The United Nations on October 2 released an updated version of its Practical Manual on Transfer Pricing for Developing Countries. On October 15, the UN Committee of Experts on International Cooperation in Tax Matters (the Subcommittee) approved the current unedited version of the UN Transfer Pricing Manual and approved a one-month period for receiving nonsubstantive comments.
For discussion, go here.G-8 to Fight Tax Evasion -- Proposals Call for Changes in Laws to Stop Companies From Shifting Profits Across Borders
By Ainsley Thomson & John McKinnon (Wall Street Journal)
The Group of Eight leading industrialized nations agreed to proposals to tackle tax avoidance and evasion that call for new laws to stop businesses from shifting profits across borders and urge greater transparency about company ownership.
Tuesday's action reflected growing momentum among the largest economies for joint action to shore up their sometimes-leaky tax systems and shine more light in an often-murky area.
But the agreements were short on specifics and will require lengthy and difficult negotiations to implement, both for G-8 members and other countries as well. Some activists criticized the G-8 for not going further, particularly on multinational businesses that often pay relatively low taxes thanks to porous rules.
For the story, go here.3M Could Succeed in Legal Challenge of Transfer Pricing Regulation, Practitioner Says
By Kristen A. Parillo (Tax Analysts; Tax Notes Today)
If the Tax Court follows recent Supreme Court case law on regulatory deference, technology company 3M Co. could succeed in its legal challenge of a 1994 Treasury regulation that permits the IRS to make a transfer pricing reallocation without regard to foreign legal restrictions, a practitioner said June 14.
For the story, go here. (subscription required.)G8 leaders seek common ground on tax
By Lindsay Whipp and Jim Pickard (Financial Times)
Prime Minister David Cameron will lead a key discussion on tax evasion and avoidance on Tuesday, as Group of Eight leaders tackle an important but complex issue on which progress can be slow moving.
While international leaders agree on the need to tackle evasion and increase transparency, it is more difficult for them to find a single voice over how to change tax rules to counter avoidance. This is partly due to the complicated nature of tax legislation across the globe, but also because G8 countries are essentially competing for tax dollars and inward investment in a post financial-crisis world of high government debt and slow growth.
The aim is to form action plans to increase transparency and make headway on automatic information exchange, ahead of the Group of 20 meeting in September at which members are expected to agree concrete steps to tackle profit shifting by multinationals.
For the story, go here.Osborne raises hopes of G8 tax deal
By Jim Pickard, Chief Political Correspondent (Financial Times)
George Osborne has raised the hopes of an imminent G8 deal on tax as he declared that there had been rapid progress in talks over a new register that would show the ownership structures of companies.
The British government has said it is leading the way on transparency by creating a central register of company ownership, although it is still unclear whether this will be opened up to the public or just to the tax authorities.
The UK is trying to persuade all the other G8 countries to sign up to the action plan on beneficial ownership, an attempt to shine a light into the often opaque ownership structures in the business world.
For the story, go here.Backing for tax and secrecy crackdown
By Vanessa Houlder (Financial Times)
UK Prime Minister David Cameron did not hold back on the superlatives on Tuesday afternoon when he declared a historic advance had been made at the Group of Eight summit with the potential to rewrite the rules on tax and fight the scourge of tax evasion.
For the story, go here.G8 seeks rewrite of global tax rules
By George Parker and Vanessa Houlder in Lough Erne (Financial Times)
G8 leaders tried to plug the holes in their public finances with a sweeping commitment to shake-up international corporate tax rules, including a new crackdown on tax evasion and the shadowy owners of shell companies.
The leaders of eight of the worlds biggest economies signed a 10-point Lough Erne Declaration that calls for tax authorities around the world to automatically share information. It also urges countries to change the rules that let multinational companies shift profits across borders to avoid taxes and require them to report what tax they pay where.
For the story, go here.Camp Signals Support for 15% Foreign Patent Income Rate: Taxes
by Aaron E. Lorenzo (Bloomberg)
For companies with a lot of foreign income from intangible products like patents, Dave Camp has a carrot-and-stick approach to overhauling the tax code.
Camp, the top Republican tax writer in the U.S. House of Representatives, says putting a rate of 15 percent on all foreign income from intellectual property rights and intangibles would limit revenue erosion when Congress pursues broad tax reform, Bloomberg BNA reported.
For the story, go here.Foray into global tax fraught with challenges
By James Politi in Washington (Financial Times)
US business groups have been opposed to even the smallest foray into the kind of country-by-country tax reporting debated by Group of Eight leaders, highlighting the challenges in implementing such provisions even·ifagreementis reached in Northern Ireland.
A key plank of the G8 agenda to boost tax transparency by multinationals has been to force them to at least disclose how much tax they pay in each country.
The EU and the US have taken steps in that direction with regard to oil, gas and mining companies, but applying these requirements to all sectors is expected to be resisted across the corporate world.
In the US, the provision requiring country-by-country reporting in the energy sector, buried inside the Dodd-Frank Wall Street reform bill enacted three years ago, has been the subject of a legal challenge and lobbying to kill it before it takes effect next year.
For the story, go here.Why we need to simplify our corporate tax system
by Eric Schmidt (Financial Times)
The G8 is the forum to decide on the complex issue of company fiscal reform, says Eric Schmidt
As the leaders of the worlds largest economies descend on beautiful, blustery Lough Erne, their briefings will doubtless be packed with different ideas for international tax reform. Todays rules are fiendishly complicated and everyone would benefit from a simpler, more transparent system. That is why we have been encouraging a broader debate at the level of the Group of Eight leading economies and the Organisation for Economic Co-operation and Development.
For the commentary, go here.Editorial: The world needs global tax reform -- G8 leaders must continue their work beyond the summit
As leaders of the Group of Eight leading economies gather in Northern Ireland, David Camerons welcome initiative to reform global corporate tax rules may still fall short of definitive success. All the more reason for governments to push on after the summit, together and at home.
For the editorial, go here.Cameron under pressure to push for G8 tax transparency deal
By Vanessa Houlder and George Parker in London (Financial Times)
David Cameron is under pressure to build on a tax transparency deal with British offshore territories by pushing for aglobal agreement at the summit of the Group of Eight leading economies .
Global poverty charities welcomed the UK prime ministers success in bringing British territories such as Bermuda into the framework on Saturday but said he needed to go further in promoting real transparency to crack down on tax evasion and aggressive avoidance.
Mr Cameron said the UK was leading the way on transparency by creating a central register of company ownership. But he faced criticism from campaigners for only offering to consult on whether it be opened up to the public rather than just tax authorities.
For the story, go here.Havens crackdown: Momentum builds for tax transparency
By Vanessa Houlder (Financial Times)
The 2013 summit has the potential to go down in history as the turning point in the battle against tax evasion and avoidance, according to David Cameron, UK prime minister.
He has called on governments to break down the walls of corporate secrecy by introducing central registers for corporate ownership. Talks will also focus on the cross-border sharing of tax information and whether companies should be encouraged to report what they pay in the countries in which they operate on a voluntary basis.
For the story, go here.The G8 agenda: The transparency summit -- Britain's leader envisages a world of tax compliance and clear corporate ownership
At first blush, David Cameron seems an unlikely foe of tax dodgers and their accomplices. Conservatives are traditionally friendly to the wealthy and to big business, who gain most from fancy financial footwork. The City of London enjoys symbiosis with a cluster of offshore dependenciesincluding Jersey and the British Virgin Islands (BVI)which have a reputation for, at best, inviting tax avoidance and, at worst, aiding financial crime.
But as chair of the summit of the G8 (the biggest industrialised countries) being held in Northern Ireland next week, the prime minister will push for global reform of the world economys most shadowy corners. He wants to improve tax compliance through the cross-border exchange of information, to improve those data by making companies, trusts and the like show their true owners, and to change outdated rules which multinationals exploit to cut their tax bills. His assault is both on the offshore tax havens and on the often dodgier, if less well-known, practices in onshore jurisdictions such as Delawareor London.
For the story, go here.Tax Reform: Camp Signals Support for Taxing Foreign Income From Intangibles at 15 Percent Rate
All foreign income attributable to intangible products, such as intellectual property rights, could be taxed at a 15 percent rate as part of a plan to reform the tax code and limit erosion of the U.S. tax base, House Ways and Means Committee Chairman Dave Camp (R-Mich.) said in a plan highlighted June 13.
Companies could get below a 15 percent effective rate by subtracting any credits for foreign taxes paid on the same income, Camp said during a tax reform hearing on tax havens, base erosion, and profit-shifting.
For the story, go here. (Subscription required.)Transfer Pricing No Call for Formulary Apportionment In OECD Base Erosion Action Plan, Official Says
The Organization for Economic Cooperation and Development will not recommend a shift from the arm's length principle to formulary apportionment in its July action plan on its project addressing base erosion and profit shifting (BEPS), OECD's top tax official told BNA June 13.
For the story, go here. (Subscription required.)Ways and Means Considers Base Erosion and Profit Shifting
Questioning a panel of experts on the merits of a territorial regime, offshore cash stockpiles, and the promotion of American manufacturing, the House Ways and Means Committee considered how best to combat base erosion and profit shifting (BEPS) at a hearing on June 13. Also up for deliberation was an anti-base-erosion proposal that committee Chair Dave Camp, R-Mich., included in his 2011 discussion draft on corporate taxation.
For the story, go here. (Subscription required.)UK to set up central tax register
By George Parker, Jim Pickard and Vanessa Houlder (Financial Times)
Britain is to lead by example in its push for greater tax transparency by setting up a new central register to try to ensure that the true owners of shell companies often located in tax havens pay their taxes.
David Cameron hopes to persuade other big economies to set up similar registers when he chairs the G8 summit in Northern Ireland next week, a move designed to recover the billions of pounds in lost revenue suffered by exchequers around the world.
For the story, go here.Chairman Camp Opening Statement at 6/13 W&M Hearing on "Tax Reform: Tax Havens, Base Erosion and Profit-Shifting
On October 26, 2011, as part of its overall approach to comprehensive tax reform that lowers rates and broadens the base, this Committee released a discussion draft aimed at modernizing our outdated international tax rules. The draft included a structure that would allow the U.S. to move from a worldwide taxation system to a participation exemption system similar to that used by almost all of our major trading partners. In the interest of transparency, we made a specific request we actively sought feedback from stakeholders taxpayers, practitioners, economists, and members of the general public on how to improve the draft proposal.
Since then, we have heard from a wide range of practitioners and worldwide American companies. Nearly all have offered a universal observation having the highest corporate rate in the developed world along with an outdated international tax system is a barrier to success that leaves our country falling further behind our foreign competitors. Academics and economists agreed, and also cautioned, that any solution to these challenges must protect against erosion of the U.S. tax base through the shifting of profits to low-tax jurisdictions.
For Chairman Camp's opening statement, go here.Witness Statements at 6/13 W&M Hearing on "Tax Reform: Tax Havens, Base Erosion and Profit-Shifting"
The House Ways and Means Committee has released the written testimony of the witnesses at its June 13 hearing on Tax Reform: Tax Havens, Base Erosion and Profit-Shifting. The witnesses are:
- Pascal Saint-Amans, Director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development (OECD);
- Edward Kleinbard, Professor of Law, University of Southern California Gould School of Law; and
- Paul Oosterhuis, Partner, Skadden Arps Slate Meager & Flom LLP.
For the testimony, go here.Schwartz: Bipartisan Tax Reform Urgently Needed to Keep Jobs in U.S.
U.S. Representative Allyson Y. Schwartz (PA-13) issued the following statement at todays House Ways and Means Committee hearing examining the various tax planning strategies used by multinational corporations to shift income out of the United States and into low-tax jurisdictions.
Todays hearing highlights the necessity of reforming our tax code. Recent reports have shown that our current tax code puts American businesses, our economy, and workers at a disadvantage in the global marketplace and robs the federal government of the revenue needed to meet our obligations. Our current tax code makes it easy to game the system and rewards shipping jobs overseas, while giving companies no incentives to create middle-class jobs here at home, said Congresswoman Schwartz.
For the statement, go here.ACT Statement on Todays Ways and Means Hearing on Tax Reform
The Alliance for Competitive Taxation (ACT), a coalition of 42 leading American businesses that employ millions of American workers, issued the following statement regarding todays House Ways and Means Committee hearing on tax reform:
ACT welcomes the hearing today on an important issue to advancing tax reform. ACT supports comprehensive tax reform that lowers the corporate tax rate to 25%, gets rid of corporate tax breaks and preferences and establishes a modern hybrid international tax system. ..."
For the statement, go here.U.K. Lawmakers Slam Google Over Contrived Tax Strategy
U.K. lawmakers attacked Google Inc. (GOOG) for defending a highly contrived strategy of booking advertising sales through Ireland to reduce its tax liability in Britain.
Parliaments Public Accounts Committee said in a report published in London today that public confidence in the company will only be restored when it establishes a corporate structure that ensures Google pays tax where it generates profit.
For the article, go here.WNTS Insight: House Ways and Means Committee tax reform hearing focuses on tax havens, base erosion, and profit shifting
The House Ways and Means Committee today held a hearing on tax reform issues related to US international tax rules and tax havens, base erosion, and profit shifting. The hearing also discussed approaches for reforming US domestic tax rules through rate reduction and base broadening. In addition, the hearing examined OECD initiatives that seek to address concerns over transfer pricing, the tax treatment of intangible property, and related issues as part of an action plan addressing base erosion and profit shifting (BEPS).
For the WNTS Insight, go here.UK under pressure from Berlin over tax competition
By Vanessa Houlder and Quentin Peel (Financial Times)
Britain is coming under pressure from Berlin to rein back on tax competition, amid fears that a break on the levy aimed at high tech companies will undermine German revenues.
Concerns about Britains efforts to attract investment by cutting taxes have risen as German companies moved to take advantage of an incentive for patent income.
For the story, go here.Corporate Pirates of the Caribbean -- Pro-Austerity CEOs [Fix the Debt] Seek to Widen Tax Haven Loophole
CEOs with the dubious lobby group "Fix the Debt" are pushing for cuts to Social Security, Medicare, and the social safety net, painting themselves as the good guys in the budget debate. But as they ask for everyday Americans to accept cuts, these CEOs are brazenly seeking to widen tax haven loopholes that would benefit their corporations such as a "territorial" tax system -- and earn them billions.
A new report by the Institute for Policy Studies shows that Fix the Debt member corporations stand to gain as much as $173 billion in windfalls if Congress adopts their proposal for a territorial tax system.
For the report, go here.Occupy Wall Street Stylists Pursue U.K. Tax Dodgers
UK Uncut has no offices and no formal leader, and key members often plot strategy over midnight pints of ale in London pubs.
Yet, with more than 60,000 Twitter followers and a sprawling network of college-educated volunteers, the Occupy Wall Street-style group has helped galvanize public opposition to corporate tax avoidance. It has demonstrated inside Starbucks Corp. (SBUX) coffee shops, sued Britains tax collection agency over a deal with Goldman Sachs Group Inc. and shut down Londons Westminster Bridge. It plans to target this months summit of the Group of Eight, the worlds eight wealthiest countries.
For the story, go here.Economic Analysis: "Intangible Profits: Oh, the Places You'll Go!"
If you read what law professors have written about where intangible income should be sourced, you'll soon realize that there are no easy answers to that critical question.
For the article, go here. (Subscription required.)Commentary: Time for Business Tax Reform
The U.S. last reformed its business tax code in 1986, when Forbes reported that 218 of the worlds largest 500 companies were based in the U.S. Since then, the world economy has become larger and more competitive, and production and employment have become more globalized. Today, the U.S. is home to only 137 of the worlds largest 500 companies by sales and is competing with many countries for the production, research and jobs of global businesses. The current corporate tax code is a major impediment in this competition; it makes the U.S. less attractive as a place to do business and disadvantages American multinational companies.
After the 1986 tax overhaul, the U.S. had one of the lowest corporate tax rates among major economies in the world. Today, it has the highest. The U.S. is also one of the few industrialized countries that still have a worldwide system that taxes the foreign earnings of its multinational companies. In contrast, more than 90 percent of the worlds largest companies from advanced economies are based in countries with territorial systems that exempt most of the foreign earnings from domestic taxation. U.S. multinational companies, on the other hand, currently have about $2 trillion in foreign earnings that they cannot invest in the U.S. without incurring a substantial U.S. tax penalty.
For the editorial, go here.Taxes help shape multinational companies
We instinctively assign national identities to large global corporations. Toyota is Japanese; IBM is American; Siemens is German; Samsung is Korean. We assume these big firms reflect their national origins and act as informal instruments of government policy. Up to a point, this is probably true. Companies' personalities do embody the culture and values of their place of birth. No doubt many executives feel patriotic toward their homeland. But as these multinational firms spread their sales, production and marketing activities around the world, their interests and loyalties seem more murky, conflicted and stateless.
This may explain, I think, the muddled reaction to the recent appearance of Apple chief executive Timothy Cook before the Senate Permanent Subcommittee on Investigations. You may recall that the subject was Apple's ability to shelter a huge slice of its global profits from taxation. A subcommittee staff study found that from 2009 to 2012 Apple had paid almost no taxes on about $74 billion in profits earned outside the United States. These global profits were diverted to Ireland, which levied almost no tax. The legal mechanics of how this occurred were less impressive than the sheer magnitude of avoidance.
For the op-ed, go here.Taxman presence at multinationals adds to avoidance fears
The presence of hundreds of federal tax agents inside some of the USs biggest multinationals has added to the growing debate about tax avoidance ahead of a Group of Eight summit expected to discuss the issue this month.
The expected focus of this months G8 has been on the elaborate, if legal, schemes set up by multinationals to minimise their tax bills, and how to overhaul laws to prevent the erosion of the corporate tax base around the world.
But in the US, where hundreds of federal tax agents are often stationed inside the largest multinationals, there are increased questions about whether these embedded Internal Revenue Service agents are too tough, too weak or even too cosy in dealing with the companies they cover.
For the story, go here.Ways & Means Committee Sets 6/13 Hearing on "Tax Reform: Tax Havens, Base Erosion and Profit-Shifting"
Congressman Dave Camp (R-MI), Chairman of the Committee on Ways and Means, today announced that the Committee will hold a hearing on U.S. and foreign multinational corporations use of tax havens (low- and no-tax jurisdictions) to avoid tax and shift profits outside the United States and erode the U.S. tax base as part of the Committees continued work on comprehensive tax reform. The hearing will take place on Thursday, June 13, 2013, in Room 1100 of the Longworth House Office Building, beginning at 10:00 A.M.
For the release, go here.Commentary: "How America Lost Its Way"
Not everyone is an entrepreneur. Still, everyone should try -- if only once -- to start a business. After all, it is small and medium enterprises that are the key to job creation. There is also something uniquely educational about sitting at the desk where the buck stops, in a dreary office you've just rented, working day and night with a handful of employees just to break even.
As an academic, I'm just an amateur capitalist. Still, over the past 15 years I've started small ventures in both the U.S. and the U.K. In the process I've learned something surprising: It's much easier to do in the U.K. There seemed to be much more regulation in the U.S., not least the headache of sorting out health insurance for my few employees. And there were certainly more billable hours from lawyers.
For the article, go here.IRS Could Update Regs on Transfers of Intangibles to Foreign Corporations
The IRS believes it has the authority to modify section 367(d) regulations dealing with transfers of intangibles to foreign corporations to close most perceived loopholes without a change to the tax code, according to Chris Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International).
Speaking June 5 at the Bloomberg BNA and Baker & McKenzie North American Transfer Pricing Conference in Washington, Bello said the IRS is considering updating the section 367(d) regulations, a project that it has worked on "in fits and starts" over the years.
For the story, go here. (subscription required)Spotlight on Transfer Pricing Shows Need for Global Cooperation, Maruca Says
With public attention recently drawn to the income-shifting practices of multinational corporations, transfer pricing is becoming increasingly challenging for taxpayers and administrators and the need for global cooperation is more apparent than ever, according to Samuel Maruca, transfer pricing director, IRS Large Business and International Division.
"Transfer pricing has gone mainstream," Maruca said June 5 at the Bloomberg BNA and Baker & McKenzie North American Transfer Pricing Conference in Washington. Previously, transfer pricing issues were mostly out of the public's sight, but the pressures of an economic downturn and fiscal austerity measures have created a "geopolitical firestorm," he said. Recent events like the Senate hearing on Apple's international tax practices illustrate the growing public attention to profit shifting, he said.
For the story, go here. (Subscription required.)Reputational Risk Is Here to Stay, Transfer Pricing Panel Says
The popular sentiment that corporations are poor citizens for legally minimizing their tax liabilities is incorrect, but that perception is a lasting problem for multinationals, according to a panel of practitioners and commentators at the Bloomberg BNA and Baker & McKenzie North American Transfer Pricing Conference in Washington on June 5.
The theme for the panel was set early with the recital of the famous quote from Judge Learned Hand that taxpayers may arrange their affairs so they pay no more tax than they are legally obligated to pay. There was also broad endorsement of Apple CEO Tim Cook's recent recommendations to the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations that the United States simplify its corporate tax code and adopt a lower rate.
For the story, go here. (Subscription required.)OECD and U.N. Officials Discuss Transfer Pricing Challenges
A worldwide consensus on transfer pricing issues is becoming increasingly challenging to reach, and the process for achieving it is important, Joseph Andrus, head of transfer pricing at the OECD, said June 5.
At the Transfer Pricing Minds Americas conference in Coral Gables, Fla., Andrus previewed the OECD's work on intangibles and base erosion and profit shifting (BEPS), and Michael Lennard, chief of international tax cooperation in the Financing for Development Office at the United Nations, discussed the U.N. approach.
"We think at the OECD that agreement among countries in the transfer pricing area is extremely important," Andrus said. One area of general agreement is that the arm's-length standard should be retained. However, the arm's-length standard is not working the way some countries would like, he said.
For the story, go here. (Subscription required.)When multinationals should use ADR to resolve UK tax disputes
HM Revenue & Customs officials discuss when taxpayers should consider using alternative dispute resolution (ADR) to resolve large and complex tax cases.
For the story, go here.Potential Vodafone conciliation could open door for alternative dispute resolution in India
If Vodafone accepts the Indian cabinets offer to enter a conciliation process under the Indian Arbitration and Conciliation Act to try and resolve its longstanding tax dispute, the Indian government may have to open up such resolution mechanisms to other multinationals.
For the story, go here.German Min Fin could introduce patent box to compete with others in Europe
German officials are concerned about the country's potential loss of competitive advantage because of new intellectual property tax incentives being offered by other European countries such as the UK.
For the story, go here.Intangibles Next Release of OECD Intangibles: Draft To Address Location Savings, Official Says
The next release of the Organization for Economic Cooperation and Development's discussion draft on intangibles will cover comparability factors including corporate synergies, local market conditions, and location savings, an OECD official said June 6.
For the story, go here. (Subscription required.)DEALBOOK: Despite Tax Rules, Companies Stick With U.S.
The tactics that multinational companies like Apple, Microsoft and Hewlett-Packard use to avoid paying corporate income taxes might make one wonder why they incorporate in the United States in the first place. Why not Ireland?
Advocates of a territorial-based tax system often point out that taxing United States companies on their worldwide income creates an incentive for new companies to incorporate abroad instead. Many countries tax income earned only within their borders. The United States, by contrast, purports to tax companies on their worldwide income, with credits for any foreign taxes paid.
For the story, go here.Want Tax Reform? Base Erosion Actions Come With It, Solomon Says
As Robert Stack, Treasury deputy assistant secretary (international tax affairs), was in Washington telling multinationals that they would have to pay tax somewhere, at almost the same moment in New York, Eric Solomon of Ernst & Young LLP, former Treasury assistant secretary for tax policy, was suggesting that somewhere would be the United States.
If multinationals succeed in convincing Congress to lower the corporate income tax rate and adopt a territorial system, that reform will come with base erosion provisions, Solomon told the Wall Street Tax Association (WSTA) on June 3.
For the story, go here. (Subscription required)ACT Coalition to Push for Corporate Tax Reform
A group of 42 American companies including Google Inc., Wal-Mart Stores Inc., Bank of America Corp., and the Coca-Cola Co. announced June 4 the creation of a coalition to advocate revenue-neutral business tax reform that includes lowering the corporate rate and moving to a hybrid international tax system.
The Alliance for Competitive Taxation (ACT) will advocate a corporate income tax rate of 25 percent, paid for by the elimination of business tax expenditures. The group also wants to move to a hybrid international tax system that taxes income in countries where the income is earned and includes protections for base erosion and American jobs.
For the story, go here. (Subscription required)Negotiating Transfer Pricing Safe Harbors Will Take More Time, Maruca Says
Although the United States is pleased that momentum is growing behind the concept of bilateral and multilateral safe harbors, negotiating any agreements will take time because officials are approaching the process slowly and deliberately, Samuel Maruca, transfer pricing director in the IRS Large Business and International Division, said June 4.
The U.S. is looking for ways to reduce its inventory of routine transfer pricing cases and believes that safe harbors may help, Maruca said, but he added that so far, discussions have been limited to expressions of interest among a few countries that the U.S. deals with regularly. "I don't want to get people too excited about timing. This is going to take a while," he said at the 2013 OECD International Tax Conference in Washington.
For the story, go here. (Subscription required)Intangible Related Returns Taken Up in OECD Base Erosion Initiative
The OECD's base erosion and profit-shifting (BEPS) initiative appears to be lending greater credibility to views on the transfer pricing aspects of intangibles that some multinationals might find worrisome.
Speaking June 4 at the OECD's 2013 International Tax conference, Christopher Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International), and a member of OECD Working Party 6, said that the BEPS project has taken up the issue of how to take into account situations where a company makes a financial investment to develop an intangible but does not engage in functional activity.
Working Party 6, which is responsible for the OECD's draft intangibles work, is considering how to price these transactions in the context of the intangibles project, Bello said. "At the same time we are talking about how, 'Maybe these are a type of transaction that we will not respect at all,'" he said.
For the story, go here. (Subscription required)Officials Wrestle With Inclusion of Goodwill in OECD Intangibles Definition
Although the final language of the new intangibles discussion draft remains unresolved, Joseph Andrus, head of the OECD transfer pricing unit, warned against getting "bogged down in the definitional game" of whether goodwill should be regarded as an intangible asset.
Speaking at the 2013 OECD International Tax Conference in Washington on June 4, Andrus said that what is important for evaluating whether something generally classified as goodwill should be priced into a transaction is whether unrelated parties would have paid for the transfer. However, he said that it was an "awkward time" to discuss the OECD intangibles draft since he and his fellow panelists could only discuss what issues were being debated by Working Party 6 and not the conclusions that will be released later this year. (June 2012 OECD intangibles discussion draft.)
For the story, go here. (Subscription required)OECD's Work on Permanent Establishments on Hold for BEPS
The OECD's final work on revising the commentary to article 5 of the OECD model tax treaty on permanent establishments will depend on the progress the OECD makes on its base erosion and profit shifting (BEPS) project, an official told Tax Analysts June 3.
Speaking on the sidelines of the 2013 OECD International Tax Conference in Washington, Jacques Sasseville, head of the tax treaty unit at the OECD, said that it's possible the BEPS project could affect article 5, which in turn could affect the commentary to article 5. The OECD began a project in 2009 to clarify the existing definition of a PE through revised language in the commentary.
For the story, go here. (subscription required)Large Business Compliance Requires Cooperation Among Administrators and Taxpayers, Danilack Says
A recent report from the Forum on Tax Administration (FTA) that compiled countries' approaches to ensuring compliance by large business taxpayers suggests that cooperation among tax administrators and taxpayers can improve compliance, according to Michael Danilack, deputy commissioner (international), IRS Large Business and International Division.
"The principal behind cooperative compliance is that compliance can be greatly enhanced through reaching understanding," said Danilack, who delivered the keynote address at the 2013 OECD International Tax Conference in Washington on June 4. That understanding is based on "commercial awareness, impartiality, proportionality, responsiveness, and openness through mutual disclosure and transparency," he said.
For the story, go here. (subscription required)Permanent Establishments: Some Common Cost Sharing Structures May Circumvent PE Rules, U.S. Official Says
A hypothetical cost-sharing arrangement for sales through a subsidiary, similar to what many multinationals have used around the globe, could cause concern that it was circumventing rules about what constitutes a permanent establishment, a Treasury Department attorney-adviser said June 3.
Arlene Fitzpatrick spoke at a panel discussion on the Organization of Economic Cooperation and Development's efforts to fine-tune the definition of permanent establishment, which began in 2009. The panel was part of the 2013 OECD International Tax Conference in Washington.
For the story, go here. (subscription required)Taxpayers should continue to prepare for the FTT despite reports of its demise
A number of media reports in the last week suggest that the financial transaction tax (FTT) is going to be watered down and delayed. But the Commission has denied this and FTT proponents remain sceptical of such claims.
For the story, go here.Corporate taxes dont cause recessions. But do they hurt growth?
Congressional Research Service reports arent generally the cause of political dust-ups. The agency is known for its rigorous yet completely dispassionate analysis of everything from national security threats to budget policy to Congressional procedure. At one hearing I attended three years ago, a CRS analyst recalled a time her boss was asked what he thought about a particular piece of legislation and replied, Im not allowed to think.
So it was surprising when Thomas Hungerford, a veteran tax analyst at the agency, issued a report last year that Senate Republicans immediately tried to revoke. The report found no correlation between the top personal income tax rate and economic growth.
A revised version of the report was eventually released, softening some language and citing reports suggesting negative growth effects from high taxes. But soon after, Hungerford departed CRS for the left-leaning Economic Policy Institute.
Now, hes conducting similar research at EPI, this time focusing on the corporate tax rate. His latest report finds no evidence that either the statutory top corporate tax rate or the effective marginal tax rate on capital income is correlated with real GDP growth.
For the story, go here.Shift to Territorial System Won't Trigger a Flood of Repatriations, Gravelle Argues
Accumulated foreign profits haven't grown simply because of the tax on repatriated earnings, according to Jane Gravelle, a senior specialist in economic policy for the Congressional Research Service, who provided new evidence that a shift to a territorial system of taxation wouldn't significantly reduce the amount of accumulated foreign profits.
For the story, go here. (Subscription required.)Days of Double Nontaxation Are Over, Stack Says
The days of double nontaxation for multinational companies are over, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
Speaking June 3 at the 2013 OECD International Tax Conference in Washington, Stack offered a rebuttal to impressions recently conveyed to him from an "unnamed tax reporter" that the Treasury Department does not appear to be taking the OECD base erosion and profit shifting (BEPS) project seriously and will defend the status quo.
For the story, go here. (Subscription required)U.S. Multinationals Still Pursuing APAs With India, Practitioners Say
U.S. multinationals continue to apply for bilateral advance pricing agreements in India, despite the widely publicized stalled relationship between the U.S. and Indian competent authorities, tax advisers said June 3.
Speaking during a webcast sponsored by her firm, Sabine Wahl of PricewaterhouseCoopers India said that comments made by Michael Danilack, deputy commissioner (international), IRS Large Business and International Division, earlier this year regarding India's APA program were like a "cold shower" on multinational corporations' growing interest in India's APA program.
For the story, go here. (Subscription required)India: As Aggressive Audits Continue in India, Hopes Turn to High Courts, APA Program
Transfer pricing uncertainty has long been a fact of life for multinational companies operating in India, as businesses have had to contend with aggressive transfer pricing audits, which have led to prolonged court disputes or difficult competent authority negotiationsor both.
For the story, go here. (Subscription required)NFTC Letter to President Obama
President Obama at an upcoming G-8 meeting should support tax policies that enhance the worldwide competitiveness of U.S. businesses, the National Foreign Trade Council and eight other groups said in a June 4 letter, adding that it is imperative that international tax policy discussions focus on promoting stable international tax rules.
For the letter, go here.New Business Group ACT Pushes Tax Overhaul
A group of 42 U.S. companies is announcing a potentially powerful new coalition on Tuesday to push for a comprehensive tax overhaul. The group representing a broad cross-section of both multinational and domestic-focused big businesses could give a boost to the slow-moving effort on Capitol Hill.
The new group, the Alliance for Competitive Taxation (ACT), is promoting a tax overhaul as a way to make the economy grow faster, attract more investment to the U.S., generate jobs and help companies compete against their international rivals. Coalition members are hoping a tax overhaul will prove to be a rare area of agreement for feuding Republicans and Democrats in Washington over the next couple of years.
For the story, go here.Calculating Apples True U.S. Tax Rate
Some have suggested that Timothy D. Cooks calculation of Apples tax rate is based on a badly distorted measure of United States income.One lesson from the Senate hearing about Apples offshore tax planning is that figuring out what a multinational company actually pays in taxes is harder than it should be. At the risk of sounding Clintonesque, it depends on what the meaning of pays is.
For the story, go here.G8 tax avoidance drive alarms US business
Corporate Americas biggest lobby groups have warned Barack Obama against embracing Group of Eight proposals to crack down on international tax avoidance, days ahead of expected Senate questioning of one of the presidents advisers about his investments in a Cayman Islands fund.
For the story, go here.Economic Policy Institute Produces Dual Axis Chart That Proves Nothing Affects Economic Growth
The progressive Economic Policy Institute likes the corporate income tax because EPI likes tax revenue in general and feels that the corporate income tax raises it in a distributionally progressive way. They also offer the chart above to prove that corporate income tax rates don't drive economic growth.
And indeed they don't. But though this is an unusually egregious example, it highlights a big flaw in the entire chart-blogging genre.
For the article, go here.Dick Harvey: "Apple Hearing: Observations From an Expert Witness"
J. Richard (Dick) Harvey Jr., the Distinguished Professor of Practice at the Villanova University School of Law and Graduate Tax Program, was an expert witness at the May 21 Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations hearing on Apple Inc.'s international tax planning. In this article, Harvey describes one of the arguments used by Apple and Sen. Ron Johnson, R-Wis., to justify the amount of income Apple recorded in the United States. Although Harvey disagrees with Apple's argument, he believes that if it is accepted, it should result in Apple recording substantially more income in foreign countries other than Ireland. Harvey also questions the 30.5 percent effective tax rate advocated by Apple during the hearing and instead suggests a rate between 7 and 15 percent.
For the story, go here. (Subscription required.)News Analysis: As American as Apple
Some senators do not admire Apple's tax planning nearly as much as consumers admire the company's products. The May 21 hearing before the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations emphasized the fact that U.S. transfer pricing rules are highly problematic. But it provided little hope that Congress will find the motivation to do anything about them.
For the story, go here. (Subscription required)Tax Havens: Apple's Arrangement With Ireland Meets Common-Sense Tax Haven Status, Levin Says
Sen. Carl Levin (D-Mich.), chairman of the Permanent Subcommittee on Investigations, and ranking member Sen. John McCain (R-Ariz.) said May 31 that testimony by Apple Inc. executives, including Chief Executive Officer Tim Cook, corroborates that the company had a special arrangement with the Irish government to cut its tax bill.
Most reasonable people would agree that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven, they said in a statement.
For the story, go here. (Subscription required)Tax Avoidance Crackdown: France to Force Companies to Reveal Foreign Activity and Bills
France is cracking down on large companies, which are aggressively avoid paying corporation tax, by forcing them to disclose the details of foreign business activities and tax bills.
One of France's ministry official said that the country will extend draft rules, initially planned only for banks by the European Union (EU), to other large companies in order to present aggressive corporate tax avoidance, demonstrated by Google, Amazon and Apple.
"Our aim is to extend to large companies the requirement to disclose activities abroad country-by-country," said the official to Reuters.
For the story, go here.International Tax News: June 2013 edition available
International Tax News is designed to help multinational organisations keep up with the constant flow of international tax developments worldwide. Among the articles featured in this month's edition are:
* Recent legislative changes reaffirm Cyprus' attractive tax regime
* Netherlands renews decree on limitation of interest deduction
* Azerbaijan expands tax treaty network
* Bill would liberalise Hong Kong's exchange of information regime
For the June edition of International Tax News, go here.France to force big companies to disclose foreign tax bill
France plans to force large companies to declare details of their foreign activities as a way of reducing tax avoidance, a finance ministry official said on Sunday.
The move is France's follow-up to a European Union summit last month where EU leaders said they would close loopholes to stop companies such as Google, Apple and Amazon aggressively avoiding taxes.
For the story, go here.Irish Official 'Absolutely Refutes' Senate Tax Haven Accusations and Apple Special Tax Deal Claims
An Irish government official on May 30 said she "absolutely refutes" recent accusations from members of a Senate subcommittee that Ireland is a tax haven and that the Irish government negotiated a special tax deal with Apple Inc.
"There's no special tax deal with Apple, and in fact, the CEO of Apple [Tim Cook] yesterday clarified on the record that there were no special deals," Lucinda Creighton, Ireland's minister for European affairs, told Tax Analysts. Creighton, who is in the United States for four days to speak with business and political leaders, spoke after an event hosted by the European Institute in Washington.
For the article, go here. (Subscription required.)Future U.N. Transfer Pricing Manual Likely to Address Intangibles
Future editions of the U.N. Manual on Transfer Pricing for Developing Countries will likely include a chapter on intangibles, a member of the committee responsible for drafting the manual said May 29.
"I assume the next membership of the committee will consider to include some additional explanation or guidance in the area of intangibles," said Stig Sollund, a member of the U.N. Committee of Experts on International Cooperation in Tax Matters, at a meeting in New York to officially release the final version of the manual.
Sollund added that before acting on intangibles, the next Committee of Experts should wait to see what comes out of the OECD's project on base erosion and profit shifting (BEPS). Services and cross-contribution agreements could also be addressed in a future transfer pricing manual, he said.
For the story, go here. (Subscription required.)Practitioner Argues Against U.N. Role in Transfer Pricing Guidance
The United Nations should get out of the business of setting international transfer pricing standards, according to David Ernick of PricewaterhouseCoopers LLP.
Speaking May 30 at a District of Columbia Bar Taxation Section luncheon on current developments in transfer pricing in India and China, Ernick, a former Treasury official, noted that the U.N. claims that its Practical Manual on Transfer Pricing for Developing Countries is consistent with OECD guidelines.
If what the U.N. says is true, "why duplicate the effort?" Ernick asked. If, however, the U.N. guidance is inconsistent with OECD standards, then the U.N. guidance will result in multiple standards, double taxation, and barriers to trade and investment, argued Ernick.
For the story, go here. (Subscription required.)Tax Treaties: OECD Tax Leader Says BEPS Project Could Produce New Multilateral Treaty
An international project on base erosion and profit shifting (BEPS) could culminate in a new multilateral treaty to automatically revise some 3,000 existing bilateral double-tax treaties worldwide to address BEPS, and the project could be completed in two years, the Organization for Economic Cooperation and Development's top tax official said May 30.
Pascal Saint-Amans, head of OECD's Center for Tax Policy and Administration, made his comments during OECD's annual May 29-30 ministerial council meeting, which produced a declaration urging the Committee on Fiscal Affairs, the organization's key tax decision body, to quickly complete its work on an action plan for addressing BEPS to deliver to the Group of 20 Finance Ministers meeting July 18-19 in Moscow.
For the story, go here. (Subscription required.)Tax Reform Revenue-Neutral Corporate Tax Proposals Will Boost U.S. Economy, CEA's Krueger Says
President Obama's proposals for corporate tax reform can be done in a revenue-neutral way and would be good for the U.S. economy, White House Council of Economic Advisers Chairman Alan Krueger told BNA May 29.
For the story, go here. (Subscription required.)OECD Official Calls for Mechanism to Quickly Implement BEPS Tax Changes
A mechanism is needed to quickly implement international tax changes related to the OECD base erosion and profit shifting (BEPS) project, an OECD official told the U.N. Economic and Social Council at a May 29 meeting in New York on international cooperation in tax matters.
Because of the sheer number of tax treaties in effect, it takes a considerable amount of time for changes to be implemented, said Marlies de Ruiter, head of the tax treaty, transfer pricing, and financial transactions division of the OECD's Centre for Tax Policy and Administration.
For the story, go here. (Subscription required.)Tax All Profits of Companies Based in the U.S.
The fundamental question about multinationals is whether they retain their national identity in the 21st century. From the Dutch East India Company onward multinationals were closely identified with the country that created them. However, in a globalized world in which the shareholders, production facilities and distribution centers of multinationals are widely dispersed, it is less clear that one can identify a multinational as American.
Ideally, in such a world each country should tax the multinational only on income arising within that country. But as the Apple case shows, such a territorial system invites multinationals to shift their profits to tax havens. Avoiding that outcome without over- or under-taxation requires a degree of coordination among countries that is difficult to achieve.
For the story, go here.OECD drive against tax avoidance gets fresh backing
The days when multinational companies could exploit fiscal loopholes to escape tax could soon be numbered, after governments gave the OECD strong backing to design an international clampdown on corporate tax avoidance.
Ministers from Organisation for Economic Cooperation and Development and other countries backed OECD efforts on Thursday to press ahead with new guidelines to ensure firms are not able to pay little or no tax due to differences between tax regimes.
The Group of 20 economic powers have asked the OECD to deliver an action plan at a July meeting of G20 finance ministers in Moscow.
For the story, go here.Irish Embassy Refutes Senate Tax Haven Accusations and Apple Special Tax Deal Claims
Irish Ambassador Michael Collins in a May 29 letter to the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations refuted claims in a report prepared for the panel that Ireland is a tax haven and that the Irish government negotiated a special tax deal with Apple Inc.
For the letter, go here. (Subscription required)Australian Tax Legislation includes transparency
The Tax Laws Amendment legislation, which was just introduced in Australia, includes a provision to improve the transparency of Australia's corporate tax system. The provision requires the Commissioner of Taxation to publish limited information about the tax affairs of large corporate taxpayers (total income of $100 million or more).
For the legislation, go here.
For an explanation of the legislation, go here.
For a statement from Assistant Treasurer Bradbury, go here.News Analysis: Apple's Tax Magic
We're not easily shocked by transfer pricing practices that the U.S. government accepts, for better or worse. Google? It's pretty clean under U.S. law -- an advance pricing agreement to get the intellectual property out of the United States, and 2,000 employees in Ireland. Dell? Yawn -- lots of U.S. multinationals have commissionaire structures for selling in Europe.
But Apple's planning, as described in the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (PSI) report, is a special case . We're talking gross worldwide revenues the size of the California state budget, and no tax being paid anywhere on a huge chunk of profits. What is truly surprising about the Apple case is its brazenness. PSI concluded that Apple's self-serving intercompany contracts had no effect on its business practices.
For the story, go here. (Subscription required.)News Analysis: What Treasury Should Say to Multinationals
In news analysis, Lee A. Sheppard proposes a memorandum that Treasury should send to U.S. multinationals explaining that the international consensus on transfer pricing issues is changing.
For the article, go here. (Subscription required.)Economic Analysis: The Other Problem With Cost Sharing
Investors are entitled to a return on their investment.
This simple and indisputable assertion is the crux of the argument made by multiple commentators regarding the June 2012 OECD discussion draft on transfer pricing of intangibles. (The 1,013 pages of comments are available at http://www.oecd.org.) The source of their concern is the discussion draft's statement that the mere fact that a related party shares the costs of developing assets does not entitle it to the returns on that asset:
Working Party No. 6 delegates [the group of member country officials studying cross-border taxation of intangibles] are uniformly of the view that transfer pricing outcomes in cases involving intangibles should reflect the functions performed, assets used, and risks assumed by the parties. This suggests that neither legal ownership, nor the bearing of costs related to intangible development, taken separately or together, entitles an entity within [a multinational enterprise] group to retain the benefits or returns with respect to the intangibles without more.
For the article, go here. (Subscription required.)CAPITAL IDEAS: Who Will Crack the Code?
Ireland and Singapore have no natural resources that make them obvious places to manufacture the concentrate used in soda, nor have they developed innovative new soda-making techniques. Yet they have nonetheless become global capitals for making soft-drink concentrate.
What Ireland and Singapore share is a low corporate tax rate. And because soda is such a simple product, with so much of its financial value stemming from the concentrate, Coke and Pepsi can reduce their overall tax rates by manufacturing it in low-tax countries.
For the story, go here.A Is for Avoidance
Even before last week's Senate hearing on Apple, it was clear that the aggressive use of tax havens and other tax avoidance tactics had become standard operating procedure for global American companies.
Microsoft and Hewlett-Packard were the focus of a similar Senate hearing last September, while Google, Amazon and Starbucks have drawn recent scrutiny in Europe. And, of course, there is General Electric, which achieved a perfect zero on its United States tax bill in 2010. In fact, G.E. was reputed to have the world's best tax avoidance department until Apple came along with tactics to stash some $100 billion in Ireland without paying taxes on much of it anywhere in the world and, apparently, without breaking any law.
And that is the problem. Rampant corporate tax avoidance may not be illegal, but that doesn't make it right or fair.
For the editorial, go here.Apples Tax Magic Leaves Irish Bondholders Unmoved: Euro Credit
As Irelands leaders try to limit the fallout from the tax crossfire between Apple Inc. (AAPL) and U.S. politicians, bond markets suggest they dont have to worry.
Speaking to lawmakers in Dublin two days ago, Finance Minister Michael Noonan insisted the country is no tax haven, a day after a congressional hearing in Washington focused attention on Apple Inc.s manoeuvers to minimize its tax bill through its operations in Cork in the south of Ireland.
Maybe there was a magician, said Noonan, adding that Ireland didnt want to be a whipping boy for misunderstandings over Apples tax liabilities. But the magician wasnt resident down in Cork.
For the story, go here.More countries adopt and update GAARs to fight base erosion and profit shifting
Many countries around the globe have undergone significant change and development within the last year surrounding the use of General Anti-Avoidance Rules (GAARs). This term generally refers to a statutory rule or regime that empowers a revenue authority to deny taxpayers the benefit of an arrangement entered into for an impermissible tax-related purpose. Great variations may occur between jurisdictions as to their operation but the current impetus for these fast-moving changes is similar -- revenue authorities wish to broaden their enforcement capabilities at this time of rising deficits and falling tax revenues throughout the world.
For the report, go here.Push on corporate tax rules goes global
A global effort to tighten corporate tax rules is gaining momentum as politicians in Europe and the United States take aim at American tech giants whose savvy use of international tax laws has provoked a public backlash.
A day after a U.S. Senate report slammed Apples use of Irish regulations to minimize payments to the U.S. government, European heads of state said they hoped for quick action from an international effort to change rules that let companies shelter profits.
For the story, go here.Global Firms' Tax Practices Draw U.K. Ire
The storm brewing over Apple Inc.'s tax practices in the U.S. has already rained down hard in the U.K., where multinationals including Starbucks Corp., Amazon.com Inc. and Google Inc. have drawn public scorn for the low amounts of taxes they pay here.
But while the U.K. government has pledged to take up tax avoidance with international bodies such as the Group of Eight leading nations, little has yet been done to change the rules.
For the story, go here.Tax Fairness Tops Agenda at European Summit
Faced with public outrage over tax-evasion scandals at a time of austerity budgets, European leaders pledged Wednesday to ensure that everybody -- from high rollers to big multinationals -- pays their fair share to cash-strapped governments.
But the small steps that leaders took at their Brussels summit underline how difficult it is to effectively fight tax evasion by individuals and tax avoidance by companies at a time when countries are also competing for foreign investment.
For the story, go here.Don't Blame Apple for America's Broken Tax Code
On Tuesday, Apple CEO Tim Cook testified in front of the Congressional Permanent Subcommittee on Investigations as a part of their look into the company's corporate tax practices according to Sen. Carl Levin, the chairman of the committee, "Apple successfully sought the holy grail of tax avoidance. It has created offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere." I asked Mihir A. Desai, a professor and dean at Harvard Business School, a professor at Harvard Law School, and the author of a 2012 HBR article on taxing businesses, a few questions about how this investigation fits into a larger debate about the corporate tax code. Our edited conversation is below.
For the interview, go here.Apple Tax Rate Ignores Profit Shifting Offshore
Apple Inc. (AAPL) Chief Executive Officer Tim Cook provided a figure to Congress on Tuesday that U.S. companies rarely disclose: its federal tax bill. Apple paid $6 billion last year -- a rate of 30.5 percent.
Thats more than $16 million each day, Cook said. We pay all the taxes we owe -- every single dollar.
While nobody at the hearing questioned the figure, it provides a distorted picture of Apples total tax burden. Based on its public filings, the company pays just under 14 percent of its income in taxes worldwide, according to Scott D. Dyreng, an assistant professor of accounting at Duke Universitys business school whose research specializes in the actual tax rates of large U.S. companies.
For the story, go here.Levin Says Tax Changes Should Focus on Unjustified Breaks
Democratic Senator Carl Levin said an overhaul of the U.S. tax code would be difficult to accomplish and instead lawmakers should focus on curbing unjustified tax breaks.
Corporate tax reform is going to be very, very difficult if youre looking at the legitimate deductions, because theres a reason for those deductions, Levin said at a Bloomberg Government breakfast today. They serve an economic purpose so the economic interests that were able to get those passed, put into law, are going to fight very hard to keep those deductions.
For the story, go here.The Corrosive Effect of Apples Tax Avoidance
The shameful thing about Apple Inc.'s ability to structure its business to avoid United States taxes was not that it did it. In fact, as Apple executives tried to point out at the Senate hearing at which their tax strategies were detailed, they could have chosen to pay much less in American taxes than they did.
The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay.
For the story, go here.The Corporate Tax Dodge
While a Senate report detailing Apple's aggressive tax sheltering of billions of dollars of overseas income grabbed headlines this week, little notice was paid to a surreptitious thrust at tax minimization that was announced at nearly the same moment.
For the story, go here.Explaining Apples Irish Tax Dodge
The outrageous part about Apple Inc. (AAPL)s audacious tax strategies isnt whether they are legal. They may well be. More upsetting are the ruses and contrivances that Apple (AAPL) used to pull them off.
For the story, go here.EU rushes out corporate tax transparency law
Big companies tax affairs in Europe are to be opened up to greater public scrutiny with the EU rushing out a law compelling them to reveal corporate profits and taxes on a country-by-country basis.
Amid a political furore over allegations of tax avoidance by corporate-giants such as Apple , Starbucks and Google, the EU is extending transparency reforms for banks and resources groups to all large public and private companies.
For the story, go here.Apple tax probe helps drive to build consensus on global regime
The US Senates probe of Apples tax affairs this week injected renewed urgency into the global effort to crack down on aggressive tax avoidance, which will feature high on the agenda of the G8 summit meeting in Northern Ireland next month.
Allegations that Apple avoided billions of dollars of taxes shone a harsh spotlight on the international tax system and pushed Ireland on to the defensive after claims that the company had cut a deal to pay a 2 per cent corporate tax rate. Meanwhile British politicians renewed their attack on Googles tax planning, provoking Eric Schmidt, chairman of Google, to describe the international tax rules as irrational and express support for the global reform effort.
For the story, go here.To keep corporations here, fix the tax code Read more: http://www.baltimoresun.com/news/opinion/oped/bs-ed-apple-20130523,0,1325651.story#ixzz2UczWv692
The report of Apple avoiding corporate income taxes the past four years signals it's time to overhaul the U.S. corporate tax code.
Like many multinationals with strong intellectual property, Apple legally earns nearly all of its income offshore. The U.S. tax code requires payment of corporate income taxes on domestic operations, but foreign earnings are not taxed until they are returned to the U.S. parent company, an act called repatriation. According to Senate investigators, Apple has structured its foreign operations to avoid a foreign income tax liability as well. As a result, its foreign earnings would incur a significant repatriation tax, leading those earnings to essentially be "trapped" overseas.
For the article, go here.How Supreme Court's PPL ruling will reduce transaction costs for US multinationals
US multinationals should see their transaction costs reduced when investing in foreign jurisdictions following the Supreme Courts judgment in favour of energy company PPL.
For the article, go here.Apple CEO Advocates Dramatic Reform of Corporate Tax Code
Apple Inc. CEO Tim Cook recommended at a May 21 hearing of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations that the U.S. corporate tax code be dramatically simplified.
Reform should be revenue neutral while eliminating corporate tax expenditures, lowering corporate income tax rates, and imposing a reasonable tax on foreign earnings that would allow them to be repatriated, Cook said. Apple does not want a temporary tax holiday either, he added, saying, "A permanent change, to me, is materially better than a short-term tax holiday."
For the story, go here. (Subscription required.)OECD Completes Transfer Pricing Safe Harbor Guidance
The OECD's release of final guidance on transfer pricing safe harbors on May 21 sets the stage for countries to adopt workable rules to simplify transfer pricing burdens on taxpayers, according to commentators, including Joseph Andrus, head of the OECD transfer pricing unit.
The new OECD transfer pricing safe harbor guidelines replace chapter 4, section E of the OECD's Transfer Pricing Guidelines. The new rules contain relatively few changes from a June 6, 2012, discussion draft but mark a significant shift from the OECD guidelines they replace.
For the article, go here. (Subscription required.)Tax Evasion: Apple CEO Defends Firm on Tax Payments, Tells Senate Panel No Gimmicks' Were Used
Apple Chief Executive Officer Timothy Cook told the Senate Permanent Subcommittee on Investigations that his company pays all the taxes it owes and does not engage in any gimmicks to dodge its obligations, in response to sharp questioning from Chairman Carl Levin (D-Mich.) at a May 21 hearing.We pay all the taxes we owe. Every single dollar, Cook said at the hearing. We don't depend on tax gimmicks.
For the story, go here. (Subscription required.)Cook Defending Apple Puts Loophole-Closing Back on Agenda
A congressional hearing into Apple Inc. (AAPL)s use of offshore tax shelters called attention to how U.S. companies lower their taxes, and underscored the difficulty Congress confronts when trying to end the practice.
The hearing by the Senate Permanent Subcommittee on Investigations yesterday focused on the $102 billion in assets that Apple, the most valuable U.S. technology company, has stored in offshore entities. Apple executives defended their practices, with Chief Executive Officer Tim Cook saying the company complies with all laws and has no plans to repatriate earnings kept abroad.
For the story, go here.Google Joins Apple Avoiding Taxes With Stateless Income
U.S. Senate scrutiny of Apple Inc. (AAPL)s tax strategies turned the spotlight on a unit with $30 billion in profit since 2009 that's incorporated in Ireland, controlled by a board in California, and doesn't pay taxes in either place.
Apple officials acknowledged yesterday at a congressional hearing that the entity -- a key subsidiary in Apples offshore tax strategy -- is managed and controlled in the U.S., yet it still isnt paying U.S. federal income taxes.
The shifting of profits by multinational companies is costing the U.S. and Europe at least $100 billion per year in lost tax revenue, according to Kimberly Clausing, an economics professor at Reed University in Portland, Oregon.
For the article, go here.Ireland: No Favors Offered To Firms
The Irish government on Tuesday denied it shelters some of the world's largest corporations, such as Apple Inc., from paying taxes, saying its long-standing low corporation tax regime is transparent and doesn't make it a tax haven.
An investigation by the U.S. Senate has revealed that, through its use of technicalities in Irish and U.S. tax law, Apple has paid little or no corporate taxes on at least $74 billion over the past four years. The investigation found no evidence that Apple did anything illegal.
The report published on Monday by the Senate's Permanent Committee on Investigations said that in Ireland, Apple "has negotiated a special corporate tax rate of less than 2%."
The Irish government said it hadn't negotiated special treatment with Apple or any other company.
For the story, go here...Apples Right, Corporate Income Tax Should Be Debated: Pulitzer Prize-Winnng Tax Expert
Apple (AAPL) put a fork in the traditional music industry. Then introduced the iPad, kicking off the demise of the PC market. So, could the corporate income tax system be next?
CEO Tim Cook hopes so. He went to Washington Tuesday to defend his companys use of tax-haven subsidiaries in places like Ireland. Cook also reiterated that Apple has no plans to bring back over $100 billion in profits stashed overseas, far outside the jurisdiction of the IRS.
Perhaps Cooks star-turn in DC will bring corporate income tax reform back into the spotlight. He suggested that the IRS should modernize the tax code. And it wasnt so long ago that both candidates for President endorsed some type of change in the corporate tax system. Many economists and tax experts, and of course CEOs, have pushed for more drastic change like eliminating the corporate income tax altogether.
I think it would make the system much simpler, says Pulitzer Prize-winning tax expert David Cay Johnston.
For the story, go here.From Google to FedEx: The Incredible Vanishing Subsidiary
Some of the biggest U.S. companies, including Google Inc. and FedEx Corp., have quietly removed hundreds of offshore subsidiaries from their publicly disclosed financial filings over the past several years.
Software maker Oracle Corp., for instance, disclosed more than 400 subsidiaries in its 2010 annual report. By 2012 the list had been whittled to eight -- five of which were located in Ireland. Oracle declined to comment.
The vanishing subsidiaries don't stem from asset sales or corporate restructuring. Companies across industries say they are taking advantage of Securities and Exchange Commission rules that demand disclosure only when subsidiary operations are "significant."
For the story, go here.Op-Ed: Here Comes the sun
Among the many things Tim Cook apparently learned at the knee of Steve Jobs, during his long tenure as Apple's No. 2, was how to create a ''reality distortion field.'' Or so it would appear after watching Cook, now Apple's chief executive, testify on Tuesday at a Senate hearing on the company's tax avoidance schemes.
For the article, go here.Not a rotten Apple
You know the world's gone mad when I think Rand Paul is the only one who made sense at Tuesday's Senate grilling of Apple chief executive Tim Cook. Cook's crime? Making sure his firm pays as little in taxes as the law allows.
Paul said he was "offended by the spectacle of dragging in executives from an American company for doing nothing illegal." If you saw the front-page headlines in every major newspaper pegged to the Permanent Subcommittee on Investigation's report, you would be forgiven for thinking Cook was ushered straight from the hearing to jail.
Why are we publicly browbeating an iconic U.S. firm in an era in which we should be encouraging every innovative company to locate and expand high-value work in America? What kind of message do such hearings send to firms overseas (or U.S.-based multinationals weighing their capital plans) about America being open for business and hungry for job-creating investment?
For the story, go here.Ireland pledges co-operation on global tax avoidance plan
Irelands prime minister insisted on Wednesday that his country does not cut special deals with foreign companies to help them avoid taxes and said Dublin will continue to work with the EU and international authorities to set up a global regime to fight tax avoidance.
Enda Kenny said EU authorities have not asked about Irelands tax treatment of Apple or other multinational companies in spite of this weeks report by US Senate investigators alleging the California-based computer group used Irish tax loopholes to avoid billions in US taxes.
For the story, go here.Google defends taxes in face of Labour onslaught
Eric Schmidt defended Googles tax practices on Wednesday and said the internet group would continue to invest in the UK no matter what after Ed Miliband, Labour leader, criticised the company for going to extraordinary lengths to avoid paying tax.
The Google executive chairman said that it was up to governments, not companies, to set tax rules. He told the audience at the companys Big Tent conference near London that he supported David Camerons pledge to begin inter-governmental talks to overhaul the global tax system at next months G8 summit.
For the story, go here.Apple Testimony for 5/21 PSI Hearing
The May 21 written testimony of Apple Inc. before the US Senate Permanent Subcommittee on Investigations is now available.
For the testimony, go here.Apple Used Tax Loopholes to Avoid $9 Billion, Senators Say
Apple Inc. Chief Executive Officer Tim Cook will face off against U.S. senators leveling accusations the iPhone maker has created a web of offshore entities to avoid paying billions of dollars in U.S. taxes.
Cook and two other executives -- including Chief Financial Officer Peter Oppenheimer -- appear at 9:30 a.m. Washington time before a Senate panel that yesterday released a report saying the companys subsidiaries include three entities that have no home country for tax purposes.
Apple wasnt satisfied with shifting its profits to a low-tax offshore tax haven, Democratic Senator Carl Levin of Michigan, chairman of the Senate Permanent Subcommittee on Investigations, said at a news conference yesterday.
For the story, go here.Senate PSI posts materials related to Apple hearing
The Senate Permanent Subcommittee on Investigations (PSI) has posted on its website materials related to the May 21 hearing, "Offshore Profit Shifting and the U.S. Tax Code - Part 2 (Apple Inc.)." These materials include witness statements, a PSI memo, and a variety of documents supplied by Apple.
For the materials, go here.Dublin cut tax burden on multinationals after US lobbying
Dublin amended its tax code following lobbying by US industry, reducing the tax burden on multinationals that funnel royalty payments to offshore tax havens, the FT has learnt.
The changes enabled some multinational companies to make royalty payments from their Irish-based operations directly to subsidiaries based in tax havens such as Bermuda or the Cayman Islands, without having to pay a 20 per cent withholding tax on the royalties.
The changes to Irelands tax code in July 2010 to exempt certain companies from the withholding tax were introduced as part of a suite of incentives to boost Irelands attractiveness as a location for intellectual property.
For the story, go here.Apple CEO Tim Cook, Lawmakers Square Off Over Taxes .
Apple Inc.'s tax strategies came under harsh scrutiny Tuesday in the Senate, where lawmakers are finding it far easier to call for a simpler tax code than to produce one.
Tim Cook, Apple's chief executive, defended the technology giant's tax practices, which Senate investigators say have led Apple to pay no corporate taxes on tens of billions of dollars in overseas income over the past four years. He said the company pays all taxes due and argued the U.S. tax code needs a "dramatic simplification."
Mr. Cook's appearance before the Senate's Permanent Subcommittee on Investigations focused both on Apple's practices and the broader question of tax reform. One consistent complaint from large companies is that the U.S. taxes multinational companies on their global earnings, while many others tax only profits earned within a country's borders. That gives U.S. companies reason to park foreign earnings overseas: They are taxed only when brought back to the U.S.
For the story, go here.Apple Tax Bill Overstated to Investors
Apple Inc.'s real tax bill isn't as big as the one it reports to its investors.
Among the findings of an investigation by the Senate's Permanent Subcommittee on Investigations are figures that show Apple's reported taxes substantially exceed the sum it actually pays the U.S. Treasury.
For the story, go here.The Apple Tax Diversion
You almost have to admire Carl Levin's timing. Amid a furor over politicized IRS tax enforcement, the Michigan Democrat on Tuesday tried to change the subject to a hardy Washington perennial -- corporate tax loopholes. Too bad his designated business pinata, Apple, demonstrates instead the insanity of the tax code that Mr. Levin has done so much to write.
Mr. Levin unveiled the results of his months-long investigation into Apple's corporate taxes and accused the American business success of employing "alchemy" and "gimmickry" to lower its tax bill. What Mr. Levin did not do was present any evidence of anything illegal or even inappropriate. He did prove that Apple has smart accountants and tax lawyers.
For the editorial, go here.Apple Avoided Taxes on Overseas Billions, Senate Panel Finds .
Apple Inc. paid no corporate income tax to any national government on tens of billions of dollars in overseas income over the past four years, Senate investigators found, a revelation that fuels the debate over whether the U.S. tax code needs an overhaul.
The disclosure follows a lengthy examination of the technology giant's tax practices by the U.S. Senate's Permanent Subcommittee on Investigations, which is expected to air its findings at a hearing on Tuesday. Apple Chief Executive Tim Cook is preparing to testify at the hearing, and is expected to propose changes to a tax code that provides American companies strong incentives to keep overseas earnings bottled up at foreign subsidiaries.
Apple used technicalities in Irish and American tax law to pay little or no corporate taxes on at least $74 billion over the past four years, according to the Senate panel's findings. The investigation found no evidence that Apple did anything illegal. Aides to the subcommittee said they have never seen a company use a subsidiary that didn't owe corporate income taxes to any country.
For the story, go here.Apples Web of Tax Shelters Saved It Billions, Panel Finds
Even as Apple became the nation's most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.
The investigation is expected to set up a potentially explosive confrontation between a bipartisan group of lawmakers and Timothy D. Cook, Apple's chief executive, at a public hearing on Tuesday.
Congressional investigators found that some of Apple's subsidiaries had no employees and were largely run by top officials from the company's headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless -- exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.
For the story, go here.Apple Holds Billions of Dollars in Foreign Tax Havens
An analysis of Apple Inc.s financial reports makes clear that Apple has paid almost no income taxes to any country on its $102 billion in offshore cash holdings. That means that this cash hoard reflects profits that were shifted, on paper, out of countries where the profits were actually earned into foreign tax havens.
For the CTJ report, go here.Robin Hood tax: A long shot
Robin Hoods modus operandi was simple and, thanks to Hollywood, is still universally understood. When the financial crisis tipped the global economy into a steep downturn, the English folk hero was the obvious figurehead for a campaign to make the financial sector pay by taxing its day-to-day activities.
You can draw parallels between the Sheriff of Nottingham and financial services, and Robin Hood redistributed gains back to those who needed them, says Simon Chouffot, spokesman for the Robin Hood Tax campaign, which was launched in 2010. But implementing a financial transaction tax is far harder than robbing wicked medieval landlords.
For the story, go here.Camp's Territorial Tax Revolution
Ways and Means Chairman Dave Camp started setting the agenda for a business tax overhaul in 2011 with a discussion paper on a territorial tax. This Bloomberg Government Analysis examines Camp's proposal and the impact of a switch to a territorial system.
For the report, go here. (Subscription required.)EU Leaders Struggling With Economic Growth to Turn to Tax Policy
European Union leaders struggling to find a consensus on how to overcome the debt crisis and revive economic growth will use a summit meeting this week to focus on fighting tax evasion and on the blocs energy policy.
The leaders of the 27-member bloc will meet in Brussels May 22 to agree on a plan governing how EU countries share tax data after finance ministers last week failed to reach a decision. Theyll also examine energy costs and investment, as the euro-area economy continues to be in a recession.
In the current economic context we must mobilize all our policies in support of competitiveness, jobs and growth, the group said in a May 17 draft of their conclusions.
For the story, go here.Apple faces grilling over US tax rate
Apple would have paid a tax rate of about 15 per cent last year, far below the 25.2 per cent it reported, had it not used a form of reserve accounting that sets it apart from other big US technology companies.
The rare accounting treatment has helped to distract attention from Apple at a time when the tax-avoidance strategies of other cash-rich US tech companies, notably Google, have come under public attack, according to tax experts.
However, Apples tax planning is likely to come under the microscope on Tuesday when Tim Cook, chief executive, appears before the US Senates permanent investigations subcommittee.
For the story, go here.Former employee ready to expose Googles tax plans
Googles tax planning has been branded immoral by a former employee who told a Sunday newspaper he was ready to hand over evidence to the tax authority that would expose the companys arrangements as a concocted scheme.
Barney Jones, a Google sales executive from 2002 to 2006, went public with some of the testimony behind last weeks parliamentary hearing, which prompted Margaret Hodge, chair of the public accounts committee, to label the company as evil.
For the story, go here.Goldman Sachs Tax Deal Didnt Break U.K. Law, Judge Rules
Her Majestys Revenue & Customss decision to reduce the New York-based banks tax bill was properly conducted, a judge in London ruled today. Still, Judge Andrew Nicol criticized tax officials who considered the potential embarrassment to Chancellor of the Exchequer George Osborne if a deal with Goldman Sachs wasnt completed.
The settlement with Goldman Sachs was not a glorious episode in the history of the Revenue, Nicol said in his written ruling.
For the article, go here.Apple CEO Cook to propose tax overhaul
Apple Chief Executive Tim Cook plans to propose a dramatic simplification of corporate tax laws when he testifies for the first time before Congress next week, just as lawmakers are eyeing an overhaul of the tax code.
In an interview, Cook said he will present specific proposals at a Senate hearing Tuesday to encourage companies to bring back foreign earnings to the United States and invest that money into creating jobs and research and development
If you look at it today, to repatriate cash to the U.S., you need to pay 35 percent of that cash. And that is a very high number, Cook said in an interview Thursday. We are not proposing that it be zero. I know many of our peers believe that. But I dont view that. But I think it has to be reasonable.
For the article, go here.Business hit with massive tax clawback
Corporate Australia will be slugged an extra $4.2 billion over the next four years to "protect the corporate tax base", as Labor seeks to squeeze more revenue from existing business taxes rather than introducing new imposts.
Multinational companies, miners and banks will be among the sectors the government will depend on to deliver the higher tax take, which Treasurer Wayne Swan said closed loopholes and stopped big businesses gaining an unfair advantage.
For the story, go here.ABA Meeting: Multinationals Must Accept BEPS Project, Stack Says
Given mounting global pressure to enact rules that would address the concerns raised in the OECD's base erosion and profit shifting project (BEPS), U.S. multinationals and their representatives should engage constructively, a Treasury official said on May 11. On the other hand, he emphasized that policymakers should not give in to the pressure in ways that produce bad rules and bad results.
Speaking at the Foreign Lawyers session of the American Bar Association Section of Taxation Meeting in Washington, Robert Stack, Treasury deputy assistant secretary (international tax affairs), said that the United States will focus on the goal of establishing rules that make sense and eliminate stateless income. The U.S. would like to see rules that are clearly articulated by governments, understood by business, and applied broadly throughout the system, he said.
For the story, go here. (Subscription required.)Arguments For and Against Territoriality
Reuven S. Avi-Yonah surveys the main arguments for and against territoriality and concludes that it is the wrong way to go in the short run but can perhaps be adopted in the medium to long term in conjunction with more fundamental international tax reform.
This article is based on keynote remarks at the American Tax Policy Institute conference on international tax reform (Rosanne Altshuler, organizer) in Washington on April 26. The conference papers can be found at http://www.americantaxpolicyinstitute.org.
For the story, go here. (Subscription required.)Permanent Establishments: Treasury Official Says Separate PE Rules May Not Be Needed to Tax Digital Economy
A Treasury Department official said May 11 that separate permanent establishment rules may not be needed in order to adequately tax the profits derived from the delivery of digital goods and services.
Deputy Assistant Treasury Secretary (International Tax Affairs) Robert Stack said Treasury's initial thinking regarding the Organization for Economic Cooperation and Development's base erosion and profit shifting (BEPS) project is that digital is not something that needs to be separately broken out and separately thought through.
For the article, go here. (Subscription required.)Protecting the corporate tax base from erosion and loopholes - Addressing profit shifting through the artificial loading of debt in Australia
On 14 May 2013 the Australian Deputy Prime Minister and Treasurer announced a package of reforms to protect the corporate tax base from erosion and loopholes.
This proposals paper outlines measures included in that package that address profit shifting through the artificial loading of debt in Australia.
For the paper and related news release, go here.
For additional related news releases, go here and here.Economic Analysis: Negative Foreign Effective Tax Rates
Using a detailed simulation model, economists Harry Grubert of Treasury and Rosanne Altshuler of Rutgers University have calculated that under current law, a hypothetical high-tech manufacturing investment by a U.S. multinational in a low-tax country faces a negative marginal effective tax rate.
That eye-catching result was one of many interesting findings in a 77-page paper presented April 26 in Washington at the international tax conference sponsored by the American Tax Policy Institute and the James A. Baker III Institute for Public Policy.
For the article, go here. (Subscription required.)Europe Eases Corporate Tax Dodge as Worker Burdens Rise
In early November, members of the U.K. Parliament assailed executives from Google Inc. (GOOG), Starbucks Corp. (SBUX) and Amazon.com Inc. (AMZN) for moving billions of dollars in profits into tax havens.
Less than a month later, Chancellor of the Exchequer George Osborne said he would lower the U.K.s corporate tax rate to 21 percent, below Germany and France, from 28 percent in 2010. A month after that, the U.K. cut the rate further, to less than 6 percent, on profit attributed to offshore arms that make loans to other units. These subsidiaries can help U.K.-based multinationals shift income to mailboxes in tax havens.
For the article, go here.ABA Meeting: BEPS Participants Staking Out Non-Arm's-Length Positions for Intangibles
In remarks he said might leave a fellow panelist less assured, Chris Bello, branch 6 chief, IRS Office of Associate Chief Counsel (International), reported that some participants in the OECD's base erosion and profit shifting (BEPS) project have called for rules that would disregard some intangibles transactions.
For the article, go here. (Subscription required.)David Cameron: A British-American Tax and Trade Agenda
Britain and America have a proud history of working together to meet the great challenges of the day. Ours is a partnership without parallel, rooted in our values of freedom and enterprise -- advancing not just Britain's and America's interests but the good of people around the world.
Today, our greatest challenge is to restore strong and sustainable growth to the world economy.
When times are tough, some want to put the barriers up, to look inwards, and to protect themselves from the world. But Britain and America stand for a better way. We have a precious opportunity to transform the global economy -- not by less openness and less free trade, but by more. And we must do everything possible to seize it.
For the editorial, go here.Kleinbard: "Through a Latte, Darkly: Starbucks' Window into Stateless Income Tax Planning"
This paper uses Starbucks Corporation, the premier roaster, marketer and retailer of specialty coffee in the world, as an example of stateless income tax planning in action. Stateless income comprises income derived for tax purposes by a multinational group from business activities in a country other than the domicile of the groups ultimate parent company, but which is subject to tax only in a jurisdiction that is neither the source of the factors of production through which the income was derived, nor the domicile of the groups parent company.
The paper reviews both Starbucks recent U.K. tax controversy (including a parliamentary inquiry), which revolved around the intersection of its consistent unprofitability in the United Kingdom with large deductible intragroup payments to Dutch, Swiss and U.S. affiliates, and its more recent submission to the U.S. House Ways and Means Committee.
For the paper, go here.Senate Finance Committee Staff Tax Reform Options for Discussion
Lawmakers weighing proposals to change taxes on U.S. companies' overseas earnings have taken a look at repealing deferral for controlled foreign corporations (CFCs), according to a Senate Finance Committee document released May 9.
That paper summarized the menu of options available to members of the panel, who met behind closed doors to further discuss tax reform. The deferral proposal has come up in legislation before, in a bill offered in the last Congress by Sens. Ron Wyden (D-Ore.) and Dan Coats (R-Ind.).
In addition to that proposal, members are considering tighter rules to minimize base erosion, stronger Subpart F rules, new tax treatment for non-Subpart F earnings, and further limiting cross-crediting, according to the committee document.
The committee's international tax reform options paper is at http://op.bna.com/dt.nsf/r?Open=emcy-97jmml.Graetz & Doud, "Technological Innovation, International Competition, and the Challenges of International Income Taxation," 113 Colum. L. Rev. 347 (2013)
Because of the importance of technological innovation to economic growth, nations strive to stimulate and attract the research and development (R&D) that leads to that innovation and to make themselves hospitable environments for the holding of intellectual property (IP). Tax policies have taken center stage in their efforts to accomplish these goals and to capture a share of the income from technological innovations.
This Article examines the three primary tax policies supporting innovation: (1) incentives for R&D, (2) patent boxes, and (3) tax benefits for advanced manufacturing. It then briefly describes common techniques MNEs use to lower their taxes on IP income. The Article then assesses the various incentives and offers recommendations about how the United States might respond to challenges it now faces in promoting technological innovation. Based on extensive examination of the economic evidence, the Article concludes that, at most, only R&D incentives are justified.
This Article also summarizes the current proposals for limiting opportunities for U.S. MNEs to shift IP income to low- or zero-tax jurisdictions. In that connection, it offers proposals for change that would more closely align U.S. taxes with U.S. sales.
For the paper, go here.Tax Reform: Tax Breaks Seen as Loopholes' Today Came From Previous Priorities, Treasury's Lew Says
Few politicians will argue against tax reform, but getting down to the details of closing so-called loopholes will be undeniably difficult, Treasury Secretary Jacob J. Lew said May 7 at the City Club of Cleveland.
The U.S. statutory tax rate is at the high end of the global scale, Lew said, but the effective tax rate puts the United States more on par with other countries. A statutory tax rate of 28 percent, with a broader tax base, would make it more attractive for international firms to base operations and pay taxes here, Lew added.
For the article, go here. (Subscription required.)Apples Move Keeps Profit Out of Reach of Taxes
Why would a company with billions of dollars in the bank -- and no plans for a large investment -- decide to borrow billions more?
A decade ago, that was a question some short-sellers were asking about Parmalat, the Italian food company that had seemed to be coining money.
It turned out that the answer was not a happy one: The cash was not real. The auditors had been fooled. A huge fraud was being perpetrated.
Now it is a question that could be asked about Apple. Its March 30 balance sheet shows $145 billion in cash and marketable securities. But this week it borrowed $17 billion in the largest corporate bond offering ever.
The answer for Apple is a more comforting one for investors, if not for those of us who pay taxes. The cash is real. But Apple has been a pioneer in tactics to avoid paying taxes to Uncle Sam. To distribute the cash to its owners would force it to pay taxes. So it borrows instead to buy back shares and increase its stock dividend.
For the article, go here.News Analysis: Globalization and International Tax Rules
In news analysis, Lee A. Sheppard says international tax reform should start with a discussion of cleaning up the current rules.
This article is an expanded version of comments to the April 26 American Tax Policy Institute international tax conference in Washington.
For the article, go here. (Subscription required.)Australian Court Holding in Favor of Cayman Islands Partnership Elicits Surprise
The Federal Court of Australia on April 26 held in favor of a U.S. private equity firm that had invested in an Australian gold mining company, finding that the 1982 Australia-U.S. tax treaty prevented the Australian Tax Office from taxing the gain on the sale of shares in the firm -- a Cayman Islands limited partnership that was treated as a corporation in Australia and was owned primarily by U.S. residents.
For the article, go here. (Subscription required.)Tax Treaties Concern Growing Among Multinational Firms As Senator Continues Hold on Three Treaties
Concern is growing among multinational businesses about the action taken by Sen. Rand Paul (R-Ky.) to block the Senate from voting to approve three major U.S. tax treaties with Switzerland, Hungary, and Luxembourg, with some fearing that more tax pacts in the pipeline could stall when they reach the Senate.
For the article, go here. (Subscription required.)Tax Policy: Former Treasury Official Expects OECD's BEPS Project Will Improve, Not Jettison, Existing International Tax Rules
Former Treasury Associate International Tax Counsel David Ernick, who joined PricewaterhouseCoopers in February after eight years with the government, talked with BNA April 11 about the direction of the Organization for Economic Cooperation and Development's project on base erosion and profit shifting. Ernick, who was Treasury's principal staff attorney for transfer pricing matters and represented the United States as a delegate to the OECD Working Party No. 6, predicted the BEPS project will result in improvements to existing international tax standards rather than radical changes.
For the full interview, go here. (Subscription required.)Companies Insist on IRS Tax Breaks While Extolling Rate Reform
Even as they praise the goal of revamping the tax code, dozens of companies and organizations want to ensure that a rewrite doesn't come at their expense. In letters to lawmakers, companies are asking to be left alone.
It's pretty frustrating, because they want the best of both worlds, said Rep. Kenny Marchant, a Texas Republican on the tax-writing House Ways and Means Committee, which is posting the letters on its website. They want to keep all their deductions and have a lower rate.
For the article, go here. (Subscription required.)The Role of Tax Treaties in Facilitating Development and Protecting the Tax Base
The amount of taxes paid by multinational enterprises (MNEs) in host and home countries continues to make headline news; corporate tax regimes, particularly those in many Organization for Economic Cooperation and Development countries, have never been more complex and the competition to attract and retain foreign direct investment (FDI) has perhaps never been so great.
For the article, go here. (Subscription required.)Corporate Reorganizations: Government Trying to Stop Highly Structured Repatriation Deals in Section 367 Rules
The government was trying to stop new versions of highly structured transactions it views as designed to bring cash back into the United States tax-free under final and temporary regulations (T.D. 9615) unveiled in March, officials said April 30.
For the article, go here. (Subscription required.)Ordering Rules Important in Applying Outbound Asset Regs
In complex reorganizations, taxpayers must consider how gain recognition rules are ordered before applying the section 367(a)(5) outbound asset transfer regulations, a Treasury official said April 30.
Speaking at a Bloomberg BNA Tax Management luncheon in Washington sponsored by Buchanan Ingersoll & Rooney PC, Brenda Zent, attorney-adviser, Treasury Office of International Tax Counsel, said a U.S. target must first consider all of the other rules under which it might recognize gain before applying section 367(a)(5). If gain remains after application of those rules, taxpayers should consider how an election under section 367(a)(5) might apply, she said.
For the article, go here. (Subscription required.)Back to the Future
Stewart Karlinsky is the executive director of the Pacific Rim Tax Institute and the Greater Zurich Area tax seminar. He lectures and writes on the alternative minimum tax system.
In this article, Karlinsky suggests going back to the future by using a concept similar to the book untaxed reported profits adjustment to the AMT. He offers a proposal that could simplify the tax law for domestic and international transactions, significantly lower tax rates, enable repeal of the corporate AMT, and eliminate the need for subpart F and complicated transfer pricing rules.
For the article, go here. (Subscription required.)PPL: Exposing the Flaws of the Foreign Tax Credit
Alan D. Viard is a resident scholar at the American Enterprise Institute. He thanks Alex Brill, Matt Jensen, Veronika Polakova, and Michael Strain for helpful comments. The views expressed in this article are solely the author's and do not reflect those of any other person or institution.
In this article, Viard explains that PPL Corp. v. Commissioner highlights the lack of a sound policy reason for the foreign tax credit's favorable treatment of foreign income taxes relative to other foreign taxes and nontax costs of earning foreign income. He argues that relief from excessive taxation of cross border investment is better achieved by eliminating corporate-level taxes on overseas income and the remaining source-based taxes on portfolio income.
For the article, go here. (Subscription required.)Great tax race: Irelands policies aid business more than public
A few weeks before Ireland unveiled its 2012 budget, which heaped 3.5bn in tax rises and spending cuts on an austerity-weary public, Irelands top civil servants sat down privately with senior bankers to discuss the industrys wish list.
It was the morning of November 24 2011, a year after Dublin was forced into an international bailout due to reckless speculation by its banks and chronically weak regulation. They met under the auspices of the Clearing House, a secretive group of financial industry executives, accountants and public servants formed in 1987 to promote Dublin as a financial hub.
For the story, go here.Zambias tax losses: Africans should join forces to combat transfer pricing
Zambias government estimates that it is losing $2bn annually as a result of tax avoidance and transfer pricing by foreign companies on its turf equivalent to 10 per cent of gross domestic product. It is not surprising that it is taking action to staunch such losses.
For the story, go here.OECD Document: "Draft Handbook on Transfer Pricing Risk Assessment"
In November 2011, the Steering Committee of the OECD Global Forum on Transfer Pricing undertook a project on transfer pricing risk assessment. The objective of this project was to produce a practical handbook that provides clear and detailed steps countries can take to assess the transfer pricing risk presented by an individual taxpayers operations. The handbook is intended to be sufficiently detailed that it can serve as a manual for both developing and developed countries to use in conducting transfer pricing risk assessments.
The new Draft Handbook on Transfer Pricing Risk Assessment, produced by the Steering Committee of the OECD Global Forum on Transfer Pricing, is a detailed, practical resource that countries can follow in developing their own risk assessment approaches.
For the draft handbook, go here.International Tax Reform Proponents Ignore Sourcing Rule Deficiencies, Critics Say
A mix of economists, accountants, and tax lawyers debated the future of international tax reform at an April 26 symposium, with critics saying that reform efforts are doomed to fail absent a serious reconstruction of the sourcing rules in the U.S. tax system.
For the article, go here. (Subscription required.)Fiscal rivalry and corporate taxes
Austerity has sharpened public anger against multinational companies that seek to exploit cracks and loopholes in the international tax system. In Britain, groups such as Google and Starbucks have been the focus of voluble campaigns, and parliament has taken to browbeating corporate bosses to pay a fair share.
But this cannot be the solution. Companies will always seek to minimise their outlay so long as there are different fiscal systems and tax avoidance is not against the law. Plugging the gaps will require co-operation between countries. However, agreement on this as a new FT series on tax competition shows is sorely absent.
For the editorial, go here.OECD International VAT/GST Guidelines (Draft Consolidated Version)
The OECDs Committee on Fiscal Affairs invites public comments on four new draft elements of the OECD International VAT/GST Guidelines (the Guidelines). These four interim drafts relate to (i) a preface to the Guidelines; (ii) the core features of VAT systems to which the Guidelines are intended to apply, (iii) place of taxation for cross-border supplies of services and intangibles to businesses that have establishments in more than one jurisdiction, (iv) implementation of specific rules for determining the place of taxation for cross border business to business supplies of services and intangibles.
For the draft guidelines, go here.Corporate Taxes: Untangling a Multi-Jurisdictional Transaction: Be Prepared!
A seasoned team of legal and tax professionals can help a client navigate the perils and pitfalls of multi-jurisdictional, cross-border transactions in order to arrive at a transaction structure that is mutually beneficial to all parties.
For the article, go here. (Subscription required.)European Union: European Commission Assembles Tax Expert Group to Monitor Plans to Tackle Tax Abuse
The European Commission set up a new platform April 23 made up of government and nongovernment tax experts who are to ensure proper implementation of pending recommendations to crack down on tax havens and close corporate tax breaks.
For the article, go here. (Subscription required.)European Union: EC Says Financial Transactions Tax Plans Will Not Be Delayed by U.K. Legal Challenge
The European Commission insisted April 22 that plans to conclude a financial transactions tax in 11 European Union member states would not be delayed by legal action taken by the United Kingdom to stop the controversial levy on stock and bond trades as well as derivatives.
For the story, go here. (Subscription required.)IRS Official and Practitioners Explore the Edges of International Joint Venture Guidance
Practitioners on April 24 questioned an IRS official on aspects of international transactions involving domestic and foreign partnerships for which guidance has not been issued.
Speaking at a District of Columbia Bar Taxation Section luncheon, David Bailey, branch 4 senior technical reviewer, IRS Office of Associate Chief Counsel (International), offered his view of the transactions discussed by the practitioners, but he pointed out that many of the questions did not have official answers.
For the story, go here. (Subscription required.)PM seeks global action to tackle tax avoiders
David Cameron has launched an international drive to rewrite global tax rules and force multinational companies to pay their dues. He is calling on Europes leaders to support a four-pronged assault on the billions of pounds a year lost to exchequers.
For the story, go here. (Subscription required.)PM letter to the EU on tax evasion and aggressive avoidance
The UK Prime Minister has written to Herman Van Rompuy, President of the European Council, setting out the case for radical global action to tackle tax evasion and aggressive tax avoidance.
For the letter, go here.Why Canada Should Adopt an Innovation Box Approach to Promote Innovation
Canada should consider adopting an Innovation Box approach to encourage business investment in innovative processes that improve productivity, growth, and incomes, according to a new report released from the C.D. Howe Institute. In Improving the Tax Treatment of Intellectual Property Income in Canada, authors Nick Pantaleo, Finn Poschmann and Scott Wilkie say federal tax policy should complement tax-based support for research and development (R&D) spending by encouraging the adoption, commercialization and use of innovative ideas in short, a pull, as well as a push, into R&D activity.
For the paper, go here.Passthrough Entities Budget Proposal on Dispositions by Foreign Partners Offers Ruling Teeth, Official Says
President Obama's budget proposal to codify a controversial ruling on the tax treatment of dispositions by foreign partners is intended to remind taxpayers of the government's views on the issue and to provide a withholding mechanism with teeth, an Internal Revenue Service official said April 24.
For the story, go here. (Subscription required.)CTJ: "Bernie Sanders Is Right and the Tax Foundation Is Wrong: The U.S. Has Very Low Corporate Income Taxes"
Senator Bernie Sanders of Vermont recently appeared on Real Time with Bill Maher and disputed the claim by the Tax Foundation that the U.S. has the highest corporate tax in the world. Senator Sanders is right, the Tax Foundation is wrong.
For the report, go here.Starbucks seeks fresh US tax breaks
Starbucks has launched a fightback in the US to protect and expand tax breaks on foreign profits just months after its tax structure provoked a political backlash and public relations crisis in the UK.
For the story, go here.Tax Reform: Rep. Brady Sees a Chance to Agree On Shift to Territorial Tax on Foreign Income
Settling the debate over shifting from a worldwide to a territorial tax system could be closer than it appears, according to Rep. Kevin Brady (R-Texas), and observers suggest could bode well for broader corporate tax reform.
For the story, go here. (Subscription required.)Transfer Pricing: OECD to Deliver Base Erosion Action Plan To Top Finance Ministers in July, Official Says
The Organization for Economic Cooperation and Development will deliver its action plan to address base erosion and profit shifting by July, its top tax official confirmed April 18.
Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration, said the BEPS project is on track. The OECD is actively working to develop an action plan, to be delivered to Group of 20 finance ministers in July, setting out a road map and process for further work.
For the story, go here. (Subscription required.)Economic Analysis: Designing Anti-Base-Erosion Rules
In economic analysis, Martin A. Sullivan discusses various anti-base-erosion proposals in tax reform plans offered by President Obama, House Ways and Means Committee Chair Dave Camp, R-Mich., and others.
For the article, go here. (Subscription required.)News Analysis: The Digital Economy and Permanent Establishment
In news analysis, Lee A. Sheppard considers a recent American Bar Association/International Fiscal Association meeting's discussion on permanent establishment and the digital economy.
For the article, go here. (Subscription required.)Why Is Treasury Protecting Tax Havens for Multinationals?
Martin Lobel argues that the United States needs to change its transfer-pricing-based international tax system because it is broken.
For the viewpoint, go here. (Subscription required.)The "Silver Blaze" Search for Inflation
Twice a year, the International Monetary Fund and the World Bank convene meetings in Washington to discuss current issues facing the global economy. The spring meetings occurred last week, and one of the important questions addressed was, Where is inflation in the world today amidst all the worlds monetary stimulus?
For the article, go here.Waiting for Obama
The Obama administration recently signaled to the business community that it could countenance some version of a territorial tax system for income earned abroad by U.S. businesses. Tax reform enthusiasts have seized on this perhaps a little too desperately, as evidence that reform will occur this year. Its a thin reed, however: If any tax reform does pass Congress it will happen in spite of, and not because of, this administration.
For the article, go here.Emerging Countries and the Taxation of Offshore Accounts
A new international regime in which financial institutions function as cross-border tax intermediaries is emerging. The contours of that regime will be established during a narrow window of opportunity over the span of the next few years. The resulting regime will have especially important consequences for emerging countries. A uniform, multilateral automatic information exchange system would improve both these jurisdictions ability to tax the offshore accounts of their residents and their capacity to tax certain domestic-source income from capital.
For the paper, go here.U.S. Officials Active on OECD Project As G-20 Deadline Nears, Rolfes Reports
U.S. officials are working with other countries toward a June deadline for a comprehensive action plan to address issues raised by the Organization for Economic Cooperation and Development's base erosion and profit shifting (BEPS) project, a Treasury Department official said April 18.
For the story, go here. (Subscription required.)News Analysis: Offshored Intangibles and the OECD Base Erosion Project
In news analysis, Lee A. Sheppard reports on remarks by Danielle Rolfes, Treasury's international tax counsel, that suggest that the United States is offering little support for the base erosion and profit-shifting work being done by the OECD.
For the article, go here. (Subscription required.)House Democrat Tries Again With New Bill Taxing Financial Transactions at Tiered Rates
The White House has been cool to a new tax on financial transactions, but a Democratic lawmaker proposing to introduce one has not given up on the Obama administration.
For the story, go here. (Subscription required.)Summary Estimates for Multinational Companies, 2011
Worldwide employment by U.S. multinational companies (MNCs) increased 1.5 percent in 2011 to 34.5 million workers, with the increase primarily reflecting increases abroad. In the United States, employment by U.S. parent companies increased 0.1 percent to 22.9 million workers, compared with a 1.8 percent increase in total private-industry employment in the United States.
For the news release, go here.Treasury uses tax levels to woo US groups
The UK Treasury has stepped up its marketing of Britain as a respectable low tax country in a series of high level meetings with US businesses that played down the recent political row over avoidance.
For the story, go here.Summary Estimates for Multinational Companies: Employment, Sales, and Capital Expenditures for 2011
The US Bureau of Economic Analysis (BEA) has released 2011 advance and 2010 revised summary estimates of the employment, capital expenditures, and sales activity of U.S. multinational companies (comprising both their U.S. and foreign operations) and the corresponding activity of foreign multinational companies in the United States. Preliminary 2011 and revised 2010 statistics based on more complete source data and including country and industry detail will be released later this year.
For the BEA release, go here.U.S. Tax Reform: Full-Inclusion Over Territorial System Compelling
Jeffery M. Kadet argues that rather than implementing a territorial system or continuing with the current deferral system, the United States should implement a worldwide full-inclusion system.
For the article, go here. (Subscription required.)Fairness in International Taxation Act Would Limit Treaty Benefits for Some Corporations
The Fairness in International Taxation Act, introduced by House Ways and Means Committee member Lloyd Doggett, D-Texas, would limit treaty benefits for corporations attempting to avoid U.S. taxes.
For the bill, go here.Levin: Corporations should pay fair share
In a USA Today op-ed piece, Sen. Sander Levin (D-MI), argues that loopholes allow some companies to pay no taxes, putting added burden on Americans.
For the article, go here.Tax Court Holds Corporation Received Dividends From CFC
The Tax Court, sustaining accuracy-related penalties, held that funds a corporation received through a purported reinvestment plan from a controlled foreign corporation were in substance dividend payments and taxable under section 301 and that the value of property transferred to the corporation was includable in its income.
For the opinion, go here. (Subscription required.)Tax Plan May Provide Boost
Despite the austerity mood in Washington, President Obama's proposed budget would provide tax relief to some foreign investors, a move the U.S. real-estate industry has been seeking for years.
As part of a larger push to spur private investment in U.S. infrastructure, Mr. Obama has proposed changes to a 1980s tax policy called the Foreign Investment in Real Property Tax Act, or Firpta, that would exempt foreign pension funds from paying taxes on gains from real-estate sales.
For the story, go here.Markets Insight: High price of ignoring EUs tax on trades
A bungled bail-out of Cyprus? We will get over it. Political stalemate in Italy? Whatever. Global financial markets are in a forgiving mood when it comes to European political missteps. The prevalent view is that the European Central Bank will avert catastrophes and the eurozone has moved towards a recovery phase.
Such a frame of mind explains why markets have paid so little attention as yet to Brussels plans for a financial transactions tax that, if implemented, could drive up costs significantly, slash volumes and reshape the financial industry across Europe. The assumption is that such far-reaching proposals will never actually be implemented.
For the story, go here.On Tax Day, Complexity Trumps Competitiveness
Today is tax day in the United States, the deadline for filing income tax returns and making any outstanding tax payments for the previous calendar year. You would be hard-pressed to find any U.S. taxpayer who loves (or even likes) Americas current tax system. What American citizens and companies alike find especially troubling is the systems complexity that increasingly penalizes America in the global economy.
For article, go here.Doggett Announces Legislation to Combat Tax Haven Abuse
The Stop Tax Haven Abuse Act, the International Tax Competitiveness Act, and the Fairness in International Taxation Act would each provide measures to crack down on corporations' use of tax havens to avoid U.S. taxes, according to an April 15 release from House Ways and Means Committee member Lloyd Doggett, D-Texas.
For the article, go here.Stop Tax Haven Abuse Act Would Restrict Use of Offshore Tax Havens
The Stop Tax Haven Abuse Act, introduced by House Ways and Means Committee member Lloyd Doggett, D-Texas, would implement various measures intended to reduce tax evasion through offshore tax havens, including expanded information reporting and increased penalties against tax shelter promoters.
For the bill, go here.Doggett Bill Would Introduce Measures Against International Corporate Tax Avoidance
The International Tax Competitiveness Act of 2013, introduced by House Ways and Means Committee member Lloyd Doggett, D-Texas, would modify the treatment of foreign corporations managed as U.S. domestic corporations and change the tax treatment of royalties received from controlled foreign corporations.
For the bill, go here.UK Shadow Business Secretary Chuka Umunna would not back an FTT without New York
The opposition Labour member of Parliament said it would be lunacy for the UK to unilaterally adopt a financial transaction tax (FTT).
For the article, go here. (Subscription required.)We tried a Tobin tax and it didnt work
Europe is making a mistake. In February, the European Commission published a proposal for a financial transaction tax also called a Tobin or Robin Hood tax in the EU. Eleven states have been granted the right to impose a minimum 0.1 per cent tax on equity and debt transactions and a minimum 0.01 per cent charge on derivatives transactions. If the experience of Swedens use of such a tax is anything to go by, this move is extremely unwise.
For the article, go here.Submissions to the Ways and Means Committees Working Groups on Tax Reform: International
A cut in the corporate tax rate and shift to territorial would keep the U.S. competitive on the international stage.
The U.S. corporate code needs an overhaul. Over the last 30 years the U.S. has fallen behind internationally, as countries from around the globe have cut rates and shifted to a territorial system of taxation. Since 2006, there have been 133 major corporate tax cuts, leaving the U.S. with the highest rate in the OECD. Furthermore, 28 of the 34 OECD countries now operate under a territorial system. In an increasingly globalized world, the inaction of the U.S. in the face of corporate tax reform around the globe has put U.S. companies on an uneven playing field. A rate cut and shift to territorial would lay the framework to make the United States competitive again.
For the submission, go here.Baucus and Camp: "Tax Reform Is Very Much Alive and Doable "
Every week Congress has been in session for the past two years, one of us has made the short walk across the Capitol to the other's office. We crowd into a room with our policy experts to chart a path to our mutual goal -- comprehensive tax reform.
While we are from different political parties, we agree that America's tax code is broken. That is why we have been working together as the chairmen of Congress's two-tax writing committees to make it fairer for families and spark a more prosperous economy.
The last overhaul of the tax code was more than a quarter century ago, and there is a need to get rid of its unnecessary complexity. Taxpayers spend more than six billion hours filling out documents to complete filings. They struggle to understand the rules, which amount to almost four million words. That is neither a productive use of time or resources. We can and must do better.
For the article, go here.News Analysis: Is Multinational Tax Planning Over?
In news analysis, Lee A. Sheppard says the European Union's struggle with aggressive tax planning shows that the OECD base erosion and profit shifting project is genuine and that the golden age for tax planning might be over.
For the article, go here. (Subscription required.)Stakeholders Agree on Approach to Tackling Base Erosion and Profit Shifting
Business representatives and OECD and government officials who attended a recent Paris meeting on the OECD's base erosion and profit shifting (BEPS) initiative seemed to agree that fundamental international tax standards should be tweaked, not replaced, to combat BEPS, David Ernick of PricewaterhouseCoopers LLP told Tax Analysts April 5.
For the article, go here. (Subscription required.)CTJ: "The U.S. Continues to Be One of the Least Taxed of the Developed Countries "
The U.S. was the third least taxed country in the Organization for Economic Cooperation and Development (OECD) in 2010, the most recent year for which OECD has complete data.
Of all the OECD countries, which are essentially the countries the U.S. trades with and competes with, only Chile and Mexico collect less taxes as a percentage of their overall economy (as a percentage of gross domestic product, or GDP).
For the CTJ report, go here.3M Fighting IRS in Tax Court Over Imputed Royalties; Says Regs Are Invalid
U.S. technology company 3M Co. is taking the IRS to Tax Court over adjustments resulting from the agency's decision to allocate $23.6 million of additional royalty income from the company's Brazilian subsidiary to its U.S. headquarters, even though Brazilian law prohibits payment of the royalties to the parent.
For the article, go here. (Subscription required.)SIFMA Urges Lew to Push Europe To Pare Back Financial Transactions Tax Plan
Treasury Secretary Jacob J. Lew should push European policymakers to pare back plans for a broad financial transactions tax, industry opponents to the tax said in an April 3 letter to Lew.
For the article, go here. (Subscription required.)Small Businesses Hurt by Tax Breaks For Multinational Firms, Group Complains
Tax havens for multinational corporations are bad for small business, a group opposed to the tax benefits reported April 4.
The U.S. Public Interest Research Group reported that multinational corporations gain an unfair competitive advantage by averting about $90 billion annually in taxes through tax code provisions like the indefinite deferral of taxes on profits earned outside the United States.
For the article, go here. (Subscription required.)"Tech Companies Love Dublin's Tax Rates"
Dublins Grand Canal Square, just south of the River Liffey, is known as Googletown. In 2011, Google (GOOG), which employs more than 2,500 people in Ireland, bought the neighborhoods 15-story Montevetro building. Nearby is Facebooks (FB) European headquarters, along with outposts for LinkedIn (LNKD), Yahoo! (YHOO), and other U.S. technology companies, some of them Dublin fixtures for over a decade. Theyve been drawn to expand there by the strapped governments flat 12.5 percent corporate tax rate.
For the article, go here.Bank of America Finds Profit in Foreign Tax Credit Moves
Bank of America Corp. more than doubled its profits in 2012 -- with some help from the tax code.
What the bank calls restructuring of its non-U.S. operations yielded $1.7 billion in foreign tax credits, or 41 percent of the $4.2 billion the company reported in 2012 earnings, according to securities documents including the form 10-K it filed Feb. 28. While the maneuvers didnt provide an immediate cash tax benefit for Bank of America, the foreign tax credits count toward net income under accounting rules.
The transactions and the banks decision to take some risk that the credits will expire unused indicate the sometimes contradictory incentives that companies have under the U.S. tax codes treatment of income earned overseas.
For the article, go here.Economic Analysis: U.S. Contract Manufacturing and Dave Camp's Option C
On March 15 at a Washington conference sponsored by the Tax Policy Center and the International Tax Policy Forum, titled "Tax Policy and U.S. Manufacturing in a Global Economy," the conversation focused on whether manufacturing should get preferential tax treatment. Those in favor said manufacturing is mobile and research-intensive and that there is a strong economic case that mobile capital and research should be tax favored. Opponents said mobile capital and research should be subsidized directly if necessary, not manufacturing generally, and that in any case, the political and administrative difficulties of defining winners and losers greatly dilute any potential benefits.
For the article, go here. (Subscription required.)Peterson Institute: "Corporate Tax Reform and U.S. MNCs: Ensuring a Competitive Economy"
The debate about "tax reform," during the 2012 presidential race and congressional budget battles this year has centered on closing loopholes, creating new incentives for growth, and raising revenue through higher personal taxation of wealthy Americans. But the debate overlooks an important priority for future US economic growth: the urgent need to reform the corporate tax. US-based multinational corporations (MNCs) are hobbled by an outmoded tax structure as they compete in the age of globalization.
For the paper, go here.Economic Analysis: U.S. Contract Manufacturing and Dave Camp's Option C
Nearly a decade ago, H. David Rosenbloom of New York University School of Law asked: "Why should U.S. companies be required to situate economic functions abroad to achieve a desirable result?"
Rosenbloom went on to suggest that the practical exemption from U.S. tax for foreign-based companies that perform a "middleman function" should be extended to subsidiaries performing the same function in the United States. That might erode the U.S. corporate tax base, but, Rosenbloom countered, it would eliminate distortions, promote U.S. employment, and have no detrimental effects on the competitiveness of U.S. multinationals. (Prior coverage: "Why Not Des Moines? A Fresh Entry in the Subpart F Debate," Tax Notes, Jan. 12, 2004, p. 274
.) For article go here.
Picking Up the Tab 2013
Some U.S.-based multinational firms and individuals avoid paying U.S. taxes by using accounting tricks to shift profits made in America to offshore tax havens countries with minimal or no taxes. They benefit from their access to Americas markets, workforce, infrastructure and security; but they pay little or nothing for it violating the basic fairness of the tax system and forcing other taxpayers to pick up the tab.
For article go here.Tax Policy Bulletin: OECD iniative on Base Erosion and Profit Shifting (BEPS)
This bulletin addresses the Base Erosion and Profit Shifting work-stream of the Organisation for Economic Cooperation and Development (OECD) and the OECD's progress report on the topic for the G20.
For the article, go here.April 2013 edition of PwC's International Tax News
International Tax News is designed to help multinational organisations keep up with the constant flow of international tax developments worldwide. Among the topics featured in this month's edition are:
* The 2013 Irish Finance Bill
* The OECD's base erosion and profit sharing report
* Brazilian tax court's favourable decision with respect to taxation of profits generated by indirectly controlled entities
* Singapore's 2013 budget proposals
For the April 2013 edition of PwC's International Tax News, go here.Christian Aid: "Multinational Corporations and the Profit-Sharing Lure of Tax Havens"
In February 2013, the Organisation for Economic Co-operation and Development (OECD) published its report Addressing Base Erosion and Profit Shifting. The report is the OECDs initial response to the mandate it received in 2012 from some political leaders in developed countries, which showed concern about the problem of tax-base erosion and profit shifting by multinational corporations (MNCs).
In the report, the OECD acknowledges that the current international tax system has not kept pace with developments in the business environment, providing MNCs with plenty of opportunities to exploit legal loopholes and enjoy double non-taxation of income (ie tax-free earnings).
The adoption of profit-shifting strategies by MNCs is identified as one of the main causes of base erosion. According to the OECD, abusive tax avoidance by MNCs raises serious issues of fairness and compliance.
How tax avoidance and evasion can hamper development efforts has been an important area of research in the past few years. This paper contributes to the debate by investigating the link between tax evasion and avoidance, profit shifting and tax havens.
For the paper, go here.International Implications of Corporate Tax Rate Reductions
Corporate tax rates and all that
What are the international implications of potential U.S. corporate tax rate reductions?
That would depend, of course, on exactly what additional provisions, including revenue enhancing base broadeners, are included along with any corporate tax reductions.
Evidence from OECD tax changes from 1980-2004 is that half the time corporate statutory rate changes are accompanied by base changes, though more often than not tax rate reductions are imposed along with base narrowing.
For now, however, consider only rate changes.
For full presentation go here:BEPS Solutions Should Target Source of Problems, Rolfes Says
The Treasury Department supports the objectives of the OECD's project on base erosion and profit shifting (BEPS), but it wants to ensure that any suggested solutions target the source of the problems and don't go beyond the scope of the BEPS project, according to Treasury International Tax Counsel Danielle Rolfes.
Speaking at a March 27 Bloomberg BNA Tax Management luncheon in Washington sponsored by Buchanan Ingersoll & Rooney PC, Rolfes said Treasury agrees that some of the international tax rules are outdated and need to be overhauled to better align with today's global economy.
For the article, go here. (Subscription required.)Big Business Spars Over Rewriting Tax Code
The idea of overhauling the corporate-tax code is greeted with applause by nearly all U.S. big businesses. That unanimity breaks down once the conversation turns to details.
One sign of that is the splintering of big companies into different groups promoting different strains of tax reform. High-tech, pharmaceutical and consumer-products companies, for instance, are eager to change the way overseas profits are taxed. Big domestic retailers, banks and telecommunications firms, in contrast, are more eager to see the corporate-tax rate come down.
For the article, go here.How Firms Tap Overseas Cash
U.S. companies say much of their cash is trapped overseas. But that doesn't mean they can't put it to use at home.
With some careful structuring, companies including Hewlett-Packard Co. HPQ +1.10% and General Electric Co. GE +0.09% have set up ways to borrow money from their foreign subsidiaries. In some cases, the firms use the funds for daily operations or to buy back stock.
The loans have to be short term. Yet when the borrowing is carefully set up to comply with Internal Revenue Service rules and U.S. auditing standards, the funds can be used over and over without incurring taxes.
For the article, go here.Survey: Majority of Multinationals Expect Worldwide Increase in Transfer Pricing Audits
Multinational corporations are gearing up for increased levels of scrutiny of their transfer pricing policies, and a large majority admit they do not have a clear grasp of how they are treating their intangible assets for tax purposes, according to a survey released March 27 by consulting firm Taxand.
For the article, go here. (Subscription required.)Transfer Pricing One of Three Work Areas Under OECD Project, Treasury Official Says
A U.S. Treasury official said March 27 that the work of the Organization for Economic Cooperation and Development's base erosion and profit shifting (BEPS) project has been organized into three clustersbase erosion, jurisdiction to tax, and transfer pricing.
For the article, go here. (Subscription required.)Pop (or Is That BEPS?) Goes the Weasel
Christopher E. Bergin writes that addressing base erosion and profit shifting may be the next weapon in the war on tax avoidance schemes, and that it comes not a moment too soon.
For the article, go here. (Subscription required.)Shay Proposals Would Strengthen Source-Country and Residence-Country Taxation
Stephen Shay, former Treasury deputy assistant secretary for international tax affairs, on March 21 argued that international tax rules must be reformed to address intermediaries that have little economic substance, and he outlined his proposals for doing that by strengthening both source-country and residence-country tax rules.
For the article, go here. (Subscription required.)For Dow 30, tax burden isn't what it used to be
A Washington Post analysis found that in the late 1960s and early 1970s, companies listed on the current Dow 30 routinely cited U.S. federal tax expenses that were 25 to 50 percent of their worldwide profits. Now, most are reporting less than half that share.
The reason is not simply a few loopholes tucked deep in the tax code. It's far bigger: the slow but steady transformation of the American multinational after years of globalization. Companies now have an unprecedented ability to move their capital around the world, and the corporate tax code has not kept up with the changes.
For the article, go here."Internal Ownership Structures of Multinational Firms"
This paper is the first comprehensive analysis of the foreign ownership structures of U.S. multinational firms. Though the vast majority of foreign subsidiaries are ultimately wholly-owned by their U.S. parents, the authors show that the way these subsidiaries are arranged within ownership structures varies considerably from simple to highly complex, and that much of this variation cannot be explained by basic firm characteristics, such as size, age, industry, or diversification.
For the paper, go here.Trading Clamps Spur Lobby Effort
High-speed trading firms and exchanges are being forced into the lobbying game by taxes on trades in Europe, proposals for similar levies in the U.S. and beefed-up regulatory scrutiny.
While still far less conspicuous than big banks and their legions of arm-twisters, executives and lobbyists for trading firms and exchanges have stepped up their behind-the-scenes efforts to avert specific rules and legislation, say staff members in Congress and agencies.
For the full article, go here.How to Unlock That Stashed Foreign Cash
Here's a novel way to drive up a companys share price: Pay billions of dollars in additional taxes.
Deliberately bloating your own tax bill isnt a common strategy, of course. To the contrary, an army of lawyers, accountants, lobbyists and executives is at work throughout corporate America, finding legal ways to minimize taxes and retain profits. One common approach for multinational corporations is to stash foreign earnings in low-tax countries, keeping the money out of the reach of the Internal Revenue Service.
For the article, go here.Treasure Island Trauma
A couple of years ago, the journalist Nicholas Shaxson published a fascinating, chilling book titled "Treasure Islands," which explained how international tax havens -- which are also, as the author pointed out, "secrecy jurisdictions" where many rules don't apply -- undermine economies around the world. Not only do they bleed revenues from cash-strapped governments and enable corruption; they distort the flow of capital, helping to feed ever-bigger financial crises.
For the full article, go here.BEPS Action Plan Will Provide a Sense of Direction, OECD Tax Director Says
The OECD's coming action plan on base erosion and profit shifting (BEPS) will not include firm measures to implement reform, but it will provide a valuable sense of direction, Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, said March 19.
For the article, go here. (Subscription required.)Cut Corporate Tax Loopholes, Multiple Taxation of Dividends, OECD Tells France
France should reduce loopholes for its corporate tax rate, and it should reduce multiple taxation of dividends as part of a thorough simplification of its tax system, according to a report released March 19 by the Organization for Economic Cooperation and Development.
For the article, go here. (Subscription required.)Business Roundtable Releases Global Competitiveness Tax-Rate Bracket
The Campaign for Home Court Advantage, which compares countries with the highest combined national and sub-national corporate tax rates and the largest economies, shows that the "outdated, broken" U.S. corporate tax system causes a competitive disadvantage and should be modernized, according to a March 20 Business Roundtable release.
For the release, go here.HM Treasury - Budget 2013 Statement
UK Chancellor of the Exchequer George Osborne delivered the 2013 Budget Statement on March 20.
For the statement, go here.OECD official discusses BEPS project at TEI meeting
Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, discussed the OECD's project on base erosion and profit-shifting (BEPS) at the March 19 meeting of the Tax Executives Institute (TEI). Attached is his TEI presentation.
For presentation go here.What You Should Know about the RATE Coalition's Quest for a Lower Corporate Tax Rate
This week, members of Congress will receive a visit from the tax vice presidents of major corporations that have come together in the so-called Reforming Americas Taxes Equitably (RATE) Coalition, a corporate lobbying group pressing lawmakers to reduce the corporate tax rate.
The first thing you should know about the RATE Coalition is that their rhetoric about the U.S. having a high corporate tax is nonsense. The U.S. statutory corporate income tax rate of 35 percent, which RATE wants to reduce, is not as important as the effective corporate tax rate the percentage of profits that corporations actually pay in taxes after accounting for all the loopholes and breaks that lower their tax bills.
For the Citizens for Tax Justice release, go here.Rough Justice on Foreign Tax Credits
New York lawyers had a virtual trip to Washington on March 14, when Senate Finance Committee International Tax Counsel Jefferson VanderWolk visited the International Tax Institute. VanderWolk, for his part, got a taste of New York lawyers' expectations that their policy advice will be adhered to.
The question at hand was the use of foreign law in U.S. tax law, specifically, reliance on foreign legal conclusions. A brief history: foreign law has been relevant forever, on simple factual issues like did the taxpayer pay a foreign tax. But only in recent years has U.S. law explicitly relied on foreign legal conclusions for U.S. results.
For the article, go here. (Subscription required.)OECD Enables Companies to Avoid $100 Billion in Taxes
Headquartered in a former Rothschild chateau in an affluent Parisian neighborhood, the Organization for Economic Cooperation and Development is best known for earnest conferences on economic and social policy.
With little outside attention, it also plays a pivotal role enabling global corporations such as Google Inc. (GOOG), Hewlett- Packard Co. and Amazon.com Inc. (AMZN) to dodge taxes by shifting profits into offshore subsidiaries, costing the U.S. and Europe more than $100 billion a year.
OECD officials have been digging themselves deeper and deeper into a hole by blindly pursuing a mistaken approach that allows multinationals to avoid taxes, said Sol Picciotto, an emeritus professor of law at Lancaster University in the U.K.
For the article, go here.Have U.S. Multinationals Found a New Incentive to Repatriate?
In a letter to the editor of Tax Notes, H. David Rosenbloom comments on a recent rise in U.S. tax receipts from U.S. multinationals with substantial holdings offshore.
For the letter, go here. (Subscription required.)Lawmakers unified in call to fix international tax system for business Read more: http://www.politico.com/story/2013/03/lawmakers-unified-in-call-to-fix-international-tax-system-for-business-88911.h
Corporate America doing business abroad needs more than a once-in-a-generation repatriation to bring profits home to the United States at low tax rates it needs a better international tax system, a group of bipartisan lawmakers said Friday.
For the article, go here.Worldwide Tax Reform: Reversing the Race to the Bottom
Jeffery M. Kadet recommends changes that would alter the behavior of multinational enterprises so that they discontinue, or at least curtail, their profit-shifting activities.
For the article, go here. (Subscription required.)New York University School of Law, Colloquium on Tax Policy and Public Finance : "Competitive Neutrality among Debt-Financed Multinational Firms"
Debt plays an important role in the financing of multinational corporations (MNCs). Interest expenses are typically tax-deductible in most corporate income tax systems, and there has been a growth of interest in recent years in the tax treatment of debt and its consequences. This paper discusses the optimal form that interest deductibility and associated restrictions should take in a multi-jurisdictional setting.
For the paper, go here.Congress: Deduction Curbs May Be Most Feasible Fix for Base Erosion
Michael C. Durst presents a method for controlling U.S. base erosion through statutory limitations on deductions for payments made to related parties in low- or zero-tax countries.
For the article, go here. (Subscription required.)Saint-Amans Urges Prompt Action To Solidify Support of Arm's-Length Principle
Wealthy countries urgently need to take coordinated action to answer questions about the effectiveness of the arm's-length principle if they are to avoid a breakdown in consensus around that mainstay of transfer pricing, the top tax official of the Organization for Economic Cooperation and Development said March 11.
Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration, said the Group of 20 countries has asked the organization to come up with an action plan by July to address mounting concerns over very low effective tax rates paid by some multinational companies, especially giant internet companies, and related questions about the continued effectiveness of OECD tax and transfer pricing rules.
For the article, go here. (Subscription required.)Overseas Tax Savings for U.S. Drugmakers Under Threat
The six biggest U.S. drugmakers avoided paying $7.05 billion in U.S. taxes last year by shifting their profits overseas. Thats almost double the amount they saved using the same strategy 10 years earlier, according to data compiled by Bloomberg.
For years, multinationals such as Pfizer Inc. (PFE), Merck & Co. (MRK) and Johnson & Johnson (JNJ) have been moving ownership of patents and trademarks to subsidiaries in low- or no-tax countries. This has allowed drug companies, as well as businesses in several other industries, to skirt paying U.S. taxes on sales of those products unless the money is returned home.
While the practice of shifting assets and profits overseas is legal, that could change. As the trend continues to grow in an era when the government is desperate to raise revenue, the strategy has drawn the ire of legislators eager to shut it down.
For the article, go here.Apple, Microsoft and Eight Other Corporations Each Increased Their Offshore Profit Holdings by $5 Billion or More in 2012
In recent years, multinational U.S.-based corporations have systematically accumulated staggering amounts of profits offshore. Much if not most of these profits were actually earned in the United States but have been artificially shifted to foreign tax havens to avoid U.S. corporate income taxes.
For the Citizens for Tax Justice report, go here.International Tax Planner Urges Against Shifting to Territorial Tax System
Instead of a territorial tax system, a worldwide full-inclusion system would better reduce incentives for multinational corporations to shift profits offshore by ending possible double nontaxation, Jeffery M. Kadet said in March 11 comments submitted to the House Ways and Means Committee's International Tax Reform Working Group.
For the full text of the comments, go here. (Subscription required.)More U.S. Profits Parked Abroad, Saving on Taxes .
U.S. companies are making record profits. And more of the money is staying offshore, and untaxed.
A Wall Street Journal analysis of 60 big U.S. companies found that, together, they parked a total of $166 billion offshore last year. That shielded more than 40% of their annual profits from U.S. taxes, though it left the money off-limits for paying dividends, buying back shares or making investments in the U.S. The 60 companies were chosen for the analysis because each of them had held at least $5 billion offshore in 2011.
For the article, go here.Offshore Stockpiles of U.S. Firms Rise by $183 Billion in Past Year
The largest U.S.-based companies expanded their untaxed offshore stockpiles by $183 billion in the past year, increasing such holdings by 14.4 percent, according to data compiled by Bloomberg.
The build-up of offshore profitstotaling $1.46 trillion for the 83 companies in the analysisis increasing because of incentives in the U.S. tax code for booking profits offshore and leaving them there. The stockpiles complicate attempts to overhaul the tax system as lawmakers look for ways to bring the money home and discourage profit shifting.
For the article, go here. (Subscription required.)Lawmaker, budget agency spar over taxing corporate profits
A top Republican lawmaker, House Ways and Means Committee Chair Dave Camp (R-MI) has challenged the widely respected congressional forecaster on budget issues, the Congressional Budget Office, accusing it of a slanted report on taxing corporate profits, according to documents released on Friday.
For the story, go here.
For Camp's letter to CBO, go here.
For CBO's letter to Camp, go here.Storm Survivors
When the Economist Intelligence Unit, a sister organisation of this newspaper, published the first bound edition of Tax Havens and Their Uses in 1975, a queue several blocks long formed outside The Economists bookshop in London. Interest in offshore financial centres (OFCs) kept growing over the following 20 years as dozens of new havens popped up, often with help from lawyers based in Wall Street or the City of London. Tax authorities did little to intervene. Beginning in the mid-1970s, Jerome Schneider, a well-known tax planner, hawked various tax-evasion schemes with impunity for more than 20 years, even advertising in airline magazines.
For the article, go here.New rules use government buying power against tax avoidance
New rules that will allow government departments to ban companies and individuals which take part in failed tax avoidance schemes from being awarded Government contracts have been unveiled by Chief Secretary to the Treasury, Danny Alexander and Minister for the Cabinet Office, Francis Maude today.
For the news release, go here.Who's the criminal? The agony and the ecstasy of offshore whistleblowing
Since the start of the financial crisis, tax whistleblowing has been roundly applauded by the media. But it remains a hell of a tough business, says Jack Blum, a lawyer in the field. One of Mr Blums clients is Heinrich Kieber, who in 2008 handed the German authorities client data from the Liechtenstein bank where he worked. He was paid 5m ($7.4m) for snitching but has been on Interpols wanted list ever since for breaking Liechtensteins privacy laws, which America supports because it sees Liechtenstein as an ally in the war on terrorist finance. Mr Kieber is in a witness-protection programme in a third country, unable to travel abroad.
For the article, go here.George Osborne: why I am committed to global tax reform
The principles for governing tax have barely changed in 100 years. Now's the time.
I want competitive taxes that say Britain is open for business and to attract global companies, with all the jobs they bring. That's why we're cutting the corporation tax rate from 28% to 21% the lowest in the G7. But I am also clear that global companies should pay those taxes.
For the full op-ed, go here.Group wants to limit tax bite on overseas profits
A new lobbying coalition is in the works to take on one of the thorniest issues associated with tax reform: the levies paid by massive U.S. corporations on profits generated offshore.
The group dubbed the LIFT America coalition is in the process of seeking corporate members and hasnt yet officially launched .
Partners, a Washington public affairs firm, is handling the groups communications, recruitment and strategy.
Recruitment documents obtained by POLITICO indicate the groups primary focus is pressing Congress to shift the corporate tax regime to a so-called territorial system in which companies are shielded from paying tax on most if not all of the profits they earn in other countries.
The coalitions mission is to work with policymakers and other stakeholders to enact a modernized territorial 2.0 tax system that protects Americas tax base, promotes increased U.S. investment and strengthens Americas competitiveness in the global marketplace, according to the document.
For the article, go here.But Who Will Fix the Formulary Apportionment Fix?
Peter L. Faber comments on the proposed formulary apportionment fix, saying there are some aspects of the reform effort that haven't been properly resolved.
For the letter, go here. (Subscription required.)Indian budget leaves taxpayers disappointed
Read why foreign investors have every reason to be disappointed with Finance Minister P Chidambarams eighth annual budget, which contained fewer business-friendly measures than expected.
For the article, go here.Lawmakers Request Meeting With Treasury to Discuss U.S. Financial Transaction Tax
Rep. Peter A. DeFazio, D-Ore., and Rep. Keith Ellison, D-Minn., have requested a meeting with Treasury to discuss the merits of a financial transaction tax in the United States, seeking to explain their legislative proposals and demonstrate how the tax can raise substantial revenue and provide a simple way to reduce excessive risk on Wall Street.
For the letter, go here. (Subscription required.)News Analysis: Thinking Outside the Patent Box
Promoting U.S. manufacturing is on every politician's lips. By "promoting" they mean offering a combination of tax benefits and training programs, but tax incentives are the main focus. Could patent boxes be an incentive that would help U.S. manufacturers?
For the article, go here. (Subscription required.)International Tax Planner Makes Tax Reform Recommendations
In March 3 comments, international tax planner Jeffery M. Kadet made several recommendations to the House Ways and Means Committee's International Tax Reform Working Group on reforming the tax treatment of accumulated deferred foreign income and on improving the proposed territorial tax system.
For the full text of the comments, go here. (Subscription required.)March 2013 edition of PwC's International Tax News
Keeping up with the constant flow of international tax developments worldwide can be a challenge for multinational organisations. As a result, PwC's International Tax network is excited to bring you a new publication that will offer updates and analysis of international tax changes around the world. Among the topics featured in this month's edition are:
* Germany expected to enact Company Taxation Bill shortly
* New Zealand proposes changes to the thin capitalization regime
* Final Foreign Account Tax Compliance Act (FATCA) regulations issued by the US
* China's interpretation of the capital gains article under the Singapore/China double tax agreement
For the March 2013 edition of PwC's International Tax News, go here.Practitioners Ponder OECD Base Erosion Initiative
Expect work on the OECD's base erosion and profit shifting initiative (BEPS) to move quickly and include a fundamental rethinking of international tax principles, practitioners said during a February 27 Ernst & Young LLP webinar.
For the article, go here. (Subscription required.)News Analysis: The OECD Confronts Zipless Tax Planning
Have a care for the OECD Centre for Tax Policy and Administration.
Since the OECD released its base erosion report, "Addressing Base Erosion and Profit Shifting," they have angry European and South Asian governments on one side, hurt multinationals on the other, and the United States in between trying to head off drastic unilateral measures. (For the report, see http://www.oecd.org/ctp/beps.htm.)
Representatives of multinationals whinged that their careful tax planning was derided as "schemes." Critics like your correspondent said the report didn't go far enough. And the complaining members and non-members are not going to be satisfied if four months from now, the OECD tells them to go back and amend their domestic laws if they don't like cross-border arbitrage.
For the article, go here. (Subscription required.)Collaboration on FATCA Sets Stage For Work on BEPS, Corwin Suggests
The speed and success with which the United States developed regulations under the Foreign Account Tax Compliance Act (FATCA)working in cooperation with multiple foreign governmentsmay serve as a lesson in how to tackle international concerns about base erosion and profit shifting, a former U.S. Treasury official said Feb. 28.
Manal Corwin, who stepped down Feb. 21 as deputy assistant secretary, international tax affairs, with Treasury, was keynote speaker at a meeting of the U.S. and Netherlands branches of the Internal Fiscal Association.
Corwin told IFA members that the Organization for Economic Cooperation and Development's approach to its BEPS projecton a fast track to a June report to the Group of 20could draw lessons from the development of guidance and collaborative agreements related to implementing FATCA, a 2010 law intended to stop cross-border tax evasion.
For the article, go here. (Subscription required.)Harkin, DeFazio Reintroduce Financial Transaction Tax Proposal
A pair of Democratic lawmakers February 28 reintroduced legislation that would tax financial transactions at 3 basis points, mirroring bills introduced in the last Congress.
For the story, go here. (Subscription required.)Lawmakers Introduce Targeted Wall Street Trading Tax
Senator Tom Harkin (D-IA) and Congressman Peter DeFazio (D-OR) today introduced legislation to place a tax on certain trading activities undertaken by banking and financial firms. If enacted, the measure would not harm ordinary middle-class investors or long-term investing, but instead targets financial trading and complex transactions undertaken by financial and investment firms. In the last Congress, the Congressional Joint Tax Committee scored a similar proposal as raising $352 billion over 10 years.
Joining Harkin and DeFazio in cosponsoring the legislation were Senators Bernie Sanders (I-VT) and Sheldon Whitehouse (D-RI) along with 19 House cosponsors.
For the Harkin release, go here.Outlines of Deal to Tax Worldwide Income Beginning to Take Shape, Lawmakers Say
Lawmakers are starting to see the outlines of a bipartisan agreement on how to tax the income that U.S.-based corporations earn outside the country.
Such a system would make it easier for U.S. companies to bring home foreign income taxed elsewhere while preventing profits booked in low-tax or no-tax jurisdictions from receiving the same benefit.
For the article, go here. (Subscription required.)India's 'Nonstandard' Treaty Positions Fracture India-U.S. Competent Authority Relationship
The Indian government's "nonstandard" positions on some international tax issues such as permanent establishments and transfer pricing underlie the frayed India-U.S. tax treaty relationship, according to Carol Doran Klein of the United States Council for International Business (USCIB).
For the article, go here. (Subscription required.)In Wall St. Tax, a Simple Idea but Unintended Consequences
Some say that a financial transaction tax is a cost-free way to kill many a bird with one stone -- raising revenue, preventing financial crashes and making markets safer. But advocates of this neat idea conveniently ignore the century of less-than-successful experience with this tax, including New York State's own failed attempt.
For the article, go here.EU Commissioner Advocates Global Financial Transaction Tax
The new EU financial transaction tax (FTT) to be adopted by 11 EU member states will serve as an example that proves the viability of the tax in meeting policy and fiscal needs, EU Tax Commissioner Algirdas emeta said on February 25.
"We are ready to lead the way to show that the FTT can and should be applied widely," said emeta. "I believe that the group of 11 member states will grow. Several others have already expressed an interest in joining the FTT zone in the future and I also retain hope that through the EU's example a global FTT will also be a reality sometime."
For the article, go here. (Subscription required.)A new European tax on financial transactions is set to go global
A new European tax on financial transactions will hit investors worldwide including in the United States who buy stocks and bonds of European companies, do business with European banks or engage in any of a broad array of financial activities.
The levy is due to take effect next year and will be a significant money-raiser for the 11 nations that have signed on, bringing in an estimated $45 billion annually. The 11-nation group, whose members are mostly from the economically ailing euro currency union, includes major U.S. trading partners such as Germany and France. Britain is not participating.
For the story, go here.India to Foreign Firms: Pay More Taxes
India's tax authorities are seeking billions of dollars from some of the world's biggest multinational companies, saying that they haven't properly valued transactions with their Indian subsidiaries.
The move threatens to sour foreign companies on India when it badly needs investment and is creating friction between tax authorities in India and the U.S.
The tensions reflect growing debate over how multinational companies should report their income through subsidiaries around the world. Emerging economies such as India want to grab a larger slice of such income, while the U.S. and other countries where the multinationals are based want to keep profitsand taxesat home.
For the story, go here.The Conversation: Tax havens let billions vanish into thin air
As you work on your state income tax return, give some thought to how much extra state income tax you must pay to make up for very wealthy California residents and multinational corporations who squirrel away money offshore.
The burden they shifted onto you came to $2.9 billion from wealthy individuals and $4.2 billion from big companies in the 2011-12 state budget year, a pioneering new study estimates. Together the escaped tax comes to $7.15 billion that you have to make up through higher state taxes, fewer services or the state taking on more debt to fund current operations.
For the article, go here.A Tax That May Change the Trading Game
To the dismay of the United States government not to mention Wall Street much of Europe seems poised to begin taxing financial trading as soon as next year.
For the article, go here.Who's Afraid of Inversion?
Many large U.S. companies avoid U.S. taxes by using accounting gimmicks to shift profits legitimately made in the U.S. to offshore tax havens that levy little to no tax. The most recent academic estimates put the revenue lost due to corporate tax haven abuse at $90 billion annually. According to a 2008 study by the Government Accountability Office, at least 83 of the top 100 publicly traded companies in the United States maintain subsidiaries in offshore tax havens.
As Congress considers closing the loopholes that allow aggressive offshore profit shifting, lobbyists for some companies are resorting to blackmail: If you prevent us from using offshore tax havens to avoid paying taxes, we may re-register our company outside the country or rearrange our corporate structure with a foreign headquarters to avoid U.S. taxes altogether. Dont mess with our loopholes or well become a company based in a tax haven like the Cayman Islands!
For the report, go here.Will Tax Avoidance in the U.K. Go Out of Style?
A January 31 hearing in the House of Commons focused on the role played by the Big Four in tax avoidance in the United Kingdom. The hearings raised the issue of the morality of aggressive tax planning while bringing to light significant differences between the United States and the United Kingdom on the boundaries of acceptable tax practice.
For the article, go here. (Subscription required.)OECD Tries to Fix Income Shifting
With its new report, "Addressing Base Erosion and Profit Shifting," the OECD promises to do something about the income-shifting problem and meet its critics. (For the report, see http://www.oecd.org/ctp/beps.htm.)
The report contains some astonishing admissions against interest about the causes of the zero-tax results under the current international system. The significance of the admissions by the erstwhile defenders of the faith cannot be understated.
"The existing system (arm's length) does not always work as it should," Centre Director Pascal Saint-Amans told Tax Analysts. "I am much more interested in focusing on what can be done to the existing system, without taking anything of this current system for granted."
Putting the best face on it, the report is a baby step toward practical proposals -- which are supposed to be ready for the G-20 meeting in a mere four months! The report provides little in the way of proposals, and it leaves the reader worrying that the OECD will jump in front of the parade and carry on with its useless projects.
For the article, go here. (Subscription required.)Insight: In Europe's tax race, it's the base, not the rate, that counts
The amount of profit a country taxes - commonly known as the tax base - has been shrinking for multinationals in many European countries over the past decade or so, experts say, a fact easily lost in talk about headline rates. Countries have found that reducing the base - agreeing to not tax some profits that a company makes - helps attract firms and, they hope, jobs. But as recent protests against corporate tax avoidance in Britain highlight, voters are beginning to question that tactic. If taxpayers see governments helping companies to avoid taxes, it could hurt their ability to tax everyone else.
For the article, go here.G-20 'Determined' to fight Profit-Shifting, Secure Revenue Base
Finance chiefs from the Group of 20 pledged to work together to curb multinational companies leeway to shift profits to low-tax countries, endorsing an initiative spearheaded by Europes biggest economies.
Britain, Germany and France today called on other G-20 nations to restrict tax avoidance by international corporations that declare profits in territories where they can pay the lowest amounts.
For the story, go here.Company taxation: The price isnt right
During the tax-evasion trial of Leona Helmsley, a flamboyant hotelier, a former housekeeper testified that she heard her employer say: We dont pay taxes. Only the little people pay taxes. These days, multinational companies stand accused of taking a similarly haughty attitude to their fiscal affairs, shifting profits offshore to cut their tax bills. Many of the tax-avoidance techniques being employed are legal, but many others are ruled to be illegal over time or occupy a grey area between the two. Corporate tax directors have generally worked on the basis that a strategy is legitimate until it is ruled illegal, no matter how aggressively it is structured. Their opponents recall the words of Denis Healey, a former British chancellor, who suggested that the difference between avoidance and evasion was the thickness of a prison wall.
For the article, go here.The Merry Enablers: Accounting firms will do nicely under any set of rules
Many corporate tax-avoidance strategies are crafted with the help of the big four accounting firmsDeloitte, Ernst & Young, KPMG and PwC. These firms also happen to be among the longest-standing and best-represented providers of corporate services in offshore locations.
For the article, go here.The OFCs Economic Role: The good, the bad and the Ugland
Detractors describe the offshore phenomenon as one of the more noxious features of financial globalisation that is now, mercifully, in retreat. The half-dozen senior lawyers gathered in the wood-panelled boardroom of Ugland House, the head office of Maples and Calder in George Town, the Cayman Islands capital, have heard it all before, and they beg to disagree. Offshore centres oil the financial interface between larger economies, insists Alasdair Robertson of Maples. Grant Stein of Walkers, another Cayman firm, thinks of it as the plumbing that connects the global financial system. His peers nod vigorously. At times they seem touchy, but then Ugland House, the registered address of more than 18,000 companies, is held up by critics as a symbol of all that is wrong with OFCs.
For the article, go here.Enduring Charms: A brief history of tax havens
The history of offshore finance is riddled with myths and legends, says Ronen Palan, a haven-watcher. The term tax haven did not enter the language until the 1950s, but the concept originated in the late 19th century, when the American state of New Jersey eased its business-registration and tax laws to drum up incorporation revenues during a fiscal squeeze. A few years later Delaware copied its methods. These early moves were driven by Wall Street lawyers.
For the article, go here.Five myths about manufacturing jobs
In his State of the Union address Tuesday, President Obama said that creating manufacturing jobs is the nations first priority. To some, this may sound like a throwback to a long-lost era; after all, such jobs are being eliminated, outsourced or automated, right? Not really. The United States remains a world leader in manufacturing, and that sector remains essential to our economic and technological future. Here are the five biggest misconceptions about U.S. manufacturing and why the sector still matters.
For the story, go here.U.S., Poland Sign New Tax Treaty With Comprehensive LOB Provision, Treasury Says
The United States has signed a new income tax treaty with Poland that has a comprehensive limitation on benefits provision similar to many other recently concluded accords, the U.S. Treasury Department announced Feb. 13.The LOB provision is intended to ensure that only residents of the United States and Poland will enjoy the benefits of the treaty, Treasury said in an unnumbered news release on its website.
For the Treasury news release, go here.Outmoded tax laws to blame for multinational profit shifting, says OECD
The OECD in a February 12 report on base erosion and profit shifting (BEPS) pledged to quickly create an action plan to address "pressure areas" in international taxation that are a source of profit shifting. The organization also called for increased transparency of multinational corporation tax rates.
For the article, go here. (Subscription required.)OECD reps tout "authorized intermediary" system as win for source and residence countries
A multicountry adoption of the OECD's new authorized intermediary system for streamlining the process for portfolio investors to claim treaty withholding rates on cross-border investments could provide a win for investors as well as source and residence countries, according to OECD representatives.
For the article, go here. (Subscription required.)
President Obama remarks on manufacturing
The White House has released the text of President Obama's speech in Asheville, NC, today, in which he focused on policies to strengthen the American manufacturing sector.
The President's speech included the following as part of his "to-do" list: "The second thing we need to do is make our tax code more competitive. Right now, companies get all kinds of tax breaks for moving jobs and profits overseas, but companies that stay here get hit with one of the highest tax rates in the world. That doesnt make any sense."
For the full text of the speech, go here.Silicon Valley firms shelter assets overseas, slash U.S. tax bill
The largest tech companies in the Bay Area have avoided paying federal taxes on more than $225 billion they have accumulated through foreign subsidiaries, documents filed with the Securities and Exchange Commission show.
For the article, go here.OECD and BIAC on why revisiting tax rules may help build public trust
Tax is not a struggle to the death, say Pascal Saint-Amans, director of the OECDs Centre for Tax Policy and Administration and Will Morris, chair of the OECDs business advisory branch (BIAC) tax committee and global tax policy director for GE.
For the article, go here. (Registration required.)OECD releases report on base erosion and profit shifting
The OECD today released a new report, "Addressing Base Erosion and Profit Shifting."
For the report, go here.Sen. Whitehouse introduces sequester replacement plan to preserve jobs
With the so-called budget sequester set to begin on March 1, U.S. Senator Sheldon Whitehouse (D-RI) today introduced two bills to replace the across-the-board cuts. The bills, which are cosponsored by U.S. Senators Carl Levin (D-MI), Tom Harkin (D-IA), and Bernie Sanders (I-VT), would raise the revenue needed to replace the sequester by closing tax loopholes that currently benefit the wealthiest Americans and big corporations.
For the full Whitehouse press release, go here.OECD says G-20 BEPS effort could lead to redefinition' of global taxation rules
A new report by the Organization for Economic Cooperation and Development could eventually contribute to a redefinition of international tax rules that would be aimed at preventing certain multinational companies from shifting profits to avoid taxation, according to the organization's top tax official.
OECD Feb. 12 released its Addressing Base Erosion and Profit Shifting report in response to growing concerns that multinationals, especially internet giants, are exploiting gaps in international tax standards and transfer pricing rules to shift profits away from jurisdictions where those profits were generated.
For the article, go here. (Subscription required.)The growing corporate cash hoard
Last week, the investor David Einhorn sued Apple, in which his hedge fund has a large stake, over how the company can issue preferred stock. At the heart of the dispute is the $137 billion pile of cash that Apple has accumulated, and whether it could be used to better reward shareholders.
Mr. Einhorns action highlights a growing problem: many corporations are holding vast amounts of cash and other liquid assets, using them neither for investment nor to benefit shareholders. These assets are largely earned and held overseas, and not subject to American taxes until the money is brought home.
For the article, go here.Q&A: international tax loopholes
The tax planning exploits of some multinationals can leave them paying as little as 5 per cent in corporate taxes when smaller businesses are paying up to 30 per cent.
For the Q&A, go here. (Registration required.)Vodafone to challenge $243 million allocation on pricing of shares to Mauritius
Vodafone said Feb. 7 it will challenge a transfer pricing order alleging that the Indian arm of the U.K. telecommunications company underpriced by 13 billion rupees ($242.5 million) the shares it issued to a group company based in Mauritius in 2007-08.
For the article, go here. (Subscription required.)
Myths and misconceptions about transfer pricing and the taxation of multinational enterprises
Jeffrey Owens of the Institute for Austrian and International Tax Law, (WU) Vienna University of Economics and Business, writes about the need for international principles governing transfer pricing, but says there is no silver bullet to resolve the related issues of tax base erosion and multinational enterprises shifting their profits to low-tax jurisdictions.
For the article, go here. (Subscription required.)OECD releases system to reduce compliance cost and facilitate cross-border investment
Claiming withholding tax relief under treaties and domestic law is often cumbersome, time and resource intensive for the bulk of foreign portfolio investors and thus often does not happen.
After several years of work with governments and businesses around the world and in close co-operation with the EU, the OECD has developed and approved a standardised system of effective treaty and domestic relief including a complete implementation package for countries to move forward (TRACE). This is a major step in streamlining processes, reducing costs, and giving investors their rights while improving tax compliance.
For more information on the TRACE project, go here.Group urges states to take lead in offshore tax crackdown
A consumer advocacy group is urging states to get ahead of Congress in cracking down on offshore tax avoidance that costs states an estimated $40 billion in annual revenue.
State governments can take several steps to collect revenue from wealthy individuals and corporations, even if those actions are not matched on the federal level, the United States Public Interest Research Group says in a report released Tuesday.
For the article, go here.Sanders introduces bill to end some corporate tax preferences
Senate Budget Committee Member Bernard Sanders, I-Vt., introduced legislation on February 7 to close offshore tax havens and end tax preferences that allow corporations to avoid paying taxes on profits earned overseas.
For the article, go here. (Subscription required.)A new Rx for tax bills: shuffling sales abroad, rates for big drug firms are dropping
Drug makers are taking new steps to lower their taxes significantly, in a boon to their bottom lines.
Many drug makers pay effective tax rates of 20% or higher. Firms that are seeking even lower rates don't specify their strategies, and the details can vary. But the efforts typically involve shifting revenue overseas where it can be taxed at a lower rate than in the U.S., experts say. Some companies also noted the tax benefit they will receive this year from a federal tax credit for research and development.
For the article, go here.The 0.03% solution to Washington's budget problems
The unwritten rule of Washington debates about taxing and spending is to never consider anything new. But wouldn't it be wonderful if the pressure of the next few months' debate changed that?
Last month, 11 European countries, including France and Germany, moved forward on introducing a minuscule tax on trades in stocks, bonds and derivatives. The tax goes by many names. It's often called a Tobin tax, after the economist James Tobin. In Europe it goes by the more pedestrian financial transaction tax. In Britain, it goes by the wonderful Robin Hood tax, and is supported in an often clever campaign.
On this side of the Atlantic, there is a ghostly silence on a transaction tax in respectable political quarters. But that might change. This month, Senator Tom Harkin, Democrat of Iowa, and Representative Peter DeFazio, Democrat of Oregon, plan to reintroduce their bill calling for just such a tax.
For the article, go here.The hidden cost of offshore tax havens
When U.S. corporations and wealthy individuals use offshore tax havens to avoid paying taxes to the federal government, it is an abuse of our tax system. Tax haven abusers benefit from our markets, infrastructure, educated workforce, and security, but they pay next to nothing for these benefits. Ultimately, taxpayers must pick up the tab, either in the form of higher taxes, cuts to public spending priorities, or increased national debt.Tax havens are countries or jurisdictions with minimal or no taxes. Corporations and individuals shift earnings to financial institutions in these countries to reduce their U.S. income tax liability - costing the federal government $150 billion in lost revenues each year.Federal taxpayers are not the only victims of offshore tax havens. Tax havens deprive state governments of billions of dollars in badly needed revenues as well. Based how much income is federally reported in each state, and on state tax rates, it is possible to calculate how much each of the state governments lose as a result of offshore tax dodging.
For the report, go here.Sen. Levin eyes corporate tax breaks, tax evasion in sequestration proposal
Sen. Carl M. Levin's push to close tax loopholes as a way to soften federal budget cuts and trim the deficit will also target corporate tax deductions for stock options and stiffen penalties for tax evasion, his office revealed Feb. 1.In a memo to Democratic Senate committee leaders, Levin (D-Mich.) described proposals to end what he called excessive corporate tax deductions, end the blended tax rate for derivatives such as commodity futures, and strengthen enforcement of the tax code.Sen. Levin said corporations pay an effective tax rate of 15 percent due to various deductions and loopholes even though the top marginal rate set in the tax code is 35 percent.For the article, go here. (Subscription required.)Working paper on tax reform options
Citizens for Tax Justice has released a working paper outlining three categories of revenue-raising options for tax reform, one of which is "ending breaks and loopholes that allow large, profitable corporations to shift their profits offshore to avoid U.S. taxes."
This category of reforms "would target U.S. multinational corporations that engage in
convoluted transactions and accounting schemes to make what are truly U.S. profits appear to be generated in a country with no corporate tax or a very low corporate tax (a tax haven) in order to avoid the U.S. corporate tax. JCT has already estimated that the very strongest reform possible in this category (ending deferral of U.S. taxes on the offshore profits of U.S. corporations and reforming the foreign tax credit) would raise around $600 billion over a decade."
The other reforms in this category are more modest reforms proposed by President Obama to limit the worst abuses of deferral (and would be unnecessary if deferral was eliminated).
For the report, go here.'Tobin tax' push causes dismay
The European Commission appears determined to press ahead with a Europe-wide financial transaction tax in spite of warnings that it threatens the existence of Europes 1tn money market funds industry.Trade bodies representing MMFs have been left dismayed at the emergence of revised and strengthened plans from Brussels for a so-called "Tobin tax on equity, bond and derivative transactions, reported by the Financial Times last week.
The plans are expected to be published within weeks and to be signed off by mid-March.
For the article, go here.February 2013 edition, PwC's International Tax News
Keeping up with the constant flow of international tax developments worldwide can be a challenge for multinational organisations. As a result, PwC's International Tax network is excited to bring you a new publication that will offer updates and analysis of international tax changes around the world. Among the topics featured in this month's edition are:
* French Finance Act for 2013 and 3rd amnded Finance Act for 2012
* Second CJEU judgement in Franked Investment income Group Litigation
* Implementation of Taiwan's controlled foreign company (CFC) rules and place of effective management
* New Zealand signs tax treaty with Japan
For the February 2013 edition of PwC's International Tax News, go here.Wall Street tells Washington: Cut corporate taxes in 2013
Corporate CEOs have released their wish list for what Washington should do to energize an economy they expect will grow just 2% this year. High on the list: reforming the corporate tax code.
John Engler, president of the Business Roundtable, which represents the CEOs of more than 200 U.S. companies, tells The Daily Ticker that the 35% top marginal corporate tax rate in the U.S.the highest in the developed worldis too high and creates difficulties for U.S. corporations competing in the global market.
This is just a numbers game, and were losing at it," says Engler. Even Canada has a 15% corporate tax rate. Engler says the relatively high U.S. corporate tax rate affects corporate decisions on location, investment and jobs.
For the article, go here.
The fiscal and economic risks of territorial taxation
Many policymakers say they want to reform the U.S. system of taxing multinational corporations so that it better promotes growth and helps reduce budget deficits. Unfortunately, according to a new report from the Center on Budget and Policy Priorities (CBPP), one proposal that has received significant attention would take the tax code in an ill-advised direction, creating serious economic and fiscal risks.
For the CBPP report, go here.Can publicity curb corporate tax avoidance
Bruce Bartlett examines the argument that public shaming could result in mulitnational corporations paying more income tax.
For the article, go here.Accountancy's Big Four are laughing all the way to the bank
Westminster is rarely a palace of pleasure, but Thursday brought the magnificent spectacle of Margaret Hodge walloping the big four accountancy firms for their role in helping companies deprive the Treasury of taxes everyone else has to pay. Four heads of tax at PWC, Ernst & Young, Deloitte and KPMG wriggled and obfuscated, hiding behind the polite euphemisms of their trade. Never say avoidance or, God forbid, evasion but call it "tax planning" and "tax efficiency".
For the article, go here.Recent Budget laws pile' tax increases on large firms in France, practitioners say
Large companies in France need to adopt new reflexes to contend with a piling on of recent tax measures that have significantly complicated their tax arrangements, according to a Jan. 24 session by the country's largest law firm, Fidal Direction Internationale.
The two-hour conference, which featured four attorneys from Fidal's international tax department, assessed the impact of several major tax increases that have hit businesses in France since 2011 as a succession of governments have attempted to deal with the country's ballooning budget deficit.
For the article, go here. (Subscription required.)Corporate tax posturing should stop
The only problem is that it is not true.
For the article, go here.Software firms find tax advantages
Expanding use of cloud computing to deliver software as a service is making it easier for global software companies to earn and keep profits outside the reach of U.S. taxes.
For the article, go here.Italy scours deals abroad for elusive tax revenue
Italy, which has one of the biggest tax-cheating problems in the developed world, is cracking down on suspect offshore investments as part of an unprecedented drive to find new sources of tax revenue and ease concerns about its 2 trillion ($2.69 trillion) in debt.
One of the brightest spotlights is on companies suspected of earning money or shifting it abroad to avoid paying Italian taxes.
For the article, go here.French Tax Administration increasingly raiding foreign multinationals, report says
The French tax administration is increasingly willing to conduct tax raids to seize proof that multinational companies have permanent establishments in France and are avoiding or evading taxes in the country, according to a report released Jan. 24 by France's biggest law firm.
For the article, go here. (Subscription required.)How can vulnerable countries cope with tax avoidance?
In Tax Notes news analysis, Lee A. Sheppard discusses how nations like Norway can cope with the international tax system, including whether they should use OECD model treaties.
For the full article, go here. (Subscription required.)Dell's multiple restructurings aid it in tax avoidance
In a Tax Notes column, David Cay Johnston discusses a restructuring by Dell Inc. that would enable it and other U.S. multinationals to avoid being taxed on their U.S. profits.
For the article, go here. (Subscription required.)France urges OECD, G-20 action to boost taxation of global internet giants
France is urging a tightening of international tax rules to reduce the scope of global internet companies such as Amazon, Apple, Facebook, eBay, and Google to optimize their taxation, as key tax discussions get under way at the Organization for Economic Cooperation and Development in preparation for the Group of 20 nations' February finance summit.
For the article, go here. (Subscription required.)Cameron: U.K. will focus on tax avoidance at G-8
British Prime Minister David Cameron said Thursday he will use his country's year-long presidency of the G-8 to target tax-dodging tactics by businesses.
Public anger has been mounting in Britain after lawmakers accused major multinational companies of "immorally" avoiding paying tax.
For the story, go here.
Deferred taxes may fluctuate under extended CFC rules
The recently enacted fiscal cliff law could alter the deferred tax accounting of companies subject to controlled foreign corporation rules, but the resulting financial statement ramifications may depend on the accounting strategy that was employed during the brief expiration of those retroactively extended tax laws.
For the Tax Notes article, go here. (Subscription required.)Corporate tax: a race to the bottom
Corporate tax rates have been falling around the world since the 1980s and the trend shows no sign of letting up. The Financial Times' Daniel Garrahan reports on whether the world is engaged in a ruinous race to the bottom.
For the video, go here.Yahoo, Dell swell Netherlands $13 trillion tax haven
Inside Reindert Doovess home, a 17th- century, three-story converted warehouse along the Zaan canal in suburban Amsterdam, a 21st-century Internet giant is avoiding taxes.
The bookkeepers home office doubles as the headquarters for a Yahoo! Inc.offshore unit. Through this sun-filled, white- walled room, Yahoo has taken advantage of the law to quietly funnel hundreds of millions of dollars in global profits to island subsidiaries, cutting its worldwide tax bill.
The Yahoo arrangement illustrates that the Netherlands, in the heart of a continent better known for social welfare than corporate welfare, has emerged as one of the most important tax havens for multinational companies. Now, as a deficit-strapped Europe raises retirement ages and taxes on the working class, the Netherlands role as a $13 trillion relay station on the global tax-avoiding network is prompting a backlash.
For the article, go here.Firms keep stockpiles of "foreign" cash in US
There's a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas: A lot of it is actually sitting right here at home.Some companies keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, according to people familiar with the companies' cash positions.
In the eyes of the law, the Internal Revenue Service and company executives, however, this money is overseas. As long as it doesn't flow back to the U.S. parent company, the U.S. doesn't tax it. And as long as it sits in U.S. bank accounts or in U.S. Treasurys, it is safer than if it were plowed into potentially risky foreign investments.
For the story, go here.CRS examines tax havens: international tax avoidance and evasion
In a January 23 Congressional Research Service report, Senior Specialist in Economic Policy Jane G. Gravelle looks at recent legislation and other proposals by the Organization for Economic Cooperation and Development (OECD) and the
G-20 industrialized nations that have targeted tax haven countries, focusing primarily on evasion issues.
For the report, go here.Globalization poses new challenges for tax reform
The effects of globalization and international competition on the U.S. economy and the government's fiscal condition will require any tax reform effort made in the coming months to be much different from past efforts, panelists said January 18 during a conference cosponsored by Pepperdine University and Tax Analysts.
For the article, go here. (Subscription required.)UK tax reform: a model for the United States?
In a Tax Notes viewpoint, George White examines what 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 to White, "title of this article is taken from a paper presented at a Washington 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."
For White's viewpoint, go here. (Subscription required.)
As foreign profits rise, corporate tax rates fall
Globalization is creating two misleading impressions about corporate taxes in the U.S.
First, corporate-tax revenue is keeping up with recent historical averages as a share of gross domestic product. However, thats only because globalization has raised the corporate-profit share of GDP, while reducing the share of labor compensation.
Second, both Democrats and Republicans in Congress are committed to corporate-tax reform in response to globalization. Yet they are unlikely to accomplish much, because each partys desired reforms are pretty much the opposite of the others.
Consider the state of corporate taxes. In the final quarter of fiscal year 2012, corporate income taxes amounted to 1.7 percent of GDP -- exactly their quarterly average over the past three decades. A closer look, though, reveals that this pattern reflects two contrasting trends.
For the opinion piece by Peter S. Orszag, go here."Robin Hood" trading tax nudged forward in Europe
A hotly contested tax on financial trades took a big step forward on Tuesday when European Union finance ministers allowed a vanguard of member states to proceed with the plan.
The so-called Robin Hood tax would apply to trading in stocks, bonds and derivatives. Although the tax would probably be small one-tenth of a percentage point or less on the value of a trade it could earn billions of euros for struggling European governments.
Algirdas Semeta, the European commissioner in charge of tax policy, called the decision a major milestone in tax history and said the levy could be imposed starting next year. But deep concerns about how it would work could still lead to delays.
For the story, go here.Corporate tax take has "risen"
A group of top finance directors has joined the fray as big business seeks to confront intense public scrutiny of corporate tax planning, saying companies tax treatment has undergone a dramatic change in recent years and that the overall burden they face has increased.
Andrew Bonfield, chairman of the tax committee of the Hundred Group, said the changes reflected the policy of successive governments looking for stable tax revenues and economic growth.
For the story, go here.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 of transfer pricing enquiries.
For the article, go here.
CRS examines where American companies report profits: indications of profit-shifting
Federal tax revenue could increase as a result of tax reform that cuts the top corporate tax rate to reduce incentives to shift profits to tax havens, and that revenue could be used to reduce debt and deficits, the Congressional Research Service said in a January 18 report.
This report uses data on the operations of U.S. multinational companies (MNCs) to examine the extent to which, if any, MNCs are moving profits out of high-tax countries (or out of the U.S.) and into low-tax countries with little corresponding change in business operations, a practice known as "profit shifting."
For the report, go here. (Subscription required.)Offshoring: Welcome home
A special report in the Economist examines the fact that, after decades of sending work across the world, 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 manufacturing workers 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.
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 document was signed.We have adopted an exemption for certain direct dividends and the definition of direct dividend will not be surprising to anybody familiar with 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.)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) committee will be accepted and that GAAR implementation will 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.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.Corporate and international tax reform: proposals for the second Obama Administration (and beyond)
In a University of Michigan Public Law Research Paper that will 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 the wake of the passage of the American Taxpayer Relief Act of 2012.
For Professor Avi-Yonah's paper, go here.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 that would raise revenue to help ease the deficit problem.
For the article, go here.Next US model treaty may include revised discretionary competent authority provision
The revised discretionary competent authority relief provision in the new protocol to the Spain-U.S. tax treaty may appear in the next U.S. model treaty, Henry Louie, deputy to the Treasury international tax counsel for tax treaty affairs, said January 15.
For the article, go here. (Subscription required.)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.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 period when 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.)US productivity climbs, but wages stagnate
Federal income tax rates will rise for the wealthiest Americans, and certain tax loopholes might get closed this year. But these developments, and whatever else happens in Washington in the coming debt-ceiling debate, are unlikely to do much to alter one major factor contributing to income inequality: stagnant wages. For millions of workers, wages have flatlined.
Wages have fallen to a record low as a share of Americas gross domestic product. Until 1975, wages nearly always accounted for more than 50 percent of the nations G.D.P., but last year wages fell to a record low of 43.5 percent. Since 2001, when the wage share was 49 percent, there has been a steep slide.
For the full text of this article, go here.UK.s biggest companies lower tax rate with overseas business
The biggest UK companies paid taxes at a lower rate for the fourth consecutive year, in part by garnering more profit overseas even as some prominent companies caused public outcry by avoiding levies in Britain.
UK. Business Secretary Vince Cable said in December that governments should coordinate across borders to make companies pay more tax.
For the full article, go here.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 debate was 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.)
Financial transactions levy tops EU tax agenda for 2013
Adopting a financial transactions tax in at least 12 European Union member states in 2013 will top the EU tax agenda in 2013, while at the same time work in the EU Council of Ministers will continue to help finalize pending legislation to amend EU energy and savings tax laws, key EU tax officials said in interviews with BNA.For the article, go here. (Subscription required.)CBO reviews options for taxing US multinational corporations
In a January 8 report, the Congressional Budget Office examines options for changing the way the United States taxes multinational corporations or addressing particular concerns with the current system of taxation. All of those options would affect multinational corporations investment strategies and reporting of income, as well as U.S. revenues from corporate income taxes.
For the CBO report, go here.
India to Western tech firms: to sell it here, build it here
India has proposed sweeping curbs on the import of technology products ranging from laptops to Wi-Fi devices to computer-network equipment.The proposed regulations, which were reviewed by The Wall Street Journal, would create an expansive "Buy India" mandate requiring a large percentage of the high-tech goods sold in the country to be manufactured locally.
For the full article, go here.
Bernstein: Corporate tax reform should be revenue positive
In a blog post, Jared Bernstein argues that corporate tax reform should not be revenue neutral, but should raise more revenue than would be needed to lower the top rate from 35 percent to 28 percent.
Says Bernstein, "There are a lot more tax expenditures, e.g., tax breaks for favored investments, theres a lot more overseas income that escapes US taxation, more debt financing, heaving favored in our corporate code, and much more passing through of what used to be corporate income to the individual side of the tax code, to take advantage of things like lower rates on capital gains realizations."
For the full text, go here.Inquiry into tech giants' tax strategies nears end
Congressional investigators are wrapping up an inquiry into the accounting practices of technology companies that allocate revenue and intellectual property offshore to lower the taxes they pay in the United States.
The Senate Permanent Subcommittee on Investigations inquiry now drawing to a close began more than a year ago and involves at least a half dozen technology companies.
For the full article, go here.
American companies and global supply networks: driving US economic growth and jobs by connecting with the world
In an extensive report sponsored by the Business Roundtable, the United States Council for International Business, and the United States Council Foundation, Dartmouth Professor Matthew J. Slaughter explains what American companies must do to
succeed in todays dynamic global economy.
For the full text of the prepublication version of Professor Slaughter's report, go here.President Obama statement on fiscal cliff tax legislation
In his January 1 statement on the agreement resolving the fiscal cliff crisis, President Obama said, "And todays agreement enshrines, I think, a principle into law that will remain in place as long as I am President: The deficit needs to be reduced in a way that's balanced. Everyone pays their fair share. Everyone does their part. That's how our economy works best. That's how we grow."
For the statement, go here.Say no to the tax status quo
An opinion piece in the San Francisco Chronicle makes the case for a territorial tax system for the US.
For the article, go here.CRS examines US international tax reform alternatives
In a December 27 report, Jane G. Gravelle, a Senior Specialist in Economic Policy with the Congressional Research Service, assesses the existing US international tax regime and examines possible revisions to that regime.
For the full text of the report, go here.
CRS examines tax cuts on repatriation earnings as economic stimulus
In the latest version of a Congressional Research Service report, Donald Marples, Senior Research Manager, and Jane G. Gravelle, Senior Specialist in Economic Policy, present an economic analysis of tax cuts on repatriation earnings as economic stimulus.
The authors argue that, viewed in the current debate on how to most efficiently stimulate the economy, economic theory suggests that the simulative effect of a temporary tax cut for repatriations may be offset, or more than offset, by exchange rate adjustments that would reduce net exports. In addition, how businesses use repatriated earnings will impact the stimulative or contractionary effect of a tax cut for repatriations. For example, repatriated earnings will have a larger stimulative effect, or smaller contractionary effect, the greater the degree to which they are used to increase current
investment. A smaller stimulative effect or a larger contractionary effect will result, in contrast, if more of the repatriated earnings are used to shore up cash-flow issues or pay dividends. This report will be updated as legislative events warrant.
Proposals to adopt a phased in repatriation at a lower tax rate have been coupled with more recent proposals to make a permanent more to a territorial tax, where active earnings of foreign operations would not be subject to U.S. tax.
For the full report, go here. (Subscription required.)
UK to introduce above-the-line R&D tax credit
A new R&D regime, effective April 1, 2013, should reduce the cost of R&D in the United Kingdom. The credit is above-the-line, so corporate officials should have greater visibility into how investment decisions can benefit from the credit. In addition, some loss-making companies could see an immediate cash benefit.
For the article, go here.Tax competition and the trend toward territoriality
In a new two-page paper, University of Michigan Law School Professor Reuven Avi-Yonah examines the key aspects of the recent trend toward territorial taxation, including the ease with which this tax competition allows multinational corporations to avoid taxation in the countries in which their goods are produced, and how the correct reforms to CFC rules, together with enhanced transfer pricing enforcement, can minimize the harm the trend toward tax competition can inflict on the stability of the US corporate tax base.
For the abstract of Avi-Yonah's paper, and to download the full text of the paper, go here.France, Germany to pool revenue from FTT to fund programs aimed at competitiveness
France and Germany plan to use revenue collected from a financial transactions tax for a
special fund that would help euro zone countries that have committed to structural reforms designed to boost competitiveness.
The commitment by France and Germany to use the FTT revenue came on the same day that the European Commission confirmed that Lithuania has joined the other 11 EU member states that have committed to impose an FTT via a special EU legislative procedure.
For the full story, go here. (Subscription required.)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 real world 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.)transparency in our corporate tax system
A group of business owners and executives has written to President Obama and members of Congress, requesting a want a tax system that is fair and provides sufficient revenue for the public services and infrastructure that underpin our economy.
For the letter, go here.Eggert reiterates US opposition to services PE provisions
The United States continues to oppose services permanent establishment provisions because of the burden they impose on taxpayers, even though it has entered into them with other countries, a Treasury official said December 7.
For the article, go here. (Subscription required.Say no to a corporate territorial tax
A San Francisco Chronicle editorial argues against a territorial tax system for the US.
For the editorial, go here.Camp, Hatch call on business community to embrace comprehensive tax reform
In a December 14 letter to the heads of the Business Roundtable and the National Federation of Independent Business, House Ways and Means Chairman Dave Camp and Senate Finance Committee Ranking Minority Member Orrin Hatch reaffirm their support for comprehensive tax reform, as opposed to a corporate-only tax reform approach.
For the letter, go here.CTJ: 286 Fortune 500 companies hold $1.6 trillion in offshore profits
In a December 13 report, Citizens for Tax Justice reports that, based on an examination of the annual 10-K reports filed by 290 Fortune 500 corporations, those corporations held nearly $1.6 trillion in profits outside the US at the end of 2011.
For the CTJ report, go here.
EU parliament OKs special legislative procedure for EU financial transactions tax
The European Union took an important step toward implementing a financial transactions
tax in at least 11 EU member states in 2013 when the European Parliament December 12 approved the use of a legislative procedure that allows normal unanimous voting requirements to be bypassed.
For the full story, go here. (Subscription required.)UK tax authorities opens draft GAAR legislation for public comment
Draft legislation issued Dec. 12 by the United Kingdom treasury represents U.K. authorities' latest thinking on its proposals for a general anti-abuse rule (GAAR).
In explanatory notes accompanying the draft, which is open for public comment until Feb. 6, the treasury noted that key changes relate to the double reasonableness test, the wording of which has been clarified to ensure that the GAAR operates as intended.For the article, go here. (Subscription required.)Treasury official: US tax reform efforts must be informed by international fight against base erosion
Appearing at the recent GW/IRS Insititute on Current Issues in International Taxation, Treasury Deputy Assistant Secretary for International Tax Affairs Manal Corwin said efforts to US international tax rules must take place within the context of global efforts to combat base erosion. She said in particular that the OECD project on base erosion and profit shifting (BEPS) would "inform the conversation."
For complete coverage of Corwin's remarks, go here. (Subscription required.)G-20 Asks OECD to review rules with goal of curbing profit shifting
The G-20 has tasked the Organization for Economic Cooperation and Development with a fundamental review of international tax rules, including transfer pricing rules, with the goal of helping governments better respond to multinational taxpayers who use aggressive tax planning to shift their profits to low tax jurisdictions.
In an announcement, OECD said it will deliver a progress report to the G-20 in early 2013 on whether the current tax rules are still effective in today's business environment, particularly when applied to the increasingly digital economy, or whether there is a need for different solutions.
For the full article, go here. (Subscription required.)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.Exceptions would 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.)Capping the deductibility of corporate interest expense
In a Tax Notes special report, Robert C. Pozen and Lucas W. Goodman propose reform that lowers the corporate tax rate from 35 to 25 percent and allows nonfinancial C corporations to deduct only 65 percent of their interest expense, with special treatment for the financial sector and for companies that would have otherwise realized taxable losses.
For the report, go here. (Subscription required.)UK announces additonal corporate rate reduction
George Osborne, the UK Chancellor of the Exchequer, recently delivered his 'Autumn Statement'. He focused on reducing the budget deficit, restoring stability to the economy and equipping the United Kingdom to compete globally. While there were relatively few new announcements, the overall theme was positive given the difficult economic conditions. The statement also reinforced the governments message that the United Kingdom is open for business.
For the article, go hereOfficials outline OECD intangibles and base erosion initiatives
The OECD's base erosion and profit shifting (BEPS) initiative will not be a "business-bashing exercise," but it will address how the lack of coordination in international tax laws permits multinationals to legally take advantage of profit shifting, Joseph Andrus, head of the transfer pricing unit of the OECD's Centre for Tax Policy and Administration, said December 6 in Washington.
For the story, go here. (Subscription required.)European Commission to launch new plan against tax havens, corporate loopholes
The European Commission will unveil Dec. 6 a plan to crack down on tax havens and aggressive tax planning by companies in order to help EU member states recover desperately needed revenue lost to tax evasion.
Citing the $1 trillion or more in revenue the 27 EU member states lose annually to tax evasion and tax avoidance, the European Commission proposal will also call for an EU Taxpayer's Code of Conduct, an EU tax identification number, a review of the anti-abuse provisions in key EU directives and common guidelines to trace money flows.
For the full story, go here. (Subscription required.)More US service jobs heading offshore
US service companies have been sending jobs abroad in large numbers the past decade to cut labor costs a trend that accelerated in the recession and is expected to continue the next few years before slowing after 2016.
Since 2005, legal services such as document review, contract drafting and regulatory communication increasingly have been offshored, particularly to India, says Greg McPolin, managing director of Pangea3, a legal outsourcing firm. Indian attorneys handle work that in the U.S. is sometimes done by paralegals and at a 40% to 60% cost savings, he says.
For the full article, go here.
Transfer pricing more workable than unitary tax
In a letter to the editor of the Financial Times, Will Morris, Chair, Tax Committee, Business Industry Advisory Committee to the OECD, responds to recent articles praising formulary apportionment.
For the letter, go here. (Free registration required.)Economic substance needed to weigh third-party behavior, OECD's de Ruiter says
Economic substance is as relevant as legal contracts for determining third-party behavior in a transaction, and the two factors should carry equal weight in the Organization for Economic Cooperation and Development's discussion draft on intangibles, a top OECD transfer pricing official said Nov. 13.
Marlies de Ruiter, head of the OECD's division for tax treaties, transfer pricing, and financial transactions, said that legal contracts are very relevant in determining third-party behavior in transfer pricing transactions, but that authorities should also be able to look at economic substance to assess whether related parties' conduct is in line with what third parties would have done.
For the full story, go here. (Subscription required.)Territorial taxation discussed at annual NTA meeting
Speakers at the National Tax Association's annual meeting on November 18 discussed the idea of the US moving to a territorial system, including the beneficiaries and the effects of such a move.
For the article, go here. (Subscription required.)Tory MP asks FTSE 100 companies to back country-by-country reporting
A Conservative MP has written to the chief executives of all FTSE 100 companies seeking their support for corporate tax transparency and a new international accounting standard requiring country-by-country reporting of profits and taxes paid.
For the article, go here.
As anger over alleged tax avoidance rises, British MPs vow action on multinationals
The UK Parliament's Public Accounts Committee at a November 12 hearing grilled executives from Google Inc., Amazon.com Inc., and Starbucks Corp. over their transfer pricing policies, suggesting that the companies were engaged in shifting income out of the U.K. to tax havens.
For coverage of the hearing, go here.Designing an "ironclad" US territorial tax system will be difficult, Shay says
Addressing the National Tax Association on November 16, Harvard Law School professor Stephen Shay -- who has extensive international tax experience in both government and private practice -- warned attendees that practitioners will find ways to avoid a territorial-based corporate tax.
For coverage of Shay's remarks, go here.
OECD releases three-pager on base erosion and profit shifting
The OECD has released a three-page background brief regarding the organization's work in the area of tax base erosion and profit shifting (BEPS).
For the three-pager, go here.News analysis: why do we need treaties?
Individual provisions of the OECD model treaty have been called into question in recent years, but questioning the point of bilateral treaties per se is rare outside South America. Usually, the questioners approach the matter from the vantage point of developing countries, whose revenue interests are undermined by treaties.
For the article, go here. (Subscription required.)News analysis: the challenges of taxing cloud computing
Cloud computing involves several functions. Some of its more popular iterations are software as a service (SaaS), which provides an application to customers through the Internet; platform as a service, which provides a way for customers to develop their own applications to run on the provider's infrastructure and deliver them online from the provider's servers; utility computing, essentially on-demand storage and virtual servers; managed service, an application used by information technology providers; and service commerce platforms, which are a services hub, such as an expense management system.
Cross-border tax rules are poorly suited to emerging cloud services and content provision mechanisms. Treasury is starting to look for ways to reduce the uncertainty.
For the article, go here. (Subscription required.)European Court of Justice rules against UK tax imputation method on foreign dividends
The United Kingdom may be forced to repay billions of dollars to a variety of multinational companies after the European Court of Justice ruled Nov. 13 against different tax treatment the United Kingdom uses for domestic dividends and foreign-based dividends paid to companies.
In a case (C-35/11) that dates to the early 2000s, the EU high court said a United Kingdom law that allowed corporate tax exemptions on dividends paid by domestic companies, but not on those earned for foreign-based sources, is a violation of EU law allowing the free movement of capital. The law was repealed in 2009 pending ECJ review.
For the full story, go here. (Subscription required.)Reflections on the public consultation on the OECD discussion draft on transfer pricing and intangibles
More than 120 business commentators convened in Paris for the long-awaited 2.5 day Public Consultation with Working Party 6 (WP6) delegates and the OECD secretariat. These represented at least 70 firms (including corporations, consulting firms, law firms and industry organisations) The Discussion Draft topics discussed are (i) the Intangibles Draft; (ii) Safe Harbours; and (iii) Timing Issues.
This is the OECD's 4th Public Consultation on the Intangibles Draft since the project kicked-off in 2010.
For discussion, go here.UK and German Finance Ministers call for corporate tax coordination
In a joint statement issued at the G-20 finance ministers meeting in Mexico city, the finance ministers of the United Kingdom and Germany called for better coordination of corporate tax regimes because changes in global business practices have exposed weaknesses in the current regimes.
The Daily Tax Report story on the statement may be found here.
The joint statement may be found here.
Durst suggests changes to OECD guidance on transfer pricing for intangibles
In a Tax Notes viewpoint, international tax practitioner Michael C. Durst, who formerly served as director of the IRS advance pricing agreement program, offers suggestions for improving the OECD's proposed modifications to its transfer pricing guidance regarding the taxation of income from intangible property.
To read Durst's viewpoint, click here.
Why advanced manufacturers need tax reform
In an opinion piece published on politico.com, Intel's Peter Cleveland explains how pro-innovation tax policy "can level the playing field for American businesses, expand our advanced manufacturing base and move forward an innovation-based economy."UK, Germany call for international action to strengthen tax standards
In a joint statement issued at the November 5 G20 meeting, German Finance Minister Wolfgang 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 Germany want competitive corporate tax systems that attract global companies to our countries, but also want 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.
Walking the walk on international taxation
Wolfgang Schäuble and George Osborne, finance ministers of Germany and the UK, call for "concerted international co-operation" to make corporate taxation more effective. The sentiment cannot be faulted. But they need to prove this is not all talk and no action.
For the Financial Times editorial, go here.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.)News analysis: services PE upsets presumptions
The OECD has put out a new draft on permanent establishment, the most contentious issue within which is treatment of services.
For the article, go here. (Subscription required.)Opinion: tax reform 2.0
In an opinion piece based on a speech he presented to the Tulane Tax Institute in New Orleans on November 1, Martin A. Sullivan examines some key issues that must be addressed for comprehensive tax reform to occur.
For the article, go here. (Subscription required.)UK Treasury committee could grill US companies over 'tax evasion'
The Commons committee, headed by Andrew Tyrie MP, is considering whether to lend its weight to the escalating furore over the UK tax affairs of large foreign-based businesses with UK arms and could call companies to account by early next year.
For the article, go here.Australian Business Tax Working Group issues final report on possible corporate rate cut
The Australian Treasury's Business Tax Working Group (BTWG), established in 2011 to explore ways in which a corporate tax cut could be funded from within the business tax system, has issued its final report, concluding that it was "unable to recommend a revenue neutral package to lower the company tax rate."
For the full text of the BTWG Final Report, go here.Manufacturing the future: The next era of global growth and innovation
The McKinsey Global Institute undertook the research in Manufacturing
the future: The next era of global growth and innovation to gain a better
understanding of how manufacturing contributes to developing and advanced
economies in the 21st century. The authors' goal was to establish a clear fact base on
the current state of the global manufacturing sector and analyze how longterm
trends will shape manufacturing in the coming decades.
For the full report, go here.OECD's revised discussion draft on beneficial ownership
On 19 October the OECD released its revised proposals on the topic of beneficial ownership. This contains some modifications from its earlier Discussion Draft (released in April 2011) which proposed various changes to the Commentary to the OECD Model Tax Treaty in order to clarify the beneficial owner test.
For discussion, go here.OECD releases revised complete edition of public comments received on the discussion draft on timing issues relating to transfer pricing
The OECD has released a revised complete edition of public comments received on the June 6 discussion draft regarding transfer pricing timing issues.
The comments will be discussed by Working Party No. 6 at its November 2012 meeting and at a Public Consultation to be held in Paris on 12-14 November 2012.
For the comments, go here.OECD releases revised treaty discussion drafts
The OECD on October 19 released revised discussion drafts on proposed changes to the OECD model tax treaty commentary regarding permanent establishments, beneficial ownership, and cross-border trading of emissions permits.
For the article, go here. (Subscription required.)OECD clarifies when dividend recipients are beneficial owners
The question of when the recipient of a dividend will be considered a beneficial owner got an overhaul in a revised discussion draft unveiled Oct. 22 by the Organization for Economic Cooperation and Development.
OECD said the issue was the one that attracted the most comments on its original draft on beneficial ownership, and said it made the changes to reduce confusion and clarify situations in which dividend recipients would not be considered beneficial owners for tax purposes.
For the article, go here. (Subscription required.)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 the at 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 a way that it may constitute a place of business through which 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 enterprise hav[e] the effective power to use that location in order for a finding that the location is at the disposal of the enterprise.
For the full article, go here. (Subscription required.)IRS closes 70 APAs, could top 100 by year's end, official predicts
After a sluggish 2011 in which the Internal Revenue Service closed only 42 advance
pricing agreements, the retooled Advance Pricing and Mutual Agreement Program could end 2012 with 100 APAs completed, APMA Director Richard McAlonan said Oct. 18.
For the full article, go here. (Subscription required.)
News analysis: treaty countries' right to use domestic law
Some 63 percent of Indian households have phone service, usually in the form of cellphones. India has a billion people, which makes for a lot of households and a lot of cellphones. American and Scandinavian suppliers are doing quite well in this market, and that has not gone unnoticed by the Indian Revenue Department.Oh, but India signed a bunch of OECD model treaties that restrain source country taxation! That doesn't always stop a determined interpretation of fuzzy treaty terms. There is no requirement that the document be interpreted in favor of the foreign business.
For the article, go here. (Subscription required.)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 agreed with 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 40 does go very far towards dictating what 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 is very open to changes in the next draft.
For the full article, go here. (Subscription required.)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 that will 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 for advanced 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.OECD releases revised public discussion draft on permanent establishments
The OECD on October 19 released a revised public discussion draft on the interpretation and application of Article 5 (permanent establishment) of the OECD Model Tax Convention.
For the revised discussion draft, go here.OECD releases revised proposals concerning the meaning of beneficial ownership in Articles 10-12 of OECD Model Tax Convention
On 29 April 2011, the OECD released a public discussion draft entitled Clarification of the meaning of beneficial owner in the OECD Model Tax Convention.
In light of the comments received on that first discussion draft, the OECD Committee on Fiscal Affairs, through its Working Party 1 on Tax Conventions and Related Questions, made a number of changes to the proposals released in April 2011.
This revised discussion draft includes the revised proposals that the Working Party has drafted.
For the revised discussion draft, go here.Which Fortune 500 companies are sheltering income in overseas tax havens?
An October 17 report by Citizens for Tax Justice examines the likelihood that US multinationals are shifting offshore profits to tax havens, where they remain untaxed, rather than repatriate those profits to the US.
For the CTJ report, go here.
Motion introduced to implement 2012 federal budget tax measures in Canada
Canadian Federal Finance Minister Jim Flaherty Oct. 15 introduced a measure to implement an overseas employment tax credit and other international tax and corporate income tax measures proposed in the federal government's budget for fiscal 2012-13.
The notice of ways and means motion would implement a range of international taxation measures outlined in the government's March 29 budget.
For the full story, go here. (Subscription required.)US corporate taxes: myths and facts
In a recent Wall Street Journal op-ed piece, Business Roundtable President John Engler discusses aspects of the US corporate tax system that influence whether US corporations choose to operate overseas and if so, whether to repatriate foreign earnings.Full text of UK revenue official's speech to AEI/ITPF tax reform event is now available
David Gauke of Her Majesty's Treasury delivered the central presentation at the September 27 American Enterprise Institute event -- co-sponsored by the International Tax Policy Forum -- "UK tax reform: a road map for the US?"
The full text of Gauke's presentation is now available.Kleinbard examines tax policy implications of "stateless income"
In a Tax Notes special report, University of Southern California Gould School of Law Professor Edward D. Kleinbard examines the tax consequences and policy implications of the phenomenon of "stateless income" -- income that is derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group's ultimate parent company but that is subject to tax only in a jurisdiction that is neither the source of the production factors through which it was derived nor the domicile of the group's parent company.Is U.S. Multinational Dividend Repatriation Policy Influenced by Reporting Incentives?
A study in the September 2012 issue of the American Accounting Association journal The Accounting Review concludes that an accounting technique known as permanently reinvested earnings, or PRE, reduces multinational firms' repatriation of foreign affiliates' earnings (through dividends paid to U.S. parent firms) by roughly 20% a year. While acknowledging that high U.S corporate tax rates and the ability to defer payment play a major role in keeping earnings abroad, it finds that "repatriation is more sensitive to the repatriation tax rate in the presence of reporting incentives," so much so that "firms with high reporting incentives repatriate, on average, 16.6% to 21.4% less per year than firms with low reporting incentives."
"Our study suggests that companies would repatriate about 20% more than they currently do if they didn't have this accounting tool that enables them to put a gloss on their financial statements," comments Leslie A. Robinson, an accounting professor at Dartmouth College, who carried out the study with Prof. Linda Krull of the University of Oregon and Prof. Jennifer Blouin of the University of Pennsylvania.
For a press release on the article, go here
For the full article, go here
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.To tax, or not to tax, overseas cash hoards
In a Bloomberg Businessweek article, Elizabeth Dwoskin reports on the debate over how US companies are taxed on overseas profits.
For the full text of the article, go here.Sen. Levin lists 10 "offshore tax loopholes" he wants closed
In an October 5 letter to the chairs and ranking minority members of the Senate Finance and House Ways and Means committees, Senate Permanent Subcommittee on Investigations Chairman Carl Levin (D-MI) describes 10 "offshore tax loopholes" his panel has investigated.
For the letter, go here.Overseas cash and the tax games multinationals play
In a New York Times DealBook article, University of Colorado Professor Victor Fleischer 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 out ways to manipulate the system."
For Fleischer's article, go here.Full video of AEI/ITPF event, "UK tax reform: A road map for the US?" is now available!
On September 27, the American Enterprise Insitutute, with the International Tax Policy Forum as co-sponsor, hosted an important tax policy event, "UK tax reform: A road map for the US?"
The event featured prominent US and UK international tax policy experts -- from the private sector, academia, and government -- assessing the applicability of the UK reforms to the US situation.
To view the video, please go to: http://www.aei.org/events/2012/09/27/uk-tax-reform-a-road-map-for-the-us/Corporate tax competitiveness rankings for 2012
Writing in the September 2012 issue of the Cato Institute Tax & Budget Bulletin, Duanjie Chen and Jack Mintz of the University of Calgary School of Public Policy present new estimates of marginal effective tax rates (METRs) on corporate investment for
90 countries.
For their report, go here.HMRC examines the taxation of the profits of multinational businesses
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 business with UK customers. This briefing explains how the profits of multinational businesses are taxed, and how tax policy affects where multinationals choose to locate.
For the Issue Briefing, go here.Globalization and corporate tax
In an International Monetary Fund (IMF) Working Paper, Manmohan S. Kumar and Dennis Quinn analyze the extent to which 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.The merits of a territorial tax system
Writing for the Manhattan Institute for Policy Research Issues 2012, Senior Fellow Diana Furchgott-Roth and Research Associate Yevgeniy Feyman examine the merits of a territorial tax system for the US.
For the report, go here.Update on OECD work on tax and development
This edition of the Tax Policy Bulletin provides an update on the work currently being undertaken by the Organisation for Economic Cooperation and Development (OECD) on developing countries.
For the article, go here.Update on OECD tax projects
This issue of the Tax Policy Bulletin provides an update on some of the key tax projects currently being undertaken by the Organisation for Economic Cooperation and Development (OECD).
For this edition, go here.News analysis: evaluating base erosion options
Transfer pricing of intangibles has been the source of much political frustration lately, but if international tax reform takes the path proposed by House Ways and Means Committee Chair Dave Camp, R-Mich., the best choice to address base erosion may be one that doesn't focus on intangibles.
For the article, go here. (Subscription required.)Gephardt sees tax reform as part of larger economic package
Congress will stand a better chance of enacting corporate tax reform if it can frame the debate as forming an essential element of improving the overall economy, former House Majority Leader Richard A. Gephardt said September 27 in Washington.For the story, go here. (Subscription required.)
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 discussion with a panel of tax experts who framed the difficult days ahead for U.S. tax reform efforts.
For the article, go here. (Subscription required.)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. 20 webinar 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 entities will be housing their regional or global IP activities in Singapore.Agarwal said companies that are willing to own IP in Singapore will 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.)Swedish budget plan details new interest deduction limits
Multinationals and large businesses should take note of new rules that will 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 purposes will apply regardless of whether an existing 10 percent tax threshold is met.
For the article, go here. (Subscription required.)Clausing and Hufbauer debate merits of territorial taxation
In a series of Tax Notes articles, Kimberly A. Clausing, a professor of economics at Reed College, and Gary Clyde Hufbauer, the Reginald Jones Senior Fellow at the Peterson Institute for International Economics, debate the possible effects of a U.S. move toward territorial taxation of corporations.Avi-Yonah testifies at hearing on offshore profit-shifting and the US tax code
University of Michigan Law School Professor testified at the September 20, 2012, hearing of the US Senate Finance Committee Permanent Subcommittee on Investigations on "Offshore Profit Shifting and the U.S. Tax Code."
To read Avi-Yonah's testimony and that of the other witnesses, go here.
International tax practitioner testifies at hearing on offshore profit-shifting and the US tax code
Beth Carr, an international tax services partner with Ernst & Young LLP, testified at the September 20, 2012, hearing of the US Senate Finance Committee Permanent Subcommittee on Investigations on "Offshore Profit Shifting and the U.S. Tax Code."
To read Carr's testimony and that of the other witnesses, go here.Accountant testifies at hearing on offshore profit-shifting and the US tax code
Jack T. Ciesielski, CPA, CFA, the president of R.G. Associates, Inc., an investment research and management firm in Baltimore, testified at the September 20, 2012, hearing of the US Senate Finance Committee Permanent Subcommittee on Investigations on "Offshore Profit Shifting and the U.S. Tax Code."
To read Ciesielski's testimony and that of the other witnesses, go here.CRS examines US federal tax benefits for manufacutring
In a September 20 report, Gary Guenther, an Analyst in Public Finance with the Congressional Research Service, examines "Federal Tax Benefits for Manufacturing:
Current Law, Legislative Proposals, and Issues for the 112th Congress."
For the full text of Guenther's report, go here.
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.)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.Levin opening statement at Senate PSI hearing on offshore profit shifting and the US tax code
In his opening statement at the September 20 Senate Permanent Subcommittee on Investigations hearing on offshore profit shifting and the US tax code, panel Chairman Carl Levin described various "loopholes" that have allowed US multinationals to "stockpile" $1.7 trillion in earnings offshore.
For Levin's statement, go here.PSI releases exhibits for hearing on offshore profit shifting and the US tax code
The Senate Permanent Subcommittee on Investigations (PSI) has released a package of exhibits for its September 20 hearing on offshore profit shifting and the tax code.
For the exhibits, go here.Finland to restrict interest deductions, offer temporary relief on depreciation
Finland will introduce new limits on companies' ability to deduct interest on intracompany loans, the nation's coalition government has announced. Scheduled to take effect in the 2014 tax year, the new limits form part of a series of measures contained in the nation's 2013 budget plan, which was presented to parliament September 18. Neighboring Sweden introduced similar interest deduction rules September 20.
For the full story, go here. (Subscription required.)
Corporate inversions: a symptom of larger tax system problems
In a Tax Notes viewpoint, Eric Solomon examines why U.S. corporations engage in inversions and continue to consider them. Inversion activity is a symptom of problems in the U.S. international tax system that need to be addressed.
For the article, go here. (Subscription required.)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 countries where the tax rates are low."
For the story, go here.
CRS examines options for reform of US corporate income tax system
In a September 13 report, Mark P. Keightley, a Specialist in Economics with the Congressional Research Service (CRS), and Molly F. Sherlock, a Specialist in Public Finance with the CRS, examine the current US corporate income tax system and options for reform of that system.
For the full text of the report, go here.HMRC issues draft guidance on CFCs and PEs
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 that will apply to CFCs and permanent establishments with accounting periods that begin on or after 1 January 2013.
For the draft legislation, go here.NFTC comments on OECD discussion draft on revisions to intangibles guidance in OECD Transfer Pricing Guidelines
In a September 12 letter, the National Foreign Trade Council presents its comments on the OECD Discussion Draft: Revision of the Special Considerations for Intangibles in
Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions, dated June 6, 2012.
For the NFTC comment letter, go here.The borders of EU tax policy and US competitiveness
In a University of Miami Legal Studies Research Paper, Professor George Mundstock examines a European Commission proposal that the member states of the European Union allow corporations to elect a harmonized corporate income tax. A particularly interesting feature of the proposal is that income would be allocated among the member states using a mathematical apportionment formula rather than, as currently is the law, by determining the source of income on a case-by-case basis.
For the paper, go here.NSYBA comments on Camp international tax reform discussion draft
The New York State Bar Association Tax Section on September 6 issued a report on the international tax reform discussion draft released by House Ways and Means Chair Dave Camp on October 26, 2012.
For the NYSBA report, go here.Can America compete? Strategies for economic revival
The September-October issue of Harvard Magazine features highlights from discussions with principals of the Harvard Business School's U.S. Competitiveness Project. The projects research attempts to address comprehensively the countrys economic strengths (innovation and entrepreneurship, for instance, and research universities) and shortcomings (deteriorating worker skills, complex tax and regulatory systems, and fractious federal policymaking).
For the discussions, go here.
UK parliamentary committee advocates adoption of country-by-country reporting
A United Kingdom House of Commons Committee has recommended that the government enact legislation that would 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 of whether agreement is reached at the European Union level, but continue to support the progress of similar legislation at EU level.
For the article, go here. (Subscription required.)Burden of proof placed on taxpayers when French profits moved outside EU
France's Parliament has adopted legislation that shifts the burden of proof to French taxpayers in transfer pricing audits when they transfer profits to subsidiaries located outside the European Union.
For the story, go here. (Subscription required.)IRS moves to curtail tax-free repatriation of foreign earnings
The IRS continues to police schemes that are designed to enable U.S. shareholders of foreign corporations to extract undistributed earnings without U.S. tax consequences. The latest strategy was implemented through an outbound all-cash "D" reorganization in which the transferred property consisted primarily of intangible assets. As was the case with the strategy's predecessor, the "Killer B" transaction, the IRS eliminated the viability of the technique.
For the article, go here. (Subscription required.)A global perspective on territorial taxation
Catherine the Great is supposed to have said, A great wind is blowing, and that gives you either imagination or a headache. In Washington, winds are stirring for corporate tax reform. But while there is broad bipartisan agreement that tax rates should be reduced, there is less consensus regarding what the tax rate should be, how to pay for a tax cut, or generally how to treat international business income. These considerations are inextricably intertwined because the U.S. assesses its corporations on worldwide income.
For the report, go here.Tax Reforms and Corporate Tax Competition
In an unpublished paper, Professors Rosanne Altshuler of Rutgers University and Timothy Goodspeed of the Hunter College and Graduate Center, CUNY, examine the relationship between tax reforms and corporate tax competition. The authors note that corporate tax competition is an important issue with broad ramifications for tax policy, yet economists have precious little empirical insight into the tax competition process, which normally manifests itself in large tax reforms.
For the full text of the paper, go here.
The folly of attacking outsourcing
Whats most revealing about the political assault on outsourcing is that while the critique of foreign commerce has moved decisively from the fringes into the political mainstream, our political leaders have yet to turn their rhetorical skepticism into policy.
For the article, go here.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 apportionment would eliminate the expensive and time-consuming disputes involving transfer pricing that arise under the present system.
For the letter, go here. (Subscription required.)A better way to tax US businesses
In an article published in the July-August issue of the Harvard Business Review, Harvard Business School and Law School Professor Mihir Desai presents a proposal for improving US taxation of businesses that follows what he views are the three principles that should guide a reform of the US corporate tax to advance American interests: The structure must reflect developments in the world economy; corporate tax reform probably will have to be instituted separately from fundamental tax reform and be roughly revenue neutral; and any reform must relegitimize corporations as responsible citizens and the corporate tax as a meaningful policy instrument.
For Desai's article, go here. (Registration, one-time purchase, or subscription required to read the full article.)
Organizations urge Congress to eliminate active financing exception and CFC look-through rule
In an August 1 letter to the chairmen and ranking minority members of the Senate Finance and House Ways 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.
Economic analysis: an automatic brake on profit-shifting in a territorial system
One often overlooked benefit of including an interest allocation rule in a territorial system is that it would obviate the need for separate, base-preserving thin capitalization rules. An interest allocation rule takes the debt of a multinational group held by third parties and assigns it to different jurisdictions in proportion to some measurable factors, most often assets.This article is about allocating worldwide interest using gross profits as the allocation factor. The term "gross profits" means profits before interest or taxes. In addition to the salutary effects on artificial profit shifting that it shares with other interest allocation methods -- in particular, allocation of interest by assets -- interest allocation using gross profits would reduce the incentive to shift profits by adjusting transfer prices. It does this by narrowing the difference between domestic and foreign effective tax rates.
For the article, go here. (Subscription required.)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 associated with the US moving from a worldwide income tax system to a territorial system.
For the full report, go here.Beware territorial tax proposals
In his Foreign Policy blog, Clyde Prestowitz writes, "The president and Congress need to remember that those making these proposals are not making them in their role as American citizens, but in their role as CEOs of profit maximizing global corporations. They should recall the New York Times quote of a high ranking Apple executive to the effect that the company doesn't 'have an obligation to solve Americas problems.'"
For the article, go here.Economic analysis: should the Camp territorial plan include a 5% haircut?
The character of any proposal to move the United States to a territorial system depends heavily on how it treats interest expense. The discussion draft territorial plan from House Ways and Means Committee Chair Dave Camp, R-Mich., addresses interest expense in two contexts: the potential allocation of interest expense to exempt foreign-source income (the allocation rule) and a thin capitalization rule that limits domestic interest expense (the cap).
For the article, go here. (Subscription required.)Cant and the inconvenient truth about corporate inversions
Prof. Bret Wells of the University of Houston Law Center writes that inversion transactions and inversion benefits are still available and are being pursued even with the enactment of section 7874.
For the article, go here. (Subscription required.)New York Times calls territorial tax system a "permanent tax holiday"
In a July 18 editorial, The New York Times explains why it opposes a territorial tax system for the US.
Says the Times, "The corporate tax system needs reform, to raise more revenue, more fairly. The territorial tax system does not meet those criteria."
For the editorial, go here."Territorial" tax reform: homeless income is the achilles heel
In an article published in the Houston Business and Tax Law Journal, Prof. Bret Wells discusses the draft legislation released by the House Ways & Means Committee that would reform the US international tax regime by adopting a foreign dividends received deduction as the means to effectively adopt a territorial tax regime for the United States.
For the article, go here.Political offshoring squabble doesnt address job insecurity
In an editorial, the Washington Post comments on the squabble between candidates Barack Obama and Mitt Romney regarding "offshoring" of jobs.
For the article, go here.IMF examines key economic issues for US
In a Selected Issues Paper prepared as background documentation for the International Monetary Fund's periodic meeting with the US, a team of IMF staffers examines key issues facing the US.
For the paper, go here.International tax competition and coordination
In a Max Planck Institute for Tax Law and Public Finance Working Paper, Michael Keen and Kai A. Conrad aim to provide a comprehensive survey of the theory of international tax competition.
Starting with 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 recent work on tax havens.
For the paper, go here.The hollowing out: the future of joblessness in the US
Writing in the New York Times Campaignn Stops blog, Thomas B. Edsall comments on what 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.
European Commission releases summary report of responses received on double non-taxation cases
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 possible ways to tackle, double non-taxation cases.
For the report, go here.
Base erosion and profit shifting
Writing in the June 2012 issue of the World Commerce Review, Masatsugu Asakawa, the Chair of the OECD Committee on Fiscal Affairs and Japan's Deputy Vice-Minister of Finance for International Affairs, explains why recent events in the financial sector indicate that corporate tax policy, and in particular its international side, may need a new look.
Asakawa concludes that "It is more important now than ever that taxpayers pay the
right amount of tax at the right time and in the right place."
For the full text of the article, go here.Oxford Centre for Business Taxation presents its annual ranking of G20 nations' corporate taxes
In a June 2012 report by Katarzyna Bilicka and Michael Devereaux, the Oxford Centre for Business Taxation ranks the statutory tax rates and effective tax rates of the G20 countries at the beginning of 2012. The purpose of the report is to assess the competitiveness of the UK corporation tax regime.
For the full text of the report, go here.
President's Council of Advisors on Science and Technology issues report on the domestic advantage in advanced manufacturing
In a July report, the President's Council of Advisors on Science and Technology (PCAST) discusses capturing the domestic advantage in advanced manufacturing.
For the report, go here.Economic analysis: the economic case for unlocking foreign profits
Martin A. Sullivan examines the two key obstacles to a second repatriation holiday -- the large upward revision of the estimated revenue cost of the provision since it was first enacted in 2004 and the well-documented failure of the 2004 holiday to achieve the intended economic objectives -- and offers suggestions for structuring a new and improved repatriation holiday.
For the article, go here. (Subscription required.)OECD calls for US tax reform to curb income inequality
The OECD has urged the United States to curb income inequality and boost longer-term economic growth by cutting tax expenditures that disproportionately favor high-income earners, harmonizing tax rates across asset classes, and lowering the corporate tax rate.
For the article, go here. (Subscription required.)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.OECD: US should drop tax favoritism for investing abroad, cut corporate rates
The United States should spur domestic investment in manufacturing innovation by cutting corporate tax rates and eliminating tax system bias for foreign direct investment, according to a report released June 26 by the Organization for Economic Cooperation and Development.
OECD's Economic Survey of the United States 2012 said boosting innovative manufacturing can, by extension, fuel growth in the economy and employment.
It said the United States has one of the world's most innovative economies, but new fissures indicate its innovation status is slipping relative to other advanced economies among the Paris-based organization's 34 member countries.
For the article, go here. (Subscription required.)Permanently reinvested earnings and the profitability of foreign acquisitions
In a University of Toronto Rotman School of Management working paper, Professors Alexander Edwards, Todd Kravet, and Ryan Wilson examine the effects of current U.S. tax laws under which 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.Why the US is getting corporate tax reform wrong
Matthew Gilleard of the International Tax Review argues that while 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 more worthwhile and growth-friendly road to go down.
For his article, go here.OECD announces new anti-tax-evasion project
The OECD Forum on Tax Administration will undertake a new anti-tax-evasion project under which data will be collected from member nations about their observations on corporate structures, entities, and territories that are being used in offshore tax evasion.The initiative was announced in a report titled "Tackling Offshore Tax Evasion" that was issued by OECD Secretary-General Angel Gurría and submitted on June 19 to G-20 leaders meeting in Los Cabos, Mexico.
For the article, go here. (Subscription required.)Danish Parliament OKs law allowing publication of companies' tax details
Despite strong criticism from industry, a new bill that will allow the Danish Tax
Authority (SKAT) to publish companies' tax details online has been approved by the nation's parliament.
The law's June 13 approval means that thousands of companies' 2011 tax details will be freely available on the SKAT website from the end of 2011, regardless of whether the companies wish such information to be publicized.
For the full text of the article, go here. (Subscription required.)
Joint Committee explanation of Obama's FY 2013 budget covers four new international tax provisions
On June 18, 2012, the JCT staff released a pamphlet that analyzes the revenue provisions proposed in President Obama's FY 2013 federal budget. When compared to the FY 2012 pamphlet, the new version provides similar analysis of the international tax provisions. In addition, the pamphlet analyzes the Administration's four budget provisions added for FY 2013. This newsalert summarizes the JCT staff's explanation of both the carryover and the new tax provisions.
For discussion of the JCT explanation, go here.News analysis: the downside of patent boxes
Lee A. Sheppard discusses some of the negatives of patent box regimes, such as that enacted in the Netherlands.
For the article, go here. (Subscription required.)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 Georg Wamser examine the effects on the foreign affiliates of UK-owned multinational firms of the UK's shift from worldwide taxation to a territorial system.
For the paper, go here.
Ending base erosion necessary for tax reform, staffers say
Erosion of the tax base is a problem that must be addressed as part of an overhaul of the tax code, two congressional tax staffers said June 6.
For the article, go here. (Subscription required.)Multinationals want tax stability in emerging markets
Tax policy in developing countries is playing a larger role in corporate investment decisions as more companies look to tap into the potential of high-growth emerging economies, panelists at the 2012 OECD International Tax Conference in Washington said June 5.
For the article, go here. (Subscription required.)OECD seeks comment on transfer pricing timing issues
In a June 6 announcement, the OECD Secretariat invites public comments on certain timing issues related to transfer pricing, in connection with the work of Working Party No. 6 on intangibles and other projects.
For the announcement, which includes a link to the draft on timing issues, go here.Repatriated earnings: a carrot, stick, and cabbage approach
Writing in Tax Notes, Professors John O. Everett, Cherie J. Hennig, and William A. Raabe present a new approach to taxing repatriated earnings.
To read the article, go here. (Subscription required.)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.)
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 Analysis Working Paper later published in the National Tax Journal, Harry Grubert looks at the trend in the foreign share of the worldwide 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 MNC worldwide 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 its worldwide pre-tax profits. Lower taxes on foreign income do not seem to promote competitiveness."
For the paper, go here.
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.General anti-avoidance rules: what are the key elements to a balanced approach?
More and more countries, such as the UK and India, are considering the enactment of a General Anti-Avoidance Rule (GAAR). A GAAR is typically a statutory rule that empowers a revenue authority to deny taxpayers the benefit of an arrangement that they have entered into for an impermissible tax-related purpose. This broad definition only scratches the surface -- there can be many permutations with respect to a GAAR's operating provisions.
For the article, go here.Taxation trends in the European Union
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.
Multinationals and the high cash holdings puzzle
Lee Pinkowitz of Georgetown, Rene M. Stultz of Ohio State, and Rohan Williamson of Georgetown, defining as normal cash holdings the holdings a firm with the same characteristics would have had in the late 1990s, find that the abnormal cash holdings of U.S. firms after the financial crisis represent on average 1.86% of assets.
For the paper, go here.Earnings shocks and tax-motivated income-shifting: evidence from European multinationals
In a paper presented at the 5th Annual Conference on Empirical Legal Studies, Dhammika Dharmapala of the University of Illinois at Urbana-Champaign and Nadine Riedel of the Universitat Hohenheim present a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations.
For the abstract and the full paper, go here.Avi-Yonah makes case for equalizing tax rates applied to capital and labor
In U. of Michigan Law & Econ Research Paper No. 12-008, University of Michigan Law School Professor Reuven Avi-Yonah responds to what he sees as a central premise of tax scholarship of the last 30 years -- the greater mobility of capital than labor. Recently, Avi-Yonah notes, scholars such as Edward Kleinbard have recommended that the US adopt a variant of the 'dual income tax' model used by the Scandinavian countries, under which income from capital is subject to significantly lower rates than labor income because of its supposedly greater mobility.
Avi-Yonah argues that the premise upon which this argument is built is mistaken, because for individual US taxpayers (as opposed to corporations), there are significant limitations on their ability to avoid tax by moving their capital overseas.
For the abstract of this paper, and to download the paper, go here.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 exemption with 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.
Immigration, offshoring and American jobs
In a Centre for Economic Performance Discussion Paper, Gianmarco I.P. Ottaviano, Giovanni Peri, and Greg C. Wright examine the following issues:- How do offshoring and immigration affect the employment of native workers?
- What kinds of jobs suffer, or benefit, most from the competition created by offshore and immigrant workers?
News analysis: economists increase their tax-cutting demands
Lee Sheppard comments on various tax reform issues, include how to locate a multinational corporation's income.
For the article, go here. (Subscription required.)Controlled foreign companies reform: UK Finance Bill published
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 legislation was originally published on December 6, 2011, and January 31, 2012 with comments invited from business. In response to feedback, amended draft legislation was 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.The internal market: factual examples of double non-taxation cases
In a staff working paper, the European Commission Directorate-General Taxation and Customs has asked the public for contributions of factual examples of, and possible ways to tackle, double non-taxation cases.
The EC is launching this fact-finding public consultation in order to establish evidence concerning double non-taxation within the EU and in relation with Third Countries.
For the paper, go here.