Int'l Tax News

The best government response to the "inversion" of Burger Kingwith Canada's Tim Hortons for the purpose of avoiding U.S. taxes is the opposite ofwhat you might think. Rather than club Burger King over the headwith yet more tax avoidance rules, don't tax Burger King ÔøΩ or its ilk ÔøΩ at all.
Why not?won't this solution deplete Uncle Sam's coffers of badly needed revenue from BK? Actually, no. The reasonwhy not requires one to understand that no profitable business, not even BK, eats taxes. To be sure, BK collects money for its burgers andwrites big checks to Uncle Sam. But the tax on the burger is passed on to the customer in the price.
For the article, go here.

An influential Harvard professor says it's a "no brainer" for the Obama administration to act alone on so-called tax "inversions," and it doesn't make any sense towait to address them in broader corporate tax reform.
Former Treasury official Stephen Shay,who earlier this year madewaves in the tax-policyworldwith a paper arguing the Treasury has authority to act alone on inversions, told an audience at the Urban Institute: "The argument ofwaiting for tax reform carries noweightwith me at all." Shay said he's a "huge skeptic" of the near-term prospects of a major rewrite of the tax code.
For the story, go here.

The video of the September 8 Tax Policy Center program, Business Tax Reform:what Can Be Done?, is now available.

For the video, go here.

As Congress returns towashington for the last time before the Nov. 4 elections, Democrats are busily lambasting corporations that renounce their U.S. citizenship and laying the groundwork for new policies to deter firms from moving overseas.
For the blog post, go here.

Treasury Secretary Jacob Lew urged lawmakers of both parties to pass anti-inversion legislation,warning that many more U.S. companies across a range of industries plan to relocate their headquarters overseas to reduce their taxes.
Mr. Lew also reiterated that the Obama administration isweighing regulatory action to limit the economic appeal of inversions if lawmakers don't reach an agreement. Mr. Lew promised a Treasury decision on regulatory steps in the "very near future" butwarned that such action "will not be a substitute for meaningful legislation -- it can only address part of the economics."
For the story, go here.

Administrative action to limit tax-driven mergers called inversions is coming soon, Treasury Secretary Jacob J. Lew said Sept. 8.
"The Treasury Department is completing an evaluation ofwhatwe can do to make these deals less economically appealing, andwe plan to make a decision in the very near future," he said in a speech at the Urban Institute.
For the speech, go here.

On Monday, the Tax Policy Center inwashington held a panel discussion on the subject of ''corporate inversions'' -- the practice of taking over a small company in someplace like Ireland or the Netherlands, and then using that takeover to ''relocate'' to the foreign country for tax reasons.
For the op-ed, go here.

Corporations invert primarily to lower U.S. tax liability, andwhile near-term tax regulation changes are a necessary stopgap to slow the eroding U.S. corporate tax base, protecting the base in the long run requires legislation that reduces the incentives and ability of firms to invert, the Economic Policy Institute said in a September 8 report.

For the report, go here.

Gary M. Friedman is a tax partner at Debevoise & Plimpton LLP. This report is based on a paper delivered at the New York City Tax Club in April.
In this report, Friedman discusses the overreaching nature of sections 7874 and 4985. Those statutes, and the regulatory regimes they have spawned, add complexity and confusion to the tax system, elevate form over substance, and often lead to arbitrary results. The administration's proposals and pending retroactive legislationwould not correct the shortcomings of the existing anti-inversion regime. This report represents the views of the author and not necessarily those of Debevoise & Plimpton LLP.

For the report, go here. (subscription required)

It turns out that deal-driven investment bankers have been pushing the inversion-ridden agendas of not just tax professionals, but also policymakers these past few months.
Inversions, in their most recent incarnations, have been promoted and justified as synergistic business combinations rather than structured tax-saving contrivances. The reasons are not difficult to find. Congress, in enacting section 7874 in 2004, essentially precluded single-company inversions, leavingwould-be inverterswith few options except to find a partnerwith substantial business activities in the target jurisdiction. In sum, inversionswere effectively relegated to the realm of cross-border mergers and acquisitions.
For the article, go here. (subscription required)

A draft bill from Senate Finance Committee member Charles E. Schumer, D-N.Y.,would limit the interest expense deduction for inverted companies that completed deals anytime in the past 20 years, according to text of the draft obtained by Tax Analysts September 8.
A Schumer aide said the draft is "certainly not final" but that the senator expects to introduce the final version of the bill later in theweek. Schumer declined to answer questions about his proposal.
For the story, go here. (subscription required)

So far, Congress has acted once to curb inversions. The American Jobs Creation Act of 2004 codified section 7874, the so-called anti-inversion legislation. The same bill also added code section 4985,which addresses stock inversions, such as those recently announced by Medtronic, AbbVie, and others.

Section 4985 imposes a 15 percent excise tax on the stock-based compensation of an inverting corporation's executive officers and directors. In enacting that excise tax, Congress professed to address an imbalance in the relative tax burdens of a stock inversion on the inverting corporation's shareholders and management.

Though Congresswas arguably correct in identifying the problem, itwas unquestionably disingenuous in offering a solution.

For the blog post, go here.

A new draft of the Russian CFC law expected to be implemented in January 2015 is less severe than previous versions, but still presents a number of challenges to taxpayers.

For the story, go here.

Chile is undertaking the most thorough review and reform of its tax system in three decades, but is not conforming to the most common reform trends being seen elsewhere around theworld.
For the story, go here.

Australia's treasury chief has asked the tax office to double efforts against multinational companies,which are considered a risk to the nation's tax collections, by undertaking more extensive audits and information requests.
The move, announced in a Sept. 4 speech by Treasurer Joe Hockey, is part of a three-pronged approach to ensure multinationals meet their tax obligations in Australia,which Hockey said involves "implementing effective domestic policy changes, collaboratingwith the commissioner of taxation to strengthen administration, and pursuing multilateral international change."
Hockey said Australiawelcomes foreign investment but said multinationals must pay tax in the countrywhere the income is earned. He said some multinational businesses have set up sophisticated arrangements to avoid tax payments in Australia.
For the story, go here. (subscription required)

Treasury Secretary Jacob J. Lew called for ending tax provisions that encourage U.S. companies to create jobs overseas, raising the minimumwage and investing in public infrastructure, in a speech marking the department's 225th anniversary.
In his remarks Sept. 4,which covered the department's evolution over two centuries, Lew alluded to current policy issues including tax inversions, a corporate strategywherein companies create foreign branches to avoid domestic tax rates. Lew is slated to speak on inversions and larger tax overhaul strategies Sept. 8.
The administration has yet to present a final strategy on curbing the inversions, and Congress hasn't agreed on a legislative proposal to address them.
For the story, go here. (subscription required)

Companies considering inversion transactions should treadwith care as scrutiny by the public, the administration and Congress heats up, tax practitioners said.
"It's more important than ever that there be a non-tax rationale for the deal," Reb D.wheeler, a corporate partner at Mayer Brown, said Sept. 4 during awebinar on inversions sponsored by Bloomberg BNA Tax & Accounting. He said companies need to take into account the potential loss of tax benefits that could be posed by legislation now being considered on Capitol Hill and possible action by the Treasury Department.
For the story, go here. (subscription required)

A request for input has been released today to invite public commentson BEPS Action 11 regardingwork on establishing methodologies to collect and analyse data on BEPS and the actions to address it.

For the request, go here.

At the G20's request, the OECD is leading the development of a strategy to address base erosion and profit shifting (BEPS). The Developmentworking Group (DWG)

has asked the OECD to draw together the experiences of developing countries and international organisations in a report (ofwhich this is Part 1) on the main sources of BEPS in developing countries and how these relate to the OECD/G20 BEPS Action Plan ('the Action Plan') on this issue.

For the report, go here.

At the EU Economic and Financial Affairs Council meeting 20 June, the ministers agreed an amendment to EU tax rules thatwill close a loopholewhich had allowed cross-border corporations to profit from double non-taxation.

The agreed amendment to the parent-subsidiary directivewill put an end to the situationwhereby cross-border corporate groups could exploit differences between national tax laws and profit from double non-taxation by means of hybrid loan arrangements.

For coverage, go here.

Recently, several high profile companies have indicated an interest in merging or plans to mergewith a non-U.S. headquartered company, including Pfizer and Chiquita. Pfizer, for example,was interested in mergingwith a smaller British firm, AstraZeneca, and moving headquarters to the UK. For Pfizer,which has accumulated substantial profits in subsidiaries in low tax foreign countries thatwould be taxed if paid to the U.S. parent, the territorial tax system is likely the most important tax benefit from such a merger. This "secondwave" of inversions again raises concerns about an erosion of the U.S. tax base.

For the paper go here.

One of the loudest critics of the recentwave of corporate inversions is University of Southern California law professor Ed Kleinbard,whowarns that these transactionswill erode the U.S. corporate tax base because these newly relocated firmswill use "intragroup interest payments" to "strip" income out of their U.S. subsidiary.

While this is thought to be a common practicewith multinational corporations, IRS data actually shows that the U.S. subsidiaries of foreign-based companies have smaller interest deductions relative to their total receipts than do American-headquartered firms and, interestingly, they have higher effective tax rates than their domestic counterparts.

For the blog post, go here.

In case you missed it, The New York Times' political and policy blog The Upshot published a fascinating debate throughout August on the question: Should the corporate income tax be abolished?

Talk of repeal began after my TPC colleague Eric Toder and AEI's Alan Viard published an important

new paper suggesting the corporate levy could be replacedwith a direct tax on shareholders. Toder and Viard raised repeal as one of two possible solutions to the vexing problem of the corporate income tax. Unsurprisingly, this dramatic idea attracted the most attention though the otherÔøΩa proposal for a new international formula for taxing corporate profits –has also generated some interesting discussion.

For the story, go here.

The United States climbed the ranks of theworld's most competitive economies, according to a new report.

In its latest rankings of global competitiveness, theworld Economic Forum determined the U.S. had theworld's third most competitive economy, behind only Switzerland and Singaporeworldwide.

The forum praised the U.S. for making a strong comeback from the financial crisis, calling its companies "highly sophisticated and innovative," bolstered by a strong education system and the large size of the economy: theworld's largest.

The forum did determine that the largest obstacles facing the U.S. economy primarily came from the government, flagging the nation's tax rates, regulations and "red tape" as some of the biggest hindrances.

For the story, go here.

Burger King may have taken a lot of flack in the pastweek for a deal that should curb its U.S. tax bill but in manyways it is consistentwith the burger chain's aggressive tax-reduction strategies in recent years.

Some U.S. lawmakers and other critics attacked the company that is the home of thewhopper for deciding to move its tax base to Canada from the U.S. through its proposed purchase of Oakville, Ontario-based coffee and doughnut chain Tim Hortons.They say itwill allow Burger King to avoid paying some U.S. taxes.

Thatwould be nothing new. A Reuters analysis of Burger King's regulatory filings in the U.S. and overseas,whichwas also reviewed by accounting experts, shows that it has been making major efforts to reduce its U.S. tax bill for some time.

For the story, go here.

There may be significant legislative and regulatory activity over the next few months as the US Congress and the Obama Administration continue to grapplewith corporate tax inversions.while it remains unlikely that anti-inversion legislationwill be enacted in September, policymakers may continue to utilize various legislative tools, including the annual appropriations process, in an effort to discourage inversion transactions. Beyond legislation, the Administration's promise to examine its regulatory options to curb inversion transactionswill have all eyes on Treasury as it determineswhat steps to take.

For the article, go here.

The jokes aboutwarren Buffett'swhopper of an inversion dealwrite themselves.what is not so funny is howwashington has allowed America's tax system –with a rate 10 percentage points higher than the global average – to go neglected for decadeswhilewe continue to lose ground in the global race for investment and jobs.

The recent spate of so-called corporate "inversions" is the latest political diversion from policies thatwill make America more economically competitive. Ostensibly, these inversion deals are undertaken to lower a company's tax burden. However,washington's response to-datewill not only have little impact on such transactions, it threatens to make mattersworse by hampering our ability to attract global businesses that insource in America.

For the blog post, go here.

Thewhite House says it has no timeline for executive action on so-called corporate inversion deals, inwhich some American companies are buying foreign companies to reincorporate abroad and pay a lower tax rate.

Billions of dollars are at stake in the squabble over a tax tactic called "inversion," and President Barack Obama believes is not fair to their American competitors or the hard-working American taxpayer.

The practice is legal, however, and it brings added income for the companies, the bankers and others involved in the structure.

For the story, go here.

Medtronic Inc.will pay $63 million to insulate its executive officers and directors from the consequences of an excise tax thatwill be triggered on completion of a transaction announced June 15 inwhich the companywill mergewith Covidien PLC and concurrently invert to Ireland.

If Medtronic's officers and directorswere to discharge their own tax liability, instead of falling back on the company's largesse, the total excise tax paymentswould amount to no more than $23.25 million. The difference, of about $39.75 million, represents the cost charged to Medtronic for the privilege of picking up the tab for its officers and directors -- a cost thatwill be borne in part by the company's shareholders. That result is a function of how Congress chose to design the excise tax -- a design that can be easily amended to ensure that no director or officer of an inverting corporation can slough off his excise tax liability.

For the story, go here. (subscription required)

Nearly anyonewho is over the age of 40, orwho is younger but nevertheless listens to "classic rock," knows that the Hotel California is a placewhere you can "check out any time you like, but you can never leave."when the Eagles released that song in 1977, however, trying to competewithwhat they viewed as the more innovative lyrical compositions of their rival, Steely Dan, it is doubtful that they realized theywould be describing U.S. tax policy nearly 40 years later.

Today, the U.S. is the only country in theworld that taxes both its individual citizens and its corporations on theirworldwide income, regardless ofwhether that income is earned in or has any connection to the U.S.we are also the only country that makes it virtually impossible for either type of taxpayer to alter this situation. Individual and corporate "citizens" can check out any time theywant, butwhen it comes to paying taxes, they can never leave.

For the article, go here. (subscription required)

by Aaron E. Lorenzo (Bloomberg Daily Tax Report)

A number of anti-inversion proposalswould cost the U.S. dearly in terms of investment dollars and employment, according to findings from a new study to be released by the American Action Forum.

Nearly $1 trillion in U.S. capital and about 42,000 domestic jobswould be put in peril if legislators raise foreign ownership requirements and tighten corporate management and control standards to determinewhether a cross-border merger results in a new corporate address in a lower tax jurisdiction, said Gordon Gray, American Action Forum's fiscal policy director.

The proposed changeswould make incentives to move abroad too hard to resist, Gray told Bloomberg BNA Sept. 3.

For the story, go here. (subscription required)

Daniel Schwartz, chief executive officer of Burger Kingworldwide Inc., said lastweek he doesn't expect "meaningful tax savings"when the company adopts a new legal address in Canada through the purchase of a doughnut chain there.

While Schwartz's statement may have blunted criticism from U.S. politicianswho are calling the Miami-based hamburger maker's address change a tax dodge, it's hard to squarewith the reality of the countries' tax laws, according to experts on both sides of the border.

For the story, go here.

The Treasury Department is considering new regulations thatwould make corporate inversions less profitable. Hedge fund managers, investment bankers and others are handicapping the timing and scope of any new rules and towhom theywould apply. Possibilities include further limiting earnings stripping, reclassifying certain debt held by United States subsidiaries of foreign corporations as equity or restricting the repatriation of untaxed offshore cash from corporations that have gone through an inversion.

Another question iswhether any new regulationswill hold up in court. Even Treasury Secretary Jacob J. Lew questionedwhether his department had the legal authority to act unilaterally. But after Stephen E. Shay, a law professor at Harvard University, published an article urging Treasury to act, the department's lawyers began developing some options. Mr. Shay suggested that by looking beyond Section 7874, the specific code section that addresses inversions, the Treasury Department might find otherways to curb some of the economic tax benefits of an inversion. In my view, Professor Shay's suggestions are indeedwithin the lawful authority of the Treasury Department.

For the story, go here.

Sen. Rob Portman (R-Ohio) says "Congress knowswhatwe have to do," to get to a competitive international system, in discussing tax inversions. He says the inversions are hurting theworkers of America.

For the video, go here.

Canada has suspended its implementation of measures to prevent treaty shopping by multinationals.
The Department of Finance Aug. 29 published draft legislation thatwould implement tax measures from the Economic Action Plan 2014, issued in February. But in detailing its plans to move forward on most of those tax-related budget measures, the department said itwill put offwork on the anti-treaty shopping measure.
For the story, go here. (subscription required)

International Tax News is designed to help multinational organisations keep upwith the constant flow of international tax developmentsworldwide. Among the topics featured in this month's edition are:

• Enactment of Hong Kong's new Stamp Duty measures
• An update on Poland's new CFC regulations
• The US Affordable Care Act -what non-US companies need to consider
• OECD's commentary on Common Reporting Standard

For this month's edition, go here.

The Burger King-Tim Horton's Tax-inversion issue is resurrecting the bigger question of tax reform, and a Houston Congressman believes a draft-version of reform legislation holds the keys to a better tax code.
"The merger seems to make good market sense, as the basis, but these companies face, really a triple-whammy," says Rep. Kevin Brady (R-Thewoodlands). First, "they face the highest corporate tax rate in theworld," he says. "Secondly,we tax our businesses bothwithin the US andworld-wide–almost none of the other competing economies do that," Brady says.when U.S. businesseswin overseas, and try to bring profits home to invest in American jobs, research, or buildings, "we actually punish them," Brady says.
For the story, go here.

When Michigan Republican Rep. Dave Camp's comprehensive tax reform plan died earlier this year, so too did the hope that Congresswould tackle America's economic competitiveness problem anytime soon.
But as evidenced by this summer'swave of U.S. companies "inverting" into more business-friendly foreign countries, there is a price to pay for the Capitol's complacency.
America has a problem, and the D.C. tax inversion debate isn't helping. In fact, it has uncovered a growing chasm between the government policies that U.S. companies need to compete globally andwashington's ability to provide them.
For the story, go here.

I can only say that it is distressing to read that Stephen E. Shay and Samuel C. Thompson Jr., two alumni of the U.S. Treasury Department's Office of Tax Policy, have recently advocated use of Treasury's regulatory authority under section 385 to tackle the issue of inversions. Many others have already questionedwhether that authority exists, particularlywhether section 385 gives Treasury the power to take on issues specifically addressed in other code sections, but I think there is a more substantial, prudential reason to conclude that this is a remarkably unwise proposal.
For the letter, go here. (subscription required)

A recent article by Mindy Herzfeld, "What Can Treasury Do About Inversions?" Tax Notes, Aug. 25, 2014, p. 895, overlooks a simple and sensible alternative available to the Treasury Department that is not of questionable legality. Treasury could submit a proposal to Congress to redefine a corporation's "residence" for tax purposes --which determineswhether the entire panoply of U.S. tax rules applies to it -- based on the location of the enterprise's principal customer base.

For the letter, go here. (subscription required)

In a reportby Edward D. Kleinbard, Kleinbard claims that the recentwave of corporate inversions is not about competitiveness, even though the United States has the third highest corporate tax rate in theworld combinedwith exceptionally high repatriation taxes. Instead, he argues, corporations findways around the U.S. corporate tax and the solution is to beef up the rules laid out in sections 7874 and 163(j) and to add an "anti-hopscotch" rule.
Kleinbard pays little to no attention to the added complexity and compliance costs these ruleswould create, nor does he seem to realize that tax complexity is an important dimension of competitiveness.
For the letter, go here. (subscription required)

Congressional Democratswill intensify their efforts to stop corporations from fleeing offshore to slash their tax billwhen lawmakers return next month.

Democrats argue that that the pounding Burger King, the most prominent U.S. company yet to announce plans to reincorporate abroad, has taken on social media illustrates that the normally obscure tax maneuver known as an inversion can fuel voter outrage ahead of November's midterm elections.

Burger King's decision to mergewith the Canadian doughnut chain Tim Hortons "only adds fuel to the fire," one Democratic aide said thisweek, even if the burger giant swears that tax considerationswere not a central factor in the deal.

For the story, go here.

In the outcry about the recent merger mania to take advantage of the tax avoidance transactions known as inversions, certain key players have been notably silent: public pension funds.
Many of the nation's largest public pension funds have major stakes in American companies that are seeking to renounce their corporate citizenship in order to lower their tax bill.
While politicians have criticized these types of deals, public pension funds don't appear to be using their influence as major shareholders to encourage corporations to stay put.
For the story, go here.

The OECD is preparing to release its final deliverables for the first phase of the base erosion and profit-shifting action plan in late September at the G-20 meeting.whether and how countries decide to implement the recommendations in the deliverableswill be hotly debated.
The project has forced governments and practitioners to look closely at the systemic flaws in the international tax system. The BEPS agenda,while aggressive and broad, tackles only a limited set of profit-shifting activities. There is increasinglywidespread consensus that the system as awhole needs an overhaul.
For the story, go here. (subscription required)

The hardest part about forming an offshore company in the Republic of Seychelles may be coming upwith a catchy name.
Luckily for applicants, that can be a multiple choice question.
Seychelles, a nation of islands off the east coast of Africa, is gaining popularity as a tax haven, aided by a dropoff in incorporations in the British Virgin Islands and pushed along by promoterswho guide applicants through the process, beginningwith buying a "shelf" company that has already been registeredwith the authorities.
For the story, go here. (subscription required)

Congressional frustrationwith large companies taking part in inversion transactions is continuing to build, but it remains unclearwhen lawmakers may act on legislation to prevent these deals or sharply reduce their tax benefits, practitioners from Deloitte Tax LLP said.
While the administration has raised the possibility of acting unilaterally if it appears lawmakers may be unable to pass legislation, "the president maywant towait to see if Congress can do something"when lawmakers return in September, according to partner James Gannon during an Aug. 28webcast.
For the story, go here. (subscription required)

The Obama administration is highly exercised about "inversion," the practice bywhich an American corporation acquires a foreign company and moves its headquarters out of the United States to benefit from lower tax rates abroad.
Not fair, says Barack Obama. It's taking advantage of an "unpatriotic tax loophole" that hardworking American families have to make up for by the sweat of their brow. His treasury secretary calls such behavior a violation of "economic patriotism."
For the article, go here.

A pharmaceutical company moved its headquarters to Ireland, sharply reducing its tax rate. A billboard company reclassified itself as a real estate concern, meaning itwill no longer pay corporate taxes. And a big oil producer split itself in two, cleaving off a multibillion-dollar division that now operates tax-free.
Across corporate America, companies large and small are finding newways to address one of the businessworld's oldest irritations: paying taxes.
By exploiting existing loopholes and devising new ones, some of the country's best-known companies are making it harder than ever for the federal government to replenish its already depleted coffers.
For the story, go here.

With the EU Commission struggling to dealwith the abundance of new regulatory red tape aimed at the financial sector, KPMG consultants urge the new EU Commission and Parliament to focus on growth, rather than implementing a badly designed tax that could spell disaster for the European economy.
For the story, go here.

Canada: the New Cayman Islands.
Okay, that's a really big stretch. The large nation of 35 million people north of the U.S. border is not a brazen tax haven like the tiny Caribbean islandwith a population of an American suburb. Yet Canada has made a conscious and concerted effort over the last 15 years to slash its corporate tax rate, making it one of the most attractive places in theworld to locate a global-oriented business.
The United States? Tax reform has repeatedly foundered amid deep distrust and disagreement between Democrats and Republicans, leaving the countrywith one of the higher tax burdens in the developedworld. Lately that's spurred some large Americans companies to agree to buy foreign rivals and move their headquarters outside the U.S., a move some Democrats including President Obama have suggested is "unpatriotic."
For the story, go here.