Int'l Tax News

President Barack Obama attacked companies that use cross-border mergers to escape U.S. taxes, accusing them of being "corporate deserterswho renounce their citizenship to shield profits."

In remarks at a technical college in Los Angeles today, the president called for a new "economic patriotism" from companies. He also decried those that use corporate inversions to benefit economically by being in the U.S.while adding to the tax burden of middle-income families.

For the story, go here.

Given a veritable flood over the last year of corporate inversions, lawmakers inwashington D.C. are debating how to respond. The arguments split, often along partisan lines, from overhauling the US corporate tax to punishing companieswho choose to move elsewhere. On July 22, Mihir A. Desai, Miuzho Financial Group Professor of Finance at Harvard Business School, testified before the US Senate Committee on Finance. His message: The answer is not in restricting the ability of firms to locatewhere it makes sense for them to be, but rather to create tax reform that makes U.S. firms more competitive.

For the testimony, go here.

Lynx Professional Grillswas launched in 1996 as a high end barbecue grill manufacturer. The company,which markets itself on sleek designs and industrial grade build-quality, is a classic old line manufacturer: a company thatworkswith steel andwelders to build heavy things that people buy and plunk down in their backyards. But it's also a digital enterprise.
In fact, Lynx's new smart grill,which is voice-activated and connects to your homewi-Fi network to access recipes and cook times and send you a textwhen it's time to flip the burgers, became the darling of this year's Consumer Electronics Show.
As I'vewritten before, the growth of the digital economy is creating some serious challenges for a system of taxation that has been largely rooted in physical supply chain touch points for a hundred years. Given that framework, how do you tax groceries that are ordered directly via your gas grill'swi-Fi connection?
For the story, go here.

Recent cross-border merger and acquisition activity involving U.S.-based companies has garnered considerable attention. Once a cross-border merger or acquisition is being considered, one of the many optimizing decisions that must be made iswhere to locate the legal headquarters of the surviving company.
What sets the recent activity apart is that the U.S.-based companies are choosing to be taxed as foreign rather than U.S.-based companies. This has led to a growing chorus of tax experts, lawmakers and economists calling for reform of our outdated, anti-competitive tax system.
For the blog post, go here.

The Obama administration is continuing to make its case for legislation thatwould retroactively strip the tax advantages away from many of the year's biggest mergers and acquisitions.
On Thursday, Mark J. Mazur, the Treasury Department's assistant secretary for tax policy, made the case that any new laws targeting inversions – transactions that allow American companies to reincorporate abroad – should be backdated to May 2014, potentially affecting a number of multibillion-dollar deals.
For the story, go here.

Lawmakers should reduce the corporate tax rate to improve U.S. competitiveness because the current rate is a major reason for inversions, and proposals to restrict foreign ownership of U.S. corporations are "short-sighted," according to a report from Americans for Job Security released on July 21.

For the report, go here.

President Barack Obama plans to go on the offensive against companies that use cross-borders mergers to escape U.S. taxes, accusing them of essentially renouncing their citizenship to shield profits.

For the story, go here.

Corporate America's latest public relations disaster comes under the banner of "tax inversion." In an inversion, a U.S. company shifts its legal headquarters to a countrywith a lower tax rate. Just lastweek, the U.S. drug maker AbbVie agreed to buy a foreign firm, Shire, in part to reduce its corporate tax rate,which is expected to drop from 22 percent to 13 percent. In most inversions, companies keep their headquarters' physical activities ÔøΩ the people, the buildings ÔøΩ in the United States, aswould AbbVie. Still, the practice has understandably provoked a furious backlash.

For the article, go here.

Nothing attests to the desperation the Obama administration faces in finding an economic meme to their liking than their claim that the recent uptick in corporate inversions represents a crisis.

For the story, go here.

Aswith many debates inwashington these days, the latest one over corporate tax inversions is centered on thewrong question and leading policy makers to thewrong answer.
For the story, go here.

Lawmakerswidely concerned about thewave of companies reincorporating overseas to avoid U.S. taxes split along partisan lines Tuesday overwhether any legislation should take aim at businesses that have already relocated.
It is far from clear that Congresswill take any action in response to thewave of mergers between U.S. and foreign firms, particularly in the pharmaceutical industry. But the increasing use of the practice, known as a corporate inversion, has triggered alarm on Capitol Hill. Democrats have pushed for short-term fixes, but many Republicans are reluctant to take on the issue except as part of a broader tax-system overhaul.
For the story, go here.

The U.S. governmentwill continue a sharp focus on ensuring companies pay taxes on their overseas earnings if they develop intellectual property in the country and move it offshore, a senior Treasury tax attorney said.
"The U.S.wants to make sure thatwe get to tax properly the income earned from the IP thatwas developed in the U.S.," Douglas Poms, senior counsel for the Treasury Office of International Tax Counsel, said. He said the Internal Revenue Servicewill look at royalties on the IP to determine the tax.
For the story, go here. (subscription required)

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)

Republicans and Democrats are deeply divided overwhat should be done to stop companies from slashing their tax bills by moving their legal addresses outside the United States.

While both parties broadly agree the "inversion" deals threaten to drain the Treasury's coffers andweaken the U.S. tax base, they are finding little common groundwhen it comes to a legislative solution.

For the story, go here.

Treasury Secretary Jack Lew gets one thing right in his letter to Congress on corporate "inversions": the recognition that the "bestway to address this situation is through business tax reform that lowers the corporate tax rate, broadens the tax base, closes loopholes and simplifies the tax system" ("Jack Lew's Flee America Plan," Review & Outlook, July 17). If it's the bestway, and America's business leaders certainly agree it is, thenwhy pursue an ad hoc, punitive alternative as now being proposed by the administration?

For the letter, go here.

On Tuesday, the Senate Finance Committee is scheduled to hold a hearing thatwill examine a critical issue impacting the long-term health of the U.S. economy – our international tax system. Dubbed "Love it, Leave It or Reform It!" the committee promises to delve into the specific issue of corporate tax inversions,which describes a practicewhereby companies reincorporate in a foreign country.
It is no coincidence that the hearing also takes place on the heels of U.S. Treasury Secretary Jack Lew calling for American companies to pursue so-called "economic patriotism" in their international business practices.
For the article, go here.

As the United States continues its slow recovery from the Great Recession, a growing number of U.S. businesses are moving overseas or looking forways to move overseas in order to take advantage of more competitive tax rates. This trend, known as inversion, and the jobs thatwill certainly follow, pose a grave threat to continued economic growth.
The reason for the migration? America's corporate tax rate. Our combined federal-state corporate rate of 39.1 percent is the highest in theworld and it is accompanied by a tax system that is incredibly complex and has grown into the tens-of-thousands of pages.

For the blog post, go here.

In recent months, several big U.S. companies have reached so-called inversion deals thatwill allow them to reincorporate in countries like Ireland and the Netherlands,where corporate taxes are lower.
Are these deals a sign that corporate taxes should be lowered so American companies can compete on a level playing fieldwith foreign companies, or are they an example of self-serving greed that should be outlawed so companies builtwith American support pay their fair share?

For the debate, go here.

The Joint Committee on Taxation summarized current law and the background of proposals for reforming multinational company income taxes in a July 21 report (JCX-90-14) prepared in advance of a Senate Finance Committee hearing on the topic.
The JCT report provides an overview of international tax principles in the U.S. tax system, principles of inbound and outbound taxation, and U.S. tax rules regarding inbound and outbound investment. It summarizes concerns regarding promotion of U.S. investment and expansion of home-country firms, and discusses recent actions by the OECD to prevent base erosion and profit shifting and other global activity related to taxing cross-border income.
For the report, go here.

On Friday the U.S. drug maker AbbVie announced a plan to buy the U.K.-based Shire in a $54 billion deal, fromwhich AbbViewill emerge as a subsidiary of the U.K. firm. It is but the latest example in a flurry of acquisitions known as inversions.
The deals are driven by planning to avoid paying the U.S. tax that applieswhen firms repatriate their low-taxed foreign earnings to the U.S. This has triggered demands -- most recently, from Treasury Secretary Jack Lew -- to close down inversions through the tax code, or to deprive inverted firms of government contracts or other benefits.
Firms that invert argue that the deals are "legal," harmless to U.S. tax-revenue collection, and a necessary response to our anticompetitiveworld-wide corporate tax system. The first point is a red herring and the second demonstrably false, but there is a kernel of truth in the third.
For the op-ed, go here.

Much-criticized U.S. tax laws on foreign-derived income are up for discussion during a Senate Finance Committee hearing July 22,with tax-driven mergers known as inversions certain to be part of the debate.
"Critics have had a few broad, sometimes conflicting policy concerns," said a report released ahead of the hearing by the Joint Committee on Taxation, "Present Law and Background Related to Proposals to Reform the Taxation of Income of Multinational Enterprises."
The report (JCX-90-14) summarized several options for overhauling U.S. tax laws on cross-border income. Current rules provideworldwide taxation of all U.S. persons on all income,whether derived domestically or abroad, but allow deferral of U.S. taxation of much foreign business income derived by foreign subsidiaries of U.S. companies.
For the story, go here. (subscription required)

Congress and corporate America are in a dangerous and mutually destructive race: The more lawmakers threaten to ban the practice of inversionsÔøΩwhere U.S. based multinationals mergewith foreign firmsto lower their tax bill– the more firms race to complete the dealswhile they can. The more deals, the more pressure on Congress to ban them.
And as themarket for inversions heats up,the odds lengthen against real reform that could address the fundamental problemwith the U.S. corporate tax system.
For the story, go here.

When is a U.S.-based company not considered a U.S. company by the IRS?when it buys a smaller firm in a foreign country and ÔøΩ presto chango! ÔøΩ deems that company to be its parent, escaping the obligation to pay taxes to the U.S. Treasury on its foreign earnings. This process, called "inversion," is becoming increasingly popular among U.S. multinationals, drawing howls from lawmakers and the Obama administration. But a quick legislative fixwon't last long. That's because the larger problem is a uniquely flawed U.S. tax code that encourages multinationals to engage in all sorts of accounting gimmickry.

For the editorial, go here.

Suddenly, the hottest tax arbitrage game is the "tax inversion,"where U.S. companies seek to lower its tax rate by buying a foreign rival. The latest deal came Fridaywhen U.S. drug makerAbbieVieannounced itwould buy Dublin-based Shire. The $54 billion deal followsMylan'smove to buy assets from Abbott Laboratoriesearlier thisweek in a deal thatwill create a new Netherlands-based holding company. In May, U.S. pharmaceutical giant Pfizertried to relocate in the U.K., but a deal to buy AstraZeneca fell through.
One of the best cries of outrage appeared inAllan Sloan'spiece inFortuneearlier this month. The patriotism angle I get, but then again,why blame corporate chiefs for taking advantage of tax games that are perfectly legal, especially in a rapidly globalizing economy?
For the article, go here.

European sensibilities are offendedwhen checked entities, disregarded for U.S. tax purposes, deduct outbound payments that are not taken into income by their U.S. parents. So the hybrid discussion draft recently released as part of the OECD base erosion and profit-shifting initiative calls for the checked entity's country of residence to disallow a deduction.
On July 17 the International Tax Institute discussed the OECD BEPS recommendations for treatment of hybrid payments in light of the U.S. dual consolidated loss (DCL) rules. John Merrick, special counsel to the IRS associate chief counsel (international), added his thoughts to the discussion. He is a veteran of the development of the 2007 DCL regulations (T.D. 9315).
For the story, go here. (subscription required)

A subcommittee of the United Nations' Committee of Experts on International Cooperation in Tax Matterswill report on base erosion and profit shifting issues to the committee in October, and has published details from a trio of countries on their experience on BEPS issues so far.
Michael Lennard, chief of the UN's international tax cooperation unit, told Bloomberg BNA July 17 that the UN subcommittee on BEPS issues for developing countrieswill report to the committee at its 10th annual session in Geneva Oct. 27-31.
For the story, go here. (subscription required)

U.S. companies are racing to complete tax-reducing offshore mergers before a credible threat to stop them emerges from Congress.

AbbVie Inc., maker of the arthritis medicine Humira, announced the largest such inversion deal July 18with a plan to move its tax home to the U.K. in a $55 billion purchase of Shire Plc. It joins seven other companies, including Medtronic Inc.,with pending deals thatwould be unwound, renegotiated or penalized under plans from the Obama administration and Congress to make tax changes retroactive to May.

For the story, go here.

'I never let the existence of facts cloud my judgment." This commentwas made to me years ago by a colleague at McKinsey & Company during a debatewhere his factswerewrong, but his opinion firm.
That remark sums up the debate about corporate inversions, deals inwhich companies reincorporate overseas.
The raging debate about these decisions has been absurd, and people expounding on the topic are makingwild claims that inversion is an abuse of the tax code, cheating and unpatriotic. It all makes for emotional and dramatic headlines and debate but ignores the facts.
For the story, go here.

Over the past two years, 'tax inversion' deals have been leading the global M&A sector out of the doldrumswhile drawing attention to the creative side of accountants and investment bankers.

It's just the latest battlefield in theworld of corporate tax avoidance and provides a note of caution towhatwould otherwise appear to be an M&A boom.

The controversial process involves a company buying a rival firm in another region of theworld, reincorporating in that region and consequently exposing itself to a lower tax rate. It has proven especially popular in the US pharmaceutical sector as American firms seek out the comparatively kind tax regimes of Ireland, the Netherlands and the UK.

For the story, go here.

Thisweek, two more U.S. companies moved to reestablish themselves overseas, allowing them to pursue lower corporate tax rates. Theywill join dozens of otherswho have chased lower tax bills abroadwhile maintaining operations in the United States, benefiting from the U.S. business climate, legal stability and research investmentswithout helping to pay for these advantages. Treasury Secretary Jack Lew pressed Congress on Tuesday to close the avenues in U.S. law that allow companies to evade corporate taxes by moving to foreign countries.
Instead, just lastweek, the House passed a bill thatwould make it more difficult to keep U.S. companies in America.
For the story, go here.

One of the common themes in the debate over corporate inversions is that these transactionswill erode the U.S. tax base and cost the Treasury billions of dollars in lost taxes.
What is interesting is that the latest IRS data for 2011 shows that the U.S. subsidiaries of foreign corporations pay a higher effective tax rate than do all active corporations in general. The IRS data for active companieswith more than 50% foreign ownership indicate that in 2011 these companies paid $35.7 billion in income taxes on $130 billion in income subject to tax, for an effective tax rate of 27%. By contrast, the average effective tax rate for all active C-corporationswas 22% in 2011.
Many press stories on the inversion issue give the false impression that by changing their headquarters to another country (the U.K. for example), the "new" companywill stop paying U.S. income taxes. Nothing could be further from the truth. These companieswill continue to pay U.S. income taxes on the profits they make in the U.S.what changes is that their foreign earningswill no longer be subject to the U.S.worldwide tax system.
For the story, go here.

Washington is buzzing this summer about inversions, and the chatter has nothing to dowith theweather.
Thisweek, Treasury Secretary Jacob J. Lew and Senate Majority Leader Harry Reid became the latest to press for a crackdown against corporate inversions. These arewhen U.S. companies switch their addresses to low-tax nations like Ireland, often through a takeover of a smaller company, reducing their tax billswhile typically keeping their headquarters and listings in the U.S.
White House Press Secretary Josh Earnest said President Barack Obamawill discuss the issue more in comingweeks.

For the story, go here.

Our nation's corporate tax policy has reached such a point of disrepair that pundits are now invoking taxpayers' patriotism to reverse an exodus overseas by corporate America. Instead, Congress should lower effective tax rates so the U.S. can compete in the global economy and to incentivize companies to stay at home.
In recent years, American corporations have found a new tax-planning strategy: votingwith their feet. Some of the largest U.S. companies are moving offshore like so many retired New Yorkers finding tax shelter in Florida residency.
For the story, go here.

You can think of corporate taxation as a sort of long chess match: The government makes a move. Corporations move in response -- sometimes literally, to another countrywhere the tax burden is less onerous. This upsets the government greatly, and the Barack Obama administration in particular. Treasury Secretary Jack Lew haswritten a letter to Congress, urging it to make it stop by passing rules that make it harder to execute these "inversions."
I've got a better idea:what ifwe made our tax system so attractive to corporations that theywould have no interest in moving themselves abroad?
For the article, go here.

Well, itwas only a matter of time before the tax and morality debate that has been brewing in Europe invaded the shores of the United States. And there is an unlikely commander helping to establish a beachhead in the attack on U.S. multinationals – then again, maybe not so unlikely.
In a blistering piece in last Sunday'sWashington Post, Allan Sloanassails U.S. multinationals that invert, often by mergingwith a foreign corporation in a low-tax jurisdiction to avoid the high U.S. corporate tax rate. In most cases, the only thing that really happens in an inversion is that the U.S. corporate tax base shrinks.
For the story, go here.

The Obama administration called out corporate America for its growing use of a tactic to avoid paying taxes and urged lawmakers to act quickly to put a halt to the maneuver.
In a sharplyworded letter to key congressional tax codewriters, Treasury Secretary Jacob J. Lew pushed for legislation thatwould make it more difficult for U.S. companies to reorganize as foreign firms in lower-tax nations.
The practice, known as inversion, enables the new company to avoid paying the high U.S. corporate tax rate on its foreign earnings.
For the story, go here.

It'swiseto be on your guardwhen the Obama Administration trots out a new catch phrase. Today that catch phrase is "economic patriotism,"which has been re-defined to mean "preventing corporations from doing the smart thing and fleeing from the grasping hands of greedy politicians." Obama's not big on securing the southern border againstwaves of illegal immigrants, but he's very keen on building fences to keep peoplein.

For the story, go here.

The OECD Council approved yesterday the contents of the 2014 Update to the OECD Model Tax Convention. The Update,whichwas previously approved by the Committee on Fiscal Affairs on 26 June,will be incorporated in a revised version of the Model Tax Convention thatwill be published in the next few months.
For the release, go here.

A lot more American firms couldwind up moving overseas for tax purposes beforewashington manages to do anything about the problem, despite new pressure from the Obama administration for congressional action.
The issue has gained prominence inwashington aswell. Treasury Secretary Jacob Lewweighed in on Tuesday evening, urging lawmakers to take action "immediately" to "shut down this abuse of our tax system." The comments came in a letter from Mr. Lew to members of the congressional tax committees. Senate Finance Committee Ronwyden (D., Ore.) quickly issued a statement onwednesday signaling new interest in a near-term solution.
But lawmakers for now remain deeply divided overwashington's response.
For the story, go here.

So the same Administration that refuses towork seriously on tax reform has decided that its top economic priority is providing even more incentives to drive American companies overseas. And then accusing anyonewho disagrees of having a lack of "economic patriotism."
Yes, that can only be Jack Lew in action, the Treasury Secretarywho must make the statue of Alexander Hamiltonwant to put on a blindfold. On Tuesday he sent a letter to Houseways and Means Chairman Dave Camp urging the Michigan Republican to punish American companies that decide to opt out of the developedworld's highest corporate tax rate.
"Whatwe need as a nation is a new sense of economic patriotism," lectured Mr. Lew. The letter called for Congress to urgently enact new penalties and restrictions on businesses that relocate outside the U.S.
For the story, go here.

The 2014 update to the Organization for Economic Cooperation and Development's Model Tax Conventionwon't include material from the ongoing base erosion and profit shifting project (BEPS) or from a 2012 discussion draft on permanent establishment, the OECD said.
The 2014 update reflects onlywork carried out between 2010 and the end of 2013, the OECD said. Therefore, no resultswill be included from the ongoing efforts on the BEPS action plan, first unveiled in July 2013.
For the story, go here. (subscription required)

Marjorie Rollinson, IRS deputy associate chief counsel (international), spoke to the International Fiscal Association USA New York chapter on July 16, expressing her desire to have the IRS clarify the overlap between foreign base company sales income and foreign base company services income. Guidance on this question is an item on the IRS 2013-2014 business plan.
For the story, go here. (subscription required)

Several deal makers, riding high on a string of overseas tie-ups designed to help U.S. companies lower their tax rates, saidwednesday intensifying political rhetoric about the dealswouldn't stall ongoing talks between companies. But they said the sharpened criticism could chill future transactions.

The deals,which let companies adopt lower foreign tax rates through overseas acquisitions, have come fast and furious in recentweeks as companies try to keep upwith rivals to snag a competitive rate. Anotherworry in the race toward overseas mergers: Policy makers could close thewindow for such tax-beneficial tie-ups.

For the story, go here.

What did Jack Lew say about tax inversions?

Jack Lew, the US Treasury secretary, made his most high-profile and extensive comments on so-called tax "inversions" thisweek, in a letter to the most senior tax-writers on Capitol Hill. Mr Lew said Congress should pass measures to stop US multinationals from seeking to strike merger deals to relocate in low-tax jurisdiction in order to slash their American tax bill. "These firms are attempting to avoid paying taxes here, notwithstanding the benefits they gain from being located in the United States," Mr Lew said. Expressing concern about a hollowing out of the US corporate income tax base and saying the US needed more "economic patriotism", Mr Lew added that itwas time to "shut down this abuse".

For the Q&A, go here.

The European Union's (EU) 28 Finance Ministers agreed, on June 20, 2014, to amend the EU's Parent-Subsidiary Directive, addressing the effects of tax arbitrage resulting from EU Member States' varying tax treatments of hybrid loans. The Directive aims to exempt fromwithholding taxes profit distributions (e.g., dividends) paid by subsidiaries to their parent companies, thus eliminating double taxation of those distributions at the parent company level.

For the article, go here.

Thewave of inversion deals–where American companies buy overseas competitors to gain access to a lower tax rate–is a symptom of flawed U.S. tax policies, J.P. Morgan Chase JPM+0.82% & Co. Chairman and Chief Executive James Dimon said Tuesday.

Simply changing tax policy to end the loophole for these so-called inversion dealswon't fix the problem of capital from U.S. corporations moving overseas, Mr. Dimon said on a conference callwith the financial media after the bank released second-quarter results.
For the story, go here.

The Obama administration joined the growing debate over U.S. companies reincorporating overseas for tax purposes, urging lawmakers to pass legislation to limit the moves.
In a letter to leaders of the congressional tax-writing committees, Treasury Secretary Jacob Lew said lawmakers "should enact legislation immediately . . . to shut down this abuse of our tax system." The letterwas reviewed by Thewall Street Journal on Tuesday night.
For the story, go here.

Jack Lew, US Treasury secretary, has urged Congress to crack down on merger deals inwhich companies seek to redomicile overseas to reduce their US taxes, invoking the need for "economic patriotism" in reversing a practice that has flourished in recent months.

In a letter to Dave Camp, the Republican chairman of the tax-writing Houseways and Means Committee, Mr Lew said US lawmakers should pass measures to stamp out "inversions",whichwere contained in the Obama administration's most recent budget proposal and later embraced by senior Democrats on Capitol Hill.

For the story, go here.

The Obama administration called for immediate congressional action to stop U.S. companies from using cross-border mergers to escape the country's tax system, the latest trend in corporate deal-making.

In a letter calling for a "new sense of economic patriotism," Treasury Secretary Jacob J. Lew said Congress should approve tax changes retroactive to May.

For the story, go here.

The chairman of PwC in the UK has said that takeover deals based on tax inversions ÔøΩwhichwere brought to the fore in Pfizer's aborted battle for AstraZeneca ÔøΩ should bewelcomed.
Ian Powell said that the UK's low corporate tax rate is an added advantage for British business, and should not be dismissed.
"As an open economy, that's one of the huge strengths of the UK," he said.
For the story, go here.