Int'l Tax News

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.
In July 2013, the OECD published its Action Plan on Base Erosion and Profit Shifting. The Action Plan identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions.
The Action Plan also provided that "[t]he OECD'swork on the different items of the Action Planwill continue to include a transparent and inclusive consultation process" and that all stakeholders such as business, labour, non-governmental organisations, think tanks, and academiawould be consulted.
As part of that consultation process, interested parties are invited to send comments on this request for inputwhich should be submitted electronically (inword format) before 5.00pm on 19 September 2014 (no extensionwill be granted) to CTP.TPS@oecd.org.
For the request, go here.

"It ain't right," says President Barack Obama. American companieswho dodge the taxman by mergingwith overseas rivals are "renouncing their U.S. citizenship" and should be branded "corporate deserters," he says. And in name of "economic patriotism," Obamawants Congress to quickly close the corporate "inversion" loophole so these Benedict Arnold multinationals keep paying their fair share to Uncle Sam.
But patriotism, at least of the superficial sort, and business don't mix. For example, after the 9/11 terror attacks, investorswondered if therewould be a "patriots rally" once the New York Stock Exchange reopened.well, therewasn't. Instead, the Dow Jones Industrial Average fell by more than 7 percent on Sept. 18, 2001, one of largest one-day declines inwall Street history.with fear of new attacks running high, therewas little incentive for investors to stay in the market ÔøΩ even though itwould have been the "patriotic" thing to do.
For the story, go here.

Work on international tax rules and guidance to address base erosion and profit shifting should take into account difficulties that developing countries have getting access to tax information from multinational companies, according to a new report by the Organization for Economic Cooperation and Development.
The report, released Aug. 1, summarizes key OECD findingsÔøΩfor example, that lack of information often hinders these countries' ability to effectively respond to BEPS.
For the story, go here.

As far as tax loopholes go, "inversion" has officially made it into the big leagues.
The once obscure practice has been thrust into the spotlight by the President (who called inversions "unpatriotic"); Jon Stewart (who said the practicewas equivalent to "gender reassignment" for corporations); and Steven Colbert ("it's like me adopting an African child, then claiming myself as his dependent.")
For the story, go here.

Any time is a bad time to try ginning up popular enthusiasm for a corporate tax cut.
Now is especially bad. Stock values are bursting through the ceiling and companies are hoarding cash. Few American firms are hiring. Not an ideal atmosphere for considering the best interests of big companies.
But to stem the current trend of American companies moving their headquarters overseas ÔøΩ a practice known as an "inversion" ÔøΩ tax reform that includes lower corporate taxes is exactlywhat is needed.
For the editorial, go here.

It's both endearing and infuriating towatch American corporate executiveswring their hands about how the injustices of the U.S. tax code are forcing them ÔøΩ forcing them! ÔøΩ to reincorporate overseas through the procedure known as inversion.
For the story, go here.

The Institute for Policy Innovation on July 31 published an article positing that tax reform, rather than imposition of penalties and capital controls, is key to reducing corporate inversions among U.S. companies.

For the article, go here.

One campaign 2014 kerfuffle concerns the previously arcane issue of "inversion," the process bywhich a U.S. corporation mergeswith a foreign one so as to pay taxes at the other country's lower rates. If ever a tax loopholewere designed to provoke inflammatory rhetoric, this is it. Senate Finance Committee Chairman Ronwyden (D-Ore.) labeled a recentwave of corporate reflaggings a "plague"; Treasury Secretary Jacob J. Lew took to The Post's op-ed page to demand "economic patriotism." For their part, Republicans are playing this as a simple story of corporate escape from the allegedly oppressive U.S. corporate tax rate.
For the editorial, go here.

There has been little interest in Congress in the OECD's base erosion and profit-shifting project. Lawmakers' relative indifference toward the BEPS recommendations, the firstwave ofwhich is due in September, is typical of the general antipathy toward major tax changes. That indifference might change once the recommendations are released, because Congresswill need to be involved in at least some aspects of their implementation in the United States.
For the story, go here.

In the press and on Capitol Hill, the conventionalwisdom is that inversions occur because Congress has failed to enact tax reform. The United States has a high corporate tax rate and aworldwide system. Foreign countries have lower corporate tax rates and territorial systems. If the United States lowers its rate and adopts a territorial system, the incentive to invertwould be removed, right?
For the story, go here. (subscription required)

In response to section 7874 and the increasingly broad interpretation of the statute by the IRS, inversion transactions have begun to take new forms and rely on more aggressive interpretations of the code. The resulting increase in both the types and the complexity of inversion transactions has fueled public debate and put pressure on Congress to try to prevent even more corporations from fleeing U.S. shores.
It is important to look at the details of the inversions that have happened or are being contemplated in 2014 to see the trends that have emerged.
For the story, go here. (subscription required)

Rep. Sander Levin (D-Mich.)will propose legislation to fight corporate inversions by curbing earnings stripping, according to a draft bill circulating among tax lobbyists.
The draft bill by the ranking member of the Houseways and Means Committee, called the Stop Corporate Earnings Stripping Act,would combat earnings stripping by repealing the debt-to-equity safe harbor under tax code Section 163(j) and reducing the permitted net interest expense to no more than 25 percent of the entity's adjusted taxable income, according to a summary of the draft.
In addition, the actwould repeal the excess limitation carryforward, but permit any disallowed interest expense to be carried forward for five years, the summary says.

For the story, go here. (subscription required)

As far as tax loopholes go, "inversion" has officially made it into the big leagues.
The once obscure practice has been thrust into the spotlight by the President (who called inversions "unpatriotic"); Jon Stewart (who said the practicewas equivalent to "gender reassignment" for corporations); and Steven Colbert ("it's like me adopting an African child, then claiming myself as his dependent.")
For the story, go here.

Our out-of-date tax code is turning American businesses into economic refugees. In the last five years alone, over thirty-five American companies have inverted, buying smaller foreign firmsÔøΩoften for more than they areworthÔøΩand moving their headquarters overseas.whywould they do such a thing? Usually it's to escape a broken, inefficient tax code that lags far behind those of our competitors around theworld.
For the story, go here.

In May 2013, Applewas one of several US multinationals in the hot seat before a bipartisan US senate subcommittee investigating the use of corporate tax avoidance schemes.
Apple's tax arrangements in Ireland made international headlines, as Apple chief executive Tim Cook revealed that the company paid a sixth of Ireland's multinational tax rate of 12.5 per cent.
The Irish Governmentwas quick to deny assertions that itwas providing a "tax haven" to such companies.
For the story, go here.

The last several months have seen awave of American companies mergingwith foreign companies, a process known as "inverting." In effect, inversion is the corporate equivalent of a renunciation of American citizenship. By some estimates, about $250 billion of these deals have been consummated since the start of the year, and another $100 billion could be finalized soon.
As inversions have exploded onto the policy scene,washington is scrambling to findways to counteract a trend that could deprive the federal treasury of tens of billions of tax dollars,whichwashington believes belong to the government. In President Obama's ownwords, "My attitude is I don't care if it's legal, it'swrong."
For the story, go here.

Lowering the corporate tax ratewon't stop companies from seeking even lower taxes by moving overseas, Rep. Sander Levin, D-Mich., told CNBCwednesday.
For the story, go here.

From the perspective of U.S. multinationals, foreign tax authorities are taking more aggressive transfer pricing positions that aren't in accordancewith the arm's-length principle, making it more difficult to resolve cases, David Canale said July 31 during awebcast conducted by EY practitioners.
Historically, disputes involving U.S.-initiated transfer pricing adjustmentswere often resolved at the examination level, but in the last few years, the ability for taxpayers to obtain relief at that level has diminished, Canale said.
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:

• Approval by the US House of Representatives of permanent extension of the research credit
• Brazilian Superior Court of Justice finds international tax treaties should prevail over Brazilian CFC rules
• China solicits public opinion on discussion draft of Administrative measures on the General Anti-Avoidance Rule
• The Hong Kong - Korea double tax treaty signed

For this month's edition, go here.

Ireland is in the firing line fromwashington again for luring U.S. companies to its shores for tax benefits, but despite contrite noises coming from Dublin, it has too much to lose to discourage U.S. firms bent on shifting their tax domiciles.
The surge in such deals,which are typically effected by purchasing an overseas company -which does not then necessarily create any new jobs - drew the ire of President Barack Obama lastweek,who singled out Ireland for criticism.
For the story, go here.

President Obama and many congressional Democrats argue that U.S.-based multinational firms are being unpatriotic by moving their corporate addresses overseas in order to reduce their taxes. Obama even implied they are "corporate deserters." These are powerful, emotionally-charged allegations. But are they fair?
Is it unpatriotic to maximize tax savings? After all, companies and individuals do itall the time. Or is it only unpatriotic to reduce taxes by shifting your legal headquarters to a low-tax country?
For the story, go here.

Consensus on Capitol Hill remains fleeting over how to address tax-driven corporate mergers called inversions despite a mounting chorus for some sort of solution. More than a dozen such deals have been completed or announced this year and another 25 could happen before the end of 2014, further eroding the U.S. tax base,warns Senate Finance Committee Chairmanwyden.

For the story, go here. (Subscription required)

Lawmakers seeking to stop a flood of potential inversion deals are starting to express interest in legislation thatwould discourage earnings stripping,with the taxwriting committee chairs agreeing that it'sworth considering and a senior Democratic senatorworking on a bill to limit interest deductions.
For the story, go here. (subscription required)

Getting a foreign address isn't the onlyway American companies are skirting corporate income taxes.
Even as President Barack Obama calls for rules to stop companies from ditching tax bills by reincorporating abroad, the byzantine U.S. tax code is offering new techniques to escape the highest corporate rate in the developedworld.
Companies are finding all kinds ofways to escape America's 35 percent corporate rate, from acquiring a mailbox in Ireland to using a 54-year-old tax break originally meant to allow middle-class people to invest in real estate.
For the story, go here. (subscription required)

Herman Bouma of Buchanan Ingersoll & Rooneywrites that the greatest impediment to a rational international tax system is the "obsession" among tax policy makerswith assigning residency to corporations. He faults the OECD's treatment of the corporate use of tax havens as a transfer pricing problem, instead advocating adoption ofworldwide formulary apportionment.

For the Insight, go here. (subscription required)

Ireland does not promote or encourage tax inversion by US multinationals, and is chosen by a "small number" of firms each year because of a combination of non-tax and tax perks, Ireland's Minister for Jobs, Richard Bruton, has said.
He said neither the Government, nor his Department, nor the country's enterprise agency advocates that companies "engage in any practiceswhich bring little or no substance in terms of jobs or economic activity to Ireland."
For the story, go here.

One of theworst things aboutworking inwashington is that it's so easy to get frustrated about the fact-free nature of political debates.
For instance, there's now a big controversy about companies "re-domiciling" or "inverting" from the United States to lower-tax nations such as Ireland and Switzerland.
This should not be controversial. Unless, of course, you think businesses shouldn't be allowed to move from California to Texas. Or from New York to Tennessee.
For the column, go here.

It's time to reform the U.S. tax system. Democrats think so. Republicans think so. Sowhat is the rightway to do it? This iswhere disagreement starts, and it's the reasonwe are stuckwith a system thatworks for no one. The current tax system doesn'twork for businesses and it doesn'twork forworkers.

For the story, go here.

So far this year 14 companies have announced plans to mergewith foreign companies or relocate overseas to lower their tax bills and increase their ability to compete internationally. Calls for economic patriotism are not going to stop these "inversions." The U.S. has the developedworld's highest corporate tax rate, and it taxes operations overseas differently than our competitors do; that'swhat is driving our companies away.
Instead of punishing companies for moving abroad,we should be creating an environment inwhich they can succeed.
For the story, go here.

Democrats believe tax reformwon't come fast enough to stop the newwave of inversions. And Republicans don't like the proposals by the Obama administration or by congressional Democrats to expand the foreign ownership requirements necessary to allow a corporation to expatriate. But that doesn't mean there is no common ground onwhich the two parties can come together to significantly slow the pace of inversions.
For the story, go here.

Those practicing in the international tax area have heard much over the last two years about the Organization for Economic Cooperation and Development's efforts to combat base erosion and profit shifting (BEPS).
The global spread of BEPS in recent decades has effectively nullified, at least in part, corporate tax regimes in countries around theworld. Some policy makers maywelcome a reduction in the corporate tax burden as away to stimulate business investment. For developing countries, however, investment stimulus from aweakened operation of the corporate tax laws comes at a relatively high price.
For the article, go here. (subscription required)

When companies are heading for the door as fast as they decently can, you have to ask yourselfwhy? President Obama's approach is a rather different one; let's just lock the door and stop them from leaving.
On both sides of the US political divide, America's apparent corporate exodus via so-called "inversion takeovers" is a source of growing concern. However, their response to the problem could hardly be more different.
For the story, go here.

A trustyway towin in backyard baseball is to change the rules retroactively. Redraw the first base line so a home run becomes a foul ball. After a third missed swing, declare that little kids get four strikes. Announce that a ball hit into the neighbor's yard is an automatic out.
The Obama Administration and congressional Democrats are pushing their own equally dubious version of retroactive rule-making. Theywant to limit the ability of companies to escape U.S. taxation by mergingwith foreign companiesÔøΩand theywant to make the change retroactive to May 8. If they succeed, itwouldapply tocompanies such as Medtronic (MDT)and AbbVie (ABBV)which have pending mergers.
These mergers, known as corporate inversions, are a huge drain on the U.S. Treasury, and finding away to stop them as soon as possible makes sense. Eachweek that goes bywithout a fix makes mattersworse as more and more companies strike tax-minimizing merger deals. But yanking the tax advantage from deals that have already been lawfully agreed to is a toxic kind of unfairness, even if it's lawful.
For the story, go here.

The late Senator Russell Long of Louisiana,who served many years as chairman of the Senate Finance Committee, gave a classic rationale for tax policy: "Don't tax you, don't tax me, tax that fellow behind the tree."
The Obama administration is making a mighty fuss about the perceived evils of tax inversions -- the process bywhich U.S. corporations relocate to tax-friendlier places, such as the United Kingdom or Ireland, by mergingwith a foreign company. The U.S. corporations thus become British or Irish for tax purposes.
This is a serious issue but Obama's call for "economic patriotism" alongwith the absence of anything resembling a coherent reform plan makes it clear that politics -- not economics -- is the real issue on the table.
For the story, go here.

You know a government must be starving for fundswhen it starts identifying taxation as a form of "economic patriotism." That iswhat U.S. Treasury Jacob Lew saidwhen he urged Congress to pass legislation to curb U.S. corporations moving their residence abroad to avoid paying federal corporate taxes.

For the story, go here.

The U.S. Treasury Department should use immediate stopgap regulations to make offshore transactions known as corporate inversions less lucrative, said the department's former top international tax lawyer.
The administration can unilaterally limit inverted companies from taking interest deductions in the U.S. or from accessing their foreign cashwithout paying U.S. taxes, Stephen Shay said in an interview and in an article published today in Tax Notes.
For the story, go here.

Sometimes even journalists get it right. My essay about companies incorporating overseas to dodge taxes clearly struck a nerve. Since its publication earlier this month, these corporate "inversions" - a euphemism for "desertions" - have taken on a life of their own.
What to do? In an idealworld, Iwould slap serious penalties on inverters that do businesswith the federal government and require them to underbid genuinely U.S. competitors to get federal business. Medtronic andwalgreen, that means you.
For the story, go here.

Economic refugees have traditionally lined up to get into America. Lately, they have been lining up to leave.
Inwashington, DC, policymakers have reactedwith indignation. Jack Lew, the treasury secretary, has questioned the companies' patriotism and called on Congress to outlaw such transactions. His fellow Democrats are eager to oblige, and some Republicans arewilling to listen.
The proposals are misguided. Tightening the rules on corporate "inversions", as these moves are called, does nothing to dealwith the reasonwhy so many firmswant to leave: America has the richworld's most dysfunctional corporate-tax system. It needs fundamental reform, not new complications.

For the article, go here.

Sincewe last overhauled our federal tax code, in 1986, countries around theworld have lowered their tax rates, leaving the United Stateswith the highest corporate tax rate in the developedworld. At the same time, the system has become full of inefficiencies and special-interest loopholes. That iswhy it is so important thatwe reform our business tax code to make the U.S. economy more competitive and to accelerate economic growth and job creation. Taking this stepwill make the United States an even more attractive place to do business and ensure that capital and talent are allocated more efficiently in pursuit of high economic returns, rather than low tax bills.
But one particular tax loophole has become increasingly urgent to address: the fact that the law rewards U.S. corporationswith substantial tax benefitswhen they buy foreign companies and declare that they are based overseas.
For the article, go here.

Senate Finance Committee Chairman Ronwyden (D., Ore.) recently called the American tax code a "rotting mess of a carcass." The phrase captures how repugnant the current tax system has become -- and perhaps most repugnant is the U.S. tax treatment of corporate income, especially from foreign sources.
For the story, go here.

In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people,with all the attendant rights. They are entitled to free speech,which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to theirworkers. Up next, the right to bear arms?
There is, however, one big difference between corporate persons and the likes of you and me: On current trends,we're heading toward aworld inwhich only the human people pay taxes.
For the article, go here.

Stephen E. Shay describes the principal tax benefits companies seek from expatriating and outlines regulatory actions that can be takenwithout legislative action to materially reduce the tax incentive to expatriate.

For the viewpoint, go here. (subscription required)

In news analysis, Mindy Herzfeld discusses the proposed inversion transaction involvingwalgreens and exploreswhy corporation expatriations are becoming more difficult to accomplish.

For the article, go here. (subscription required)

In economic analysis, Martin A. Sullivan discusses past proposals to limit earnings stripping and how they are relevant to the debate over corporate inversions and base erosion.

For the article, go here. (subscription required)

In news analysis, Lee A. Sheppard discusses how the U.S. dual consolidated loss rules relate to the OECD's base erosion and profit-shifting action plan's recommendations on hybrid payments.

For the article, go here. (subscription required)

A series of European law firms are aggressively pitching low corporate taxes in their countries to prospective U.S. clients, seeking to tap into the tax inversion frenzy that has seized Corporate America in recent months.
At least eight European law firms are pitching their services to major U.S. law firms andwall Street banks, hoping that U.S. companies considering an inversion choose Ireland, Britain or the Netherlands for their new tax domicile, according to peoplewith knowledge of the matter.
For the story, go here.

U.S. President Barack Obama on Thursday hammered U.S. companies that avoid federal taxes by shifting their tax domiciles overseas in deals known as "inversions" and called on Congress to pass a bill to curb the practice.
During remarks to a rowdy crowd at the Los Angeles Technical College, Obama promotedwhat he called "economic patriotism" and made clear he believed the companies thatwere engaging in such practiceswere not being patriotic. The presidentwas in California on a three-day fund-raising swing for Democrats.
For the story, go here.

President Barack Obama threw himself into the politically charged effort to block U.S. firms from reincorporating overseas for tax reasons, calling the relocations "wrong" and urging Congress to stop them through quick-fix legislation.
Such corporate relocations, known as inversions, could become awild card inwashington in the comingweeks, particularly if more big companies announce plans to move before the midterm elections in November.
For the story, go here.

The new head of the Organization for Economic Cooperation and Development's transfer pricing unit addressed the "direction of travel" of Actions 9 and 10 of the international base erosion and profit shifting project.
Andrew Hickman,who joined the OECD on May 5, said one of the issuesworking Party No. 6 delegates are trying to make sense of iswhether tax authorities should accept the cards that the taxpayer has dealt them and play that hand accordingly, orwhether tax authorities should demand a reshuffle of the deck and start from a different point.
For the story, go here. (subscription required)

As the Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting considers "special measures," a U.S. Treasury official said the U.S.wouldwork hard in 2015 to ensure that the current arm's-length standard is clearly articulated and that profits are attributable to the place of economic activities.
Robert Stack, deputy assistant secretary for international tax affairs, said July 24 that the place of economic activities is "where the assets, functions and risks of the multinational are located."
Stack said the U.S. must further ensure that any "special measures" agreed to at the OECD are firmly anchored in these principles, "and that legal and contractual relationships are ignored in determining intercompany prices only in unusual circumstances."
For the story, go here. (subscription required)