Int'l Tax News

The U.S. Trade Representative's recommendation to impose tariffs on French imports in response toFrance's digitalservices tax has received mostly positive reviews from U.S. companies,whichwant amultilateral solution to digital taxation.

French Finance Minister Bruno Le Mairewarned that his governmentwould immediately go to theWTO to fight anysanctions imposed by the United States,which found that France's digital services taxdiscriminates against U.S. companies.

Mindy Herzfeld discusses the recently released final section 59A regs, saying Treasury's explanationsfor granting some taxpayer requests and not others aren't logical.

The author's research describes the plausible magnitude of US revenue loss due to profit shifting, building on recent developments in the literature aswell as new country-by-country data on US multinational companies in 2016. In the past, the most complete data sources have all shown large magnitudes of profit shifting, suggesting substantial revenue losses in non-haven countries.This research note uses recently released country-by-country tax data to estimate plausible benchmarks regarding the scale of profit shifting, finding that profit shifting is likely to be costing the US government about $110 billion a year in 2016 (at 2016 tax rates).The author concludes thatwhile much can be done to refine these estimates and learn more about the scale of the problem, the problem remains unambiguously very large.

Judge Albert G. Lauber of the U.S. Tax Court ruled that the U.S.-U.K. tax treaty protecting certain British enterprises from U.S. federal income taxes does not protect the U.K. company from the IRS increasing its taxable income by nearly $50 million.

In the last two years, dozens of governments have proposed or introduced unilateral tax measures to tax foreign-based technology companies. The new tax innovations include specialwithholding taxes, diverted profit taxes, minimum taxes, and digital services taxes. The rise of these unilateral measures threatens an international tax 'war' among governments that could stiflenew business models or even the spread of the global digital economy. This article reviews how international reform efforts have failed to constrain aggressive international tax planning and how the global digital tax conflict masks a growing dissatisfactionwith how to tax value associatedwith global transactions.The author concludes thatacoordinated solution that creates an economic presence test (a Quantitative Economic Presence Permanent Establishment) and modifies how tax revenues are divided between countries (e.g., the Residual Profit Split by Income proposal) is the bestway to address these global developments.

Officials to hold talks to head off new round of US trade sanctions

Internet company to consolidate all of its intellectual property in the US

Austria's coalition government has announced a four-year program that calls for a corporate tax cutfrom 25 percent to 21 percent, aswell as a revised goal of climate neutrality by 2040.

Although tax avoidance by multinationals has become an international political priority, it remainsunclearwhether anti-profit-shifting measures are economically beneficial for either high-tax or low-taxcountries, according to an IMFworking paper.

The OECD isworking at a breakneck pace to find a multilateral solution to update the internationalcorporate tax rules for the digital age, and going into 2020, the stakes for thatwork have never been higher.

The outlook for U.S. tax treaties and the OECD multilateral instrument in 2020 seems uncertain,particularly in light of the stormy international trade climate among major trading nations, practitioners say.

Automatic exchanges of jurisdiction-based reports that multinational companies file about their tax activitiesworldwide are an unintended outcome of pro-transparency efforts that may inundate tax administrationswith confusing data, the Organization for Economic Cooperation and Development has said.

An abrupt about-face by the U.S. on an international project to overhaul the global tax system has revealed deep divisions among American businesses over the proposal,which could hike their foreign taxes.

States' slow responses to the 2017 federal tax overhaul's provisions on taxing international income have created uncertainty that hampers growth, the Tax Foundation said Thursday in a report that also criticized certain states' partial adoption of the overhaul.

Austria's finance minister has told his German counterpart he can't support Germany's plan for a financial transaction tax, presenting a potentially serious roadblock to efforts by 10 European Union countries to reach agreement on the tax.

U.S. multinationals have repatriated over $1 trillion since Congress overhauled the revenue code in late 2017 to let companies bring home their offshore earnings tax-free after a one-time payment, according to data released Thursday by the U.S. Commerce Department.

The U.S. Treasury Department is consideringwhether to retroactively apply a new high-tax exception to global income, a government official said Thursday.

Sunday marks two years since the GOP's Tax Cuts and Jobs Act sped through Congresswithout a single Democratic vote, and lawmakers are still arguing over the law's impact on federal budget deficits, economic growth and business investments.

The European Parliament advanced a resolution on December 18 to adopt an EU standard to tax digital companies in case the OECD fails to find consensus on its global approach.

Although 2019 delivered two highly anticipated Ninth Circuit decisions in transfer pricing cases,disputes concerning intangible valuation and differing interpretations of the arm's-length standard appearpoised to continue unabated in 2020

EU finance ministers are expected to discuss international reform of digital taxation during anEconomic and Financial Affairs Council meeting in January 2020

Mindy Herzfeld analyzes the various factors that threaten the future of today's international taxregime

A growing empirical literature has documented significant profit shifting activities by multinationals. This paper looks at the impact of such profit shifting on real activity and tax competition. Real activity can be affected as profit shifting changesÔøΩand theoretically most likely reducesÔøΩthe cost of capital. Tax competition, even over real capital, is affected, because a permissive attitude toward profit shifting can be seen as a selective tax reduction for multinationals. Tightening profit shifting rules, in turn, can affect tax competition through the main rate. This paper discusses these issues theoretically andwith the help of a simulation to assess the impact of profit-shifting on investment, revenues, and government behavior. Using the theoretical framework, it also provides a brief overview of the related empirical literature.

The authorsanalyze the impact of the exchange of information in tax matters in reducing international taxevasion between 1995 and 2018. Based on bilateral deposit data for 39 reporting countries andmore than 200 counterparty jurisdictions,theyfind that recent automatic exchange of information frameworks reduced foreign-owned deposits in offshore jurisdictions by an average of 25 percent. This effect is statistically significant and, as expected, much larger than the effect of information exchange upon request,which is not significant.To test the sensitivity oftheirfindings,theyestimatedcountries' offshore status and the impact of information exchange simultaneously using a finite mixture model. The results confirmedthat automatic (and not upon request) exchange of information impacts cross-border deposits in offshore jurisdictions,which are characterized by low-income tax rates and strong financial secrecy.

The United Stateswants an OECD global tax overhaul proposal to apply to "scalewithout mass" digital companies and torestrict the number of countries that can collect taxes paid on those companies' residual profits.

After a 15-month OECD review of Brazil's unorthodox transfer pricing system identified significant double taxation andbase erosion risks, Brazilian officials have announced plans to gradually align the country's regime fullywith OECD standards.

As much as 40% of international corporate investments are actually going into shell companieswith no real connection to local economies, according to a newworking paper released by the International Monetary Fund.

The Mexican government has set out to reform the tax system to include the OECD's recommended limits on interest deductibility in accordancewith BEPS Action 4. Mexican tax reformwill define 2020.

The OECD's global anti-base erosion (GloBE) proposal under pillar two is broader than taxpayers expected. It risks over-complicating international tax before the impact of the BEPS project settles in.

Anglo-Dutch corporate group Unilever has called for the OECD to link its digital tax proposals to the UN's sustainable development goals.

The OECD has embarked upon an ambitious project to redistribute taxing rights around theworld in a bid to avoid more unilateral action. Here Pascal Saint-Amans makes the case for the unified approach to pillar one.

The Conservative Party haswon the 2019 general election. Paul Falvey, of BDO U.K., discusseswhat this means for U.K. taxes. How boldwill the new government be?

Brazil needs to do more to stop multinational companies from shifting profits offshore and to align its tax systemwith the rest of theworld, the OECD and the country's tax authority said.

European Union lawmakerswant member countries to adopt a united position ahead of Organization for Economic Cooperation and Development talks to reform the international tax system for multinational companies.

Suranjali Tandon of the National Institute of Public Finance and Policy, New Delhi, looks at the OECD Secretariat's "unified approach,"with a focus on the stancewhich has been taken by India so far, and the potential elements of the approachwhich may not be acceptable to India.

The U.S.wants the OECD's plan to revamp global tax rules to apply to more companies, but limit the countries that can tax them, a Treasury official said.

The IRSwants to know how it can help companies that are looking to unwind pre-tax law transactions to bring intangible property back to the U.S., according to a top agency official.

Corporations have brought back more than $1 trillion of overseas profits to the U.S. since Congress overhauled the international tax system and prodded companies to repatriate offshore funds, a report showed Thursday.

By Jennifer Blouin and Leslie A. Robinson

Putting an end to the base erosion and profit shifting (BEPS) activity of multinational enterprises (MNEs) is on the national agenda of nearly every country in theworld.while many influential papers suggest that the scope and magnitude of the BEPS problem is quite large,we show that these magnitudes are likely overstated due to the accounting treatment of indirectly-owned foreign affiliates in the BEA's U.S. international economic accounts data.we explain how this accounting treatment leads to double counting of foreign income and to misallocations to the incorrect jurisdiction.we demonstrate an appropriate correction, and show that the correction significantly reduces the magnitude of the BEPS estimates. For instance, our correction reduces an estimate of the U.S. fiscal effects of BEPS from 30-45% to 4-15% of corporate tax revenues lost to BEPS activity of MNEs (Clausing 2016). Ourwork has far-reaching implications, as the U.S.' national statistics have a unique accounting convention that can make comparisons of the U.S. national statistics to those of other countries difficult to interpret.

By David Elkins

Neutrality plays a central role in the literature on international taxation. In its most prevalent form, the concept of neutrality posits that in order to maximize aggregate globalwelfare, capital needs to flow towhere itwould produce the highest pretax return. The thesis of this Article is that neutrality is ordinarily inapplicable in the field of international taxation.

Ninety-one of America's biggest firms paid no federal taxes, the report found.

Carrie Elliot describes how final regulations narrow the Subpart F-related definition of related persons and the applicationof active rents exception for CFCs payments to property owners.

The OECD continuesworking on economic analysis and impact assessments of the pillar 1 and pillar 2 proposals thatcountries are considering and hopes to start publishing some findings in early 2020.

Mindy Herzfeld examines alternatives to the OECD's pillar 1 proposal following a stepping back from the process by the United States