Int'l Tax News

Congress needs to focus on overhauling the tax code, not just trying to block corporate inversions, House Speaker John Boehner (R-Ohio) said Sept. 18.
In a speech at the American Enterprise Institute, Boehner said focusing on inversions is ignoring the larger problem.
"All this talk about inversions is just making the problem smaller," he said. "It's fussing over a divotwhen the road is loadedwith potholes."
For the story, go here. (Subscription required)

Shame on Burger King for moving to Canada? Or shame on us for being unresponsive to businesses and job creators?
The current debate about corporate inversions has once again brought out the tired, progressive-socialist rhetoric railing against corporate profits. Burger King, Chiquita, and other iconic American brands are seeking more attractive tax provisions to better manage their businesses, as they also absorb the high impact of our costly regulatory environment, including the mandated requirements of the Un-Affordable Care Act.
All of a sudden it is un-American to seek a lower tax burden to operate in dynamic and highly competitiveworld markets. American corporations suffer the burden of the highest corporate tax rate in the industrializedworld.what basis dowe have to pout and shudderwhen they find a smarterway to do business?
For the op-ed, go here.

Treasury Secretary Jack Lew saidwednesday that hewas surprised that Republicans and the business community objected to the Obama administration's rhetoric on the recent spate of offshore tax deals.

Lew himself questioned the patriotism of companies that shifted their legal address abroad in deals known as inversions,while President Obama dubbed them "corporate deserters."
For the story, go here.

Robert Stack, Treasury deputy assistant secretary (international tax affairs), on September 17 gave a behind-the-scenes view of the negotiations thatwent into drafting the seven progress and final reports the OECD released September 16 as part of its base erosion and profit-shifting project.
For the story, go here. (subscription required)

Treasury Secretary Jacob Lew said September 17 that administrative action on inversions is now a certainty.
"Any company considering an inversion is now on notice that there is action that is going to be taken," Lew said in an interviewwith Bloomberg at an event sponsored by the University of California, Los Angeles.
For the story, go here. (subscription required)

A U.S. Treasury officialwelcomed the first seven components of the Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting.
Robert Stack, Treasury's deputy assistant secretary for international tax affairs, said, "The United States is delightedwith the progresswe have made to date in the BEPS project as emblematic of the papers thatwere put out yesterday."
For the story, go here. (subscription required)

A new Organization for Economic Cooperation and Development plan for fighting base erosion and profit shifting tackles tax challenges of electronic commerce,warning about the danger of "special rules for the digital economy."
The OECD's Raffaele Russo, head of the project, said the final report on Action 1 states an agreement by the 44 participating countries "that you can't have special rules for the digital economyÔøΩyou can't ring-fence it."
For the story, go here. (subscription required)

A decision on administration steps to slow inversions should soon emerge, Treasury Secretary Jacob J. Lew said, rehashing prior remarks.
Lew said companies considering such transactions, inwhich U.S. corporations mergewith foreign companies and establish new domiciles in lower tax jurisdictions abroad, need to know of the very real probability of executive action to come. In otherwords, they should be on notice, he said in remarks at UCLA's Anderson School of Management on Sept. 17.
For the story, go here. (subscription required)

Democrats and their advocates havewashed, rinsed and are now repeating one of their favorite talking points from 2012: that "(Insert Republican Here) supports tax breaks for corporations that ship jobs overseas."
There's a lot packed into this insult. It implies that the person on the receiving end is beholden to corporate interests, against sensible tax reform and unconcerned about American employment. It plays to Americans' economicwoes and fits into the recent discussions about corporate tax reform, following Burger King's mergerwith a Canadian company.
Only a CPA might enjoy digging into the nuances of tax policy. But our search for evidence shows that the Democrats' description is so simplistic as to be misleading. There is no special tax break for outsourcing.
For the story, go here.

There has been quite a bit of press and politicized declarations on the U.S. practice of federally taxing corporate profits earned internationally and of U.S. companies pursuing an inversion strategy. This accounting technicality is having a major effect on U.S. business location and international investment.
For the story, go here.

At the Morgan Stanley Global Healthcare Conference on September 9, Merck CEO Ken Frazier told investors hewouldn't join the giantwave of companies pursuing overseas acquisitions so they can move abroad and escape high U.S. corporate taxes. Such deals, known as "tax inversions," go against Merck's policy of only making purchases that give the company "quality commercial access and quality scientific access," Frazier said. "We don't see that the advantages thatwewould get from a tax inversion dealwould … be durable long-term because I think the U.S. governmentwill do something positive or negative in response to the flight of capital," he added.
For the article, go here.

The tax-avoidance strategies that companies like Google Inc. (GOOG), Apple Inc. (AAPL) and Amazon.com Inc. use to escape more than $100 billion a year of levies in the U.S. and Europe are under threat from a plan drawn up by the Organization for Economic Cooperation and Development.

The Paris-based OECD, a research institute funded by 34 countries including the U.S., recommended governments limit the techniques those companies use to avoid taxes, such as assigning valuable patent rights to shell companies based in tax havens, according to draft rules released today. All of the OECD member countries and 10 others, including China and Russia, have approved the recommendations, though further action by countrieswould be required for them to take effect.

For the story, go here.

Plans to overhaul the international tax system to make it more difficult for companies to shift profits to low-tax countries remain on track,with the Organization for Economic Cooperation and Development meeting an ambitious deadline on Tuesday for presenting a first set of new guidelines to finance ministers of the Group of 20 advanced and developing economies.
Launched by the G-20 last year, the overhaul is intended to modernize aweb of 3,000 bilateral tax treaties and national tax rules that dates back to the 1920s and allows companies to adopt legal structures designed to shift their profits to the lowest-tax jurisdictions, regardless ofwhere those profits are generated.
The proposalswere agreed by the Committee on Fiscal Affairs,which includes representatives from the 34 countries that are members of the OECD, two candidate nations, and eight large developing economies, including China, India, Brazil, Russia, Indonesia and South Africa. The CFA is due to produce a second, and final set of proposals next year.
For the story, go here.

Dozens of countrieswith the most advanced economies have agreed on principles for concrete action to prevent corporations from gaming the international tax system, the Organization for Economic Cooperation and Development said in a report on Tuesday.
In a set of recommendations, the organization said the nations --which include the United States, the biggest countries in Europe and China -- had agreed on a series of actions to ensure ''the coherence of corporate income taxation at the international level'' and to improve transparency for governments.
For the story, go here.

The OECD has released frequently asked questions on several areas of the base erosion and profit-shifting project, including the digital economy, hybrid mismatch arrangements, treaty abuse, transfer pricing, and country-by-country reporting.

For the FAQs, go here.

The BEPS hybrid project (action 2) is one of the more difficult projects and one that requires a fair amount of coordination between countries. American readerswill be pleased to see that the BEPS drafters responded positively to some of the complaints made at the Paris public consultation.
The just-released recommendationsdiffer little from the drafts, as the drafters appeared to punt on some difficult questions. The report contains recommendations for defensive changes to domestic law aswell as proposed changes to the OECD model treaty.
For the story, go here. (subscription required)

"When the facts change, I change my mind.what do you do, sir?" Though oft attributed to him, John Maynard Keynes probably never uttered thosewords. Keynes's prolixity attracts several spurious ascriptions. Or, as Yogi Berra once put it, "I didn't really say everything I said."
By comparison, the 130-page report on action 8 of the base erosion and profit-shifting project, "Guidance on Transfer Pricing Aspects of Intangibles," released September 16, is properly ascribed to the OECD. But all that text doesn't amount to much. And unlike Keynes, changing facts don't seem to change the OECD's institutional mind. Even as the scope and scale of intangibles in multinational enterprises' businesses continue to undergo a rapid transformation, the OECD's instruction on the appropriate transfer pricing standard remains unyielding -- arm's length continues to be the polestar for OECD guidance in this area.
For the story, go here. (subscription required)

The Organization for Economic Cooperation and Development has released the first components of its comprehensive plan for creating an agreed set of international rules for fighting base erosion and profit shifting and ending opportunities for double non-taxation.
Pascal Saint-Amans, director of the OECD's Center for Tax Policy and Administration, said in a briefing prior to the documents' release that their effectwill be felt quickly. Companies, he said, "plan in advance, so the tax planningwill be impacted immediately."
For the story, go here. (subscription required)

Score one for the Treasury Department and U.S. multinationals:while the resultwasn't a total shock, they successfully persuaded the OECD towater down its anti-treaty-shopping proposals under the base erosion and profit-shifting initiative.
In a reportreleased September 16 outlining its final recommendations for carrying out action 6 (preventing the granting of treaty benefits in inappropriate circumstances), the OECD offered a more flexible approach to tackling treaty shopping. The report says that as long as countries have a minimum level of protection against treaty abuse, they can use the policy choices that are most appropriate for them. The U.S. approach -- a limitation on benefits article combinedwith domestic antiabuse rules --will satisfy that minimum standard.
For the story, go here. (subscription required)

Executives at U.S. companies say uncertainty over tax overhaul initiativeswill put a crimp in investment spending and hiring in the third quarter compared to the second quarter of 2014, according to a survey from the Business Roundtable.
The survey, released Sept. 16, included responses from 135 member chief executive officers. It pointed to overall steady growth, but executives' outlook has been dampened bywhat the roundtable said is uncertainty over U.S. policy, tax reform in particular, and global unrest.
For the story, go here. (Subscription required)

The OECD's agreed recommendations for changing the international tax rules arewide-ranging under its first stage ofwork in connectionwith base erosion and profit shifting (BEPS). Seven of the fifteen areas of the BEPS Action Plan are covered by this first stage.while agreed, the proposed measures are not yet finalised as they may be impacted by the 2015 deliverables, the OECD states.

For the bulletin, go here.

Governments have thrown theirweight behind sweeping rules to crack down on corporate tax avoidance, including steps to increase transparency, close loopholes and limit the use of tax havens.

However, countries could not agree on the design of a measure aimed at curbing unfair competition for patent income,which iswidely viewed as contributing to the problem of tax avoidance.

For the story, go here.

If the all-American fast food chain Burger King,with its thousands of restaurants in the United States, can claim to be a foreign company for tax purposes, our corporate tax system is in real trouble.
The crisis of corporate inversions is now apparent even to thosewho aren't connected to the boring details of tax policy. The public outrage is so apparent thatwalgreen Co. backed off its plans to invert.
This ire stems from the justified belief that there's a separate set of rules for powerful corporations. So here's a thought.
For the story, go here.

The Tax Foundation thisweek released a new index measuring the tax competitiveness of the largest 34 nations in theworld.
The bad news is that the United States ranks #32. There is no good news.
Well, that's not entirely true. There'ssome good news, but not much.

For the story, go here.

Onwednesday, six coalitions representing hundreds of American businesses hosted a bipartisan conversation on tax reform thatwas moderated by CNBC Senior Contributor Larry Kudlow and featured Houseways and Means Chairman Dave Camp and the Chairman of the President's Council of Economic Advisers, Jason Furman.

The event focused on the need for corporate tax reform to help grow our economy and level the playing field for American businesses in the global economy.

Camp, Furman, and Kudlow discussed the lessons learned from recent efforts to fix the tax code and the path forward for reform heading into the midterm elections and beyond.

For the story, go here.

In aworldwhere principled bipartisanship is often disregarded in favor of political rhetoric, I have a simple proposition for House Speaker John Boehner: Let's sit down together and figure out how to get tax reform done.
Fewwould disagree that it's time to reform the outdated U.S. Tax Code. It's a broken, dysfunctional mess. Twenty-eight years after the most recent overhaul of the U.S. Tax Code,we are falling behind other countries that have evolved their tax policies to reflect the changing dynamics of the global economy and create an environment favorable to growth.
For the article, go here.

The OECD Centre for Tax Policy and Administration today issued the first seven reports required as part of the Base Erosion and Profit Shifting (BEPS) project.

For the seven BEPS deliverables, an explanatory statement, and other resources, go here.

In this exclusive article for International Tax Review, Pascal Saint-Amans and Raffaele Russo of the OECD explain how the first half of the BEPS Project'swork starts the task of bringing coherence, substance and transparency to international tax rules around theworld.

For the article, go here.

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

For the index, go here.

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

For the article, go here. (subscription required)

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

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

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

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

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

For the editorial, go here.

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

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

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

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

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

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

For the paper, go here.

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

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

For the letter, go here. (subscription required)

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

For the viewpoint, go here. (subscription required)

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

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

For the report, go here. (Subscription required)

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

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

For the story, go here.

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

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

For the report, go here.

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

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

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

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

For the story, go here.

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

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

For the story, go here.