Int'l Tax News

Members of an Organization for Economic Cooperation and Development committee taskedwith creating rules to combat hybrid mismatch arrangements indicated that the committeewill likely increase the threshold for companies to be considered related parties subject to the rules.
A discussion draft released March 19 suggests a threshold of 10 percent.
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Japan's ruling party on Tuesday cleared theway for a corporate tax cut to take effect next year, pushing forward a plan that Prime Minister Shinzo Abe hopeswill revive investment and keep production at home.
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The U.S. government should oppose the use of the OECD's project on base erosion and profit shifting by some foreign governments to impose extraterritorial taxes on U.S. business income,which could increase barriers to cross-border trade and investment, Business Roundtable urged in a May 30 letter to Treasury Secretary Jacob Lew.

For the letter, go here.

Senate Finance Committee Chair Ronwyden, D-Ore., said June 3 hewould await OECD members' decisions on the organization's base erosion and profit-shifting project thisweek, but Sen. Carl Levin, D-Mich., told Tax Analysts he supported it.
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Negotiatorsworking on the OECD's base erosion and profit-shifting project should consider automating the exchange of country-by-country reporting data to avoid overburdening tax administratorswith the task of evaluating thousands of individual requests per year, IRS Commissioner John Koskinen said June 3.
In his luncheon address at the OECD International Tax Conference inwashington, Koskinen urged OECD tax negotiators to be mindful of the effects of their decisions not only on taxpayers, but also on tax administrations. The OECD's choices could have a significant impact on IRS administration,which is operatingwith 10,000 fewer employees and $850 million less funding than in fiscal 2010, the commissioner said.
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US multinationals face a threat of "unprecedented taxes on trade and investment" from efforts to close gaps in the international tax rules, according to the Business Roundtable, a US business lobby group.

The US Treasury is also at risk of losing tax revenues if it fails to stand firm against some of the proposals under discussion, according to the group representing chief executives of leading US multinationals.

The letter to Jack Lew, Treasury secretary, reveals the strength of the opposition felt by some US businesses to aspects of the planned crackdown on corporate tax avoidance by some governments.

For the story, go here.

The top Republican taxwriters in Congress and the biggest U.S.-based companies arewarning that global negotiations to limit businesses from shifting profits to low-tax countries could harm Americans.

Representative Dave Camp and Senator Orrin Hatch said in a joint statement that other governments may be using the talks at the Organization for Economic Cooperation and Development as away to "raid the American Treasury."

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IRS Commissioner John A. Koskinen discussed international tax issues in a June 3 speech to the U.S. Council for International Business-OECD International Tax Conference inwashington.

For the text of the Commissioner's speech, go here.

The Organization for Economic Cooperation and Development'sworking Party No. 6ÔøΩwhich has been taskedwith examining transfer pricing issues related to intangiblesÔøΩwill release a discussion draft relating to recharacterization of arrangements allocating risk in late December or early January, an OECD official said.
Marlies de Ruiter, head of the OECD's transfer pricing, tax treaties and financial transactions division, said June 2 that the draft alsowould look at any possible changes to the commensurate-with-income standard, aswell as possible "special measures" that go beyond the arm's-length principle to combat perceived base erosion and profit shifting.
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Five European Union member stateswill have to adapt their corporate tax laws to complywith the Base Erosion and Profit Shifting project coordinated by the Organization for Economic Cooperation and Development, European Taxation Commissioner Algirdas Semeta said.
At a June 2 news conference following the commission's release of its tax policy recommendations, Semeta pointed to Cyprus, Ireland, Luxembourg, Malta and the Netherlands. "All fivewill have to make changes in order to come to termswith the BEPS project at the OECD," he said. "In the case of Ireland, some changes have been made and otherwork is underway but further changes are needed."
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Todayways and Means Committee Chairman Dave Camp (R-MI) and Senate Finance Ranking Member Orrin Hatch (R-UT) released the following statement on the 2014 Organisation for Economic Co-operation and Development (OECD) conference on Base Erosion and Profit Shifting (BEPS) taking place thisweek inwashington, DC.

For the statement, go here.

Although the OECD has made progress on its base erosion and profit-shifting project, more must be done and more stakeholder input needs to be obtained, according to Mikewilliams, director of business international tax at HM Treasury.
The OECD's BEPS action planwas released in July 2013, and at the end of June three reports and four draft recommendationswill be presented to the Committee on Fiscal Affairs, said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration,who spoke alongsidewilliams June 2 at the OECD International Tax Conference inwashington.
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Action 6 in the OECD base erosion and profit-shifting initiative is tax treaty abuse. The U.S. delegation insisted that the problem be addressedwith U.S.-style limitation on benefits clauses. Other countries find LOB clauses too complicated.
So the recent BEPS treaty abuse draft opted for a simpler LOB clausewith a backstop clause allowing tax administrators to disallow treaty benefits for a transactionwith a "main purpose" of taking advantage of the treaty.
Government officials and tax advisers on June 2 debated thewisdom of putting an LOB provision into the OECD model treaty as part of the OECD's BEPS action item on preventing treaty abuse.
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As U.S. multinationals' overseas cash pools grow, companies are increasingly being asked to substantiate claims of indefinite reinvestment, an assertion that allows them to avoid booking substantial deferred tax liabilities.

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In the OECD base erosion and profit-shifting project negotiations, the United Stateswanted pricing of transfers of intangibles kept pure and separate from "special measures" to prevent hiving of income from intangibles to tax havens. The U.S. negotiators have largely succeeded in that aim. The BEPS drafterswill deliver an intangibles pricing draft to the G-20 in the fall, and the special measureswill be pushed off to 2015.
The OECD released a revised intangibles discussion draft on July 30, 2013, 11 days after the BEPS action planwas released. The intangibles projectwill feed into thework being done as part of action 8 on ensuring that transfer pricing outcomes are in linewith value creation and intangibles. That is, the established intangibles project has been rolled into BEPS, but the special measures for transfers to tax havenswill be kept separate from the first round of BEPS.
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The top two Republican taxwriters in Congress on June 2 called the OECD's project on base erosion and profit shifting "away for other countries to simply increase taxes on American taxpayers" and said the project's schedule is too rushed to let the United States properly review its recommendations.
Houseways and Means Committee Chair Dave Camp, R-Mich., and Senate Finance Committee ranking minority member Orrin G. Hatch, R-Utah, made the comments in a joint release issued to coincidewith the OECD's international tax conference inwashington. The pair urged the Treasury Department "to aggressively represent American employers and theirworkers in the BEPS negotiations,while responsibly consultingwith Congress as its discussions in the BEPS context proceed."
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The top Republican taxwriters in Congress joined the biggest U.S.-based companies inwarning that global negotiations to limit businesses from shifting profits to low-tax countries could harm Americans.
Rep. Dave Camp (R-Mich.) and Sen. Orrin Hatch (R-Utah) said in a joint statement June 2 that other governments may be using the talks at the Organization for Economic Cooperation and Development as away to "raid the American Treasury."
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About two dozen U.S. companies ranging from Liberty Media to Sara Lee have quietly moved their headquarters out of the United States to places like Ireland and Canada and England since 2008 in search of lower corporate income taxes. Few people other than tax techies noticed. But now, thanks to the high-profile attempt launched in April by Pfizer to buy British-based AstraZeneca and cut its taxes by turning itself into a British companywith headquarters in New York, so-called tax inversions have gotten a lot of attention. Aswell they should. But rather than shriek and point fingers, theway tax questions are usually dealtwith these days, let's step back and ask two fundamental questions.

First,what is an American company? Second, canwe and shouldwe stop U.S.-based companies from continuing to benefit fromwhat our country has to offer - things such as our financial markets, legal system, intellectual infrastructure and abundance of great places for employees to live -without their paying full freight? It's letting them eat their cake and have it, too.

For the story, go here.

Japanese Prime Minister Shinzo Abe's second term began in December 2012. In the first 12 months, prices on the previously moribund stock market soared 63 percent. In the following six months, they have dropped by 10 percent. The rise and fall are largely explained by Abenomics.
The prime minister's radical break from Japan's previous economic policies has three components, referred to as the three arrows. The first arrow is an enormous expansion of the money supply by the Bank of Japan. The second arrow is a big boost in government spending.
Japan's miraculous made-in-Tokyo recovery is now stalled by a lack of progress on the third arrow of Abe's program: promised but unspecified structural, supply-side reforms like reduced regulation of the labor market, reductions in trade barriers and other protections of favored industries, and a reduction in the corporate tax rate, currently the second highest in theworld after the United States. The government's fiscal and economic blueprint, due later this month, is expected to offer proposals on these issues.
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The OECD's base erosion and profit-shifting project is approaching a major milestone in June. The OECD's Committee on Fiscal Affairswill vote on the first set of deliverables on the BEPS action items.
For thosewho don't spend all their time keeping upwith the BEPS project's various releases and deadlines, the following summary might be helpful.
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The European Union member states need to advance common corporate tax legislation to ensure that companiesworking in the digital economy pay their fair share of taxes, a European Commission-sponsored report urges.
The report, drawn up after various companies such as Google Inc., Apple Inc. and Amazon.com Inc.were accused of paying minimal corporate tax in the EU by manipulating different tax laws in EU member states, also said EU member states should consider revising transfer pricing rules and reviewing concepts for defining and applying taxable presence. The changes should be made as part of the Organization for Economic Cooperation and Development's project to combat base erosion and profit shifting (BEPS), the May 28 report said.
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The international base erosion and profit shifting project's September 2014 deliverables on tax treaty abuse, intangibles and country-by-country reportingwill affect the U.S. insurance industry to varying degrees, a U.S. Treasury official said.
Deputy Assistant Treasury Secretary for International Tax Affairs Robert Stack told the Federal Bar Association's annual insurance tax seminar on May 30 that the BEPS project could result in measures "that can actually harm you guys. I can imagine folks in the [insurance] industry may think of this as a very distant topic."
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A report by Citizens for Tax Justice on corporate use of tax havens is flawed by double-counting of controlled foreign corporation income,which results in understating effective corporate tax rates and makes the analysis "virtually meaningless," according to a May 28 blog post by the Tax Foundation.

For the blog post, go here.

On or around April 18, the OECD released a copy of a revised draft on action 13 (transfer pricing) of the base erosion and profit-shifting action plan toworking party members and official consultative members in advance of the May 19 public consultation on transfer pricing documentation and country-by-country (CbC) reporting.
The document instructed delegates to review the revised draft and providewritten comments on or before May 1 and to bring their own copies of the draft to a meeting, the date and location ofwhich are unknown, because therewould be no printed copies available in the meeting room. (Related coverage of secrecy issues at a G-20 tax symposium in Tokyo on May 9-10.)
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More than half of big global and home-grown Irish companies are very concerned about the impact of proposed changes to the international tax regime by the Organisation for Economic Co-operation and Development (OECD), a survey suggests.

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Anti-treaty-shopping provisions enacted under domestic law don't necessarily amount to a treaty override, according to U.S. and Canadian officials speaking at a May 22 international tax seminar in Toronto co-hosted by the U.S. and Canadian branches of the International Fiscal Association.
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ACT has released a new report in response to the recent trend of U.S. companies pursuing redomiciliation through mergerswith overseas companies. The report describes the recent trend of corporate inversions through mergers, the parts of the U.S. tax code that are encouraging these mergers, aswell as the economic and tax effects of these transactions. Additionally, the report looks at how the U.K. dealtwith this issue in the past – andwhat it means for U.S. corporate tax reform efforts today.

For the report, go here.

Speaking during a May 26webcast on the status of the OECD's base erosion and profit-shifting project, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, reported "tremendous progress" toward finalizing the seven 2014 action plan items.
According to Saint-Amans, the 2014 deliverables are on target to be finalized and releasedwhen the G-20 finance ministers meet in Cairns, Australia, September 20 and 21.
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Recently, several high profile companies have indicated an interest in merging or plans to mergewith a non-U.S. headquartered company. This "secondwave" of inversions again raises concerns about an erosion of the U.S. tax base.
Two policy options have been discussed in response: a general reform of the U.S. corporate tax and specific provisions to dealwith tax-motivated international mergers. Some have suggested that lowering the corporate tax rate as part of broader tax reformwould slow the rate of inversions. The second option is to directly target the merger inversions.

For the CRS report, go here. (subscription required)

The Organization for Economic Cooperation and Development has decided to speed up itswork on risk recharacterization and capital as part of an effort to address the most challenging transfer pricing issues in its action plan on base erosion and profit shifting, a top OECD transfer pricing official said.
Marlies de Ruiter, head of the OECD's division on tax treaties, transfer pricing and financial transactions, said May 26 that the organization'sworking Party No. 6 on Taxation of Multinational Enterpriseswill soon send its latest draft on transfer pricing issues related to intangible assets to the Committee on Fiscal Affairs (CFA) for approval as a BEPS 2014 deliverable.
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Democrats in Congress are trying to block companies from cutting their tax bills by moving their legal address outside the U.S. through a merger.
Companies are forging ahead anyway.

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A few days after Americans filed their tax returns last month, the Internal Revenue Service
released data on the offshore subsidiaries of U.S. corporations. The data demonstrate, in an
indirectway, that these companies are not playing by the same rules as the rest of us.

For the report, go here.

Tax audits have risen 73%worldwide, giving corporations around theworld plenty to think aboutwhen it comes to having their tax affairs in order.

For the story, go here.

Let's repeat. The OECD base erosion and profit-shifting project is a European initiative designed to patch the current international system of transfer pricing and separate company accounting. It is not a Trojan horse for formulary apportionment based on sales. That regime may evolve, but not from BEPS.
Sowhat is the OECD doing? The OECD is trying to coordinate and make consistent the various domestic measures that European countries have been pursuing -- long before this project came about -- to counterwhat they see as offensive tax planning by U.S. multinationals. Herding cats is such a hackneyed phrase!

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If too many U.S. companies are able to shift their legal residence to foreign locations, thewhole U.S. system ofworldwide taxation could unravel.
If firms comprising a significant portion of an industry in the United States become legally domiciled outside it, theywill enjoy tax advantages not available to their domestically domiciled competitors. The domestic firms left behindwill justifiably cry foul and seek relief from Congress. If Congress doesn't provide that relief, the domestic companieswill seek foreign merger partners.

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European efforts to build a financial-transaction tax are turning towhich derivatives to tax and how to leave room for future expansion, planning documents show.
Greece,which holds the EU's rotating presidency until July 1, has proposed several options for taking the plan forward, according to the documents prepared for a May 28working group meeting.
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A senior senator's bill targeting corporate inversionswould also affect transactions in some corners of the partnershipworld, and at least one practitioner recommended on May 22 that new businesses think twice before establishing themselves as domestic entities.
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Tax authorities around theworld have yet to develop a uniform approach to the taxation of Bitcoin.

For the story, go here.

Switzerlandwill implement changes to its corporate tax regime at federal and cantonal level in an effort to preserve the country's tax appeal.
Several companies have chosen to move their registered company seat outside of Switzerland this year, citing tax and legal uncertainty as their main reasons for doing so.
For the story, go here.

Eighty six countries have agreed to the new OECD VAT guidelines,which aim to provide practical solutions to tackle tax avoidance, mitigate the risk of double taxation, combat lost revenue and solve issues surrounding tax law mismatches.

For the story, go here.

It's not just congressional Republicanswho believe tax reform is the appropriateway to halt U.S. corporations' interest in inversions as a tax avoidance strategy. A growing number of Democratic lawmakers are saying they too believe Congress should dealwith the issue in the context of reform.
"In away, Ian Read, CEO of Pfizer, has given us awake-up call -- maybe done us a favor -- and put a spotlight on the need for us to come back to the issue of corporate tax reform," Senate Finance Committee member Thomas R. Carper, D-Del., said, noting that he believes reform is the "real solution" to the inversion issue. A merger attempt by Pfizer Inc. to avoid taxeswas rejected by U.K. company AstraZeneca PLC on May 19.
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It's common for tax conferences to acknowledge the companies and organizations that sponsor the event. Given the significant amount of money and resources needed to hold a conference, it makes sense for the host to solicit funding.
However, should that same justification applywhen the host is not a professional body or advocacy group, but a government entity that is holding a conference on a topic that directly affects those sponsors? Does it seem inappropriate if the press is barred from covering a government-hosted, private-sector-funded conference atwhich high-level government officials discuss tax policywith private sector representatives?
Those are questions that Tax Analysts debatedwhen the Australian Treasury, as part of Australia's G-20 presidency, hosted an international tax symposium in Tokyo May 9-10. Details about the symposium, including the agenda and attendee list,were posted on the Australian Treasury'swebsite.
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There is no doubt that companies are becoming more transparent in reporting and disclosing their tax affairs. But they are still not going far enough, according to tax justice campaigners.
More companies are voluntarily offering tax information, and the number of mentions of theword "tax" in FTSE 100 companies' annual reports has dramatically increased in the past five years.
For the story, go here.

The increased diversification of the digitised economy presents a major challenge for BEPS initiatives. Lack of a permanent establishment (PE) had led to debate overwhere tax should be applied, evenwhere a digital entity is not practising a tax avoidance strategy. The prospect of amended tax legislation to address this has raised concerns over the increased risk of double taxation, and a regulatory burden on multinationals.
For the story, go here.

On May 19, 2014, the Organisation for Economic Co-operation and Development
(OECD) held a public consultation on the transfer pricing documentation and
country-by-country (CbC) reporting draft,whichwas released on January 30, 2014.

The transfer pricing documentation and CbC reporting draft is the outputwith respect
to Action 13 of the Base Erosion and Profit Shifting (BEPS) project,which requires
the development of improved transfer pricing documentation standards and a CbC
reporting template. The draft is set to be completed by September 2014.

For the alert, go here.

Just after Michigan Democrats and brothers Sen. Carl Levin and Rep. Sander M. Levin introduced legislation May 20 to tighten inversion rules under section 7874 that attempt to prevent U.S. companies from moving their tax residence overseas to avoid U.S. taxation, the top Senate taxwriter threw coldwater on the idea of changing stock ownership rules before enacting comprehensive tax reform.
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A pair of legislative efforts to curb international, tax-driven mergers and acquisitions met a tepid reception on Capitol Hill, but the bills' backers say that they put companies looking to perform corporate inversions on notice.

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A group of fourteen Senate Democrats moved to thwart plans by US companies such as Pfizer to redomicile abroad through mergers to cut their tax bills, introducing legislation thatwould impose a two-year "moratorium" on such inversion deals.

The bill led by Carl Levin, a veteran Michigan lawmaker, is unlikely to gain much traction on Capitol Hill this year amid Republican resistance, but is designed to at least have a chilling effect on other companies contemplating such manoeuvres.

For the story, go here.

U.S. companieswould face strict limits on mergers inwhich they move their tax address outside the U.S. under a bill proposed today by Senator Carl Levin, a Michigan Democrat.

Under Levin's plan, U.S. companies trying to buy a foreign company and relocate their headquarters to a lower-tax countrywould have to ensure that shareholders of the non-U.S. company own at least 50 percent of the combined company, up from 20 percent now. The plan,which lacks Republican support, is unlikely to become law any time soon.

For the story, go here.

A group of Democratic senators unveiled a bill Tuesday thatwould limit corporations' ability to shift their address offshore for tax purposes, though they acknowledged it faces a long road.

For the story, go here.