Int'l Tax News

The USwill delay imposing tariffs on $1.3bn of French goods in response to the country's digital services tax, heading off an escalation in transatlantic trade tensions just ahead of Joe Biden's inauguration.

The UK tax authority has opened multiple criminal investigations after probingwhether large companies arewrongly paying less UK tax as a result of their cross-border financialarrangements.

A growing body of economics literature shows thatmultinationalcorporations(MNCs) shift their profits totaxhavens. The authors contribute to thisevidenceby comparing a range of available data sets focusing on US MNCs, includingcountry-by-countryreporting data released in December 2018 for the first time.with each of the datasets, the authors analyze the effectivetaxrates that US MNCs face in eachcountryandthe amount of profits they report. Usingcountry-by-countryreporting data, the authors established that lower effective corporatetaxrates are associatedwith higher levels of reported profitswhen comparedwith different indicators of real economic activity. This corresponds to the notion that MNCs often shift profits to countrieswith low effectivetaxrates –without also shifting substantive economic activity. The authors identify the most importanttaxhavens for US MNCs as countrieswith both low effectivetaxratesandhigh profits misalignedwith economic activity.

By: Stephanie Soong Johnston

As major disagreements persist among governments and the business sector about the OECD's global tax reform project, it may be time for countries to mull striking a limited deal by mid-2021, Business at OECD said.In a lengthy December 14 comment letter, the group noted its members had difficulties agreeing on the design details of two OECD blueprints outlining proposals to modernize the corporate tax system for an increasingly digital and globalizedworld.

Johnson & Johnson has proposed a simpler design for a key element of the OECD's global tax reform project that could avoid disputes aboutwhich companies are in and out of scope of the rules.

A proposal by two prominent German politicians to tax online purchases to fund relief for traditional brick-and-mortar stores hurt by COVID-19 has drawn criticism from the country's largest association of retailers

A member of the European Parliament (MEP) is calling for more cooperation among national tax authorities in sharing information about online sales platforms such as Amazon, eBay, Airbnb, and Uber.

Despite the OECD's best efforts to convince countries to sign off on proposals to tax the digital economy ÔøΩ during a pandemic, no less ÔøΩ a deal remains elusive, awaiting signals from the Biden administration in 2021.

Detente is ending in the global fight over tech taxes. Earlier this year, France agreed to suspend collection of a tax on digital revenue from large technology companies such as Facebook Inc., Amazon.com Inc. and Alphabet Inc.'s Google. Meanwhile, the U.S. delayed the application of tariffs itwas putting on French goods in retaliation for the tax.

Negotiators are strugglingwith how to prevent multinationals from being hitwith a double tax under an OECD-led effort to set a global minimum rate, a U.K. official said.The interaction of the plan's minimum rate and the U.S.'s global intangible low-taxed income rules have been a major concern for U.S. companiesworried about the extra tax hit and compliance issues they could face if subject to both sets of rules.

Substantive progress on tax and digitalization faces many obstacles and doesn't look promising aswe enter 2021.will Morris examines the challenges, considers the possible outcomes, and concludes that aworkable (and improvable) multilateral agreement is preferable to a free-for-all of DSTs, tariffs, and revenue grabs.

Next year signals a potential reboot of parts of the OECD-led effort to overhaul global tax rules as negotiators try to hammer out the final details of a deal. The pandemic and political disagreements derailed efforts to get 137 countries to agree to a plan in 2020 thatwould change how andwhere multinationals are taxed and set a global minimum tax rate.

Next year signals a potential reboot of parts of the OECD-led effort to overhaul global tax rules as negotiators try to hammer out the final details of a deal. The pandemic and political disagreements derailed efforts to get 137 countries to agree to a plan in 2020 thatwould change how andwhere multinationals are taxed and set a global minimum tax rate.

The current Treasurywill likely try to finalize certain international regulations stemming from the Tax Cuts and Jobs Act regulations before Jan. 20 to avoid having them pulled by the new administration,writes Doug Poms of KPMG. The author also looks atwhat a new Treasury may do, such as reinstating a tradition of providing legislative proposals (often referred to as Green Book proposals) alongwith its annual proposed budgetÔøΩincluding suggested legislative changes to international tax provisions.

The European Unionwill have two main tax policy priorities in 2021ÔøΩfinding away to tax the digital economy and using taxation to meet the bloc's goal of cutting greenhouse gas emissions to net-zero by 2050.

We estimate that 33 of the 100 largest U.S. companies could be subject to President-elect Joe Biden's proposed corporate minimum tax and pay a total extra tax of $20 billion annually if that proposalwere enacted as stand-alone legislation. Because the president-elect has proposed other significant tax increases on U.S. corporations, the effect of the proposed minimum taxwould likely be much less.

As major disagreements persist among governments and the business sector about the OECD's global tax reform project, it may be time for countries to mull striking a limited deal by mid-2021, Business at OECD said.

Johnson & Johnson has proposed a simpler design for a key element of the OECD's global tax reform project that could avoid disputes aboutwhich companies are in and out of scope of the rules.

A Chinese securities regulator said the government should conduct an in-depth study to determinewhether a digital services tax based on the concept that users create value should be implemented.

Countries like France, Switzerland, and India are among the jurisdictions that haven't adopted the OECD's approach to assessing hard-to-value intangible assets. More than half of the 40 countries surveyed haven't implemented the Organization for Economic Co-operation and Development's recommendations, according to an update releasedwednesday.

A number of tech giants, including Microsoft Corp., Spotify AB, and Netflix Inc., are calling for negotiators to require countries to abolish their own digital tax plans as part of an OECD agreement.

The OECD's Pillar One Blueprint, released on Oct. 12, 2020, proposes to redistribute the taxable income of multinational enterprises (MNEs) away from jurisdictions that are home and host to MNEs to the marketswhere MNE products are sold. In the second article of a three-part series, Lorraine Eden examines the OECD's Economic Impact Assessment (EIA) of the Pillar One Blueprint, outlining the complexity and data problems faced in performing the assessment. The article highlights the key roles played by Global In-Scope Destination-based Sales (component C) and Global Residual In-scope Profits (component E) in determining the reallocation impacts of Pillar One. Estimates of the gap between components C and E are used to explore the likely jurisdictional impacts of Pillar One at a more fine-grained level than in the EIA.

Filippa Jörnstedt of Sovos considers the experience of Italy in introducing a digital tax control regime and discusses how the success of the new regime has improved tax administration and revenues.

Comments on the OECD's pillars 1 and 2 blueprints for addressing the taxation of the digitalized economy are due December 14,with a public consultation to be held in mid-January. Expect the OECD to receive hundreds, if not thousands, of pages of comments, most ofwhichwill focus on technical problems posed by the suggested measures. For pillar 1, those include the challenges associatedwith scope thresholds and segmentation, the formula and mechanics for allocating profits (amount A) to market countries, and the prevention of double taxation. Pillar 2 issues include the calculation of the proposed global anti-base-erosion minimum tax and associated backstops, aswell as requests for carveouts.

Contrary to the time-honored goal of Congress and presidents to promote U.S. manufacturing, the deduction for foreign-derived intangible income directly subsidizes the export of U.S. production know-how, and in some circumstances it favors foreign over domestic manufacturing.

Nearly five years after proposing new reporting requirements for multinationals, the European Commission appears poised to advance talks on tax transparency.

The 53 members of the OECD Forum on Tax Administration have issued a communiqué after their December 7-8 virtual meeting, highlighting their newly agreed 2021 tax administration agenda, including moving the international compliance assurance program out of the pilot phase and into an established program between tax administrations.

More than 50 tax administrations say a joint international tax risk assurance program can move beyond the pilot stage, and the IRSwill be among those thatwill stickwith the initiative in 2021.

The OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes is calling for more progress on beneficial ownership transparency,with some members proposing sanctions to motivate more countries to implement uniform standards.

The OECD has refreshed its capacity-building programwith a new strategy to assist developing countries in implementing exchange of information (EOI) and transparency measures to combat tax evasion and other illicit financial flows.

Members of the European Parliament adopted a resolution thatwould make adding or striking a country from the EU list of tax havens a more transparent, consistent, and impartial process, according to a December 10 release.

The OECD's transparency body has released its second round of peer reviews. Cyprus improved regarding accuracy of reported information and timeliness of requests, the review found, noting a 58 percent increase in requests from 2016.

The Senate cleared a defense billwith provisions giving the government power to illuminate ownership structures of shell companies that facilitate tax evasion and money laundering and sent it to the president's desk.

As the nation is experiencing the need for ever-increasing government expenditures to address COVID-19 disruptions, rebuild the nation's infrastructure, and many otherworthy causes, conventional thinking calls for restoring at least a portion corporate taxes eliminated by the 2017 Tax Cuts and Jobs Act, especially from progressive circles. In thisworking paper, Edward Lane and L. Randallwray examinewho really pays the corporate income tax and argue that it does not serve the purposes most people believe.

The authors analyze the initial corporate response to the 2017 enactment of TCJA. Based on sample of U.S. corporate tax returns, the authors find that corporations accelerated deductions into 2017 and delayed income into 2018, thereby minimizin their taxes. Based on a study of the detailed tax returns of 81 large corporations, the authors estimate an income and deduction shiftin tax elasticity of -0.11 and 0.08, respectively.

American progressives call for higher corporate and personal taxes. Conservativeswant no tax increases. Given that President-elect Joe Biden's "green energy" plan requires a robust American manufacturing sector,we need a more nuanced tax scenario. The Biden campaign proposal to increase the nation's corporate tax rate to 28 percentwould leave that rate below pre-Trump corporate tax levels but still put the United States above most European rates and leave American manufacturing at a competitive disadvantage.

New U.S. leadership could open up stalled talks on a digital tax overhaul, an OECD official said. "We're hoping now,with a new administration coming in,we can have a bit of a restart and fresh start to close these discussions and address these key issues," said Grace Perez-Navarro, deputy director of the Center for Tax Policy and Administration at the Organization for Economic Cooperation and Development.

A planned U.N. model treaty measurewill help discourage countries from taking unilateral action on digital taxes, one of its authors said. The U.N. aims to update its model tax treaty to allow countrieswith certain domestic digital tax plans to agree on such measureswith treaty partner countriesÔøΩknown as 'Article 12B'. It's intended to offer developing countries a simple solution for taxing digital activity.

The election of Joe Biden to be the next president of the U.S. has given new hope to European government officialswho are pushing for a global agreement thatwould enlarge the taxing rights of market countrieswith respect to the profits of highly digitalized nonresident businesses. The Trump Administration, like the Obama Administration before it, evinced little enthusiasm for the project,whichwould hit U.S.-based multinationals in the technology sector hardest.

The U.K. government is considering toughening up tax rules on activities in the sharing economy, such as rideswith Uber Technologies Inc. or bookings made on Airbnb Inc., in a bid to raise more revenue and create a "level playing field" for businesses. In a consultation document publishedwednesday, the Treasury said it is reviewing how value-added tax is applied in the sector, because traditional businesses are more likely to be hit by the levy compared to thosewhich are more digitally focused.

WASHINGTONÔøΩA Trump administration regulation that cut the tax bills of companies such as Philip Morris International Inc. and Sealed Air Corp. could be poised for reversal in 2021 as the Biden administration tries to deliver on its campaign promise to raise taxes on corporations.The rule,which gives some corporations a path out of a U.S. minimum tax on foreign earnings, has drawn criticism from progressives, including Sen. Ronwyden of Oregon, the top Democrat on the Finance Committee.

The EUwants to resolve trade conflictswith the United States andwork together on taxation of the digital economy, according to the European Commission's new transatlantic agenda.

The COVID-19 pandemic has accelerated the digitalization of the global economy, but Canada's Department of Finance said it has a plan for taxing digital giants even ifwork at the OECD fails to produce a consensus.

The EU might adopt a digital tax thatwould be compatiblewith a future OECD solution, a European Commission official said.

French Finance Minister Bruno Le Maire said he believes all the elements are there to reach an international agreement on digital taxation and a corporate minimum tax, and his German counterpart also appeared hopeful.

While the incoming Joe Biden administration may be contemplating changes to recent Tax Cuts and Jobs Act guidance, competing pressures and procedural hurdles mean that modifications to some high-profile rules are far from guaranteed.

France hopes to get clarification from the incoming Biden administration about the U.S. position on digital taxation ahead of a key European Council meeting in March 2021, a French finance ministry source said.

Francewill restart collection of its digital services tax as global tax reform talks miss a key 2020 deadline, but a U.S. lawmaker says the United Stateswill defend itself against the DST and similar taxes.

Boris Johnson has raised the prospect of business tax cuts next year in an attempt to revive the Covid-ravaged British economy, even as chancellor Rishi Sunak looks to increase taxes to repair the public finances.

Although countries missed their original deadline to reach agreement on a global tax reform, leaders of G-20 countries vowed to stickwith the project, urging continuedwork toward an agreement by mid-2021.