Int'l Tax News

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).
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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.
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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.
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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.
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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.

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.
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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."
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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.
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