Int'l Tax News

In news analysis, Lee A. Sheppard discusses how Notice 2014-52 applies section 367 rules in away thatwill surprise practitioners.

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In this article, Prof. Reuven Avi-Yonah argues thatwhile Notice 2014-52 is a useful first step in blocking the newwave of corporate inversions, it is unlikely to stem the tide of inversion transactions.
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On September 22 Treasury announced that itwould be exercising its authority under several statutory provisions to introduce regulations to restrict U.S. companies' ability to invert, and to limit the benefits available to U.S. companies after inversion. The guidance is an expansive interpretation of Treasury's regulatory authority, but it is narrowly drafted and carefully limits the potential impact of proposed new rules.
As Salix Pharmaceuticals' cancellation of its previously announced combinationwith Italian pharmaceuticals company Cosmos demonstrates, the Treasury Noticewill have a meaningful negative impact on some pending and contemplated deals. However, it is likely to leave the broader mergers and acquisitions market to proceed unhindered. Because of its limited impact, Treasury may have forestalled significant opposition to the proposed guidance.
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Inversions are often described as a symptom of a larger problem. The tax system is sick, and targeted inversion legislation is only a Band-Aid.
According to this view, the proposed expansions of section 7874 pushed by President Obama in his budget and by Michigan Democrats Sen. Carl Levin (S. 2360) and Rep. Sander M. Levin (H.R. 4679) do not cure the underlying disease. They only address the most visible and emotionally charged manifestations of the problem.
If inversions aren't the real problem,what is?
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Rep. John A. Boehner, R-Ohio, thinks tax reform is "in the realm of doable" over the next two years. That sort of upbeat assessment should be encouraging -- especially coming from the speaker of the House.

But it's hard to take Boehner seriouslywhen his GOP colleagues don't. "Tax reform's one of those thingswherewe just don't know ifwe can get there at the end of the day,"warned House Budget Committee Chair Paul Ryan, R-Wis. As the presumptive replacement for retiring Houseways and Means Committee Chair Dave Camp, R-Mich., Ryanwill play a key role in any drive for tax reform. If he thinks itwon't happen, it probablywon't.

For the story, go here.

On October 1, 2014, the European Commission announced that itwill examine the Gibraltar tax rulings practice from the perspective of the European Union State aid rules. This decision comes as part of an in-depth State aid investigation into the Gibraltar corporate tax system,whichwas opened in October 2013. This expansion of the investigation does not necessarily mean that the tax rulings are State aid.
For the PwC Insight, go here.

Incoming European Union Competition Commissioner Margrethe Vestager promised to prioritize and accelerate efforts to crack down on illegal state aid cases that probe tax arrangements of companies such as Apple Inc., Starbucks Corp., Fiat SpA and Amazon.com Inc.
Speaking Oct. 2 during a confirmation hearing before the European Parliament, the former Danish finance minister,who is expected to take up her position Nov. 1, said tax arrangements such as those that Apple haswith the Irish government are "very unfortunate" and that "speedy" decisions in the illegal state aid casewill be made.
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The U.S.will push for a minimum standard for tax rules governing controlled foreign corporations under the Organization for Economic Cooperation and Development's project to combat base erosion and profit shifting, a Treasury official said.
For the BEPS project "to have real impact,what the U.S.would be pushing for is that at least the OECD put forth a minimum standard ofwhat a CFC regime should be," said Danielle Rolfes, international tax counsel for Treasury.
Rolfeswas speaking at an Oct. 2 panel discussion on BEPS at the Georgetown University Law Center, co-sponsored by the International Fiscal Association.
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New Treasury Department rules aimed at discouraging corporate mergers called inversions have constraints, according to a Congressional Research Service report.
As a result, legislative options remain a possibility, said the report,which discussed a number of bills to address inversions aswell as the recently issued regulatory changes and other potential regulations.
Treasury has proposed rules to curb tax-free access to U.S. companies' earnings held overseas and maneuvers to skirt ownership requirements by altering a company's size to receive tax benefits from an inversion. The department explained the scope of the changes in a fact sheet and Notice 2014-52 issued Sept. 22.
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Brussels has revealed details of Irish tax deals that partly underpinned Apple's European operations, claiming that in 1991 Dublin gave the iPhone maker favourable and potentially illegal terms apparently "motivated by employment considerations".

In a highly critical 21-page decision detailing evidence from its initial probe, the European Commission argues that Ireland gave sustained state support to Apple that may need to be recouped – a penalty thatwould be expected to run to billions of euros, according to people involved in the case. The concerns prompted the opening of an in-depth investigation.

For the story, go here.

Apple Inc. (AAPL) may have to pay millions of euros in taxes in Ireland dating back to 2003 after the European Union said the iPhone maker benefited from improper deals thatwere "motivated by employment considerations."

The methods for determining Apple's costs "appear to have been reverse engineered" to arrive at a taxable income that "does not have an economic basis," the European Commission said in a letter to Irish officials dated June 11 and posted on the EUwebsite today.

"Overall, it looks like Ireland is caught," said Alex Cobham, a researcher at the Center for Global Development in London,who studies tax avoidance. "They've done a deal to fix some minimal tax payment for themselves,while turning a deliberate blind eye to the fact that this legitimizes the non-taxation of large amounts of Apple's profits."

For the story, go here.

The European Commission on Tuesdaywarned Ireland that the country had granted Apple tax advantages that could amount to illegal state aid.

In its preliminary finding, the commission also told Ireland that it may order its government to collect huge amounts of back taxes from the American technology giant.

The 21-page report follows the formal start of an investigation in June and lays out the commission's preliminary case claiming that Ireland granted Apple special deals that may have helped the company avoid significant amounts of tax and that created unfair advantages over other European Union member countries.

For the story, go here.

European Union regulators laid out for the first time Tuesday reasonswhy they believe tax deals granted to Apple Inc. AAPL -0.64% in Ireland and Fiat F.MI -2.02% SpA in Luxembourg constituted illegal state support for the companiesÔøΩthe next stage of an investigationwhich could result in the companies paying huge sums in extra taxes to the governments concerned.

In documents released earlier Tuesday, the EU explained the reasoning behind their decision to open formal tax investigations in June.while the probes are in their early stages, because the EU is targeting alleged illegal "state aid," a final ruling against the tax deals could result in back taxes owed by Apple, Fiat, Starbucks Corp. SBUX +0.13% and other companies.

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President Barack Obama's announced crackdown onwhat he calls an unpatriotic move by U.S. corporations to shift their headquarters and tax bills to low-tax countries is raising the question ofwhy the U.S. simply doesn't cut its corporate tax rates to better competewith the likes of Ireland and other tax havens.
In fact, everyone inwashington actually says theywant to lower and simplify U.S. corporate tax rates. But don't hold your breath.
Thewhite House and the Treasury Department put out a joint "white paper" in February 2012 titled "The President's Framework for Business Tax Reform." Before that, Georgew. Bush received a report on Nov. 1, 2005, from the President's Advisory Panel on Federal Tax Reform. Both reports called for revamping the corporate tax code.
It hasn't happened.
For the story, go here.

President Barack Obama could not have made his feelings about so-called "tax inversion" schemes any more clear.
In a landmark speech about "economic patriotism" this summer, the US premierwas highly critical of those American companies that buy up foreign firms so that they can move their headquarters overseas to flee US taxes. These firms are "corporate deserters", guilty of "gaming the system" at the expense of ordinary citizens, he said. "I don't care if it is legal. It'swrong."
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Politicians may seem hopelessly divided over taxes, but a closer look reveals that Republicans and Democrats are starting to reach a consensus on how to improve our nation's tax system. Both parties agree that the tax code is too complex, contains too many loopholes, and causes harmful distortions in the economy. Leaders on both sides are even starting to agree on how to solve these problems,with similar policies appearing in various tax reform proposals from across the political spectrum.

For the story, go here.

Add Larry Summers to the list of thosewho think the U.S. tax system needs a makeover, and fast.
"It's not viable to continue for five more yearswith the tax systemwe now have," the Clinton-era Treasury secretary and former director of the Obamawhite House's National Economic Council said on CNBC Friday morning.

For the story, go here.

Almost 300 senior tax officials from more than 100 countries and international organisations met in Paris on 25-26 September 2014 during the 19th Annual Global Forum on Tax Treaties to discuss solutions to unintended double non-taxation caused by (BEPS). Following up on the discussions at the 2013 Annual Meeting and the regional consultations on BEPS, participants examined the first set of tax treaty-related recommendations developed under the OECD/G20 BEPS Project and discussed the main tax treaty issues and options concerning the currentwork on the 2015 deliverables to be dispatched in September and December 2015.
For the release, go here.

The European Unionwill step up its probe of Apple Inc. (AAPL)'s tax arrangements in Ireland, revealingwhy it suspects the iPhone maker received an unfair advantage.

Regulatorswill publish tomorrow its reasoning for opening an investigation earlier this year, Antoine Colombani, a spokesman for the European Commission, said in an e-mail. The move is the latest step toward possible repayment of millions of euros of aid.

For the story, go here.

European Union regulatorswill explain as soon as Mondaywhy they believe that tax deals granted to Apple Inc. and Fiat SpA violated EU law, people familiarwith the matter said, marking the next formal step in the bloc's drive against alleged tax avoidance by multinationals.

The European Commission, the EU's central antitrust authority, opened formal investigations in June intowhether tax deals granted to Apple in Ireland, Fiat's finance arm in Luxembourg and Starbucks Corp. in the Netherlands amounted to illegal state support for the companies.

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The Treasury secretary's new rules to stop inversions might not have teeth, but theywill give chief executiveswho don'twant to desert the country an excuse to resist pressure fromwall Street.
The regulations to limit corporate tax inversions presentedwith great fanfare by Treasury Secretary Jack Lew late Monday are so technical and complicated that they make my teeth hurt. And theywill make your teeth hurt, too, unless you're a tax lawyer or corporate finance geek.
For the article, go here.

President Michelle Bachelet, describing it as a "historic day," signed into law tax legislation thatwill gradually increase Chile's corporate tax rates.
Under thewide-ranging law, signed Sept. 26 after six months of congressional debate and negotiations, the main corporate ratewill rise from 20 percent to 25 percent, butwill no longer count as credit against the liabilities of the owners. Alternatively, companies can pay at 27 percent, earning their owners a 65 percent credit against their own tax liability.
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Switzerland has published for consultation purposes the Corporate Tax Reform III draft legislative text. The draft legislation is designed to maintain Switzerland's competitiveness as a business location following repeal of current tax regimes and their replacement by new measures. Implementation is not expected until 2018-2020. The current ruleswill remain applicable until then, to help maintain Switzerland's attractiveness as a business location and provide companieswith a stable, long-term environment.

For the PwC Insight, go here.

Things have reached a pretty passwhen the only mainstream publication putting inversions in their proper perspective is a baby boomer entertainment rag. That'd be Rolling Stone (Sept. 11, 2014, at 33):

Inversions are just the tip of the iceberg . . . a strong, bipartisan consensus has, in fact, emerged inwashington: Theworld's richest corporationswill get awaywith fleecing hundreds of billions of tax dollars from the rest of us.

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ANALYSIS: The US has moved to try and curb the practice of inversion transactionswhich has seen a handful of companies relocate overseas,with many more considering the option. The rule tightening attempts to reduce the benefits of an inversion.

For the analysis, go here.

As some leaders inwashington demonize companies like Raleigh-based Salix Pharmaceuticals for investigating so-called corporate "inversions," they ignore the true culprit: our job-killing, anti-competitive tax code. Because of our too-high corporate taxes, North Carolina and U.S. companies are fighting an uphill battle in global markets, and it's driving some companies to relocate to more business-friendly locales. It's also driving some of them out of business.
It's time for a bipartisan solution to this problem, one thatworks for everyone: the companies involved,workers, families and our governments and communities.
For the story, go here.

I've shared some interested rankings on tax policy, including a map from the Tax Foundation showingwhich states have the earliest and latest Tax Freedom Days.
There's also a depressing table showing that the United States "earns" a lowly 94th place in a ranking of business-friendly tax system.
So Iwas very interested to see this table from the Tax Foundation revealingwhich countries have the most punitive regimes for penalizing success.
For the table, go here.

Who runs your business? According to Treasury Secretary Jack Lew, or at least implied from the Treasury's new rules aimed at barring many so-called "tax inversions," the government does.
Lew, other administration officials and congressional Democrats decry these transactions as "eroding the tax base" and being "unpatriotic." Lew has said that the companieswhich effect "inversion" transactions are "effectively renouncing their citizenship to get out of paying taxes."
Businessmen, investors, and ordinary Americans should reject each of these spurious self-serving charges and the idea that government has either the right or the responsibility to determine how otherwise law-abiding private companies structure themselves.
For the story, go here.

The federal government recently passed new rules designed to remove the attractiveness of corporate tax inversions. Tax inversions are considered to be a strategy that corporations utilize to improve operational efficiencies and reduce their tax burden.will the new rules accomplishwhat the administration and many members of Congress desire?
The Treasury Department issued four new rules on Monday, September 22, 2014. In this articlewe'll discuss the following:
1) How tax inversionswork.
2) The first two rules.
3)will corporations find away around them?
For the article, go here.

In a passive aggressiveway, former President Bill Clinton recently criticized new rules from the Obama Treasury Department to curb blatant corporate tax dodging.
What does Mr. Clinton think about the Treasury's effort? "Everythingwe are doing now, including these inversion rules," he told CNBC, "I have no problemwith….But…."

Butwhat?

For the blog post, go here.

It's autumn, and Halloween is right around the corner. That's good timing, since the Obama administration has beenworking feverishly all summer to create a new scary character for the year: the corporate tax inversion.
The administration'swork has been a pretty neat trick. Corporate tax inversions can take different forms, but the administration has concentrated on those inwhich a U.S. firm mergeswith a foreign corporation to take advantage of the tax laws of the foreign jurisdiction in the interests of minimizing taxes, maximizing profits, and increasing shareholder value – I'm sorry, I mean in the interest of stealing tax revenue from you and me.
For the blog post, go here.

The OECD's release of seven progress and final reports under the base erosion and profit-shifting initiative represents a major step forward, but morework remains on refining the recommendations and considering how to implement them, Treasury officials said September 24.

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A Treasury Department official said that itwill be challenging for the countries participating in the international project to combat base erosion and profit shifting (BEPS) to reach a consensus on the project's outstanding transfer pricing issues.

Robert Stack, Treasury's deputy assistant secretary for international tax affairs, said Sept. 24 that there are some "areaswhere consensuswas more difficult." Hewas addressing the Organization for Economic Cooperation and Development's first seven BEPS deliverables, released Sept. 16.

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Pfizer Inc. has approached Actavis Plc about a deal that could allow the U.S. drugmaker to move its address overseas and reduce taxes, in a sign the Obama administration's efforts to curtail inversions might fall short.
Pfizer made its approach before the U.S. Treasury Department announced new rules Sept. 22 to make such deals -- called tax inversions -- more difficult, peoplewith knowledge of the matter said. Those changeswon't deter Pfizer, even if they are a complication, one of the people said, asking not to be identified discussing private information.
For the story, go here.

Therewas a timewhen American pharmaceutical companies had finally found away to access the large reserves of cash they had piling up in places like the Cayman Islands. The processwas simple: Acquire a smaller foreign rival, repatriate in the rival's home country and then dip into the offshore moneywithout fear of paying the U.S. corporate tax rate of 35 percent.
But the U.S. Treasury Department effectively undercut that strategy thisweek, issuing new rules thatwill make it a lot harder for U.S. companies to tap into offshore cashwithout paying taxes -- even if they move their headquarters abroad in one of these deals, known as "inversions."
Of the pending inversions, those involving pharmaceutical and related industries seem to be most immediately at peril, tax experts told The Huffington Post, because those companies are the most likely to be pursuing inversions as away to get tax-free access to offshore cash.
For the story, go here.

Thisweek the Obama administration announced new regulations aimed at discouraging the controversial practice of corporate inversions. That'swhat happenswhen a U.S. company mergeswith a foreign partner, so it can move its headquarters overseas and cut its tax bill. As NPR's Jim Zarolli reports, the new rules are likely to slow but not stop the number of inversions now being planned.

For the transcript, go here.

The Obama administration's effort to curb corporate inversions ÔøΩ the strategy of moving company headquarters overseas to dodge U.S. taxes ÔøΩ drew boos from business on Tuesday, and cheers from consumer and labor groups.
No surprise there. But the Treasury Department's rule tweaks to discourage tax-avoidance deals also united everyone on one point: The country needs comprehensive tax-reform legislation.
President Obama himself declared, "There's no substitute for congressional action."
So Congresswill jump right on it.
Kidding!
For the story, go here.

Tennesseewilliamswas famous for concocting American dramaswhere something is terriblywrong but no one iswilling to talk about the underlying problem. That is exactlywherewe are nowwith the Obama administration's attack on "corporate inversions" -- transactionswhere a U.S. company mergeswith a foreign company and locates the parent company abroad to reduce taxes.
For the story, go here.

Imagine how frustrating itwould be to have billions of dollars in cash but be unable to spend it as youwish unless you paid a large part to the Internal Revenue Service.
That could be your problem if youwere running a large multinational corporation based in the United States.
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The United States' high corporate income tax rate and "dysfunctional"worldwide system of international corporate taxation is hindering U.S. economic growth and placing U.S.workers and employers at a significant disadvantage comparedwith global competitors, the Alliance for Competitive Taxation said in a September 25 release.

For the release, go here.

It is important for U.S. policymakers to take immediate interim steps to slow the pace of tax-motivated corporate inversions until broader corporate tax reform is possible because of the potential U.S. revenue loss and the rapid increase in the number of inversions, the Center for American Progress said in a September 25 report.

For the report, go here.

Corporate inversions –when American companies reincorporate abroad to lower their tax bills – have become a political controversy solely because of the screwiness of the U.S. tax system. If our government taxed companies based on their consumption, or on the income they make on U.S. territory, or onwhere their shareholders live, then the placewhere theywere charteredwould have no tax consequences.
Our government has instead decided to tax theworldwide profits of companies chartered in the United States, and is then shocked that companies prefer to move their charters elsewhere.

For the story, go here.

One day after Treasury Secretary Jack Lew, on behalf of the Obama administration, laid down the first official initiatives to thwart inversions, some of those companies thatwere the primary targets of the administration's efforts respondedwithwhat can justifiably be described as a thumb in Obama's eye.

For the story, go here.

The Treasury department thisweek announced a new set of regulations to crack down on thewave of "corporate inversions," inwhich American companies lower their tax bill by, simply put, relocating their legal corporate addresses overseas. The Obama administration is trying to make these inversions more costly and difficult - but how do theywork? Some answers to your questions:

For the Q&A, go here.

US business groups on Tuesday blasted as counter-productive the government's moves to curb tax inversion mergers that allow a company to escape US taxes.
But analysts said the rules could prove only partly successful at stemming corporate flight, and businesses involved in inversion deals had mixed reactions.
For the story, go here.

An interesting critique of the current corporate tax systemwas made on Monday night.
Our system today is closer towhat Iwould call a "stupid territorial" system that raises little revenue on overseas activitieswhile still imposing substantial distortions associatedwith avoiding the statutory taxes.
So,who made the comment? Mitt Romney? Ted Cruz? Jackwelch?
Try Jason Furman ÔøΩ chairman of thewhite House Council of Economic Advisers.
For the blog post, go here.

The Obama administration is not living up to its promise to move the country away from an arrogant, unilateral approach to theworld. And it has not embraced a more consensus-driven, multipolar vision that reflects the fact that America is not the sole player in the global sandbox.
No, I am not talking here about national security or counter-terrorism policy, but rather the telling issue of how governments think about money ÔøΩspecifically the money they are entitled to, as established by their tax policies.
For the article, go here.

Despite the Obama administration's action to reduce inversions, it should prioritize tax reform thatwould cut rates, broaden the base, and reform international taxation because inversions are a symptom of tax code distortions, Committee for a Responsible Federal Budget President Maya MacGuineas said in a September 23 statement.

For the statement, go here.

The bestway to address corporate tax inversions is by modernizing the U.S. business tax system and encouraging U.S. investment, but Treasury's proposed regulations on inversions go in the opposite direction and "amount to a Band-Aid solution thatwill only make mattersworse," the Business Roundtable said in a September 23 release.

For the release, go here.

The Obama administration's plan for executive action against corporate tax "inversions" is finally out, and it's a potentially significant one. Inversion is the process bywhich a U.S. corporation mergeswith a foreign one so as to pay taxes on overseas income at the other country's lower rates. The new plan, announced late Monday by Treasury Secretary Jack Lew,would crack down on it in severalways.
For the editorial, go here.