Int'l Tax News

The last time the U.S. enacted a comprehensive tax reformwas 1986. But many of America's major competitors have been actively reforming their tax laws in recent years. Even our closest neighbors are getting ahead of us. Canada has already reformed its tax laws and Mexico is doing so right now. If Congress doesn't take action, the U.S. risks falling further behind.

For the op-ed, go here.

The International Tax Policy Forum has released the 2014 edition of the "ITPF Competitiveness Index,"which includes a variety of charts demonstrating the relative performance of US-based multinationals in the US economy, the relative performance of foreign affiliates of US multinationals, and how the US is faring in terms of the global economy.

For the scorecard, go here.

Many of the most profitable U.S. corporations paid little or no federal income tax from 2008 to 2012, according to a five-year study issued on Tuesday by a left-leaning tax activist group.
In a reflection of how the tax code's complexity leaves many issues open to question, corporations sometimes dispute theway Citizens for Tax Justice calculates its numbers.

For the story, go here.

On Feb. 12, 2014, TEI submitted comments to the OECD recommending substantial changes to the OECD's revisions to Chapter V of its Transfer Pricing Guidelines included in its Discussion Draft on Transfer Pricing Documentation and CbC Reporting. TEI's recommendations included, among other things, delaying and substantially revising the proposed Country-by-Country reporting template, balancing tax authorities need for information against the compliance burden on taxpayers, and keeping taxpayer information confidential. The Institute also provided detailed responses to the OECD's specific requests for comments in the draft.

For the comments, go here.

Taxpayers must be carefulwith transactionswith foreign branches or disregarded entities to ensure that noncompulsory foreign tax payment rules are suitably dealtwith and must consider the proper level of documentation to satisfy compliancewith arm's-length principles, according to a February report from K&L Gates LLP.

For the report, go here.

The changing landscape for transfer pricing as a result of the OECD's base erosion and profit-shifting project has far-reaching implications, said taxpayers and practitioners on February 20. Speaking at separate panels on the treatment of intangibles and transfer pricing controversy at the TP Minds Americas Transfer Pricing Summit in Coral Gables, Fla., panelists offered suggestions for improvements to the OECD's action plan and draft on intangibles, aswell as practice points for companies involved in or anticipating transfer pricing audits.

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In news analysis, Lee A. Sheppard discusses a debate at the International Bar Association/Chartered Institute of Taxation cross-border taxation conference in London about how European countries are already implementing portions of the OECD base erosion and profit-shifting initiative.

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After a lot of anticipation and rumor, Houseways and Means Committee Chair Dave Camp, R-Mich., confirmed that hewill release his tax reform plan thisweek. Expect the unexpected.
Camp has promised to deliver revenue-neutral corporate tax reform thatwill reduce the statutory tax rate from 35 percent to 25 percent. Thatwon't be easy. And ifwe are talking about something that has a real chance of becoming law, it is probably impossible. There is no plan he can offer thatwon't alienate large swaths of the business community he is counting on for political support. Or hewill break one of his promises -- either to reduce the rate to 25 percent or to introduce a truly revenue-neutral bill.

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After 14 years, is the EU Marks & Spencer group loss relief case finally over?

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The U.S. business community should be preparing to contribute comments toward the "incredibly broad" project of regulating hybrid mismatch arrangements that is part of the Organization for Economic Cooperation and Development's action plan on base erosion and profit shifting (BEPS), a Treasury Department official said.
Given the broad territory to be covered by the regulations, the business communitywill have limited time for reviewing and commenting on the draft, Danielle Rolfes, international tax counsel for the Treasury Department, said Feb. 20 in her luncheon speech at the Tax Executives Institute seminar in Atlanta.

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Eaton Corp.'s curious and contentious litigationwith the Internal Revenue Service over the cancellation of two advance pricing agreements has raised questions from practitioners aboutwhat the company did to merit such a response from the agency. The IRS has accused Eaton of misrepresenting material facts, but never has saidwhat misstatements the company made. Documents filed at the U.S. Tax Court offer some insightÔøΩinternal IRS memos and reports are critical of the level of profits going to Eaton's foreign subsidiaries, and show that the government no longer accepts some of the fundamental presumptions of Eaton's APAsÔøΩincluding the choices of tested party and pricing method. Still, they don't explainwhy the agency accepted those presumptions in the first place.

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Taxwriters on the Houseways and Means Committee crafting an overhaul of the U.S. tax code don't quite have their hands around intangibles.
The treatment of intangible incomeÔøΩthe money companies make from technology, patents and other nonphysical aspects of the products they sellÔøΩis one of the issuesways and Means Chairman Dave Camp (R-Mich.) still needs to resolve in preparation for a comprehensive tax overhaul, tax lobbyists told Bloomberg BNA. Camp may help fill that holewhen he releases a draft for the tax bill theweek of Feb. 24ÔøΩbut perhaps not completely, lobbyists said.

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The timeline of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project is extremely ambitious,with the first outputs expected for September 2014 and the completion of the project by the end of 2015. Input from relevant stakeholders is essential in order to develop the measures envisaged in the BEPS Action Plan. In December 2013, the OECD published a timetable for planned stakeholders' input.

For the revised timetable, go here.

Thewhite House in its upcoming budget proposal plans to propose stricter tax rules targeting multinational companies to prevent tax avoidance and evasion, according to an administration officialwho requested anonymity.
Companies affected by the proposals include U.S. companieswith overseas operations and foreign companies that operate in the U.S. The proposed changeswould target attempts by companies to utilize different countries' tax rules by engaging in transactions that are considered debt in one country and equity in another.

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At the outset of the base erosion and profit-shifting project, the OECD analyzed the arm's-length standard and consideredwhether a different approachwas needed to combat BEPS, but it decided that a switch to formulary apportionmentwould not solve the problem, Mayra Lucas, a transfer pricing adviser at the OECD, said February 19.
Speaking at the TP Minds Americas Transfer Pricing Summit in Coral Gables, Fla., Lucas said that BEPS has become "damaging to governments, emerging economies, developed countries, business reputations, and small businesseswho do not have the resources to engage in aggressive tax planning." She added, "This iswhy BEPS has become one of the top issues for every country and the private sector aswell."

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The OECD's draft country-by-country reporting standards call for too much information from multinationals, said Robert Stack, Treasury deputy assistant secretary (international tax affairs), on February 20. The standards are part of the OECD's base erosion and profit-shifting project.
"My own instinct is that the template that came out is probably too many columns forwhat the risk assessment needs to be," Stack said, adding that tax authorities are just trying to get at a few high-level data points, namely income, taxes, and revenues, and maybe the number of employees and the property, plant, and equipment in a particular country.

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The Organization for Economic Cooperation and Developmentwill issue three discussion drafts and hold four public consultations before the end of May as the organization ramps up its joint projectwith the Group of 20 nations on base erosion and profit shifting, an official announced.
Raffaele Russo, head of the Centre for Tax Policy and Administration's BEPS project, gave a revised calendar for the items under the plan Feb. 20 at the Tax Council Policy Institute's tax policy and practice symposium. He said the OECDwill publish its discussion draft on tax treaty abuse March 17 and that stakeholderswill have until April 11 to submit their comments to the OECD. The organizationwill hold a public consultation April 14-15 on treaty abuse.

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The pending discussion draft on revamping the U.S. tax code from Houseways and Means Committee Chairman Dave Camp (R-Mich.) appears likely to include proposals on inbound, cross-border issues, one of his top aides said.
Simply put, there are inbound and outbound concerns even though the latter enjoy more visibility, Ray Beeman, tax counsel and special adviser for tax reform on the committee's majority staff, said Feb. 20 at the Tax Council Policy Institute's tax policy and practice symposium.

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Jim Flaherty, Canadian finance minister, continued the theme of recent yearswhen he delivered his 2014 Budget speech lastweek, focusing on improving the integrity of the country's tax system. He also announced measures that could see Canada acting unilaterally on issues being discussed at OECD level.

For the story, go here.

The top tax executives from four major U.S. companies said a lower corporate tax rate is essential and Congress shouldwork to ensure corporations can remain competitive as discussions of a tax overhaul continue on Capitol Hill.
Representing FedEx Corp., Ford Motor Corp., Johnson & Johnson and Exxon Mobil Corp., the four officials shared a panel at a Feb. 19 Tax Council Policy Institute's tax policy and practice symposium.
Michael Fryt, corporate vice president of tax for FedEx, said a lower U.S. corporate tax rate is critical to help companies compete in an increasingly global economy. He said FedExwants to see a tax rate of 25 percent or lower, alongwith "strong capital investment incentives," such as 100 percent expensing.

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Lastweek Oregon Sen. Ronwyden became the chairman of the Senate Finance Committee. Even as a liberal Democrat, he has supported two key goals of corporate tax reform: reducing the U.S. corporate tax rate and repatriating corporate profits held abroad. Sen.wyden's challengewill be implementing these goalswithout increasing the federal debt.
Rather than fighting about political untouchables, legislators should change the tax treatment of foreign profits of U.S. corporations. Under current law, foreign profits are subject to a 35% U.S. tax, but that tax may be deferred indefinitely if those profits are kept abroad. U.S. corporations are sheltering almost $2 trillion in profits abroad, according to Audit Analytics.

For the op-ed, go here.

Finance ministers from France and Germany met in Paris today to discuss the future of the financial transaction tax (FTT).

For the story, go here.

Ending deferralwould be best for broadening the tax base, but Option Y as proposed in the Senate Finance Committee international tax reform discussion draftwould be better than shifting to a territorial tax system, international tax practitioner Jeffrey M. Kadet said in one of seven letters to the committee commenting on the draft.

For the letter, go here.

"There is a concern that transfer pricing isn't always able to be enforced."
What is surely the understatement of the yearwas uttered by Stevewrappe of EY at the International Tax Institute lunch in New York on February 18,where Natalie Hodapp, supervisory tax law specialist (transfer pricing), IRS Large Business and International Division,was the government guest.

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The Organization for Economic Development and Cooperation's base erosion and profit shifting project,while potentially controversial, should preserve the arm's-length principle and many other elements of U.S. law, an Internal Revenue Service transfer pricing official said.
Speaking Feb. 18 in New York at an International Tax Institute program, Natalie Hodapp, a supervisory tax law specialist in the IRS Transfer Pricing Practice, faced questions from practitioners onwhether the BEPS process for coordinating enforcement and improving transparencywould hurt U.S. interests.
However the BEPS process develops, Hodapp said, itwill "still be aligned by the arm's-length standard,"which should serve as its "primary driver."

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The Indian Revenue authorities have been trying to allege that contract service providers operating in India,whether providing IT, ITeS, BPO, contract manufacturing or toll manufacturing services, on a standalone basis or by themselves, constitute permanent establishments (PEs) of their foreign principal companies. This allegation is directed towards creating taxable income,which is over and above the income being generated by the contract services providers, and is despite the fact that their operations are being undertaken on a principal-to-principal basis.

In this backdrop, the Indian High Court's ruling in the case of e-Funds Corporation, USA and e-Funds IT Solutions Group, Inc., USA (hereinafter collectively referred to as 'e-Funds USA' or 'the foreign companies') comes as a silver lining. The foreign companieswere engaged in providing IT and IT enabled services, in respect ofwhich back office contract serviceswere performed by e-Funds International India Private Limited (e-Funds India) for the foreign companies, under a 'cost-plus' remuneration model. Overturning the decision of the Indian Income-tax Appellate Tribunal (the Tribunal), the High Court (HC) has ruled in favour of e-Funds USA and against the formation of any PEs,whatsoever, of the foreign companies in India.

For the report, go here.

The Organisation of Economic Cooperation and Development on February 13, 2014 released the Common Reporting Standard (CRS),which seeks to establish a new global standard for automatic exchange of financial account information between Governments.

Aswith the Foreign Account Tax Compliance Act, the CRS model imposes obligations on financial institutions (FIs) to identify reportable accounts and obtain the accountholder identifying information that is required to be reported for such accountswith their local tax administration. It also provides the scope of the information to be collected and exchangedwith the accountholder's residency country.

While the documents released do not include any specific timelines,we understand that FIs in countrieswhich adopt the standardwill be required to undertake the necessary due diligence obligations in 2016with reporting starting in 2017.

For the report, go here.

In 2009, Carl C. Icahn bought a stake in Forest Laboratories, then a struggling drug maker. Last September, Forest hired a new chief executive, Brenton L. Saunders. Now, less than a half-year after taking the helm, Mr. Saunders, at the urging of Mr. Icahn, has agreed to sell Forest for $25 billion in cash and stock. The buyer is Actavis, one of the pharmaceutical industry's most aggressive acquirers. Actavis, based in Dublin but operating from Parsippany, N.J.,will pay $26.04 in cash and 0.3306 of one of its shares for each share of Forest, for total consideration of $89.48 a share.
Thiswas the first major deal Actavis announced since completing its takeover ofwarner Chilcott last year for about $5 billion. That deal allowed Actavis to complete a so-called tax inversion, relocating its headquarters to Ireland and escaping the American tax regime.
One big advantage of tax inversions, besides a lower statutory tax rate, is that deals can become more affordable. Once inverted, companies can more easily use overseas cash to pay for a deal, and the earnings from any acquired company are also taxed at the company's new, lower rate. In this case, Forest's earnings,which had been getting taxed at a higher United States rate,will eventually be taxed at the lower Irish rate currently paid by Actavis,which executives estimated to be 16 percent. Tax savingswill amount to at least $100 million, the companies said.

For the story, go here.

Pascal Saint-Amans called the OECD's Common Reporting Standard,whichwas published on February 13, "the multilateralisation of FATCA".

For the story, go here.

Susan C. Morse proposes a simpler corporate transition tax to dealwith the large amounts of cash parked offshore by multinational companies.

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You might not expect City fund managers to feature very prominently among the growing ranks of tax activists, but times are changing,writes Mike Lewis of ActionAid.

For the story, go here.

Costs and confidentiality are the top concernswith the OECD's discussion draft on transfer pricing documentation and country-by-country (CbC) reporting, practitioners said during separate PricewaterhouseCoopers LLP and Deloitte LLPwebcasts on February 13.
During itswebcast, PwC polled its audience, and nearly half of the respondents said the cost of compliance is their biggest concern. "This iswhere the biggest gap lies at the OECD," said Annie Devoy of PwC. "I don't think the OECD has any idea of the challenges, time, and costs itwill take to be able to complywith the new disclosure requirements."

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G20 Leaders at their meeting in Russia in September 2013 fully endorsed the OECD proposal for a truly global model of automatic exchange and invited the OECDworkingwith G20 countries to present such a new single standard for automatic exchange of information in time for the February 2014 meeting of the G20 Finance Ministers and Central Bank Governors.
The standard contained in this report and released in preparation for that meeting calls on jurisdictions to obtain information from their financial institutions and automatically exchange that informationwith other jurisdictions on an annual basis.
The new standard draws extensively on earlierwork of the OECD in the area of automatic exchange of information. It incorporates progress madewithin the European Union, aswell as global anti-money laundering standards,with the intergovernmental implementation of the US Foreign Account Tax Compliance Act (FATCA) having acted as a catalyst for the move towards automatic exchange of information in a multilateral context.

For the report, go here.

The ownership nationality of large US multinational companies plays an implicit but important role in the current debate over how such companies should be taxed. This paper identifies that role and investigateswhat is actually known aboutwhere these companies' shareholders reside.

For the paper, go here.

The Internal Revenue Service has released its long-awaited road map of the transfer pricing examination process.

The road map is a 26-page outline of the transfer pricing audit stages that emphasizes up-front planning and a fact-based, open-minded approach for examiners. According to the road map, "effective presentation" can make or break a case.

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The OECD on February 13 unveiled a new global standard for the automatic exchange of financial account information that itwill formally present to the G-20 finance ministers at their February 22-23 meeting in Sydney.

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Proposed global country-by-country reporting requirements are unlikely to improve the U.S.'s tax enforcement capability because the U.S. has adequate disclosure rules already in place, Samuel Maruca, director of transfer pricing for the Internal Revenue Service, said.

Maruca, in a Feb. 12webcast organized by Deloitte LLP, said he still supports the Organization for Economic Cooperation and Development's efforts to enhance global reporting requirements, as it could benefit other countrieswith less sophisticated tax enforcement agencies.

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The Organization for Economic Cooperation and Development released the first half of its model framework for automatic exchange of tax information,which the U.S. and other major countries have touted as a majorweapon to fight offshore tax evasion.
The "Standard for Automatic Exchange of Financial Account Information: Common Reporting Standard, "issued Feb. 13, establishes a standardized form that banks and other financial institutionswould be required to use to gather a broad range of client account and transaction data to submit yearly to their domestic tax authorities.
The tax authoritieswould in turn exchange this information automatically, either bilaterally or multilaterally depending on the kind of agreements they have in place, said Pascal Saint-Amans, the OECD's top tax official,while presenting the model to reporters.

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The European Commission has pledged to get to the bottom of corporate tax loopholes, as it combs through findings from a tax investigation into Ireland, the Netherlands and Luxembourg. Our corporate tax regime has been under informal investigation by the EUfor the last six months – and now comments by one of Brussel's most senior officials show just how seriously the matter is being treated. Speaking to a conference, EU Competition Commissioner Joaquin Almunia compared legal loopholes that help companies to lower their taxeswith illegal state aid.

For the story, go here.

To solidify the foundations of Japan's economic growth, the nation's tax system needs to be revamped in away that can exert the hidden vitality of companies. The government should speed up discussions on the issue.

Under the initiative of Prime Minister Shinzo Abe, talks regarding corporate tax reformwill shift into high gear at the government's Tax Commission and other institutions. "Wewill put tax incentives into place in away completely different from before," Abe said at January's meeting of theworld Economic Forum in Davos, Switzerland. Abe also pledged to "make the tax system for companies internationally competitive."

For the story, go here.

François Hollandeis to press Barack Obama on tax avoidance by big Silicon Valley companies such as Google, saying that the practice of shifting tax liabilities aroundEuropewas "not acceptable". Hollandewill meet Obama on Monday as part of a two-day trip duringwhich hewill also meet firms including Google, Facebook and Twitter in Silicon Valley. The French president,who has sought higher taxes for big earners, said Francewould not continue to tolerate large companies' tax optimisation strategies.

For the story, go here.

For much of the past year, European officials have been calling for measures to clamp down on practices they say have allowed big companies to shirk their contributions by planting their profitswhere they are least likely to be taxed.

Now, the head of the European Commission's antitrust agency says that not only are these tax avoidance practices keeping governments away from much needed revenue, but they may constitute actual "state aid."

For the story, go here.

An overhaul of the tax code faces not just technical and political difficulties, but also fundamental problems, as key arguments behind the initiative are being challenged, according to a Bloomberg Government analysis.

Bloomberg Government tax policy analysts Patrick Driessen and Tiffany Young said in a Feb. 10 report that one problem for those seeking to build momentum behind a tax code revamp is that the corporate tax is becoming less important to the economy. The share of corporate tax revenue as a percentage of total federal revenue has been shrinking for decades. The Congressional Budget Office forecasts that in 10 years corporate tax receiptswill equal 1.8 percent of overall U.S. economic output and 10 percent of all tax revenueÔøΩboth numberswould be near all-time lows, the analysts said.

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The Organization for Economic Cooperation and Developmentwill unveil a proposal Feb. 13 setting out a global framework for facilitating automatic exchange of information in tax matters, according to an official following the discussions.

The official,who spoke on condition of anonymity, said the OECD proposalwill set out the common reporting standard as the global framework for automatic information exchange. Under this framework, banks and other financial institutionswould submit yearly standardized reports to their home country authorities containing client account and transaction details.

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Lastweek, CTJ published its finding that International Business Machines (IBM) has paid U.S. federal corporate income taxes equal to just 5.8 percent of its $45.3 billion in pretax U.S. profits over the five year period from 2008 through 2012. Today IBM responded by trying to change the subject towhat it paid in one single year, andwhat it may or not pay in future years.

For the article, go here.

The OECD's recently released draft country-by-country reporting standards are beyondwhat governments need for transfer pricing risk assessment, Peter Steeds of HM Revenue & Customs said February 10 in London. Action 13 of the OECD base erosion and profit-shifting action plan merely calls for an aerial view ofworldwide multinational group structure, he said.

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Tax transparency is lauded as an unequivocal good. But is it really this clear-cut? Matthew Gilleard explores the negatives as he ventures into the dark side of transparency.

For the story, go here.

Does the OECD's discussion draft on transfer pricing country-by-country reporting achieve the uniformity and simplicity itwants?

For the article, go here.

There is not much debate anymore that the OECD's base erosion and profit-shifting project is about getting U.S. multinationals to pay some tax to European market countries. Even if that premisewere debatable, it is not debatable in the case of hybrids. U.S. multinationals have some hybrid capabilities -- bestowed by U.S. law -- that their European counterparts do not have.

Hybrids are a clear case of U.S. companies stripping other countries' tax bases. There's no right of multinationals to strip income out of other countries, even in the indulgent international consensus. There's no defense their home government can present. If the United Stateswants to continue to use the OECD as a vehicle for its needs, it can't be too defensive about the hybrid antics that U.S. administrative rules permit.

This article describeswhatwe know about the leaked BEPS hybrid draft,whichwould implement action 2 of the BEPS action plan and follows up on the OECD's 2012 hybrid reportwith proposed solutions. That report concluded that the specific hybrid mismatch rules already adopted by several European countries are effective.

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The recent revelation that many multinational enterprises (MNEs) pay very little tax to the countries they operate in has led to various proposals to change theways they are taxed. Most of these proposals, however, do not address the fundamental flaws in the international tax regime that allow companies like Apple or Starbucks to legally avoid taxation. In particular, the Organization for Economic Cooperation and Development (OECD) has beenworking on a Base Erosion and Profit Shifting (BEPS) project and is supposed to make recommendations to the G20, but it is not clear yetwhether thiswill result in a meaningful advance toward preventing BEPS. This paperwill advance a simple proposal thatwill allow OECD member countries to tax MNEs based in those countrieswithout impeding their competitiveness. The key observation is that in the 21st century unilateral approaches to tax corporationswhose operations span the globe are obsolete, and a multilateral approach is both essential and feasible. The paper therefore proposes that each OECD country commit to taxing its multinationals fully on a current basis, since such a multilateral approach eliminates all the usual arguments against current taxation.

For the paper, go here.