Int'l Tax News

The U.S. is ready to join China and four other countries in an alliance to fight efforts by multinational corporations to avoid paying taxes, according to people familiarwith the matter.

The alliance, an Australian initiative,will also include Japan and Britain. The U.S. could sign on thisweek during a two-day meeting in Tokyo on fighting corporate tax avoidance, people familiarwith the U.S. position told Thewall Street Journal.

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It's not time to leave the U.S. just yet, say the leaders of two top drug companieswho are facedwith their biggest domestic competitors fleeing abroad for more competitive business tax rates.

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The policy basis for recommended rules should be "more fully articulated so that the advisability and content of the rules can be better evaluated," the National Foreign Trade Council said in comments to the OECD on its base erosion and profit-shifting action 2 discussion draft on neutralizing the effects of hybrid mismatch arrangements.

For the comments, go here.

The OECD should adopt a bottom-up approach, increase the threshold for relatedness, and clarify the definition of a structured arrangement, the New York State Bar Association Tax Section said in comments on the base erosion and profit-shifting action 2 discussion draft on neutralizing the effects of hybrid mismatch arrangements.

For the report, go here.

Two senior Democratic lawmakers are preparing legislation thatwill closely follow the Obama administration's plan to disallow for tax purposes corporate inversions underwhich the U.S. subsidiary is larger than the foreign parent company.
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In pursuit of lower tax rates, American multinationals are mergingwith smaller foreign companies and moving their headquarters overseas. About 50 U.S. companies have leveraged this "inversion" tactic in the past 30 years -- and more than 20 have done so in the past two years. And just recentlywe have seen Pfizer make a bid for AstraZeneca thatwould move its tax domicile to the United Kingdom.
While they may not be breaking U.S. laws, many of these companies are navigating a loophole in America's broken and dysfunctional tax code. Andwhile their shareholders may secure a temporarywin,workers, taxpayers and this country all lose. America's tax base erodes at a cost of hundreds of millions of dollars in revenue, increasing the burden on other companies and individuals. America also loses good jobs, talent, investment, and the ability to compete on a global stage.
Legal or not, this loophole must be plugged.
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Pfizer's attempt to escape the United States corporate tax rate by acquiring a British drug maker has set off a flurry of activitywithin other big companies across the country, at investment banks onwall Street and in offices on Capitol Hill.
In New York, investment bankers and lawyers are urging clients to act quickly if they are serious about such a move, knowing that rules could change soon. Inwashington, lawmakers have started to examinewhat legislation could be drafted to stop the outflow of tax dollars.
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The international action plan for addressing base erosion and profit shiftingwill include a mechanism for fixing unforeseen problems that could turn up in the global tax system as a result of the plan's rapid implementation, the Organization for Economic Cooperation and Development's top tax official told Bloomberg BNA.
U.S. business representatives have expressed concern that the BEPS action plan,which the OECD and the Group of 20 countries have vowed to complete by the end of 2015, is moving too quickly and could create unexpected new problems in the international tax system.
Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration, said May 6 that the OECD and the G-20 are aware that problems could arisewith the BEPS planwhen it is implemented, and are developing a mechanism to dealwith that possibility.
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Senator Carl Levin said he iswriting legislation to curb the practice of U.S. companies moving out of the country to lower their tax bills, the first sign of a congressional response to deals like one proposed by Pfizer Inc. (PFE)

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The European Commissionwill intensify its ongoing investigation on the legality of the U.K. patent box tax scheme as it begins to attract companies, including pharmaceutical giant Pfizer Inc.,which has cited the U.K. patent box tax rate of 10 percent as a motivating factor for its proposed $100 billion takeover of drug-maker rival AstraZeneca Plc.
Having drawn preliminary conclusions in 2013 that the U.K. patent box scheme violates EU code of conduct rules on unfair corporate taxation, a commission official told Bloomberg BNA that the proposed Pfizer merger has made it all the more urgent to complete the investigation.
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Several Republicans on the Houseways and Means Committee stopped short of endorsing a plan by Senate Finance Committee Chairman Ronwyden (D-Ore.) to discourage tax-driven corporate mergers.
In fact, they generally indicated they had yet to read his proposal, inwhichwyden said hewould increase a stockholder threshold that allows expatriating U.S. companies to be treated as foreign corporations.
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Stakeholders' responses to the OECD's discussion draft on transfer pricing documentation reflect a perceived need to improve the rules and a recognition that governments and taxpayerswill both have to comply, a Treasury official said May 9.
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The OECD's base erosion and profit-shifting programwill cause the IRS to reevaluate its compliance program balance and shift its focus from outbound taxation to inbound taxation, a senior IRS official said May 9.
Michael Danilack, deputy commissioner (international), IRS Large Business and International Division, and U.S. competent authority, said, "LB&I spends a lot of time looking at U.S. taxpayers. But, a lot ofwhatwe see happeningwith BEPS is driven to favor source countries.well, the U.S. has a pretty big market and the U.S. has quite a bit of foreign investment."
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A September 2013 chief counsel advice (CCA) memorandum that found that transfer pricing principles should be used to determine if foreign tax credits should be denied for noncompulsory paymentswas necessary to address confusion on the interaction of international tax rules, according to Anne Devereaux, IRS deputy associate chief counsel (international).
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The intersection between the U.S. consolidated group rules and international tax provisions is an area of growing concern for U.S. multinational companies, according to John Merrick, special counsel to the IRS associate chief counsel (international). In particular, taxpayers run into difficulties regarding the dual consolidated loss (DCL) rules, foreign tax credits, and separate return limitation year (SRLY) rules.
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When it comes to international taxation, Houseways and Means Committee Chair Dave Camp, R-Mich., and professor Daniel N. Shaviro of New York University Law School have a lot in common. In the age-old debate between the two poles ofworldwide and territorial taxation, theywant compromise. Theywant to achieve a balance between promoting competitiveness and preventing excessive profit shifting to tax havens.
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Congressional Republicans on May 9 said that tightening corporate inversion rules, as Senate Finance Committee Chair Ronwyden, D-Ore., and other Democratic lawmakers have recently proposed,would not stop companies from attempting to locate their headquarters overseas for tax purposes.
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If U.S. companies aim to save on taxes through cross-border mergers, they better be ready to pay up.

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When Vidara Therapeutics International Ltd. put itself up for sale this year, it sparked a biddingwar among U.S. companies interested in one of the small drug maker's most-promising assets: its Irish address.

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The U.S. should make it harder for companies to reap tax benefits from mergingwith foreign corporations, former Treasury Secretary Tim Geithner said in awide-ranging interview on CNBC that aired Monday.

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New draft guidelines on applying value-added taxes to cross-border business-to-business (B2B) transactionswill help reduce VAT burdens on multinational companies, but some tough questions remain on how to apply these taxes to international electronic sales to consumers, practitioners told Bloomberg BNA.

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AstraZeneca rebuffed Pfizer's takeover attempt lastweek, but the threatened relocation of Pfizer's corporate residence served as the catalyst for someworthwhile public reflection on the U.S. tax system. If Congress decides to pursue legislation, it needs to look beyond quick mechanical fixes.

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Jason Furman, Chairman, Council of Economic Advisers, delivered a speech to The Institute of International and European Affairs in Dublin, Ireland, on May 7, 2014, entitled, "Global Lessons for Inclusive Growth."

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Corporate mergers and takeovers have reached their highest levels since 2007, driven in part by companies' desire to leave the U.S. to save tax dollars.
Harvard economist Ken Rogoff says to beginwith, the business tax code is too complicated, like the rest of the U.S. tax code, and itwaswritten for a 20th century economy.
He discusses the issuewith Here & Now's Jeremy Hobson.

For the interview, go here.

It's not easy to find a countrywith a higher corporate tax rate than America's 40%. Andwhat's remarkable is the number of truly oppressive governments that somehow manage to maintain a more competitive tax policy than the U.S.

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While significant progress continues to be made by the Organisation for Economic Co-operation and Development (OECD) on its Action Plan on Base Erosion and Profit Shifting (BEPS), tax executives at many U.S. multinational companies do not believe the OECD has allowed adequate time to accomplish the plan's goals, according to a survey by KPMG LLP, the U.S. audit, tax and advisory firm.

For a summary of the survey results, go here.

Ten of the 11 EU member stateswhich supported the financial transaction tax (FTT) are set to introduce it by 2016, following the dismissal of a UK legal challenge by the European Court of Justice.

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Allowing the full and immediate deductibility of capital investmentwould spur growth and raisewages.

There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capitalwould be deductible from profitswhen paying taxes, and the deduction could be used now or against future or past tax liabilities.

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In this report, Samuel C. Thompson Jr.demonstrateswhy the approach to the taxation of controlled foreign corporations under the international business tax reform discussion draft of former Finance Committee Chair Max Baucus does not reflect sound tax policy and should be rejected. He argues that Congress should instead adopt an imputation system and use the revenue generated from that system to significantly reduce the corporate tax rate for all corporations.

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European Union finance ministerswill try to close down an important corporate tax "loophole" and at the same time make progress toward an agreement on a financial transactions tax (FTT) to be imposed in 11 EU member stateswhen a Council of Economic and Financial Affairs takes place May 6.
Following a proposal from the European Commission in November of 2013, EU member stateswill seek agreement on a revision of the EU Parent-Subsidiary Directive (EEC/2011/96) in order to eliminate corporate tax evasion via a hybrid loan arrangement.

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J.D. Foster presents the arguments in favor of territoriality in intuitive termswhile highlighting the flaws in the case favoring aworldwide system. Territoriality is steadilywinning the day, much as free trade continues to prevail, and the parallels are not accidental.

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Economists at a May 2 event said that to avoid corporate inversions of the kind proposed by Pfizer Inc., theywould reduce or eliminate the corporate income tax, but they did not agree on how to replace the lost revenue.
Speaking at a roundtable discussion at the Fordham University School of Law in New York, Hank Gutman of KPMG LLP said that to avoid inversions, hewould reduce the corporate income tax rate to about 15 percent and remain on aworldwide international system of taxation to reduce the pressure on transfer pricing.

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Politicians, officials and taxpayers spelled out the need for the outcomes of the BEPS project towork for companies and governments at the European Tax Policy Forum annual conference in London thisweek.

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The ethics of tax planningwere the subject of some lively conversation during the Lord Mayor of London's conference on tax competition and cooperation.

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The proposed takeover of UK-listed drug group AstraZeneca by Pfizer of the US has reignited the debate over tax competition between countries.

A study by KPMG, the professional services group, published lastweek found that nearly one in six countries had cut their corporate tax rates over the past 15 months, but that the size of the cutswas smaller than in the past.

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Randall Hogan chairs the Federal Reserve Bank of Minneapolis. Sandy Cutler ran the Greater Cleveland Partnership. Tony Petrello donated $5 million to the Texas Children's Hospital.

They're all chief executive officerswho have given back to their communities. They oversee thousands of Americanworkers. And they run companies that have opted out of the U.S. tax system.

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The Obama administration is focused on findingways to curb tax-motivated reincorporations to other countries by U.S. businesses, a U.S. Treasury official told Reuters onwednesday.

"Cracking down on companies that reincorporate overseas to reduce their U.S. taxes is a priority for the administration," a Treasury official said in an emailed statement.

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The top court in the European Union onwednesday cleared a legal obstacle to a proposed tax on financial transactions, a plan bitterly opposed by bankers in London.
European Union finance ministers plan to meet early nextweek to discuss next steps for setting up the tax, though the British governmentwarned it could bring a further case against the plan.

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As it is currentlywritten, the Organization for Economic Cooperation and Development's proposal for country-by-country reporting can likely be implemented by the U.S.without a change in current law, a Treasury official said.

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The United States has beenworking aggressively to ensure that the contents of the OECD's base erosion and profit-shifting discussion drafts are technically sound and accurately reflect the positions of the various countries that are party to the BEPS project, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).

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Legislativework to finalize a financial transactions tax (FTT) in 11 European Union member stateswill intensify after the European Court of Justice rejected a U.K. challenge.
The U.K. said that negotiations on the FTTwere illegally based on a legislative procedure that defied EU law requiring unanimous consent of all 28 member states on tax issues.
In an expedited April 30 ruling (C-209/13), the EU high court insisted the U.K. argued on the merits and impact of the FTT and not on the substance of the legal procedure.

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An international project to combat base erosion and profit shifting has led to increases in tax controversies, and it isn't yet clear that the BEPS effortwill pay off for taxpayers hoping for more certainty, an Internal Revenue Service official said April 30.
"If there is a deliberative process, albeit under a compressed timeline, that results in some consensus around these difficult issues,wewill have taken a giant step forward. But if not, it could easily become international tax chaos. Andwe are very concerned about that,"said Samuel Maruca, director of transfer pricingwith the IRS.

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The U.S. government probably can't take regulatory action to stop companies from lowering tax bills through deals that put their legal addresses outside the country, John Koskinen, commissioner of the Internal Revenue Service, said.
Pfizer Inc. has proposed the biggest such deal yet, a $98.7 billion takeover of AstraZeneca Plc thatwould move the largest U.S. drugmaker to the U.K. for tax purposes and lower its tax rate.

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The share of the richest 1% in total pre-tax income have increased in most OECD countries over the past three decades. This rise is the result of the top 1% capturing a disproportionate share of overall income growth over that timeframe: up to 37% in Canada and 47% in the United States, according to new OECD analysis.

For the report, go here.

Lastweek, two former Administration officialsweighed in on the need to update our tax code so it discourages businesses from relocating overseas for tax purposes. Both Austan Goolsbee, the former Chairman of the Council of Economic Advisers and Davidwalker, the former U.S. Comptroller General addressed this issue and discussedways to make the U.S. more competitive.

For the release, go here.

Drawing from Veritas, this article demonstrates that the value of intangibles licensed exclusively to a foreign subsidiary is properly determined by separately valuing only the preexisting intangibles over their remaining useful lives,with no added value for later developed intangibles, goodwill, going concern value,workforce in place, business opportunities, and synergies.

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As details of the OECD's base erosion and profit-shifting action plan are revealed and stakeholders consider the first rounds of OECD recommendations, questions and critiques are starting to proliferate.

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George Osborne, the Chancellor of the Exchequer, has lost his appeal against a European financial transaction tax (FTT), but further challenges over the substantive issues are expected.

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The Houseways and Means Committee should vote against reviving and making permanent the expired controlled foreign corporation look-through and active financing rules,which "benefit tax dodging corporations at the expense of the rest of us," the Financial Accountability and Corporate Transparency Coalition urged in an April 28 release.

For the release, go here.

Pfizer, the maker of best-selling drugs like Lipitor and Viagra and a symbol of business prowess in the United States for more than a century, no longerwants to be an American company.
On Monday, Pfizer proposed a $99 billion acquisition of its British rival AstraZeneca thatwould allow it to reincorporate in Britain. Doing sowould allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitivewith other global drug makers.

For the story, go here.