Int'l Tax News

When Flemming Ornskovwas named chief executive of Shire PLC last year, he moved his office from the drug maker's Dublin headquarters to its Lexington campus so he could scout for biotechs to buy here.

Now Shire itself is a takeover target. It rebuffed a $46 billion bid from pharmaceutical giant AbbVie Inc. of Chicago late last month, but the suitor hasn't given up. It's not only after Shire's drug portfolio, but also the company's address in Ireland,where corporate taxes are lower.

"It's becoming increasingly disadvantageous to be a US-based multinational," said Eric Toder, codirector of the Tax Policy Center, a nonpartisanwashington, D.C., think tank. "Sowhat's the solution? You stop being a US-based multinational."

For the story, go here.

American conglomerates thatwant a piece of the tax-inversion deal bonanza may start turning to a new tactic. Call it the "spinversion."
A large diverse company could spin off a portion of its business and reincorporate that piece by combining itwith an overseas entity. Shareholders get the benefits of lower tax bills for that separated unit, and corporate giants such as Johnson & Johnson and Danaher Corp.wouldn't have to undertake a massive acquisition or face the political fallout that can come from completely skirting U.S. taxes, Albert Fried & Co. said.
For the story, go here. (subscription required)

How much revenue does the U.S. Treasury stand to lose from corporate tax inversions? It is difficult to say precisely, but one estimate puts the figure at close to $20 billion.
A nonpartisan congressional research panel said the U.S.would receive an additional $19.46 billion over a decade if most new tax inversionswere essentially haltedwith proposed changes to the tax code.
For the story, go here.

Health care companies, like many big American corporations, have a long list of complaints: regulation, global competition and, chief of all, taxes.
But increasingly, drug makers and medical device companies have found away to self-medicate.
By buying a smaller overseas competitor and reincorporating abroad -- a maneuver called inversion -- health care companies are extricating themselves from the American tax regimen. Their new international domiciles also give companies easier access to overseas cash and make additional inversions more attractive.
For the story, go here.

Given increasingly competitive foreign tax regimes and legislative proposals to tighten U.S. anti-inversion rules, one might think that U.S. start-upswith global ambitionswould be incorporating offshore in greater numbers.
Silicon Valley practitioners, investors, and founders agree that, in general, there is still no reason to expect an increase in tax haven incorporation for U.S.-based start-ups. In fact, cross-border start-up activity may be trending the other direction.
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Senators are planning to hold a July 22 hearing to discuss options for dealingwith corporate inversions, aswell as other international tax issues, Senate Finance Committee Chairman Ronwyden (D-Ore.) said.
In a July 14 interviewwith editors and reporters at Bloomberg News headquarters in New York,wyden said he intends to seek retroactive tax legislation to stop U.S. companies from moving their legal addresses to other countries.
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India is committed to a stable and predictable tax regime to attract investment and spur economic growth, and retroactive changes to the tax law made in 2012will only be applied after scrutiny, Finance Minister Arun Jaitley said.
All new cases arising from retroactive changes that apply to indirect transfers of Indian assetswill be examined by a panel before any action is initiated, Jaitley said in his July 10 budget speech to parliament. Cases that are currently pending at different stages "will naturally reach their logical conclusion," he said.
The proposal comes as investors have beenwary after India changed rules two years back that forced Vodafone Group Plc to start international arbitration to resolve a $2.4 billion tax dispute over a 2007 acquisition.
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Ed Balls, shadow chancellor of the exchequer, laid out his proposed principles for the tax system in a speech to the London Business School thisweek, committing to "maintaining the most competitive corporation tax rate in the G7while making reforms to support long-term investment and tackle tax avoidance".
"The last Labour government left Britainwith the most competitive rate of corporation tax in the G7 andwe are committed to maintaining that position," said Balls. "But unlike George Osborne [chancellor of the exchequer]we also recognise that companies are just as concerned about other elements of the business tax regime, such as capital allowances and business rates."
For the story, go here.

Labourwill tomorrow (Mon) commit to maintaining the most competitive corporation tax rate in the G7while making reforms to support long-term investment and tackle tax avoidance.

Ed Balls MP, Labour's Shadow Chancellor,will set out Labour's approach to business tax in a speech to the London Business School and in a policy document he is publishingwith Shabana Mahmood MP, Labour's Shadow Exchequer Secretary.

For the story, go here.

It seems as if every day another U.S. company is announcing plans to mergewith a foreign company in order to save millions of dollars in taxes. That's not really the case, of course, but a growing number of companies are doing it, even if they don't always admit the reason.

For the story, go here.

In this Bulletin, the authors look at how the OECD BEPS recommendations require careful examination of potential EU law issues. They identifywhere potential EU law issues could arise, focusing principally on the fundamental freedoms in the Treaty on the Functioning of the European Union (TFEU) and the cases handed down by the Court of Justice of the European Union (CJEU).
For the Bulletin, go here.

Delivering his first Budget speech today, Arun Jaitley, India's new finance minister, pledged to maintain a stable tax environment, but disappointed multinational taxpayers by not removing rules on retrospective tax. Indeed,while the majority of the finance minister's proposals sound business-friendly enough, taxpayerswould have liked more concrete detail.
For the story, go here.

U.S. companies are rushing to lower their tax bills by buying Irish companies and moving their headquarters to the Emerald Isle. Butwhat is Ireland getting out of it?

Less than you might think.

For the blog post, go here.

Christian Aid, ActionAid, Globalwitness and the Financial Transparency Coalition have accused G8 countries of failing to live up to the promises they made on tax and transparency a year ago at the Lough Erne summit in Northern Ireland.
For the story, go here.

Citizens for Tax Justice in a July 8 report explainedwhy Congress needs to raise the overall amount of federal revenue collected and described tax policy options thatwould increase revenue available for public investments by closing or limiting tax breaks that benefit high-income individuals, businesses, and multinational corporations.

For the report, go here.

The number of U.S. companies reincorporating overseas has shot up considerably in recent decades.
Why all the reincorporation, or tax inversion, as the practice is often called? The answer is corporate tax breaks.
For the blog post, go here.

In a survey of CFOs conducted by Grant Thornton LLP, only 39 percent of respondents said theywould give up the tax benefits required to enact a rate cut of 25 percent or more for their company; a majority of respondents identified bonus and accelerated depreciation as the most important tax benefit for their business.

For the survey, go here.

The Urban-Brookings Tax Policy Center in a July 8 report described the major provisions in the tax reform discussion draft introduced by Houseways and Means Committee Chair Dave Camp, R-Mich., and analyzed the plan's revenue impact beyond a 10-year budget period, distribution of the tax burden, and other aspects of the plan.

For the report, go here.

American manufacturer Ingersoll-Rand Co. (IR) forged the tools that carved the Panama Canal and shaped Mount Rushmore.when it shifted its legal address to Bermuda in 2001 to reduce taxes, the maneuver sparked bipartisan outrage in Congress.

"These corporations have turned their back on their country," Nevada Democrat Harry Reid fumed from the Senate floor, adding that his father, a hard-rock miner, hadwielded an Ingersoll-Rand jackhammer. "There is no reason the U.S. government should reward tax runawayswith lucrative government contracts."

Over the next dozen years, Congress passed law after law to prohibit American companies that reincorporate overseas from doing businesswith the federal government. Those laws haven'tworked. Benefiting from loopholes and a cooperative Obama administration, the companies avoid the ban on federal contracts as effectively as they avoid U.S. taxes.

For the story, go here.

Inwashington many in Congress are ruing "corporate inversions," inwhich a U.S.-headquartered company becomes a foreign-headquartered company through an M&A transaction and thus "inverts" its citizenship. Dozens of such M&A-linked inversions have happened in the past year or are being discussed (even by the iconic U.S. retailerwalgreens), and in response many are blaming the companies. In announcing plans to introduce legislation banning companies from inverting, Senator Carl Levin intoned, "It's become increasingly clear that a loophole in our tax laws allowing these inversions threatens to devastate federal tax receipts."
Thus is the issue laid bare. Are U.S. leaders going to heed the sobering policy message being delivered to them by Pfizer and others: that America's current system of business taxation is penalizing U.S.-headquartered companies seeking to compete inworld marketsÔøΩand thus to support jobs and investment in America? Or are U.S. leaders going to shoot the messenger?
For the blog post, go here.

The July 2014 edition of PwC's International Tax News includes reports on key developments in Luxembourg, the Netherlands, Taiwan, the United States, and several other important countries.

For the report, go here.

Jean-Claude Juncker, president-designate of the European Commission, may face tough questions from members of the European Parliament about tax arrangements he helped create in his dual role as prime minister and finance minister of Luxembourg.
The tax arrangements attracted numerous multinational companies to the tiny European Union member state, turning it into a financial powerhousewith one of the highest standards of living in the EU.
European Commission officials confirmed July 4 that their probe is expanding. The commission has challenged Luxembourg in the European Court of Justice to hand over tax documents and followed upwith specific requests about its transfer pricing arrangementswith Fiat's holding company.
"There are a number of companiesÔøΩleading multinationalsÔøΩand their tax arrangements that are of obvious interest to us," said a European Commission official. "We are continuing to gather information about certain tax practices."
For the story, go here. (subscription required)

Microsoft Corp., theworld's biggest software maker, is among companies embroiled in a European Union inquiry into Luxembourg's tax treatment of multinational firms, according to three people familiarwith the EU's review.
The European Commission has quizzed Luxembourg about how it taxes Microsoft's intellectual property, said one of the people,who asked not to be identified because the matter is private. Antitrust officials also asked questions about McDonald's Corp.'s taxes in Luxembourg, two of the people said. Amazon.com Inc.'s tax affairs there also are being examined, the Financial Times reported July 3, citing an EU official.
For the story, go here. (subscription required)

Ah, July!what a great month for those of uswho celebrate American exceptionalism. There's the lead-up to the Fourth, countrywide Independence Day celebrations including my town's local Revolutionarywar reenactment and fireworks, the enjoyable days of high summer, and, for the fortunate, the prospect of some time at the beach.
Sorry, but this year, July isn't going towork for me. That's because of a new kind of American corporate exceptionalism: companies that have decided to desert our country to avoid paying taxes but expect to keep receiving the full array of benefits that being American confers, and that everyone else is paying for.

For the story, go here.

Here's a question for investors in any big United States corporationwith foreign operations: Do you knowwhat the company's tax billwould be if it had to bring its overseas earnings home?
For the story, go here.

Lower corporate tax rates stimulate investment and growth. This is hardly a controversial statement among mainstream economists. Yet for some reason economists in Japan assume the rate cut proposed by Shinzo Abewill have few net benefits and large immediate costs. Maybe the Prime Minister needs to add a fourth policy arrow to clean out the brain dead in his own Finance Ministry.
For the story, go here.

Company executives may not flaunt the tax benefits that comewith some overseas deals, but their importance is coming through loud and clear in the fine print of merger documents.
Inversion deals have become bigger and more popular lately.
But pitfalls abound. The effort by companies to lower their taxes through deals has sparked outcry from U.S. policy makers, some ofwhom are threatening to change the rules to limit the tax advantage of these tie-ups.
To protect themselves, companies increasingly are adding details to merger agreements that allow them towalk away from a dealwithout paying a penalty, or breakup, fee should the tax advantage suddenly be taken away.

For the story, go here.

The IMF chose a moment during theworld Cup round of 16 andwimbledon to issue an important policy paper, "Spillovers in International Corporate Taxation," about tax competition and how countries should protect themselves from this destructive nonsense. (For the paper, seewww.imf.org/external/np/pp/eng/2014/050914.pdf.) The Bank for International Settlements chose the same moment to make the obvious point that quantitative easing has detached equity markets from realitywhile not fulfilling its stated goal (http://www.bis.org/publ/arpdf/ar2014e.pdf).
The IMF paper's objective is to discuss the effects of beggar-thy-neighbor tax policies on macroeconomic development. The point is to discuss how a country's tax system affects other countries' tax bases. The bottom line: Tax competition makes everyoneworse off.

For the story, go here. (subscription required)

This paper identifies and analyses some key challenges that OECD and partner economies may face over the coming 50 years if underlying global trends relating to growth, trade, inequality and environmental pressures prevail. The paper discusses towhat extent national structural policies can address these and other interlinked challenges, but also points to the growing need for international coordination and cooperation to dealwith these issues over the coming 50 years.

For the paper, go here.

Tax-arbitrage mergers and acquisitions require a deep discount. American companies seeking to relocate by mergers in a bid to slash how much they pay Uncle Samwere a big part of the $1.8 trillion first-half deal boom. The benefits of such ill-conceived combinationswill be fleeting, though. The more so-called inversions there are, the more likely the law is to change.

For the story, go here.

European officials have demanded that Luxembourg hand over documents relating to Amazon's tax affairs as the online retail giant becomes embroiled in a crackdown that has already drawn in Apple, Starbucks and Fiat's financial arm.

The EU's competition commission has sent a request for information to the Grand Duchy,where Amazon's main European operating company is based, aboutwhether its decisions on corporate tax compliedwith state aid rules, two people familiarwith the matter said.

For the story, go here.

With accusations of cosying up to multinationals and engaging in a race to the bottom, there is an assumption that tax competition is bad. But panellists at the Oxford Business School's Summer Conference on Tax Competition and BEPS questionedwhether the perception matches reality.

For the story, go here.

The OECD's project on providingways to tackle base erosion and profit shifting (BEPS) is at the forefront of the minds of tax directors and other stakeholders all over theworld right now. But different jurisdictions have different approaches and different agendas in terms ofwhat theywant OECD outcomes to look like.

For the story, go here.

The popularity of corporate inversion transactions has grown considerably in the past few years,with notable examples including Medtronic-Covidien, Actavis-Warner Chilcott, Elan-Perrigo and Liberty Global-Virgin Media. Now shareholders in US companies are asking: "If our rivals are doing this, is it somethingwe should be considering?"

For the story, go here.

Notice 2014-32 is the IRS's latest attempt to prevent so-called Killer B transactions from repatriating cashwithout paying taxes. It also has important consequences for inversion transactions pairedwith Killer Bs. The notice is designed to combat a cross-border acquisition structure used in connectionwith an inversion.william Pauls looks at transactions affected by the new guidance and the history of IRS rulemaking in this area.

For the report, go here. (subscription required)

Eric Toder of the Urban-Brookings Tax Policy Center in a June 18 report summarized the discussion at a February 28 conference hosted by the Urban Institute onwhat U.S. policymakers can learn from the experience of other countrieswith territorial systems for taxing the income of their multinational corporations.

For the report, go here.

A little less than two years ago, Gregory D.wasson, the chief executive ofwalgreen, sought a series of tax breaks from Illinois,where his company is based.
''We are proud of our Illinois heritage,'' he said at the time. ''Just as our stores and pharmacies are health and daily living anchors for the communitieswe serve,we as a company are now recommitted to serving as an economic anchor for northeastern Illinois.''
Mr.wasson's actions, however, could soon run counter to hiswords. The same chief executivewho said hewas so ''proud of our Illinois heritage'' is now considering moving the company's headquarters to Switzerland as part of a mergerwith Alliance Boots, a European drugstore chain.
For the story, go here.

The International Monetary Fund (IMF) today released the study "Spillovers in International Corporate Taxation," that explores the nature and policy implications of cross-border effects from national corporate tax policies, highlighting how these effects can be significant for developing countries,with resulting tax revenue losses sometimes quite large relative to total government revenues.

For the study, go here.

The "common person" may be a better judge than sophisticated tax experts onwhether tax principles make good common sense, especially regarding international taxation, Michael Danilack, departing deputy commissioner (international), IRS Large Business and International Division, said at a June 5 transfer pricing conference inwashington.

For the speech, go here. (subscription required)

All those recent headlines about more U.S. companies contorting themselves to move their legal headquarters to Ireland or Britain could serve as an epitaph for the 105-year-old U.S. corporate income tax.

No, lawmakers in Congress aren't about to repeal the tax. They say they don'twant to do modest tinkeringwith the tax code so they can save the energy (and, in some cases, the revenues) for that bigger, broader tax reform. But in the same breath members of Congress say doing bigger, broader tax reform is impossible in today's polarized Congress.

So nothing happens. In Congress, that is.

For the blog post, go here.

The International Monetary Fund (IMF) today released the study "Spillovers in International Corporate Taxation," that explores the nature and policy implications of cross-border effects from national corporate tax policies, highlighting how these effects can be significant for developing countries,with resulting tax revenue losses sometimes quite large relative to total government revenues.

For the report, go here.

Uncertainty about extenders impairs businesses in planning and investment, and the growing difference between corporate tax rates in the U.S. and those of major trading partners creates an incentive to relocate overseas, according to a report from McGladrey LLP on manufacturer and distributor issues.
For the report, go here.

Today Maryland Congressman Chris Van Hollen, Ranking Member of the House Budget Committee, and Congressman Sander Levin, Ranking Member of theways and Means Committee, introduced the Stop Corporate Expatriation and Invest in America's Infrastructure Act. This legislationwill put an end to corporate expatriations and devote the resulting revenue to the Highway Trust Fund. Itwill raise $19.5 billion in revenue over ten years and keep the Trust Fund solvent as Congressworks on a long-term funding solution.
For the release, go here.

Spainwill cut its corporate tax rate to 28% from January 1 2015,with a further cut coming in a year later. Incentives used by large businesseswill be repealed to fund the rate cut, but the R&D tax credit has been spared.

For the story, go here.

Tax executives from Altadis, BMW, Iberdrola and Repsol share their exclusive reactions to the announcement of Spanish tax reforms,with allwanting more information before they can be completely satisfiedwith the measures.
For the story, go here.

Narrowlywritten legislation to curb international, tax-driven mergers and acquisitionswon'twork, Houseways and Means Committee Chairman Dave Camp (R-Mich.) said.
But addressing the issue of inversions more broadly could open the door to overhauling corporate tax laws, he said at an event June 24 at the Heritage Foundation. Bills to raise foreign ownership thresholds to discourage the practice simplywon't solve the issue on their own, Camp said in response to a question from the audience.
"If you do corporate only, you need to do corporate only, and not a part of corporate reform," he said. "You just can't pull out, I believe, a partial holiday or a temporary piece."
For the story, go here. (subscription required)

Senior tax officials from New Zealand areworkingwith the Organization for Economic Cooperation and Development in Paris to implement measures from the OECD's base erosion and profit shifting action plan, Revenue Minister Todd McClay announced.
New Zealand officials said they are collaboratingwith the OECD theweek of June 23 to prepare the first parts of its BEPS action plan,with the goal of delivering the first seven measures in September. The 15-point action planwas initiated by the OECD in 2013 in response to tax avoidance measures being utilized by multinational corporations.
For the story, go here. (subscription required)

The issue of tax-motivated income shiftingwithin multinational firms – or "base erosion and profit shifting" (BEPS) – has attracted increasing global attention in recent years. This paper provides a survey of the empirical literature on this topic. Its emphasis is on reviewing and elucidatingwhat is known about the magnitude of BEPS.

For the paper, go here.

On February 28, 2014, the Urban Institute hosted an invitational conference onwhat policymakers in the United States can learn from the experience of other countrieswith territorial systems for taxing the income of their multinational corporations. Participants included academic experts, government officials, and private sector tax practitioners from the United States and overseas. The discussion focused on the experience of four countries - two (Australia and Germany)with long-standing territorial systems and two (Japan and the United Kingdom) that moved to a territorial system recently. This document summarizes the discussion at the conference.

For the report, go here.

In this article, Prof. Bretwells argues that until policymakers address the fundamental tax disparity that creates corporate inversions, ever-changing forms of the transactionwill continue to pop up like moles in awhack-a-mole game.

For the article, go here. (subscription required)