Int'l Tax News

Inversions have been oversold. But institutional investment decisions are made by analystswho are not old enough to shave and haven't figured out that the best information in SEC filings is in the footnotes. So many boards of public companies are being instructed about inversions by tax advisers and investment bankers.
Pfizer Inc.'s bid for AstraZeneca PLC has ended, and notwithout recriminations on all sides. Here's all you need to know about it: The bid could have gone higherwithout materially eating into Pfizer's expected tax benefits.
Seems British politicians and the British public gotwind of the apparent business justification for the deal and didn't like it one bit. Although it is a British corporation, AstraZeneca has most of its operations in Sweden and the United States. As the detractors correctly deduced, the dealwould have meant reduction of AstraZeneca's relatively small Britishworkforce.
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The refusal by Dutch tax authorities to allow parent companieswith subsidiaries in the Netherlands to form a single tax entity,while denying that right to groupswith subsidiaries in other European Union states, violates EU law, the European Court of Justice ruled.
In a June 12 decision (C-39/13, C-41/13) considered by tax experts a victory for the principles onwhich the EU single marketwas created, the ECJ rejected Dutch government arguments that different treatment for company groupswith subsidiaries in other member stateswas justified to protect the "coherence" of the Netherlands tax system.
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The US economy is recovering from the Great Recession and near-term prospects
are favourable. The sector of manufacturing durables is enjoying a particularly strong
revival thanks to more competitive labour costs and low energy prices. The recovery
is more sluggish than after past recessions because the damage of the financial crisis
has not been fully repaired, government spending has exerted an unusual drag and,
finally, the long-expected retirement of baby-boomers has depressed the labour
supply. Hence, removing obstacles to growth comeswith a certain degree of urgency.
For this, tax reform has a key role to play: business investment is discouraged by high
marginal tax rateswhile numerous tax expenditures distort resource allocation.
Aggressive tax planning by multinational firms also imposes a higher tax burden on
everybody else; and individual taxpayers face costly compliance obligations.

For the report, go here.

Continued U.S. leadership in the international project to fight base erosion and profit shiftingwill be essential if changes in the program are to be consistently implemented across countries, the Organization for Economic Cooperation and Development said in a new report.
The Paris-based organization made its comments in "OECD Economy Surveys: United States,"which it launched inwashington June 13 andwhich urges the U.S. to make key economic and tax reforms to boost its "sluggish" recovery.
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The European Court of Justice (ECJ) in a judgment issued on June 12, 2014, has found that the Dutch fiscal unity rules breach European Union (EU) law because they do not allow a fiscal unity between a Dutch parent company and a Dutch sub-subsidiary held through an EU/European Economic Area (EEA) intermediate subsidiary or a fiscal unity between two Dutch 'sister' companies held through a joint EU/EEA parent company.

For the report, go here.

Japan is set to reduce its corporate tax rate from 2015.

For the story, go here.

Newly-elected Indian leaders Narendra Modi and Arun Jaitley must use next month's Budget to repeal the retrospective amendments brought in under the previous government if theywant to provide businesseswith the certainty and confidence to invest and grow.
For the story, go here.

The success of international expansion depends on efficient structuring, believes Lee Sheehan, head of tax at Radius.
For the story, go here.

The French government's new proposals for business tax cuts can significantly improve companies' competitiveness butwon't produce major effects for the biggest companies for about two years, practitioners told Bloomberg BNA.
The government on June 11 provided new details of its road map for cutting business's payroll taxes by 30 billion euros ($40.6 billion) by 2016 in order to boost the economy and employmentwhile also announcing tax cuts for modest-income households.
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The European Commission has opened three in-depth investigations into tax decisions in Ireland, the Netherlands and Luxembourg. The probes focus onwhether decisions by authorities in the three member states about corporate tax to be paid by Apple, Starbucks and Fiat Finance and Trade complywith state aid rules.
For the story, go here.

The governor of Californiawas joking. Orwas he? At a breakfast lastweek in San Francisco, Jerry Brown admitted hewas surprised that Apple – about as Californian a company as can be imagined – turned out to be Irish, after all.

"I don't know how you got Apple to have so much of their business in Ireland," Mr Brown told an audience that included Enda Kenny, the Irish prime minister. "We thought theywere a California company butwhen you look at their tax return, they are really an Irish company. Anyway, that is part of the creativity – yeah, it's called creative accounting. Anyway, Iwon't go there."

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The OECD called it "the golden age" of tax planning: a period inwhich multinational companies pushed ever more of their profits offshore and pushed their effective tax rates down.

In the past eight years, this simple strategy has enabled some of the largest US corporations to cut their tax bills by a quarter, on average –while boosting their annual earnings by up to 24 per cent.

But there are signs that both politicians and investors are increasingly questioning the merits of a tax regime that has made such savings possible.

For the story, go here.

The European Commission raised pressure on Ireland, the Netherlands and Luxembourg over their corporate tax practices, saying itwas investigating deals the countries have cutwith Apple, Starbucks and Fiat.
The Commission, the executive body of the European Union, is looking atwhether the countries' tax treatment of multinationals that help attract investment and jobs that otherwise might go towhere the companies' customers are based represent unfair state aid.
For the story, go here.

European Union officials have been pushing some countries to plug corporate tax loopholes for years to help bolster government coffers in an era of shrinking public budgets andweak economic growth.
Now they are adopting a more forceful approach, announcing onwednesday an investigation into how low-tax nations like Ireland have helped large multinationals like Apple and Starbucks reduce their tax bills by billions of dollars.
The inquiry represents one of the most aggressive steps taken by Europe to counter the increasingly sophisticated tax avoidance strategies deployed by multinational companies, a move that follows similar crackdowns by the United States and others. Authorities are concerned that countries may be offering improper tax breaks to big global companies.
For the story, go here.

To listen to Treasury Secretary Jacob Lew, onewould never know that the United States has its own currency and that the petrodollar is theworld's reserve currency. Seems the United States is so broke that it has to use the temporary revenue increase that corporate tax reformwould produce to fix bridges that are falling down.
Oblivious to the day's headline that House Majority Leader Eric Cantor, R-Va., had been defeated by a primary challenge from the right, Lew on June 11 talked up the potential for congressional agreement on tax reform thatwould lower the corporate rate. Speaking at the Economic Club of New York, he told the assembled business leaders and financiers that their supportwas necessary for reform to go forward. (Is the president too busy golfing?)
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The European Commission on June 11 formally launched three separate investigations to examinewhether Apple in Ireland, Starbucks in the Netherlands, and Fiat in Luxembourg all received transfer pricing-related tax rulings that violated EU state aid rules.
Joaquín Almunia, the EU executive arm's vice president and competition commissioner, said the commission has "serious doubts" about the compatibility of three specific tax rulingswith EC Treaty rules on state aid, but he clarified that the commission is not questioning tax rulings as a general concept.
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The head of Google Australiawants governments to clarify grey areas in the global tax system and end the shaming of individual companies for how they transfer profits around theworld.

Pressure around theworld is increasing on multinationals such as Google and Apple to pay more tax in the countries inwhich they operate and the issue is set to be high on the agenda of this year's Group of 20 finance ministers' summit in Cairns.

For the story, go here.

Apple issued $12 billion of U.S. debt in April,which gave the company a domestic cash infusion that allowed it to keep more earnings overseas. Last month Pfizer attempted to acquire AstraZeneca, a transaction thatwould have made Pfizer a subsidiary of the U.K.-based company. Thesewere useful examples in the taxation classes I teach at MIT's business school, but the real-world implications of these decisions are troubling. Evenworse, legislators have respondedwith proposals that seek to prevent companies from escaping the U.S. tax system.

For the story, go here.

On June 11, 2014, the European Commission opened a formal State Aid investigation procedure into the transfer pricing arrangements and corporate taxation of certain companies in Ireland, The Netherlands and Luxembourg.
In its press release, the Commission announced that itwill examinewhether three transfer pricing arrangements validated in tax rulings involve State Aid to the benefit of the beneficiary companies.

For the report, go here.

The new European Union probe into the tax deals of some multinational firmswith a handful of European countries shines a spotlight on a narrow element of international tax law: transfer pricing.

Transfer pricing is, at its root, a relatively simple method for determining inwhich country a multinational company makes its profit. To help them do that, companies set prices atwhich they transfer goods and services between entities they own.

For the story, go here.

Scratching their heads on how to encourage high-tech, export-led growth, the brightest minds in the U.K. government came upwith the "patent box" in 2010.

Under the rules, U.K. companies can apply a lower rate of corporation tax against profits earned from domestically developed and registered patentsÔøΩa tax rate of 10% versus the headline corporate rate of 21%. The new rules came into effect in April 2013.

Now, those tax breaks could be under threat. The European Union's antitrust chief, Joaquin Almunia, is looking into their use in the context of a bloc-wide tax probe, and has requested information from nine countries relating to the use of patent boxes.

For the story, go here.

Brussels ratcheted up the global crackdown on tax avoidance by multinational companies onwednesday by launching an investigation intowhether three EU stateswere offering improper tax breaks to companies including Apple and Starbucks.

The European Commission said that an in-depth probewould consider the tax affairs of three companies: Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade, the financial arm of the Fiat group, in Luxembourg.

For the story, go here.

European Union regulators are preparing to open a formal investigation into corporate-tax regimes in Ireland, Luxembourg and the Netherlands onwednesday, according to a person familiarwith the matter, amid concerns that multinational companies such as Apple Inc. enjoy sweeter tax deals than are permitted under EU law.
The probe by the European Commission, the EU's executive arm, follows criticism in Europe of low tax rates paid by global corporations such as Amazon.com Inc., Google Inc. and Starbucks Corp. at a time ofwidespread austerity on the continent.
For the story, go here.

After it completes a planned mergerwith Alliance Boots, a Swiss pharmacy chain,walgreens can take advantage of a tax loophole to reincorporate itself offshore. This may let the company avoid $4 billion in U.S. taxes over the next five years, leaving the rest of us to pick up the tab.
Walgreenswould still be controlled from the U.S. Itwould still benefit from our roads, bridges and infrastructure, and itwouldwill still have more than $70 billion in annual U.S. sales.

For the report, go here.

A temporary, 85 percent deduction for repatriated foreign earningswould cost $95.8 billion over 10 years, the Joint Committee on Taxation reported June 9.
Senate Finance Committee ranking minority member Orrin G. Hatch, R-Utah, commissioned the revenue estimate and released itwith a statement arguing that tax holidays for foreign earnings should be confined to tax reform.
For the statement and the JCT document, go here.

A temporary tax holiday for U.S. companies to repatriate offshore profitswould cost the government $95.8 billion in revenue over the next decade, according to the Joint Committee on Taxation.
Lawmakers occasionally address a repatriation tax break as away to pay for spending such as replenishing the Highway Trust Fund. The JCT estimates show the difficulty of making such an argument.
According to the revenue estimates, dated June 6, repeating the holiday enacted in 2004would generate $19.6 billion over the first two years and then start costing the government money.
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Pfizer Inc. has had a rough timewith its tax planning lately. First itwas publicly rebuffed multiple times by AstraZeneca PLC, and then itwas singled out by Congress and threatenedwith retroactive legislation and regulations to shut it out of an inversion party that many of its competitors have already taken advantage of.
Lawmakers do not need toworry about losing Pfizer to the United Kingdom in the short run because AstraZeneca has been clear that it believes Pfizer is undervaluing it. Itwould be safe to call a moratorium on memorializing bad ideas in actual bills. Unfortunately, Sen. Carl Levin, D-Mich., and 13 of his fellow senators have alreadywritten the bill. The proposal may not be going anywhere, but it raises some important underlying issues.
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In the bestseller Flash Boys, author Michael Lewis describes how entrepreneur Dan Spivey laid an 827-mile fiber-optic cable in a nearly straight line between New York and Chicago so hiswall Street clients could trade on information received a few microseconds faster than the rest of the market.with access to the limited number of lines through that cable, arbitrageurs could make billions. Andwithout access, they could be put out of business by their competitorswho got in early.
Like Spivey's cable, the opportunity to move a company's tax residence out of the United States provides a competitive advantage to firmswilling to move first. Subsequently, even businesses that initially objected to the practicewill feel compelled to follow the leader.
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Whatwould U.S. multinationals bewilling to pay to keep the euro together?
That is the bottom-line question raised by the OECD base erosion and profit-shifting initiative.whenwe say the BEPS initiative is a European project, tailored to European priorities,we are talking about the health of European national budgets.
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Debt between related parties may be a concern for base erosion, but it shouldn't be dealtwith by the Organization for Economic Cooperation and Development's group examining the transfer pricing of intangibles because ultimately it isn't a transfer pricing issue, an Internal Revenue Service official said.
Christopher Bello, chief of Branch 6 in the IRS Office of Associate Chief Counsel (International), said the nature of an intercompany loan itself isn't, in the U.S.'s view, an arm's-length issue beyond the amount of interest charged.
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The Tax Foundation has taken aim at a report claiming that the majority of Fortune 500 companies hold $1.95 trillion in offshore tax havens, saying the report's small sample size and data "paints a misleading picture of the tax burden corporations pay overseas."
Citizens for Tax Justice,who co-wrote the June 5 reportwith the U.S. Public Interest Research Group (USPIRG), fired back on June 6 by calling the Tax Foundation's claims "misleading" and said they failed towithstand scrutiny.
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The European Union may open a formal probe into tax breaks that Ireland and the Netherlands use to attract international companies theweek of June 9, according to people familiarwith the case.
The European Commission is scheduled to discuss the issue at a meeting June 11, said two people,who asked not to be identified because the matter is private. The probe into the Dutch tax breakswould include special treatment given to Starbucks Corp., theworld's biggest coffee-shop operator, said the people. Luxembourg may also face scrutiny, one of the people said.
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Did you know that United States companies earned $129 billion in 2010 in three small groups of islands?
That iswhat they told the Internal Revenue Service they earned in Bermuda, the Cayman Islands and the British Virgin Islands.
Those islands together had a population of 147,400 that year, about equal to that of Joliet, Ill.
Assuming you believe those figures, the productivity ofworkers in those countries is amazing. On average, United States companies had profits of $873,611 per person living in those islands.
For the story, go here.

The proposals under Action 13 of the international base erosion and profit shifting plan for a master file, local file and country-by-country reporting template are helpful, but insufficient, in seeking to tackle profit shifting, a Chinese State Administration of Taxation official said.
Liao Tizhong, director general of the SAT's International Taxation Department, said June 4 country-by-country reporting "will help, but not enough. That is my personal opinion."
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Claiming it is a common element in most of the tax plans being offered by both political parties, the chief tax counsel for the Senate Finance Committee's Democratic staff said a minimum tax for the foreign earnings of U.S. companies is likely to be part of a compromise on comprehensive tax overhaul.
"I do think that, clearly, at least among American policy makers, there seems to be a direction going toward some sort of minimum tax regime,"the Finance Committee's Todd Metcalf said during a panel discussion at a Bloomberg BNA/Baker & McKenzie transfer pricing conference.
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Corporate taxpayers that have ended up in the cross hairs of an international effort to fight base erosion and profit shifting (BEPS) got there by ignoring a simple realityÔøΩthat to the average person on the street, many complex transfer pricing deals make little sense, an Internal Revenue Service official said.
"Most common folks just can't understand how a multinational corporation doing business entirely or mainly in jurisdictionswith relatively high tax rates can end upwith a low global effective rate," Michael Danilack, deputy commissioner (international) for the IRS Large Business and International Division, said June 5.
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If the Organization for Economic Cooperation and Development's base erosion and profit shifting project ultimately produces new standards that the U.S. thinks depart significantly from how the arm's-length standard shouldwork, it is unlikely to implement them, an official from the Internal Revenue Service said.
"If the outcome of the BEPS project is that Chapter 6 says things that it should not, then Iwould assume the problem is, there's going to be a lot of countries doingwhat Chapter 6 now says they can do," said Christopher Bello, chief of Branch 6 in the IRS Office of Associate Chief Counsel (International). "I, for one,would not assume the U.S.would go down that path."
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As the OECD completes itswork on transfer pricing documentation under its base erosion and profit-shifting project, practitioners June 5 urged businesses to beginworking to ensure that theywill be able to "tell the story" of their business in the master file.
Speaking at a transfer pricing conference inwashington sponsored by Bloomberg BNA and Baker & McKenzie, panelists differed onwhether the increased documentation requirements proposed by the OECDwould be useful for legitimate purposes, but they stressed the importance of being ready for the new requirements.
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A recently published and closely followed survey of global business leaders conducted by A. T. Kearney, a management-consulting firm, shows that the global economy may be at a critical turning point.
The report titled "Ready for Takeoff," presents evidence that business leaders from around theworld are increasingly bullish on the global economic outlook. In this report, the U.S. not only ranks as the most attractive destination for foreign direct investment for the second year in a row, but the share of surveyed executiveswith a positive view of the U.S.was the highest ever recorded for any country in the survey's history.
For the report, go here.

The European Union may open a formal probe as soon as nextweek into tax breaks that Ireland and the Netherlands use to attract international companies, according to people familiarwith the case.

The European Commission is scheduled to discuss the issue at a meeting June 11, said two people,who asked not to be identified because the matter is private. The probe into the Dutch tax breakswould include special treatment given to Starbucks Corp., theworld's biggest coffee-shop operator, said the people.

For the story, go here.

Many large U.S.-based multinational corporations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havensÔøΩcountrieswith minimal or no taxes. By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in federal income taxes each year. These subsidiaries are often shell companieswith few, if any employees, andwhich engage in little to no real business activity.
This study examines the use of tax havens by Fortune 500 companies in 2013. It reveals that tax haven use is ubiquitous among America's largest companies, but a narrow set of companies benefit disproportionately.
For the study, go here.

Some jurisdictions' interpretations ofwhen financial transactions implicate the arm's-length principle may be inappropriate and excessive, practitioners and officials said June 4 at a transfer pricing conference inwashington sponsored by Bloomberg BNA and Baker & McKenzie.
The view of the United States is that in a financial transaction involving controlled parties, only an arm's-length price needs to be determined, said Chris Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International), and a member of OECDworking Party 6. Other countries believe that a determination must be made ofwhether the transactionwould have been entered into by unrelated parties, Bello said.
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Businesses' main concern regarding an OECD country-by-country (CbC) report is not confidentiality as much as it is how its contentswill be used and how disputeswill be resolved to avoid multiple layers of taxation, according to Karen Halby, senior vice president and head of global tax at Sony Corp.
Speaking June 3 at the OECD International Tax Conference inwashington, Halby said that initially therewere concerns over confidentiality, but because of the limited scope of the CbC report, these have diminished, particularly for companieswith multiple lines of business. The OECD proposed requiring CbC reporting by companies as part of its base erosion and profit-shifting project.
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The OECD'swork on the transfer pricing aspects of intangibles under the base erosion and profit-shifting projectwill be based on earlierwork on business restructuring included as Chapter IX of the OECD guidelines, according to Michael McDonald, financial economist (business and international taxation), Treasury Office of Tax Analysis.
Speaking June 4 at a transfer pricing conference inwashington sponsored by Bloomberg BNA and Baker & McKenzie, McDonald said that thework on intangibles,whichwill include revisions to Chapter VI of the OECD guidelines, is not being treated as a "do over" for the Chapter IX revisions to reallocate the returns. McDonald said he sees thework on intangibles as "standing on the shoulders" of the business restructuring guidance.
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Arrangements involving the transfer of ownership of intangibles to countries like Ireland, a low-tax jurisdictionwhere some labor functions take place, are flying under the radar of the OECD base erosion and profit-shifting project, Robert Stack, Treasury deputy assistant secretary (international tax affairs), said June 4.
Speaking at a transfer pricing conference inwashington sponsored by Bloomberg BNA and Baker & McKenzie, Stack said the OECD's intangibles proposals are not aimed at countries that simply decide to lower their tax rate, except maybe in caseswhen labor functions are not accurately valued. For that reason, Stack said, he finds the debate "a little bit intellectually unsatisfying."
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As an international project to combat base erosion and profit shifting drives increased demand for double-tax relief, the need for safe harbor agreementswill be even more urgent, a senior Internal Revenue Service official told Bloomberg BNA.
Staffing constraints, however, have forced the agency to pull back from its efforts to develop safe harbor agreements governing routine distribution functions, Samuel Maruca, director of transfer pricing for the IRS, said June 4.
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International Tax News is designed to help multinational organisations keep upwith the constant flow of international tax developmentsworldwide. Among the topics featured in this month's edition are:
Australia's reform of the thin capitalisation regime
Developments regarding the Canadian CFC anti-avoidance provision
Changes to thewithholding rate on financial income in Italy
China's clarification of the beneficial ownership assessment under entrusted investment arrangements

For this month's issue, go here.

The United States has traveled a unique tax policy path, avoiding value added taxes (VATs),which have now been adopted by every OECD country and 160 countriesworldwide. Moreover, many U.S. consumption tax advocates have insisted on direct personalized taxes that are unlike taxes used anywhere in theworld.

This article details a tax reform plan that uses revenues from a VAT to substantially reduce and reform our nation's tax system.

For the article, go here.

Bringing the right degree of flexibility to the multilateral instrument action item of the base erosion and profit-shifting project is key to the success of its implementation, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said June 3.
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Our second quarter edition of 2014 covers:

• recent legislative proposals that can impact US inbound companies
• our 2014 survey of insourcing CFOs inwhich they share their insights and views, such as their confidence in the US economy andwhatwork is still needed
• Organization for International Investment (OFII) suggestions to change the OECD discussion draft on BEPS Action 6
• OFII's comments on the OECD's efforts to neutralize the effects of hybrid mismatch arrangements.

For the report, go here.