Int'l Tax News

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Globalization and corporate tax

In an International Monetary Fund (IMF)working Paper, Manmohan S. Kumar and Dennis Quinn analyze the extent towhich the degree of international economic integration, both financial and trade, affects corporate tax rates.

Their paper explores this issue in the context of strategic behavior by countries, taking into account other global and domestic political economy factors.Tax rates are analyzed using a unique tax dataset for advanced and developing economies extending over five decades.

For the paper, go here.

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Controlled foreign companies reform: UK Finance Bill published

  • By KPMG UK
On March 29, 2012, the UK Government published Finance Bill 2012,which includes, in Schedule 20, the latest draft of the new controlled foreign companies (CFC) rules.
The draft legislationwas originally published on December 6, 2011, and January 31, 2012with comments invited from business. In response to feedback, amended draft legislationwas issued on February 29, 2012 reflecting improvements to the operation of the gateway provisions and some amendments to the finance company exemption. The Finance Bill includes further changes, including a new temporary period exemption.

For further coverage, go here.

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The connection between competitiveness and international taxation

Writing in the Tax Law Review, University of Pennsylvania Law School Professor Michael S. Knoll examines two conceptions of competitiveness that are frequently used in discussions of the connection between international taxation and competitiveness, but are not always clearly distinguished from one another. One conception emphasizes the competition between firms to be profitable and grow by acquiring productive assets. The other conception focuses on the competition between states to attract investment capital and people by varying their regulations.

For Professor Knoll's article, go here.

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The better base case for a post-2012 US personal income tax regime

Writing in Tax Notes, Professor Edward D. Kleinbard of the University of Southern California Gould School of Law and Joseph Rosenberg of the Urban-Brookings Tax Policy Center present their proposal for an alternative post-2012 US personal income tax regime -- the "Better Base Case."

For their article, go here. (Subscription required.)

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International tax competition and coordination

In a Max Planck Institute for Tax Law and Public Financeworking Paper, Michael Keen and Kai A. Conrad aim to provide a comprehensive survey of the theory of international tax competition.

Startingwith the standard framework, the authors visit the non-cooperative equilibrium of tax competition, analyses aspects of partial and regional coordination, repeated interaction, stock-flow-effects, agglomeration effects, and time consistency issues in dynamic models. They discuss profit shifting in the Keen-Kanbur model and then survey frameworks to analyze countries bidding for firms, tax rate differentiation and preferential tax regimes, the role of information exchange and recentwork on tax havens.

For the paper, go here.

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Why the US is getting corporate tax reform wrong

Matthew Gilleard of the International Tax Review argues thatwhile the IRS and Treasury have already moved to tighten the rules relating to US firms moving to low-tax jurisdictions, encouraging companies to stay rather than building barriers to
prevent them leaving is a moreworthwhile and growth-friendly road to go down.

For his article, go here.

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The FTT is on the way.

After months of fraught discussions, and years as a radical fringe policy ignored by those in power, the financial transactions tax (FTT) is set to become a reality as 11 EU member states have decided to adopt it.

For the article, go here.

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Were #27!: US lags far behind in R&D tax incentive generosity

According to the Innovation Technology and Information Foundation, the US in 2012 ranked just 27th out of 42 countries studied in terms of research and development (R&D) tax incentive generosity, down from 23rd just five years ago.

For the ITIF report, go here.


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IMF examines key economic issues for US

  • By International Monetary Fund
In a Selected Issues Paper prepared as background documentation for the International Monetary Fund's periodic meetingwith the US, a team of IMF staffers examines key issues facing the US.

For the paper, go here.

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HMRC issues draft guidance on CFCs and PEs

  • By Her Majesty's Revenue & Customs
Her Majesty's Revenue & Customs (HMRC) has issued draft guidance on controlled foreign corporations (CFCs) and permanent establishments (PEs).

The draft guidance supplements Finance Bill 2012,which contains the draft legislation for the new CFC rules and some amendments to the rules for the exemption of foreign PEs thatwill apply to CFCs and permanent establishmentswith accounting periods that begin on or after 1 January 2013.

For the draft legislation, go here.

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HMRC examines the taxation of the profits of multinational businesses

  • By Her Majesty's Revenue & Customs
An Issue Briefing released by Her Majesty's Revenue & Customs responds to recent media reports suggesting that some high-profile multinational businesses do not pay their fair share of corporation tax on profits they make from their businesswith UK customers. This briefing explains how the profits of multinational businesses are taxed, and how tax policy affectswhere multinationals choose to locate.

For the Issue Briefing, go here.

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UK tax reform: a model for the United States?

In a Tax Notes viewpoint, Georgewhite examineswhat he sees as the UK's "misguided" campaign to persuade businesses to stay in the United Kingdom,which had two elements: a substantial cut in the corporate tax rate and a taxpayer-friendly tax administration.

According towhite, "title of this article is taken from a paper presented at awashington tax conference last fall by a senior U.K. Treasury official, David Gauke. In light of subsequent developments in Old Blighty, Gauke's suggestion has all the appeal of free passage on the R.M.S. Titanic."

Forwhite's viewpoint, go here. (Subscription required.)

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UK Revenue homes in on profit shifting

HM Revenue & Customs has stepped up its investigations into profit shifting by multinationals, according to statistics that suggest a sharp increase in the scale oftransfer pricing enquiries.

For the article, go here.

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Offshoring: Welcome home

A special report in the Economist examines the fact that, after decades of sendingwork across theworld, companies are rethinking their offshoring strategies.

According to the Economist, "The political mood may have influenced decisions to bring jobs back, but the fundamental drivers are economic. First, manufacturing is becoming more automated, so labour makes up a decreasing proportion of costs. Second, for businesses that continue to rely on armies of people, labour costs have soared in formerly poor countries.wages for Chinese manufacturingworkers are going up by around 20% a year, faster than their productivity is growing. A stronger Chinese currency has added to the upward pressure on costs.

For a summary of the report, go here. For the full report, go here.

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Large Finnish companies good at avoiding domestic taxes

A Finnish newspaper reports that in 2010, Finland's nine largest listed companies paid Finnish corporate tax at a rate of 4.5 percent on pre-tax profits, but more than 19 percent abroad. The newspaper attributes this in part, to "international tax planning. Global companies seek to post their profits in countrieswhere the tax rates are low."

For the story, go here.

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Can America compete? Strategies for economic revival

The September-October issue of Harvard Magazine features highlights from discussionswith principals of the Harvard Business School's U.S. Competitiveness Project. The project's research attempts to address comprehensively the country's economic strengths (innovation and entrepreneurship, for instance, and research universities) and shortcomings (deterioratingworker skills, complex tax and regulatory systems, and fractious federal policymaking).

For the discussions, go here.

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Foreign taxes and the growing share of US multinational company income abroad: profits, not sales, are being globalized

In a US Treasury Office of Tax Analysisworking Paper later published in the National Tax Journal, Harry Grubert looks at the trend in the foreign share of theworldwide income of U.S. multinational corporations (MNCs) rising sharply in recent years.

Data from a panel of 754 large MNCs indicate that the MNC foreign income share increased by 14 percentage points from 1996 to 2004. The differential between a companys U.S. and foreign effective tax rates exerts a significant effect on the share of its income abroad, largely through changes in foreign and domestic profit margins rather than a shift in sales. U.S.-foreign tax differentials are estimated to have raised the foreign share of MNCworldwide income by about 12 percentage points by 2004. Lower foreign effective tax rates had no significant effect on a companys domestic sales or on the growth of itsworldwide pre-tax profits. Lower taxes on foreign income do not seem to promote competitiveness."

For the paper, go here.

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Fixing the system: an analysis of alternative proposals for the reform of international tax

In a paper presented May 1 as part of the NYU Colloquium Series on Tax Policy and Public Finance, Harry Grubert of the US Treasury Office of Tax Analysis and Professor Rosanne Altshuler of the Rutgers University Department of Economics evaluate proposals for the reform of the U.S. system of taxing cross-border income including dividend exemption, full current inclusion, and a Japanese type version of dividend exemptionwith an effective tax rate test subject to an exception for an active business.

They also consider a special version of a country by country minimum tax with dividend exemption, no active business exception, but a current deduction against the minimum tax base for real investment in the location.

For the full paper, go here.

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CRS examines options and challenges of moving to a territorial income tax

In a July 25 Congressional Research Service report, Jane G. Gravelle, Senior Specialist in Economic policy, examines the options and challenges associatedwith the US moving from aworldwide income tax system to a territorial system.

For the full report, go here.


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Technological innovation, international competition, and the challenges of international income taxation

In a John M. Olin Center for Studies in Law, Economics, and Public Policy Research Paper thatwill be published in the Columbia Law Review, Professor Michael Graetz of Columbia and Yale law schools and Yale Law graduate Rachael Doud examine the
three primary tax policies supporting innovation: (1) incentives for research and development, (2) so-called patent boxes, and (3) proposals for tax benefits foradvanced manufacturing.

The authors also examine current proposals for limiting opportunities for US multinationals to shift intellectual property income to low or zero-tax jurisdictions. In that connection, they offer new proposals for change that emphasize imposing US tax based on US sales.

For the authors' paper, go here.

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UK, Germany call for international action to strengthen tax standards

In a joint statement issued at the November 5 G20 meeting, German Finance Ministerwolfgang Schauble and British Chancellor of the Exchequer George Osborne called for concerted international cooperation to strengthen international standards for corporate tax regimes.

The statement notes that "Britain and Germanywant competitive corporate tax systems that attract global companies to our countries, but alsowant global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards."

For the statement, go here.

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The big choice for growth: lower tax rates vs. expensing

In a Tax Notes Viewpoint, Heritage Foundation economist J.D. Foster explains, "Although the classic case for expensing rests on the economists' simplifying assumption of perfectly competitive markets eliminating systematic economic profit, in the realworld economic profits are typically required. Relaxing that assumption and allowing an expectation of pure profit may explain the common ambivalence toward expensing in the business community and may validate an approach to corporate tax reform.

For Foster's Viewpoint, go here. (Subscription required.)

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Overseas cash and the tax games multinationals play

In a New York Times DealBook article, University of Colorado Professor VictorFleischer comments on the fact that "more than a trillion dollars in cash and short-term investments sits in offshore holding companies, awaiting a repatriation tax holiday,"while"in the meantime, tax professionals spin outways to manipulate the system."

For Fleischer's article, go here.

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Organizations urge Congress to eliminate active financing exception and CFC look-through rule

  • By Financial Accountability and Corporate Transparency Coalition
In an August 1 letter to the chairmen and ranking minority members of the Senate Finance and Houseways and Means committees, a coalition of organizations urged Congress to eliminate the "active financing exception" and "CFC look-through rule" from the US tax code.

For the letter, go here.

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International formulary apportionment is not a panacea

In a letter to the editor of Tax Notes International, long-time practitioner Peter Faber responds to the commonly voiced opinion that the use of formulary apportionmentwould eliminate the expensive and time-consuming disputes involving transfer pricing that arise under the present system.

For the letter, go here. (Subscription required.)

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Designing a US exemption system for foreign income when the treasury is empty

In an article published in the Florida Tax Review, Professors J. Clifton Fleming Jr., Robert J Peroni, and Stephen E. Shay present their proposal for a US territorial or exemption system thatwould raise revenue to help ease the deficit problem.

For the article, go here.

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Corporate and international tax reform: proposals for the second Obama Administration (and beyond)

In a University of Michigan Public Law Research Paper thatwill be published in the Pepperdine Law Review, University of Michigan Law School Professor Reuven S. Avi-Yonah presents some long-, medium-, and short-term proposals for corporate and international tax reform in thewake of the passage of the American Taxpayer Relief Act of 2012.

For Professor Avi-Yonah's paper, go here.

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The globalization of corporate tax reform

In a UCLA School of Law Law-Econ Research Paper to be published in the Pepperdine Law Review., UCLA School of Law Professor Steven A. Bank discusses the importance of international corporate tax reform efforts to corporate tax reform in the US.

For Professor Bank's article, go here.

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India delays implementation of GAAR rule until 2016

Indian Finance Minister P Chidambaram has confirmed that the major recommendations of the expert general anti-avoidance rule (GAAR) committeewill be accepted and that GAAR implementationwill be deferred by two years to April 2016.

Foreign investors are cheering the news,which sees the legislative change pushed back from its original implementation date of April 1, 2014.

For the article, go here.

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Numerous technical changes modernize US-Spain tax treaty, Treasury official says

A new tax treaty protocol between the United States and Spain substantially changes the existing treaty's dividends rules, a Treasury Department official said Jan. 15, a day after the amended documentwas signed.

“We have adopted an exemption for certain direct dividends and the definition of direct dividendwill not be surprising to anybody familiarwith other bilateral tax agreements signed by the United States, said Henry Louie, deputy to the U.S. Treasury International Tax Counsel.

For the article, go here. (Subscription required.)

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Repatriated earnings: a carrot, stick, and cabbage approach

Writing in Tax Notes, Professors John O. Everett, Cherie J. Hennig, andwilliamA. Raabe present a new approach to taxing repatriated earnings.

To read the article, go here. (Subscription required.)

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Consequences of the new UK tax exemption system: evidence from micro-level data

In a June 11 paper, Professors Peter Egger, Valeria Merlo, Martin Ruf, and Georgwamser examine the effects on the foreign affiliates of UK-owned multinational firms of the UK's shift fromworldwide taxation to a territorial system.

For the paper, go here.

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Permanently reinvested earnings and the profitability of foreign acquisitions

In a University of Toronto Rotman School of Managementworking paper, Professors Alexander Edwards, Todd Kravet, and Ryanwilson examine the effects of current U.S. tax laws underwhich the U.S. government charges additional corporate taxes upon repatriation of foreign earnings that create an incentive for some U.S. firms to avoid the repatriation of foreign earnings.

For the paper, go here.

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The hollowing out: the future of joblessness in the US

Writing in the New York Times Campaignn Stops blog, Thomas B. Edsall comments onwhat he sees as the most important issue facing the United States: the hollowing out of the employment marketplace, the disappearance of mid-level jobs.

For Edsall's column, go here.

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Corporate tax avoidance: the price isn't right

The Economist's Schumpeter business and management blog comments on the Senate Permanent Subcommittee on Investigations hearing on corporate tax avoidance.

For the article, go here.

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Taxation trends in the European Union

  • By European Commission
The European Union reported on May 21 that VAT rates in the EU have continued a steady rise since 2008,while top corporate and individual rates have inched up after a long decline.

For the EU press release, go here.

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European Commission releases summary report of responses received on double non-taxation cases

  • By European Commission
The European Commission Directorate-General Taxation and Customs on July 5 released a summary report of the responses it received from the public in response to its February request for factual examples of, and possibleways to tackle, double non-taxation cases.

For the report, go here.

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The internal market: factual examples of double non-taxation cases

  • By European Commission
In a staffworking paper, the European Commission Directorate-General Taxation and Customs has asked the public for contributions of factual examples of, and possibleways to tackle, double non-taxation cases.

The EC is launching this fact-finding public consultation in order to establish evidence concerning double non-taxationwithin the EU and in relationwith Third Countries.

For the paper, go here.


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OECD's fight against income shifting -- and for its global role

Michael C. Durst, a former director of the IRS advance pricing agreement program, provides background to an anticipated vigorous debate between OECD officials and multinational business interests regarding proposed changes to the OECD transfer pricing guidelines governing the taxation of income from intangibles.

For Durst's article, go here. (Subscription required.)

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EU Tax Commissioner says Member States must embrace tax reforms to aid recovery

European member states must adopt prescriptive tax policy changes in their annual budgets to boost economic recovery and to facilitate a new economic governance scheme designed to overcome the fiscal and competitiveness gaps that have contributed to the euro zone sovereign debt crisis, European Taxation Commissioner Algirdas Semeta said Jan. 11.

Speaking in advance of a crucial periodwhen the “European Semester is due to begin, Semeta said the prescriptive tax reforms, outlined in November, should be adopted in the coming months as European Union member states draw up their annual budgets.

For the article, go here. (Subscription required.)

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UK parliamentary committee advocates adoption of country-by-country reporting

A United Kingdom House of Commons Committee has recommended that the government enact legislation thatwould require U.K. multinational corporations to report their financial information on a country-by-country basis in order to help expose tax evasion in developing countries.

The Commons' International Development Committee, in a Aug. 23 report, Tax in Developing Countries: Increasing Resources for Development , concluded that the United Kingdom should unilaterally adopt country-by-country reporting irrespective ofwhether agreement is reached at the European Union level, butcontinue to support the progress of similar legislation at EU level.

For the article, go here. (Subscription required.)

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UK move to territorial system driven by struggling British economy, top official says

The United Kingdom's move to a territorial tax system and other reforms stemmed from the nation's effort to shore up a struggling economy in the face of heavy competition from its European neighbors, a top British tax official said Sept. 27.

The comments from U.K. Exchequer Secretary to the Treasury David Gauke came as part of a discussionwith a panel of tax expertswho framed the difficult days ahead for U.S. tax reform efforts.

For the article, go here. (Subscription required.)

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Governments want to close tax loopholes but risk scaring off big foreign investors

In April 1961, a newly elected President John F. Kennedy launched an offensive against a phenomenon that he feared could undermine Americas future: aggressive tax avoidance.

In a message to Congress, he railed against the unjustifiable use of tax havens by growing numbers of businesses to slash their tax liabilities at home and abroad.

More than 50 years on, the political rhetoric seems to be identical, echoing Kennedys broadside against artificial arrangements. Once again, businesses are under fire for using corporate structures that shift profits to low-tax jurisdictions.

For the article, go here.


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Swedish budget plan details new interest deduction limits

Multinationals and large businesses should take note of new rules thatwill significantly tighten interest deductibility on intracompany loans.

Announced September 20 as part of the nation's 2013 budget plan, the new rules follow a September 13 government proposal designed to cut corporate taxes by 4.3 percent,which is to be partly funded by the tightening in interest allowances.

Under the new rules, interest deduction limitations are extended to cover all group company loans, and restrictions on loans deemed to have been made for tax purposeswill apply regardless ofwhether an existing 10 percent tax threshold is met.

For the article, go here. (Subscription required.)

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Singapore develops tax policies in effort to attract intellectual property

Singapore has implemented a series of innovative tax policies for developing itself as an intellectual property (IP) hub in Southeast Asia that focus on attracting industries such as biomedical, interactive and digital media, and clean energy, PricewaterhouseCoopers (PwC) analysts said in a Sept. 20webinar broadcast from Singapore.

Sunil Agarwal, an international tax partner at PwC in Singapore, said companies are increasingly setting up Singapore principal entities to take advantage of these tax incentives and allowances.

“Singapore is certainly one of the most favorable places for undertaking headquarter and IP activities, Agarwal said. “Over the next few years, many more entitieswill be housing their regional or global IP activities in Singapore.

Agarwal said companies that arewilling to own IP in Singaporewill have a much better bargaining position [with Singapore authorities] and are able to negotiate a much more favorable incentive package.

For the article, go here. (Subscription required.)

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UK House of Commons debates corporate tax avoidance

The UK House of Commons on Monday, January 7, held a debate on corporate tax avoidance. The debatewas a response to the increase in public awareness of multinationals' transfer pricing practices brought about by the Public Accounts Committee investigation of several high-profile companies last year.

For the article, go here. (Subscription required.)

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US Senate committee says reforms needed to stop tax avoidance by multinationals

The Senate's Permanent Subcommittee on Investigations released a memorandum September 20 urging strong reforms to accounting rules and tax provisions that it says allow many major multinational corporations to avoid paying U.S. income taxes.

The memorandum, issued by Carl Levin (D-Mich.), subcommittee chairman, and ranking member Tom Coburn (R-Okla.), recommended reform of tax code Sections 482 and 956 to end certain transfer pricing and offshore loan practices. They urged the Internal Revenue Service to make greater use of its anti-abuse rules to stop offshore schemes.

Financial Accounting Standards Board policies that allow multinationals to manage their earnings by avoiding the reporting of U.S. tax liabilities for foreign profits under APB 23 should also be changed, the subcommittee leaders said.

For the article, go here. (Subscription required.)

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Repeal business tax preferences as trade-off for lower corporate rate, US Treasury official says

Repealing most tax preferences except those that have strong and observable spillover benefits that affect the rest of the economy would be the first step in accomplishing tax reform that includes lowering the statutory corporate tax rate in a revenue neutral manner, a Treasury Department official said December 7.

Exceptionswould include research and development credits, manufacturing preferences, and investments in clean energy, said Mark Mazur, assistant secretary for tax policy.

For the article, go here. (Subscription required.)

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OECD draft on intangibles moves toward dictating business structures, US Treasury official says

A U.S. Treasury official questioned about the Organization for Economic Cooperation and Development's recent draft on intangibles Oct. 18 agreedwith practitioners that the document reflects a significant move toward dictating a company's business structure.

David Ernick, associate international tax counsel with Treasury, said the draft at paragraph 40does go very far towards dictatingwhat the business arrangement should be. He said the United States and other countries have raised serious concerns about that aspect of the document, and said OECD isvery open to changes in the next draft.

For the full article, go here. (Subscription required.)

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OECD revises permanent establishment discussion draft, adds third criterion

The Organization for Economic Cooperation and Development announced a revised discussion draft. Oct. 22 that adds a third criterion to theat the disposal of test for permanent establishment in its Model Tax Treaty.

The revised discussion draft, dated Oct. 19, would amend an earlier proposal for amending the commentary on the PE article. The previous discussion draft, issued Oct. 12, 2011, proposed adding the following language to paragraph 4.2 of the Article 5 Commentary:

Whether a location may be considered to be at the disposal of an enterprise in such away that it may constitute a place of business throughwhich the business of [that] enterprise is wholly or partly carried on'will depend on the extent of the presence of an enterprise at that location and the activities that it performs there.

The revised discussion draft proposes adding to paragraph 4.2 a third criterion that the enterprisehav[e] the effective power to use that location in order for a finding that the location isat the disposal of the enterprise.

For the full article, go here. (Subscription required.)

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