Int'l Tax News

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The role of the U.S. in negotiations over an international project to stem base erosion and profit shifting is to stop the Organization for Economic Cooperation and Development from adopting "blunt instruments" that might have adverse consequences for economic development, a Treasury Department official said April 8.

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Small, low-tax countries such as Ireland stand to benefit from the looming crackdown on tax avoidance by multinationals even though theywill no longer be able to route profits to tax havens, according to officials drawing up plans to overhaul the international tax system.

The Paris-based Organisation for Economic Co-operation said structures such as the "double Irish" that move profits from Ireland to countries like Bermudawere set to be dismantled.

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The news on Monday that Mallinckrodt, a Dublin drugmaker, has agreed to pay $5.6bn for US rival Questcor Pharmaceuticals marks the latest in a string of healthcare deals to hit the market since January.

The $44bnworth of global healthcare deals so far this year, by Dealogic's numbers, has been linked by a common theme: tax.

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The U.S.was the third least taxed country in the Organization for Economic Cooperation and Development (OECD) in 2011, the most recent year forwhich OECD has complete data.

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Robert S. McIntyre disputes the idea that the comprehensive tax reform draft by Houseways and Means Committee Chair Dave Camp, R-Mich., is revenue and distributionally neutral in the long term.

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In economic analysis, Martin A. Sullivan discusses how a proposal to help domestic manufacturing by Rep. Ron Kind, D-Wis., might help business-only tax reform move forward.

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The current U.S. corporate income tax is deeply flawed because it relies on definitions of corporate residence and income sourcing that corporations can easily manipulate, causing economic distortions and erosion of the corporate tax base. Two structural reform options to address these problems are securing international agreement on betterways to allocate the corporate tax base among countries and replacing the corporate income taxwith full taxation of American shareholders' dividends and accrued capital gains on stock in publicly traded companies.

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The Delhi Tribunal has ruled against the taxpayer in another casewhich highlights the service permanent establishment (PE) clause of India's double tax treaties.

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The United States today has fewer peopleworking in manufacturing than it had in 1941 before the Japanese attack on Pearl Harbor and the rush to produceweapons. But not all U.S. manufacturers are shadows of their former selves. Case in point: New Balance, the Boston-based athletic shoe producer.

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The Indian government has released a revised version of the Direct Taxes Code (DTC) for public comment. One provision that stands out is aimed at bringing indirect share transfer transactions into the tax net.

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Cutting corporate income taxeswhile repealing deductions and simplifying the code to maintain revenue neutrality could reduce incentives for manufacturers and other companies to relocate outside the U.S. and reinvest foreign earnings overseas, according to an April 2 report produced for a project of the Center on Budget and Policy Priorities.

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Speaking during an April 2webcast on recently released base erosion and profit-shifting discussion drafts and developments, Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, said thatwork on the BEPS action plan remains on schedule.

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A U.K. tax law that requires a link company between a U.K.-based subsidiary of a foreign-based parent company to be based in the U.K. for the subsidiary to be eligible for tax relief is a violation of the EU laws that gives all companies the fundamental right to set up a business in any of the 28 EU-member states.
The European Court of Justice decision (C-80/12) is a victory for the Hong Kong-based telecom conglomerate Hutchinsonwhampoa Ltd. The decision arose from an appeal by the company against a U.K.-tax tribunal that denied losses sustained by its subsidiary Hutchinson 3G UK Ltd. from investments in setting up a U.K.-based mobile phone network.

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A proposed country-by-country reporting templatewill not require multinational companies to break down financial details by legal entity, an officialwith the Organization for Economic Cooperation and Development announced.
Joseph Andrus, head of the OECD's transfer pricing unit, said March 31 thatworking Party No. 6 has tentatively "concluded that the CbC templatewill only require aggregate countrywide reporting of financial information as opposed to legal-entity-by-legal-entity reporting."

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The two-year anniversary of the United States having theworld's highest corporate tax rate should be a "call to action for leaders in both parties" to undertake tax reform thatwould create jobs by reducing the rate and improving simplicity and fairness, the Reforming America's Taxes Equitably (RATE) Coalition said in an April 1 release.

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The European Commission has been busy reforming the EU's VAT system and trying to introduce a financial transaction tax (FTT). In an exclusive interviewwith Salman Shaheen, Algirdas Semeta, European Commissioner for Taxation, Customs Union, Audit and Anti-Fraud discusses the latest progress.

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Ending deferral of tax on foreign-source incomewould move the United States closer to a pureworldwide tax system and increase corporate tax revenue, remove the incentives to shift jobs and profit offshore, increase investment in the United States, and simplify the corporate tax system, the Economic Policy Institute said in a March 31 report.

For the report, go here.

The OECDwill change its proposed country-by-country reporting (CbC) template to require aggregate countrywide reporting instead of entity-by-entity reporting,which should please taxpayers concernedwith the compliance burden that entity-by-entity reportingwould entail, an OECD official said March 31.
Speaking at the Bloomberg BNA and Baker & McKenzie Global Transfer Pricing Conference in Paris, Joseph Andrus, head of the OECD's transfer pricing unit, announced several changes the OECD is making to the proposed draft transfer pricing documentation rules and CbC template to make reporting less burdensome.

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A looming global crackdown on aggressive tax avoidance is set to stop internet companies slashing bills by routing profits to havens.

Plans to "restore taxation" in the countrieswhere digital companies make their sales and base their headquarterswere set out on Monday in the first international response to theworldwide political row over the sector's low tax payments.

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The Treasury has pledged its "full support" for a planned overhaul of global tax rules aimed at cracking down on multinationals butwarned theywould "not always increase UK revenues or taxing rights".

Its first public response to far-reaching reforms being drafted by the Paris-based OECD came as a leading tax expert described draft measures aimed at dismantling'hybrid' tax structures,which exploit differences between countries' tax rules, as "almost the taxworld's equivalent of Big Bang".

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Britain is facing fresh scrutiny from Brussels over its flagship tax break for intellectual property, because of concerns it could be an illegal state subsidy.

London is one of several capitals caught in a rapidly expanding probe by Europe's top competition authority intowhether tax sweeteners to multinationals broke rules on state support for companies.

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Companies have been putting money in low-tax countries, taking advantage of loopholes in the U.S. tax code. U.S.-based multinational companies have accumulated $1.95 trillion outside the country, up 11.8 percent from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News. Three U.S.-based companies -- Microsoft Corp. (MSFT), Apple and International Business Machines Corp. -- added $37.5 billion, or 18.2 percent of the total increase.

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The discussion draft released by the OECD confirms the view that tax measures designed exclusively for the digital economy are likely to prove problematic, primarily because of the difficulties in identifying a specific "digital" sector. Rather, the potential use of modern information and communications technology by all businesses seems to raise "digital" tax issues. Nonetheless, the OECD clearly believes that the perceivedweaknesses in the territorial tax system and the international tax rules as awhole as require change in the tax rules in order to copewith modern business practices.

For the report, go here.