Int'l Tax News

Although multinational corporations use tax planning to reduce taxes on foreign income, the current tax system requires U.S. companies to pay taxes on foreign profits once to the host country and again to the United States,which increases their effective tax rates, the Tax Foundation said in a May report.

For the report, go here.

Twenty-eight companies disclosed that they pay less than a 10 percent tax rate on the $409 billion they collectively hold offshore, but hundreds of companies are likely avoiding about $550 billion in U.S. taxes by holding $1.95 trillion of profits offshore, Citizens for Tax Justice said in a May 19 report calling on Congress to end deferral.

For the report, go here.

Heated debate over the method of filing and sharing corporate information via a country-by-country (CbC) reporting template arose among representatives from governments, the business sector, and civil society at the OECD's May 19 transfer pricing documentation consultation in Paris,with some advocating for direct filingwith all countries and others pushing for a treaty-based sharing system.
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Stakeholders at a May 15 public consultation in Paris found the OECD's proposals to neutralize the effects of hybrid mismatches unworkable and identified specific problems for repos, regulatory capital,widely held funds, and collective investment vehicles (CIVs).
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An Organization for Economic Cooperation and Development official quizzed business community representatives about their assertion that the organization's proposed country-by-country reporting template should be provided by the parent company to its home tax jurisdiction.
During the OECD's latest public consultation on base erosion and profit shifting May 19, Joseph Andrus, head of the OECD's transfer pricing unit, askedwhether sharing the proposed country-by-country template and master filewith tax administrations under this approachwould impact state sovereignty.
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Proposed legislation thatwould set a two-year moratorium on corporate inversionswon't drive assets overseas, Sen. Carl Levin (D-Mich.), the bill's top proponent, said.
Levin's bill, expected to be released May 20,would put new restrictions on international, tax-driven corporate mergers and acquisitions that result in a lower tax bill for the new company. The threshold for an inversion deal to legally take placewould likely rise from 20 percent of foreign stock ownership to 50 percent.
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The OECD held a public consultation on 23 April 2014. The consensus at this meeting supported the conclusion in the draft report that there is no separable 'digital economy'which is different from the economy, rather,whatwe are living through is a 'digitising' of the economy.

Notwithstanding this consensus, therewas a divergence of views aboutwhat the consequences of this conclusion should be. Broadly speaking, the business representatives favoured postponing futurework on the digital economy issues outlined by the OECD Task Force until itwas clearwhat recommendationswould come out of the other BEPS Action Plan groups.

For the article, go here.

Here'swhatwe've alwayswondered about tax havens:what do they get out of being tax havens?
Turns out they get quite a bit -- even though money merely moves through them to somewhere else -- provided they satisfy the immutable laws of tax havens.
First, a tax haven must be small. Second, a tax haven must be near the customers. Third, a tax haven must have rule of law,which usually means British corporate law and final appeals to the Privy Council.
The title of this article refers to the OECD base erosion and profit-shifting project, a principal goal ofwhich is to prevent multinationals from shifting profits to tax havens.
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The Organization for Economic Cooperation and Development's recently proposed rules for neutralizing hybrid mismatch arrangements should be modified to allow "flexibility"for jurisdictions to apply domestic rules to mismatches between unrelated parties, a Chinese tax official said May 15.
For China, "there seems no reason to prevent [jurisdictions] from extending the scope" of the OECD rules, said Yuxianwu, principal staff member for nonresident taxation at China's State Administration of Taxation.

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Developing countries and their role in facilitating global tax reform came to the forefront at the G-20 International Tax Symposium on May 9-10 in Tokyo, as more than 200 government officials, tax practitioners, academics, and business representatives from more than 40 countries gathered to discuss the G-20's tax agenda for 2014-2015.

Delegates discussed a broad range of topics -- including progress on the OECD's base erosion and profit-shifting action plan andwork on automatic exchange of information -- and exchanged views on creating a stronger, more efficient global tax system.

Australia,which holds the current G-20 presidency, led the eventwith the support of the Japanese Ministry of Finance; sponsors included the Institute of Chartered Accountants Australia, the Institute of Chartered Accountants in England andwales, and the Global Accounting Alliance, aswell as Deloitte, KPMG, and PricewaterhouseCoopers.

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Robert Stack, Treasury deputy assistant secretary (international tax affairs), on May 10 previewedwhat to expect as the OECD finalizes proposals on the digital economy, hybrid mismatches, treaty abuse, and country-by-country (CbC) reporting.

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Taxpayers got some joy from the Brazilian Superior Court of Justice (STJ) decision that the country's controlled foreign corporation (CFC) regime does not complywith the business profits article (Article 7, OECD Model Convention) of some of the tax treaties in its network.

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Commentators responding to the OECD's discussion drafts on hybrid mismatch arrangements cited the difficulty and unfairness of the OECD's top-down approach, overly stringent related-party test, and potentially adverse effects of the proposed rules on regulatory capital,widely held funds, and imported mismatches.

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Senator Carl Levin said hewill introduce legislation thisweek to limit U.S. companies' ability to move their legal addresses out of the country for tax purposes through mergers.

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Corporate "inversion," inwhich an American corporation reincorporates itself as a "foreign" company to avoid U.S. taxes, is in the news again. In 2004, Congress enacted a bipartisan law to prevent inversions, but a gaping loophole allows corporations to skirt this law by acquiring a foreign company.
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An attempt by Pfizer to purchase U.K. pharmaceutical company AstraZeneca shows the need for Congress to stop corporate inversions to avoid taxes, and a corporate minimum tax could further end incentives for companies to use tax havens, the Center for American Progress said in a May 13 report.

For the report, go here.

The top Republican taxwriter in the US Senate has quashed the idea of a quick move in Congress targeting tax "inversion" deals in thewake of Pfizer's $106bn bid for AstraZeneca, saying the problem should only be solved through a broader tax reform plan.

Orrin Hatch of Utah, his party's senior member on the Senate finance committee, on Tuesday sent the clearest signal yet that Republicanswill not embrace proposals by congressional Democrats and thewhite House to enact legislation thatwould make it much harder for companies such as Pfizer to redomicile overseas for tax reasons.

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A bill to limit tax-driven corporate mergers should "hopefully"emerge by May 16, Sen. Carl Levin (D-Mich.) said.
Levin, chairman of the Senate Permanent Subcommittee on Investigations, has pledged to crack down on companies that redomicile abroad for tax purposes through buyout transactions, but maintain management and operations stateside.
"Hopefully thisweek," he said May 13when askedwhen hewould introduce his bill. Levin said he has generated "a lot of interest" among Senate colleagues.
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Businesses can play a key role in helping tax administrations in developing countries apply their "scarce" resources to areaswith the highest risk of base erosion and profit shifting, the global tax director of Royal Dutch Shell said in a recent panel discussion.
Alan McLean, executive vice president taxation and corporate structure at Royal Dutch Shell plc, spoke at an Organization for Economic Cooperation and Development forum on "tax for development."
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Transfer pricing is the leading source of tax risk for multinational companies, according to a survey of 830 tax and finance executives conducted by EY,which listed rapid changes driven by an international project to combat base erosion as a specific transfer pricing concern.

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For the survey, go here.

In a speech on the Senate floor today, Finance Committee Ranking Member Orrin Hatch (R-Utah) called on Congress to address inversions by creating an internationally competitive tax code thatwould make the United States a more desirable location to headquarter one's business. Hatch also highlighted how the punitive taxes in the President's own signature health care law, Obamacare, have caused medical device companies to move overseas.

For the release, go here.

Pfizer's chairman and chief executive, Ian Read, is in London thisweek trying to sell a skeptical public there on his $106 billion takeover plan for rival AstraZeneca.
The real question, however, iswhy Mr. Read is not being called to testify inwashington to explain the real purpose of this megadeal: a mega-tax-dodge.
For the story, go here.

Increasing disparity between tax rates and systems in the United States and the rest of theworld, alongwith economic incentives, encourages corporations to circumvent anti-inversion rules, panelists said May 9 at a tax conference inwashington.
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A plan by Senate Finance Committee Chair Ronwyden, D-Ore., to stem the tide of U.S. multinational inversions by raising the minimum required foreign ownership of a newly inverted company could have serious consequences for current inversions.

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The U.S. delegate to the Organization for Economic Cooperation and Development's Committee on Fiscal Affairs gave an update on five of the international base erosion and profit shifting (BEPS) action items.
Robert Stack, deputy assistant secretary for international tax affairswith the U.S. Treasury, on May 10 described the progress of the OECD's recent discussion drafts on intangibles, country-by-country reporting, hybrids, treaty abuse and the digital economy.

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When Pfizer Inc. Chief Executive Officer Ian Read faces U.K. lawmakers to justify his proposed takeover of AstraZeneca Plc, one questionwill underpin the debate:whether the more than $100 billion offer is really about drugs or about taxes.
A review of AstraZeneca's pipeline assets suggests the latter may be true. AstraZeneca lacks first- and best-in-class experimental drugs in the core cardiovascular, diabetes and cancer sections Pfizer cited as grounds for the offer.
"It doesn'twork financially on most people's calculationswithout the tax benefit," said Mark Clark, a London-based analyst for Deutsche Bankwho called AstraZeneca's estimates "blue sky"in a note to investors lastweek. "Without a doubt, tax is a major motivation."
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The U.S. is ready to join China and four other countries in an alliance to fight efforts by multinational corporations to avoid paying taxes, according to people familiarwith the matter.

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

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

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

For the comments, go here.

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

For the report, go here.

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

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

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

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

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

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

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

For the speech, go here.