressive" tax on equities and "some derivatives" by the end of 2014,with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News.
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The government is considering several possibleways to limit earnings stripping, a Treasury Department official said.
Brenda Zent, a taxation specialist in Treasury's Office of the International Tax Counsel, said Oct. 29 talks are ongoing as officialswork on guidance to follow the controversial Notice 2014-52, the department's September guidance intended to curb corporate inversions.
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United Nations Subcommittee on Base Erosion and Profit Shifting (BEPS) had invited the developing countries to provide feedback by answering the UN Questionnaireincluding 10 questions. This summary focuses on the responses provided by China and India.
For the analysis, go here.

On 15 October 2014, the Luxembourg Minister of Finance presented the bill of law containing the budget for 2015 to the Luxembourg parliament. The tax measures in the package of legislation demonstrate that Luxembourg is committed to a transparent tax ruling practice and to the arm's length principle. The budget packagewill now be discussed in parliament and may be subject to changes. This tax flash highlights the key aspects of the package for corporate taxpayers.

For the report, go here.

The new OECD/G20 standard on automatic exchange of informationwas endorsed today by all OECD and G20 countries aswell as major financial centres participating in the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin. A status report on committed and not committed jurisdictionswill be presented to G20 leaders during their annual summit in Brisbane, Australia on November 15-16.
For the OECD release, go here.

Whatever the results of the election, Congress is planning to reconvene on November 12 for a lame duck session, so-called because the days in office of some memberswill be numbered. Aswell as passing a budget for fiscal year 2015, the 113th Congresswill try to finish up other bills, including the extension of tax provisions that expired on January 1, 2014.
Congress should not pass a tax extenders bill. Rather, the new 114th Congress should take a careful look at the U.S. tax system and propose permanent reforms.
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Last month,while Treasurywas rolling out new rules to clamp down on corporate inversions, the Chair of the President's Council of Economic Advisors, Jason Furman, gave a speech at NYU titled Business Tax Reform and Economic Growth. Furman acknowledged that the U.S. corporate tax rate, at 39 percent, is the highest in the developedworld. However, he then argued that "more generous depreciation allowances and other structural features of the U.S. tax system combine to result in effective marginal tax rates on U.S. investment roughly in linewith, and even slightly lower than, other G7 countries."
For the blog post, go here.

As the 2014 midterm elections approach, speculation iswidespread as towhether tax reform can be successfully pursued in 2015. The successful 1986 Tax Reform Act navigated through a politically divided Congress a full generation ago over a sustained two-year period. Make no mistake about itÔøΩnothing short of a determined bipartisan effort and shared commitmentwill be required again.
At present, the fundamental building blocks for a successful tax reform effort are not in place.
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In the run-up to nextweek's congressional elections, Republicans are saying that if theywin control of the Senate, theywill try to pass business tax reform as part of an ambitious "we can get things done" agenda. Is there any possibility that a GOP-controlled Congress couldrewritethe business provisions of the tax code?
The chances are not zero. But the odds are very long.
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Some U.S. lawmakers are exploring a post-election deal thatwould lock in permanent tax cuts for major corporations and low-income families.
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In "Grassley, Ernst at Oddswith Iowans on Tax Fairness Issues" thewriter purposely misses the point.
I don't celebratewhen a U.S. company looks to move overseas. I never have. I didn't likewhatwas happening in 2004,when companieswere setting up a mailbox in a tax haven like the Cayman Islands to escape U.S. taxes.
Therewas no business substance involved. The only thing that changed for the companywas its mailing address. As chairman of the committee overseeing taxes, I drafted and pushed through legislation to stop that egregious practice.
Due to my 2004 law, companies must have business substance in play or the transactionwill be disregarded. The president and some in Congress have advocated proposals that seek to force companies to remain headquartered in the United States regardless of business realities. That approachwould backfire by making U.S. companies targets for acquisition by foreign companies. This likelywould cost American jobs, especially good jobs at corporate headquarters.
For the letter, go here.

European Union (EU) Member States cannot grant 'aid' (e.g., subsidies or tax reliefs) to certain companies on the internal marketwithout prior authorization by the European Commission. Aid grantedwithout authorization must be repaid by the recipients.

The European Commission announced a new focus on Fiscal State aid at the beginning of 2014. This focus comes at the same time as the Organisation for Economic Co-operation and Development's unfolding Base Erosion and Profit Shifting Action Plan and also reflects the EU's own agenda to crack down on 'aggressive' tax planning by multinational companies.

For more information, go here.

The European Union must figure out how to handle revenues from a proposed financial-transaction tax to meet a year-end deadline for moving aheadwith the levy in participating nations.

Ten nations pledged in May to seek agreement on a "progressive" tax on equities and "some derivatives" by the end of 2014,with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News.

For the story, go here.

In comments released October 28 on the OECD's Transfer Pricing Comparability Data and Developing Countries discussion draft, practitioners and businesses praised efforts to expand comparability data available to developing countries but argued that simplified administration should not undermine transparency or arm's-length outcomes.
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Tax reform proposed by Houseways and Means Committee Chair Dave Camp, R-Mich.,would raise $52 billion from businesses but cut passthrough taxes by $234 billion, and a plan cosponsored by Senate Finance Committee Chair Ronwyden, D-Ore.,would raise taxes on all industries except manufacturing, EY said in an October analysis.
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The U.S. attempt to block companies from leaving the country for tax reasonswouldn't stop Pfizer Inc.,which is still considering moving America's biggest drugmaker abroad, Chief Executive Officer Ian Read said.
"Ifwe believe the value is still there andwe believe, under our interpretation of these rules, there is still value, I see no reasonwhywewouldn't be able to do an inversion," Read said in an Oct. 28 telephone interview.
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Lynda K.walker, Robert Carroll and M.K. Huffmanwrite that The Tax Council/Ernst & Young LLP Tax Reform Business Barometer for October indicates thatwhile business tax professionals don't see enactment of comprehensive tax reform on the horizon in the next year or two, they do think therewill be significant foundationalwork by the Congress over the next year. Respondents assigned a roughly 50 percent likelihood that a new tax reform planwill be released by the chairmen of the Houseways and Means and Senate Finance committees.
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Pfizer has said there is still "meaningful value" to be found in tax inversions despite awhite House crackdown that has torpedoed a string of high-profile deals and cast doubt onwhether the US pharmaceutical companywill make a fresh bid for the UK's AstraZeneca.

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This article revisits Marty Ginsburg's law of Moses' rod in the context of inversions, in particular how proposed revisions to the anti-inversion rules could be used to justify new, or even more aggressive, expatriation strategies.while not advocating that any taxpayer or other party pursue specific strategies or that they are "good" from a tax policy standpoint, the goal in examining potential inversion strategies even in the face of anti-inversion rules is to help findways to incorporate antiabuse provisions into the larger structural goals of the income tax.

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On 15 October 2014, the European Commission announced that a new interpretation of the Spanish tax authorities allowing companies to amortise for tax purposes the financial goodwill on indirect shareholdings is incompatiblewith EU State aid rules.
For the PwC Insight, go here.

One aspect of the recently published Finance Bill that caught the eyewas the tweak to the scheme that allows executives of some firms, usually foreign multinationals, to avail of income tax breaks. The idea is the same one that drives our low corporation tax rate; indeed, those same peoplewho avail of that rate are probably the oneswho have also successfully lobbied for favourable tax treatment of some of their employees. No doubt they also describe those employees as "key".
Most countries have constitutions that explicitly say all citizens are equal before the law. Somewhere along thewaywe must have had a referendum that exempted tax law from this imperative.
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Multinational life sciences companies should review their organizational structures and perform scenario planning to assess the likely impacts of the Organisation for Economic Co-operation and Development's (OECD's) Action Plan on Base Erosion and Profit Shifting (BEPS), says a new report from KPMG.
"The Post Base Erosion and Profit Shiftingworld" report looks at the global corporate income tax environment for life sciences multinationals and the impact of BEPS on post-tax profitability. It says national tax policy decisions have a major impact on the competitiveness and market valuation of life sciences companies. There is currently a 27.5 percent spread between the lowest and highest corporate income tax rates in OECD countries,while there is a 24 percent spread in effective corporate income tax rates between the top 20 life sciences companies.
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Whichever party is in the majority in the House and Senate after the November elections, the next Congress should make repairing our broken tax code a bipartisan priority.
That fix must be comprehensive; more tinkeringwon'twork.
For the blog post, go here.

The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and the move toautomatic exchange of financial account informationtook centre stagewhen Heads of Tax Administration met on 23-24 October in Dublin, Ireland. Nearly forty delegations, including international and regional tax organisations, participated in theNinth Meeting of the OECD Forum on Tax Administration (FTA)and agreed that ever greater co-operationwill be necessary to implement the results of the BEPS project and automatic exchange of information.

For the OECD release, go here.

A small number of countries, including the U.K., are likely to adopt some of the recommendations from the Organization for Economic Cooperation and Development's draft on hybrids before September 2015, a practitioner said.
Michael Plowgian of KMPG LLP inwashington said Oct. 24 that some countries' political processes may not allow them towait until September 2015,when the OECDwill release additional guidance fleshing out its Sept. 16 proposal to address the tax consequences of hybrid mismatch arrangements.
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Switzerland announced plans for draft legislation thatwould allow it to swiftly amend existing agreements for the avoidance of double taxation to bring them in linewith the Organization for Economic Cooperation and Development's international standard on the exchange of tax information upon request.
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Tax administration chiefs from 38 countries have agreed to cooperate much more extensively in a global effort against offshore tax evasion by large companies andwealthy individuals, and base erosion and profit shifting by multinationals.
Meeting Oct. 23-24 in Dublin, the Forum on Tax Administration (FTA) agreed on a strategy for systematic and enhanced cooperation between tax administrations, based on existing legal instruments. "[The strategy]will allow us to quickly understand and dealwith global tax riskswhenever andwherever they arise," they said in a joint statement at the meeting's close.
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The European Commission has begun preliminary investigations intowhether transfer pricing rulings granted by several EU members constitute state aid. Motivated by fiscal pressures among members and public outrage over multinationals' cross-border tax planning, the investigations are notwithout a basis in jurisprudence. Nevertheless, the potential application of the state aid doctrine to individual advance tax rulings represents a radical expansion.
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One of the stories that firms deserting our country like to tell is that by moving their corporate domicile (but not their actual headquarters) outside U.S. borders to duck taxes, theywill be able to use cash they have parked offshore to expand their operations in the United States.
Sowhen the rules the Treasury issued in September upended the biggest proposed corporate "inversion" in history-Illinois-based AbbVie's $54 billion takeover of Ireland-based Shire - therewaswhining about how the Treasury is killing prospective American jobs.
Towhich I say: Give me a break.
For the article, go here.

Lower taxes and tariffs on information and communications technologywould improve global productivity, according to results of a study that indicated U.S. policy changes could also help at home.
The study, scheduled for release Oct. 27, found negative economic consequences due to slow technological adoption tied to high taxes and tariffs.
Broad agreement to reduce tariffsworldwide on ICT products and services aswell as restrictions on state-imposed taxes common across the U.S. onwireless technologywould benefit businesses and consumers at home and abroad, said Robert Atkinson, one of the study's authors and president of the Information Technology and Innovation Foundation.
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Government policies don't just tumble out of the sky. In almost all countries but for the few unfortunates ruled by tyrants, public policies reflect the policy preferences of citizensÔøΩpreferences somehow aggregated bywhatever government bodies are so empowered. To understand differences across countries in their economic policies, then, it often helps to look for differences across countries in the policy preferences of their citizens.
For the blog post, go here.

When the Obama administration announced new rules last month aimed at making so-called "corporate inversions" less profitable, itwas far from clear just how successful theywould be at discouraging use of the tactic, inwhich a U.S. company purchases another firm in a low-tax country and transfers its headquarters there in order to benefit from lower taxes.
Critics pointed out that the rules left one of the other drivers of inversions, a practice known as "earnings stripping" untouched, and others said the language of the Treasury Department's rulemaking virtually guaranteed legal challenges.
For the story, go here.

Industry and tax professionals have criticised the Tax Justice Network's methodology in its report that alleges nearly one-third of the largest businesses in Australia are dodging taxes.
for the story, go here.

Eric Meier and Ariane Calloud, of Baker & McKenzie, analyse a recent case about potential permanent establishment of a French entity operating under a commissionaire arrangementwith its Swiss principal.
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A sizable number of US public companies have recently executed "tax inversions" – acquisitions that move a corporation's residency abroadwhile maintaining its listing in domestic securities markets.when appropriately structured, inversions replace Americanwith foreign tax treatment of extraterritorial earnings, often at far lower effective rates. Regulators and politicians have reactedwith alarm to the "inversionitis" pandemic,with many championing radical tax reforms. This paper questions the prudence of such extreme reactions, both on practical and on conceptual grounds. Practically, the author argues that inversions are simply not a viable strategy for many firms, and thus the ongoingwave may abate naturally (orwith only modest tax reforms). Conceptually, he assesses the inversion trend through the lens of regulatory competition theory, inwhich jurisdictions compete not only in tax policy, but also along other dimensions, such as the quality of their corporate law and governance rules. He argues that just as US companies have a strong aversion to high tax rates, they have a strong affinity for strong corporate governance rules, a traditional strength of American corporate law.

For the paper, go here.

"In thisworld nothing can be said to be certain, except death and taxes." Benjamin Franklin
"The only difference between death and taxes is that death doesn't getworse every time Congress meets."will Rogers
The IRS and the U.S. Treasury last month announced plans to squelch the trend for businesses to seek foreign tax shelters through corporate inversions. Butwhy are companies fleeing? Because the current corporate tax rate is oppressive. (See BioWorld Today, Sept. 24, 2014.)
For the blog post, go here.

Vietnam's Decree 91 on VAT and corporate income tax (CIT) came into effect on October 15 2014. It includes provisions on deductible expenses, tax incentives for manufacturers and high-technology firms, a reduction in the paperwork required for tax filing and in the corporate tax rate for agricultural businesses,which are all applicable for the 2014 reporting year.

For the story, go here.

The European Commission announced its directive proposal for a common consolidated corporate tax base (CCCTB) more than three and a half years ago, on March 16 2011. Andreas Eggert discusses how the proposal has developed since then.

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The European Court of Justice should abandon the terms established by the landmark 2005 Marks & Spencer judgment allowing for cross-border corporate group tax relief, the European Union's top legal adviser said in an opinion.
If the EU high court adheres to the Oct. 23 opinion (C-172/13) by ECJ Advocate General Juliane Kokott,which happens in 80 percent of all cases, itwould dismiss a European Commission legal challenge brought against the United Kingdom in an effort to force it to properly apply the Marks & Spencer judgment.
The surprise legal opinion could restrict the fundamental freedom of establishment for companies that is one of the pillars of the EU single market, according tax experts.
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A new study concluding that European Union member states lost more than $200 billion in value-added tax revenue in 2012 underlines the need for changes to the patchwork VAT system, according to the European Commission.
Based on the commission-sponsored study, the difference betweenwhat should have been collected by EU member states andwhatwas actually collectedÔøΩthe "VAT gap"ÔøΩwas $224 billion.
In addition towidely different approaches taken by EU member stateswhen it comes to rates on certain products, the commission said the report, issued Oct. 22, proves EU member states' continued rejection of proposals for more harmonization has significant fiscal costs.
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The Organization for Economic Cooperation and Development's proposed country-by-country reporting template, master file and local file portend a doubling of the transfer pricing compliance burden of multinational companiesworldwide, a London practitioner said.
Patrick Trapp of EY LLP said the Sept. 16 draft guidance under Action 13 of the international plan to combat base erosion and profit shifting constitutes a significant change in transfer pricing documentationÔøΩ"both in focus and in detail, and for most parts of theworld."
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Ireland's finance chief defended his country's tax policies that have encouraged numerous American companies to route profits through his country, but said he alsowelcomes recent U.S. efforts to stifle awave of corporate inversion deals.
Finance Minister Michael Noonan, speaking at the second Finance Tax Policy Conference in Dublin, said the 12.5 percent corporate tax rate set in Ireland's recently announced budget provides investorswith certainty as many countries are changing their policies as part of global tax changes spearheaded by the Organization for Economic Cooperation and Development, under the direction of the Group of 20.
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Countries thatwork together like Ireland and the US "need to be cognisant" of the impact their tax policies have on each other, new US Ambassador to Ireland Kevin O'Malley said in a speech yesterday.


He said cross-border mergers can make the Irish and American economies stronger, but that "these transactions should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of the parent entities simply to avoid taxes".
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Pascal Saint-Amans, the director of the Centre for Tax Policy and Administration at the Paris-based Organisation for Economic Cooperation and Development (OECD), told the Irish Independent itwas "common sense" for the Government towait for the conclusion of an examination of patent box schemes elsewhere by Europe before moving.
For the story, go here.

European Union tax regulators suffered a setback as an aide to the bloc's top court sidedwith the U.K. in a clash over the nation's corporate tax system.

Rules that EU authorities criticized for making it almost "impossible" for companies to claim tax relief on non-resident subsidiaries are justified, an adviser to the EU Court of Justice said today.

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A tax overhaul proposal from Rep. Dave Camp (R-Mich.), chairman of the Houseways and Means Committee, doesn't create a new definition of intangible assets due to "universal" fears among taxpayers that doing sowould create confusion and uncertainty, a committee staffer said.
Sean Hailey, an adviser for the majority onways and Means, said fear of uncertaintywas behind Camp's decision to use a percentage-based formula to identify the intangible-related returns thatwould be taxed under a new provision of Subpart F in the proposal rather than using a definition based on "facts and circumstances."
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Alvin C.warren reviews the basic analytics of deferral and exemption systems for taxing the income of foreign corporate subsidiaries, highlighting some relationships that are not always appreciated in policy discussions.
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Tax savings are not the main driving factorwhen multinational companies outsource their routine functions; rather, those decisions are driven mainly by the desire to reduce costs and standardize, according to a Dell Inc. tax official.
"You do notwant thewhole outsourcing strategy to hinge on the tax savings," said Lionel Nobre, Dell's director of Latin America tax, at the International Fiscal Association conference in Mumbai.
Speaking on a panel devoted to cross-border outsourcing issues, Nobre pointed out that tax incentives and exemptions are affected by changes in the law and in the business aswell as economic changes.
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