2014

Tax directors have noticed that tax authorities raise audit issues that reflect the OECD's base erosion and profit-shifting project, according to an EY survey; 53 percent of respondents said they are being audited in more countries than before, and 65 percent said foreign tax authorities have become more aggressive.

For the survey results, go here.

The BEPS Monitoring Group has released a scorecard that assesses the OECD's progress on the base erosion and profit-shifting project and evaluates the seven BEPS reports published in September, finding thatwhile the OECD has made some progress, its action plan fails to address underlying tax system problems.

For the report, go here.

A new report by the BioIndustry Association and Ernst & Young LLP says the U.K.'s "patent box" tax scheme is helping it maintain its competitiveness, but it comes amid a new round of criticisms, including a report that claims it facilitates profit shifting between countries and has made the U.K. a "rogue state in theworld of corporation tax."
The BIA/EY report, issued Oct. 7, said innovation capital raised by U.K. life sciences companies in the first half of calendar year 2014was 50 percent more than the same period last year and is part of the financing growth of the European life sciences sector.
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Tax directors are increasingly convinced the base erosion and profit shifting effort by the OECDwill create significant changes to the international tax environmentwithin the next five years, according to a survey conducted by EY.
The survey, focused on navigating new challenges created by the Organization for Economic Cooperation and Development's base erosion and profit shifting project,was conducted at EY's 33rd Annual International Tax Conference in New York.
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Over the past two months, three prominent columnists at The New York Times (Andrew Ross Sorkin, Joe Nocera, and Floyd Norris, in case you're keeping score) have given prominent play to University of Southern California law professor Edward D. Kleinbard's finding that U.S. corporations really don't suffer much from this country's comparatively high corporate tax rates and taxation ofworldwide income.

For the blog post, go here.

Ireland's finance ministry officials areweighing phasing out a tax device used by multinational companies including Google Inc., according to a personwith knowledge of the matter, as the European Union looks into the practice.

Ireland is consideringwhether to eliminate a technique known as the "Double Irish,"which allows companies to avoid paying corporate tax on much of their income, or phasing the tax break out over four or five years, said the person,who asked not to be named, as no final decision has been made.

For the story, go here.

To combat inversions and other tax planning techniques for corporations, do you think Congress should lower corporate tax rates?
With orwithout "inversions" Congress MUST lower corporate tax rates.
There are at least two reasons for this.

For the blog post, go here.

How should multinationals be taxed? Are they being taxed enough?
At the 19th Annual David R. Tillinghast Lecture on International Taxation, Manal CorwinÔøΩthe national leader for international tax and principal-in-charge of international tax policy at KPMGÔøΩexplored the debate over the taxation of multinational corporations.

For the story, go here.

On October 7, 2014, the European Commission (EC) opened an in-depth investigation into the provision of a tax ruling to Amazon in relation to its Luxembourg corporate income tax position. Based on this formal investigation, the ECwill determinewhether Amazon has - in its view - benefited from unlawful State aid granted by Luxembourg and, if yes, how it should proceed from there. In the event that unlawful State aid has been granted, the EC may be obliged to order recovery of that aid (going back a maximum of 10 years).
For the PwC Insight, go here.

The absence of limitations on earnings stripping through intercompany debt in the recently issued anti-inversion guidance does not reflect concern by Treasury over its authority to take regulatory action against those benefits, a department official said October 8.

For the story, go here.

With the current political stagnation inwashington, it is hard to blame anyone for projecting slim odds for corporate tax reform next year. But amid the hand-wringing over congressional inaction, there is far too little analysis ofwhether the substantive gap between Democratic and Republican leaders is actually so insurmountable. Consider five issues.
For the story, go here.

Google Inc. Chief Executive Larry Page metwith France's premier late last month and quietly pressed home a message: Google has invested heavily in France and iswilling to do more.
In a half-hour meeting in the gilded office of Prime Minister Manuel Valls, Mr. Page noted that Google has greatly expanded its Paris operation in recent years and set up a fund for French newspapers, and said hewas "totally prepared to continue investing in France," according to people familiarwith the meeting. Mr. Valls responded that Francewelcomed foreign investment.
Barely mentioned, according to one of the people,was an elephant in the room: Google is in the midst of a battlewith France over a March tax assessment of possibly over a billion euros.
For the story, go here.

Companies that invert on or after Sept. 22 could be impacted by the government's next round of guidance to put the brakes on these transactions, as the administration actively considers tightening the reins on earnings stripping, IRS and Treasury Department officials cautioned.
Although that coming guidancewill apply prospectively, "the mere fact that somebody inverts on or after Sept. 22 isn't going to grandfather them out of any future guidance," Daniel M. McCall, special counsel in the Internal Revenue Service Office of Associate Chief Counsel (International), said Oct. 8 during awebinar sponsored by Penn State Law .
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Irish tax policy has in recent years attracted considerable international criticism, butwithin Ireland it is seen as inviolable. Enda Kenny, the Irish prime minister, denies that the country has become a "brass- plate location"where international corporations try to book their profits so as to benefit from low tax rates. He has described the low tax rate as a "cornerstone of Irish industrial policy".

It is no doubt true that a sudden change of policywould hurt investment in the short term.what Ireland's government seems not to be aware of, however, is the vast quantity of profits that are not subject to corporation tax anywhere in theworld because of "double Irish" tax strategies.

For the commentary, go here.

Outgoing EU competition commissioner Joaquín Almunia refused to rule out further EU investigations into tax deals offered by Ireland to multinational companies yesterday as he defended the right of the European Commission to investigate tax arrangements of member states.

For the story, go here.

The move by Brussels to open a formal investigation into Amazon's tax arrangements in Luxembourg, confirmed on Tuesday, is the latest step in a far-reaching crackdown on alleged "sweetheart" tax deals between governments and large companies.
For the story, go here.

Treasury Secretary Jack Lew said Tuesday that U.S. companieswon't stop making offshore deals to dodge paying taxes unless Congress intervenes.

For the story, go here.

Ahead of the 2014 Annual Meetings of the International Monetary Fund andworld Bank Group, Secretary Lew participated in a moderated conversationwith New York Times editorialwriter Vikas Bajaj on the state of the global economy. The Secretary, speaking at the Peterson Institute for International Economics inwashington, D.C., addressed a spectrum of issues, including growing the global economy, infrastructure investment, business tax inversions, and sanctions.

For the transcript, go here.

Amazon.com Inc. became the latest U.S. company to face a European Commission probe of illegal state aidwhen the European Union executive body said it had "reasonable doubts" about the legality of a custom-designed agreement the company madewith Luxembourg in 2003.
EU Competition Commissioner Joaquin Almunia said Oct. 7 that the official inquiry, similar to one launched Sept. 30 against Apple Inc.'s tax arrangements in Ireland, is based on information the commission received after it filed an injunction to force Luxembourg to hand over details of its tax rulingswith Amazon and Fiat SpA.
Luxembourg said in a statement that the commission's chargeswere unfounded.
For the story, go here. (subscription required)

The G20's expanded taxwork focuses on developing countries, argues Jeffrey Owens, Director, Vienna University's Global Tax Policy Centre.
For the story, go here.

The OECD is getting straight back towork on base erosion and profit shifting (BEPS).
For the story, go here.

American companies that reincorporate abroad are not doing so to avoid paying taxes onU.S. earnings, despite the often misleading impressions left by the rantings of SenatorsCarl Levin, Dick Durbin, Elizabethwarren, and others to the contrary. They are doing itto avoid paying U.S. taxes on earnings in other countries.
For the editorial, go here.

Corporate inversions --when a U.S. company buys or mergeswith a foreign firm and then technically moves the business to the other country -- have become something all politicians can happily revile.with their two-targets-in-one opportunity to bash either corporate greed or traitorous antipatriotism, Democrats and Republicans alike have an easy target to take aim at.

So, the media rails over corporations that seek to extricate themselves from their tax obligations even as the Obama administration cracks down on companies moving overseas, as The Associated Press has reported. But there's a dirty secret: Much ofwhat people think they know about corporate inversions iswrong and, in the grander scheme of things, inversions are small potatoes in the tax-avoidanceworld.

For the story, go here.

Amazon is now, following in the footsteps of Apple and Starbucks, facing a probe into its tax arrangements from the European Commission. Now thatwe're seeing the details of these cases, ofwhat the allegations are, it's possible to offer a preliminary opinion as towhat is actually going on here.which is that this is all a great deal of fuss over not very much. This is a result of political pressure, nothing more, and it's not going to change, except in the most trivial manners, theway that these companies operate in Europe.

For the story, go here.

The European Commission has added Amazon to the string of multinational companieswhose tax dealings it is investigating, announcing on Tuesday t hat itwas examiningwhether Luxembourg had given the company illegal preferential tax treatment.
The inquiry,whichwill explorewhether Luxembourg broke the European Union's competition rules, follows similar investigations into the tax arrangements of Apple in Ireland and Starbucks in the Netherlands.
For the story, go here.

The European Commission has opened an in-depth investigation to examinewhether the decision by Luxembourg's tax authoritieswith regard to the corporate income tax to be paid by Amazon in Luxembourg complywith the EU rules on state aid. The opening of an in-depth investigation gives interested third parties and the Member States concerned an opportunity to submit comments. It does not prejudge the outcome of the investigation.

For the press release, go here.

Amazon.com Inc. faces an in-depth European Union probe into a 2003 fiscal dealwith Luxembourg over suspicions the company unfairly shifted profits to the country to lower its taxes.

Most European profits of Amazon are recorded in Luxembourg but are not taxed there as a result of the pact,which is still in force today and applies to a subsidiary in the Grand Duchy, the EU said in a statement.

The EU inquiry into Amazon comes amid a global crackdown on corporate tax-avoidance as governments struggle to increase revenue and reduce deficits. It expands a probe into Apple Inc. in Ireland, Starbucks Corp. in the Netherlands and Fiat Finance & Trade in Luxembourg.

For the story, go here.

It is tempting to dismiss the OECD's recently issued report on harmful tax practices as a rehash of its priorwork in the area and as one more bureaucratic attempt to impose convoluted standards on a practice that eludes definition. But thatwould ignore the impact that the compulsory spontaneous exchange of tax rulings as mandated by the report may have on taxpayers and tax administrations.
In requiring automatic exchange of some types of rulings, the framework described by the report provides administrationswith access to information about taxpayers' activities in other countries. Unlike the new transfer pricing documentation rules released by the OECD on September 16, the requirements of the compulsory ruling exchange don't require taxpayer effort in order to be implemented.
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The U.S. strongly supports the common reporting standard that 60 nations have agreed to adopt, but putting the regime in place in this country could take several years, according to Brett York, an attorney-adviser in the Treasury Office of International Tax Counsel.
York said Oct. 6 that the U.S. isn't on the list of 40 countries that have agreed to adopt the standard early, because itwould require legislative changes for banks to be able to share some of the information called for under the standard, developed by the Organization for Economic Cooperation and Development.
Even if that legislationwere to be enacted, Treasury and the Internal Revenue Servicewould still have to issue regulations, York said.
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Jason Furman argues that business tax reform should focus more onwhat it does to the quality of capital than to the quantity of capital.

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The IRS should continue to focus on identifying issues of significant risk and developing programs to address them, Samuel Maruca, former transfer pricing director in the IRS Large Business and International Division, said in a recent interviewwith Tax Analysts. Creating and transitioning to a new model for handling transfer pricing examinations,which grewwith the rollout of the IRS transfer pricing practice (TPP) in 2011, has not always been smooth, but it is starting to make decision-making transparent to taxpayers and internal discussions revolve around the merits of issues, he said.

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For most Democrats, there aren't a lot of opportunities for agreementwith House Budget Committee Chairman, Congressman Paul Ryan. In fact, Iwas surprised as anyone to find myself nodding alongwhen he said this on CNBC on August 20:
"The answer to the inversion craze is fundamental corporate tax reform, tax reform itself.which is lower our tax rates, and get off the crazyworldwide tax system that is basically shooting ourselves in the foot."
He's right. Inversions are the "canary in the coal mine" thatwill be followed, almost certainly, by the acquisition of U.S. firms by foreign ones and the flow of American jobs overseas. This "craze," as Congressman Ryan put it, poses a threat to our economic recovery, and contrary to our experience in years past, companies today are very open aboutwhy they're pursuing inversions: ourworld-leading corporate tax rate.
For the blog post, go here.

Kimberly S. Blanchard argues thatwhile it's admirable that the IRS and Treasury are trying to administratively discourage inversions that contravene public policy, it's likely that in practice the measureswill accomplish little.

Blanchard summarizes the provisions of anti-inversion guidance Notice 2014-52 and suggests some practical tips forwhat it might mean in the future.
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The United Stateswill push the OECD to recommend a minimum standard for controlled foreign corporation rules as part of the base erosion and profit-shifting project'swork on strengthening CFC rules, Treasury International Tax Counsel Danielle Rolfes said on October 2.
Rolfes discussed the road ahead for BEPS action 3 on CFC rules at a Georgetown University Law Center forum, "BEPS, CFC Rules, Patent Boxes, and EU Law," sponsored by Georgetown Law and the D.C. Region of International Fiscal Association USA. The action 3working group,which has a September 2015 deadline for presenting its recommendations, must address many difficult issues, such as threshold questions, how to define control, how to compute and attribute income, and how to prevent or eliminate double taxation.
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In news analysis, Lee A. Sheppard discusses how Notice 2014-52 applies section 367 rules in away thatwill surprise practitioners.

For the news analysis, go here. (subscription required)

In this article, Prof. Reuven Avi-Yonah argues thatwhile Notice 2014-52 is a useful first step in blocking the newwave of corporate inversions, it is unlikely to stem the tide of inversion transactions.
For the viewpoint, go here. (subscription required)

On September 22 Treasury announced that itwould be exercising its authority under several statutory provisions to introduce regulations to restrict U.S. companies' ability to invert, and to limit the benefits available to U.S. companies after inversion. The guidance is an expansive interpretation of Treasury's regulatory authority, but it is narrowly drafted and carefully limits the potential impact of proposed new rules.
As Salix Pharmaceuticals' cancellation of its previously announced combinationwith Italian pharmaceuticals company Cosmos demonstrates, the Treasury Noticewill have a meaningful negative impact on some pending and contemplated deals. However, it is likely to leave the broader mergers and acquisitions market to proceed unhindered. Because of its limited impact, Treasury may have forestalled significant opposition to the proposed guidance.
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Inversions are often described as a symptom of a larger problem. The tax system is sick, and targeted inversion legislation is only a Band-Aid.
According to this view, the proposed expansions of section 7874 pushed by President Obama in his budget and by Michigan Democrats Sen. Carl Levin (S. 2360) and Rep. Sander M. Levin (H.R. 4679) do not cure the underlying disease. They only address the most visible and emotionally charged manifestations of the problem.
If inversions aren't the real problem,what is?
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Rep. John A. Boehner, R-Ohio, thinks tax reform is "in the realm of doable" over the next two years. That sort of upbeat assessment should be encouraging -- especially coming from the speaker of the House.

But it's hard to take Boehner seriouslywhen his GOP colleagues don't. "Tax reform's one of those thingswherewe just don't know ifwe can get there at the end of the day,"warned House Budget Committee Chair Paul Ryan, R-Wis. As the presumptive replacement for retiring Houseways and Means Committee Chair Dave Camp, R-Mich., Ryanwill play a key role in any drive for tax reform. If he thinks itwon't happen, it probablywon't.

For the story, go here.

On October 1, 2014, the European Commission announced that itwill examine the Gibraltar tax rulings practice from the perspective of the European Union State aid rules. This decision comes as part of an in-depth State aid investigation into the Gibraltar corporate tax system,whichwas opened in October 2013. This expansion of the investigation does not necessarily mean that the tax rulings are State aid.
For the PwC Insight, go here.

Incoming European Union Competition Commissioner Margrethe Vestager promised to prioritize and accelerate efforts to crack down on illegal state aid cases that probe tax arrangements of companies such as Apple Inc., Starbucks Corp., Fiat SpA and Amazon.com Inc.
Speaking Oct. 2 during a confirmation hearing before the European Parliament, the former Danish finance minister,who is expected to take up her position Nov. 1, said tax arrangements such as those that Apple haswith the Irish government are "very unfortunate" and that "speedy" decisions in the illegal state aid casewill be made.
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The U.S.will push for a minimum standard for tax rules governing controlled foreign corporations under the Organization for Economic Cooperation and Development's project to combat base erosion and profit shifting, a Treasury official said.
For the BEPS project "to have real impact,what the U.S.would be pushing for is that at least the OECD put forth a minimum standard ofwhat a CFC regime should be," said Danielle Rolfes, international tax counsel for Treasury.
Rolfeswas speaking at an Oct. 2 panel discussion on BEPS at the Georgetown University Law Center, co-sponsored by the International Fiscal Association.
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New Treasury Department rules aimed at discouraging corporate mergers called inversions have constraints, according to a Congressional Research Service report.
As a result, legislative options remain a possibility, said the report,which discussed a number of bills to address inversions aswell as the recently issued regulatory changes and other potential regulations.
Treasury has proposed rules to curb tax-free access to U.S. companies' earnings held overseas and maneuvers to skirt ownership requirements by altering a company's size to receive tax benefits from an inversion. The department explained the scope of the changes in a fact sheet and Notice 2014-52 issued Sept. 22.
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Brussels has revealed details of Irish tax deals that partly underpinned Apple's European operations, claiming that in 1991 Dublin gave the iPhone maker favourable and potentially illegal terms apparently "motivated by employment considerations".

In a highly critical 21-page decision detailing evidence from its initial probe, the European Commission argues that Ireland gave sustained state support to Apple that may need to be recouped – a penalty thatwould be expected to run to billions of euros, according to people involved in the case. The concerns prompted the opening of an in-depth investigation.

For the story, go here.

Apple Inc. (AAPL) may have to pay millions of euros in taxes in Ireland dating back to 2003 after the European Union said the iPhone maker benefited from improper deals thatwere "motivated by employment considerations."

The methods for determining Apple's costs "appear to have been reverse engineered" to arrive at a taxable income that "does not have an economic basis," the European Commission said in a letter to Irish officials dated June 11 and posted on the EUwebsite today.

"Overall, it looks like Ireland is caught," said Alex Cobham, a researcher at the Center for Global Development in London,who studies tax avoidance. "They've done a deal to fix some minimal tax payment for themselves,while turning a deliberate blind eye to the fact that this legitimizes the non-taxation of large amounts of Apple's profits."

For the story, go here.

The European Commission on Tuesdaywarned Ireland that the country had granted Apple tax advantages that could amount to illegal state aid.

In its preliminary finding, the commission also told Ireland that it may order its government to collect huge amounts of back taxes from the American technology giant.

The 21-page report follows the formal start of an investigation in June and lays out the commission's preliminary case claiming that Ireland granted Apple special deals that may have helped the company avoid significant amounts of tax and that created unfair advantages over other European Union member countries.

For the story, go here.

European Union regulators laid out for the first time Tuesday reasonswhy they believe tax deals granted to Apple Inc. AAPL -0.64% in Ireland and Fiat F.MI -2.02% SpA in Luxembourg constituted illegal state support for the companiesÔøΩthe next stage of an investigationwhich could result in the companies paying huge sums in extra taxes to the governments concerned.

In documents released earlier Tuesday, the EU explained the reasoning behind their decision to open formal tax investigations in June.while the probes are in their early stages, because the EU is targeting alleged illegal "state aid," a final ruling against the tax deals could result in back taxes owed by Apple, Fiat, Starbucks Corp. SBUX +0.13% and other companies.

For the story, go here.

President Barack Obama's announced crackdown onwhat he calls an unpatriotic move by U.S. corporations to shift their headquarters and tax bills to low-tax countries is raising the question ofwhy the U.S. simply doesn't cut its corporate tax rates to better competewith the likes of Ireland and other tax havens.
In fact, everyone inwashington actually says theywant to lower and simplify U.S. corporate tax rates. But don't hold your breath.
Thewhite House and the Treasury Department put out a joint "white paper" in February 2012 titled "The President's Framework for Business Tax Reform." Before that, Georgew. Bush received a report on Nov. 1, 2005, from the President's Advisory Panel on Federal Tax Reform. Both reports called for revamping the corporate tax code.
It hasn't happened.
For the story, go here.

President Barack Obama could not have made his feelings about so-called "tax inversion" schemes any more clear.
In a landmark speech about "economic patriotism" this summer, the US premierwas highly critical of those American companies that buy up foreign firms so that they can move their headquarters overseas to flee US taxes. These firms are "corporate deserters", guilty of "gaming the system" at the expense of ordinary citizens, he said. "I don't care if it is legal. It'swrong."
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Politicians may seem hopelessly divided over taxes, but a closer look reveals that Republicans and Democrats are starting to reach a consensus on how to improve our nation's tax system. Both parties agree that the tax code is too complex, contains too many loopholes, and causes harmful distortions in the economy. Leaders on both sides are even starting to agree on how to solve these problems,with similar policies appearing in various tax reform proposals from across the political spectrum.

For the story, go here.