Int'l Tax News

Top finance officials from the European Union's leading economies have agreed to push for EU-wide measures to implement the international action plan to fight base erosion and profit shifting, according to a statement by the French ministry of finance.
At an April 28 meeting in Paris, ministers from France, Germany, Italy, Spain and the U.K. agreed to "encourage"the European Commission to review EU corporate taxation law, assess its impact on aggressive tax planning practices and propose necessary measures to systematically implement measures to fight BEPS, the statement said.

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While participants at the OECD's April 23 consultation on the digital economy generally agreed that electronic commerce is not a separately definable sector that could be subject to ring-fencing, business and nonbusiness representativeswere divided over the need for specific rules to address the digital delivery of products.

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European Union countries thatwant a financial transactions tax remain deadlocked onwhat trades they should include, EU documents show.
With time running out before May's European Parliament elections, the 11 participating countries remain divided onwhether to tax all derivatives, only equity derivatives or no derivatives at all. The governments also haven't agreed onwhere to collect the tax,which proposals suggest could be imposed by a trading firm's country of origin or in the nationwhere trading takes place, according to the documents.

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The European Court of Justice is set to release its ruling on the UK's challenge to the proposed EU financial transaction tax (FTT).

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On 30 January 2014, the Organisation for Economic Cooperation and Development (OECD) released a discussion draft on transfer pricing documentation and country by country reporting (CBCR)which included a template for country by country reporting of income, taxes, and economic activity (CBCR template).
This publication focuses on some of the challenges MNEs may face in compiling information thatwould be required to be disclosed in the CBCR template.

For the report, go here.

This paper provides an historical overview of tax reformwith an eye toward identifying conditions thatwould make successful reform plausible in the near future. Burman begins by analyzing the environment that led to tax reform in 1986 and posits that successful reformwould require strong leadership from thewhite House, bipartisan support, and a new source thatwould make possible substantial income tax rate cuts of thiswhile addressing the concerns of Republicans that new revenueswould fuel a growth in government and of Democrats about progressivity.

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Corporate taxpayers say tax is an influential factorwhen an international business is decidingwhere to locate itself.

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French authorities have released draft guidelines for legislation enacted at the end of December targeting hybrid mismatch arrangements, an aspect of international tax practice the OECD is also seeking to tackle as part of its BEPS Action Plan.

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Taxpayers need to pay close attention to a growing focus from tax authorities both in the U.S. and abroad, EY LLP practitioners said at the firm's annual domestic tax conference.
The sharply increasing cooperation on tax information sharing between countries is likely to be "a huge burden on tax departments,"said Michael Mundaca, co-director of EY's National Tax Department.

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Recent proposals to fight base erosion and profit shifting in the so-called digital economy aren't aimed at "ring fencing" that economy but rather at identifying characteristics in it that might contribute to BEPS so that proposals for dealingwith those characteristics can be developed, a high-level U.S. tax official said.

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Trade in Italian equities has fallen by 30% since the country introduced the controversial financial transaction tax, according to Credit Suisse.

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No, not all tax policy ideas come out ofwashington, D.C. Bill (William H.) Parks, a retired finance professor and founder of NRS, Inc., an Idaho-based paddle-sports accessories makerwith $30 million plus in annual sales, has been promoting an idea for taxing the profits of multinational corporations that's borrowed from the states. Simply put, the IRSwould determine the share of a company's earnings taxable in the U.S. based solely on the share of its sales made to U.S. consumers, the biggest spenders in theworld.

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The Organization for Economic Cooperation and Development's project to combat base erosion and profit shifting (BEPS) is taking a holistic approach to addressing stateless income involving the digital economy, according to Raffaele Russo, head of the project.

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Two hundred years ago, the United States tried to annex Canada. Thewar of 1812 didn't go sowell. Canada remained independent. It became the largest U.S. trading partner. It also retained its own corporate tax system,which, drafted in the British style, manages to be even more complicated and dysfunctional than the U.S. system.
Gordonwarnke of Linklaters and Firoz Ahmed of Osler, Hoskin & Harcourt LLP talked about new rules for U.S. investments in Canada at the April 23 International Tax Institute lunch in New York. Ahmed, a Canadian, described the rules,whilewarnke commented from a U.S. planning perspective.

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Special transfer pricing measures developed in the context of the Organization for Economic Cooperation and Development's project on base erosion and profit shiftingwill have to be evaluated to ensure their interactionwith international tax treaties does not produce unintended double taxation, a top OECD transfer pricing official said during an April 15 public consultation on treaty issues.

"The [OECD]will need to assess how these measures are reflected in domestic law and how they interactwith treaty obligations. Itwas never the intention that in developing treaty rules and special measures that the end resultwould be double taxation," said Marlies de Ruiter, head of the OECD's division on tax treaties, transfer pricing and financial transactions.

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Satoru Araki, of the Asian Development Bank, argues that more regional cooperationwill help developing countries in Asia to contribute better to the discussion about changing international tax rules and to improve their tax administration capacity.

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by Matthew Gilleard (ITR)

UK Chancellor of the Exchequer George Osborne is granting HMRC new powers to prosecute thosewho evade taxes by stashing money offshore. The tax authoritywill no longer have to prove that a taxpayer intentionally evaded taxes.

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In news analysis, Lee A. Sheppard discusses the treatment of intragroup transactions in the OECD's transfer pricing guidelines.

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At the OECD's April 14-15 treaty abuse consultation in Paris, a contingent of U.S. practitioners and business representatives urged the OECD not to include a main purpose test in its proposed limitation on benefits article, but at least one top OECD official didn't seem to be swayed by their arguments.

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One thousand pages of critical comments notwithstanding, at least some practitioners view country-by-country reporting as a net positive. Transfer pricing experts are eagerly looking forward to having their clients provide quality data.
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A tougher global stance against tax evasion and profit shifting may be especially beneficial to developing nations, but issueswith corruption and politics may remain as obstacles, officials said at a summit in Mexico City.

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Philip Morrison of Deloitte Taxwrites that the OECD's discussion draft on transfer pricing documentation and country-by-country reporting raises compliance and confidentiality concerns for affected multinational enterprises.

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The French tax authorities on April 15, 2014, released draft guidelines regarding the legislation enacted on December 30, 2013, targeting hybrid mismatch arrangements.

US multinationalswith French subsidiaries or branches should review their financing structures in light of these guidelines to ensure that the interest borne by their French affiliates is tax deductible.

For the PwC Insight, go here.

While the OECD's base erosion and profit-shifting project action 1 discussion draft on the tax challenges of the digital economy raises many concerns for the U.S. technology industry, industry observers believe the discussions are taking place in the correct venue, according to Peter Skewes-Cox of PricewaterhouseCoopers LLP's San Jose, Calif., office.
Skewes-Cox said during an April 17 PwCwebcast that there is a "high level of concern" in Silicon Valley over the prospect of changes to the taxation of the digital economy. However, he noted that in conversations he has had on the subject, there is an understanding the OECD is the "right forum" for the conversation. He said that if the OECD is able towork as it has in the past, it should be able to reach a consensus that prevents the creation of new barriers to global trade.
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Most of the proposals in the Organization for Economic Cooperation and Development's recent discussion draft on the tax challenges of the digital economywon'twork in practice, two corporate tax officials said.
Reed Elsevier Plc and British Sky Broadcasting Group Plc officials, in comment letters reacting to the proposals, said that creating a new nexus for purposes of determining permanent establishment status based on "significant digital presence"would be a mistake.

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U.S. technology and other companies are concerned about some of the options set out on taxation of the digital economy in a discussion draft issued by the Organization for Economic Cooperation and Development as part of its base erosion and profit shifting project, PricewaterhouseCoopers LLP practitioners said.
A majorworry is that some of the options could lead to a company being considered to have a taxable permanent establishment in a country inways that depart dramatically from current practice, the practitioners said during an April 17webcast.

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Global leaders attending a summit in Mexico City have launched 38 new initiatives, including multiple policy strategies that seek to crack down on tax avoidance and tax evasionworldwide.
"This is not only about multinationals, but also about the broader public aswe need to broaden the tax base,"Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, told the audience April 16.

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Mention Starbucks in the U.K., and many people think of lattes, Macchiatos ÔøΩand tax dodging.The coffee giant has faced boycotts, protests and general animosity from the British public since reports emerged in 2012 that Starbuckswas paying little to no taxes in the U.K., despite having hundreds of stores in the country.
Now, Starbucks has made another move in its effort to shore up relations. Onwednesday, Starbucks announcedthat itwas moving its European headquarters from Amsterdam to London, adding a "modest number of senior executives" to the operation in London. The company also promises that the movewill mean it pays higher taxes in the U.K. (although it's not clearwhat baseline the company is using for that assertion).

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Tax Executives Institute Inc. said the Canada Department of Finance's 2014 budget proposals on treaty shopping and back-to-back loans are overly broad and "likely to interferewith legitimate commercial arrangements and transactions."
In comments submitted April 10, TEI cautioned that if adopted aswritten, the measureswould impede investments, or financing for such investments, in Canada.

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Starbucks is set to pay more tax in the UK after announcing itwill move its European headquarters from the Netherlands to London. It has also pledged to create 1,000 new jobs in the country.

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New York State Bar Association Tax Section Report 1305 provides "Comments on The Public Discussion Draft of BEPS Action 2: Neutralise the Effects of Hybrid Mismatch Arrangements (Recommendations for Domestic Laws)."

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The New York State Bar Association Tax Section said a broad "top-down" approach to putting the brakes on the use of certain hybrid financial instruments and transfers under an Organization for Economic Cooperation and Development project isn'tworkable and could hurt the markets.

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Coffee chain says itwill pay more to the Treasury after move but that relocation is because itwants to be closer to biggest market.

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Starbucks Corp. plans to move its headquarters for Europe, Middle East and Africa to London from Amsterdam andwill have to pay more U.K. tax as a result, theworld's biggest coffee-store chain saidwednesday.

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Starbucks,which has sufferedwithering criticism in Britain for avoiding taxes, said onwednesday that itwould move its regional headquarters to London from Amsterdam and pay more to the British Treasury.

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It's hard to overstate the excitement of tech people aboutwhat is on the verge of happening to the practice of medicine.

Eric Horvitz, co-director of Microsoft Research's main lab in Redmond,wash., told me about a system that could predict a pregnantwoman's odds of suffering postpartum depressionwith uncanny accuracy by looking at her posts on Twitter, measuring signs like how many times she usedwords like ''I'' and ''me.''

Ramesh Rao of the California Institute for Telecommunications and Information Technology at the University of California, San Diego, described how doctors using video and audio to remotely assess victims of stroke made the correct call 98 percent of the time.

A few years ago, this kind of technological developmentwould be treated like unadulterated good news: an opportunity to improve the nation's health and standard of livingwhile perhaps even reducing health care costs and achieving a leap in productivity thatwould cement the United States' pre-eminent position on the frontier of technology.

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On 24 March 2014, interested partieswere invited to comment on the discussion draft on Tax Challenges of the Digital Economy related to Action 1 of the BEPS Action Plan. Comments received have now been published.
Commentators' inputwill be discussed by delegates to the Task Force on the Digital Economy at its April 2014 meeting.

For the document, go here.

Despite its name, the OECD's base erosion and profit-shifting project is intended to prevent double taxation -- the most vexing of multinational problems -- and not just to prevent tax avoidance. During an interview in Paris, the head of the BEPS project espoused his views on the importance of stakeholder input as the OECD moves toward finalization.
While attending the March 31 Bloomberg BNA and Baker & McKenzie transfer pricing conference, I sat down for a conversationwith Raffaele Russo,who is heading up the BEPS project.

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The biggest US companies have added significantly to their debts over the past three years, at the same time as corporate cash piles have increased, according to Standard & Poor's, the rating agency.

The figures show how US companies have been able to raise money to pay for capital investment, dividends and share buybacks, evenwhen they have not been spending their cash holdings.

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Tax Executives Institute Inc. and The National Foreign Trade Council are urging the Organization for Economic Cooperation and Development to jettison the idea of including a general anti-abuse rule in the organization's Model Tax Treaty, as suggested in the OECD's recent discussion draft on tax treaty benefits.
In April 8 and 9 letters to the OECD, TEI's international president Terilea J.wielenga and NFTC's vice president for tax policy Cathy Schultz said thatwhile the OECD ought to abandon the idea of including a general anti-abuse rule (GAAR) in the model, it is appropriate to include a limitation on benefits (LOB) provision.

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While some practitionerswelcome the OECD's proposal to introduce a comprehensive limitation on benefits provision in tax treaties, they believe the proposed LOB needs some revisions to reflect multinational business practices that are not motivated by treaty shopping.

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Countries participating in the international project on base erosion and profit shifting believe the Organization for Economic Cooperation and Development's Model Tax Treaty needs to include a general anti-abuse rule in addition to a limitation-on-benefits provision, an official said.
Carmel Peters, chairman of the OECD focus group on treaty abuse, said April 14 thatwhen the group explored all the different examples of treaty shopping, "we found that neither test could dealwith every single" issue of treaty abuse. The focus groupwas set up byworking Party No. 1 to tackle Action 6 of the BEPS plan, "Preventing Treaty Abuse."

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Offshore tax havens deprived the federal government of $150 billion in revenue last year and states of $34 billion in revenue, according to a study released April 15 by the U.S. Public Interest Research Group (PIRG).
Multinational corporations are the biggest offenders. The report found that those companies account for $110 billion of the revenue lost to offshore tax havens.

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Economic growth from eliminating U.S. corporate income taxeswould far outweigh lost revenue, said Tax Analysis Center Director Laurence Kotlikoff.
Capital inflowswould jump as a result of a zero percent tax rate, he said at an event hosted by the National Center for Policy Analysis April 15. Thatwould be a boon for U.S.workers,who have suffered for decades because high U.S. corporate income taxes are tantamount to a hiddenwage tax, said Kotlikoff,who is also an economics professor at Boston University.

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On March 18, a few months after Putin's address on the 'de-offshorisation' of the Russian economy, the Finance Ministry published the first draft law on anti-avoidance rules. Artem Toropov of Goltsblat BLP explains how the draft law has already sent ripples through the Russian business community.

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In July 2013 the Organization for Economic Cooperation and Development published its Base Erosion and Profit Shifting (BEPS) Action Plan; a public discussion draftwas published March 14 on countering tax treaty abuse as part of the BEPS Action Plan, and itwas followed by the publication of a public discussion draft on countering hybrid abuse March 19.

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As hardworking Americans file their taxes today, it's a good time to be reminded that ordinary taxpayers pick up the tab for special interest loopholes in our tax laws. A new U.S. PIRG report released today revealed that the average American taxpayer in 2013would have to shoulder an extra $1,259 in state and federal taxes to make up for the revenue lost due to the use of offshore tax havens by corporations andwealthy individuals.

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Each U.S. taxpayerwould need to pay an average of $1,259 more a year to make up the federal and state taxes lost to corporations and individuals sheltering money in overseas tax havens, according to a report.
"Tax haven abusers benefit from America's markets, public infrastructure, educatedworkforce, security and rule of lawÔøΩall supported in oneway or another by tax dollarsÔøΩbut they avoid paying for these benefits," U.S. Public Interest Research Group said in the report released April 15, the deadline for filing 2013 taxes.

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Some of the OECD governments are proposing tax reforms that challenge the arm's length concept at least to some degree, but the US government is pushing a line that is more favorable to the multinational corporations.

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U.S. officials are seeking guarantees that financial data provided under a new country-by-country reporting templatewon't be used for formulary apportionment purposes, a Treasury official said April 8.

Robert Stack, deputy assistant secretary (International Tax Affairs)with Treasury's Office of Tax Policy, said U.S. officials plan to raise this concern in a meeting late thisweekwith the Bureau of the Committee on Fiscal Affairs of the Organization for Economic Cooperation and Development.

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