2019

By Michael P. Devereux and Rita de la Feria

The authors argue that the current international tax system based upon the principles of source and residence is no longer suited to a globalisedworld economy, and the fundamentals of the international tax system need to be re-examined. They propose an R+F based cash-flow tax based on the principle of destination as a suitable alternative to taxing corporations in an international setting. The paper's aim is to discuss the legal and practical issueswhichwould arise in the implementation of such a tax, namely how a destination-based tax could be effectively designed and implemented. For this purpose the authors draw on experienceswith designing VAT systemsworldwide. It is proposed that the destination principle should be implemented through use of the customers' location as the main legal proxy.

Mindy Herzfeld considerswhat steps the United Stateswould need to take for the OECD's pillar 1 proposals to becomeworkable for theIRS, aswell as for other tax authoritieswhen applied to U.S. taxpayers.

In economic analysis, Martin A. Sullivan examines the OECD's attempt to rewire the international source rules so that more taxable profitsare allocated to marketjurisdictions than currently allowed under the arm's-length rules.

France strongly supports the OECD pillar 1 proposal for allocating more taxing rights to market countries and suggests a 12.5 percent ratefor global minimumtaxation under pillar 2, according to a top official.

The U.K. Labour Party pledged Thursday to return the corporation tax rate to 26% by 2022 and abandon the arm's-length standard ÔøΩ the traditional international approach for pricing transactions between related companies ÔøΩ if itwins next month's general election.

Representatives from business groups pressed the Organization for Economic Cooperation and Development on Thursday to simplify its proposed new international tax system by using the tax administrationswhere large companies are headquartered as a "one-stop shop" for payment.

By Mattias Cruz Cano

The growing number of countries introducing a digital services tax (DST) could lead to "taxwars" rates, trade sanctions and disputes,warned senior tax professionals debating the issue.

Amazon is pressing the OECD to change the scope of the unified approach to apply to all businesseswith explicit exemptions for specific sectors.

Amazon has suggested the OECD should adopt existing VAT principles to simplify the compliance and administration of its digital tax proposals under pillar one. It believes VAT rules on customer location could help, butwarns that privacy laws and VPNs mean it can only be part of the solution.

The retail banking sectorwants to be exempted from the pillar one proposals under the OECD's digital tax plan because of existing, heavy financial regulations and possible mismatcheswith OECD policy considerations under pillar one.

In this article, the author tracks the development of the EU and OECD actions to combat harmful tax competition and assesses the current state of play.

In this article, the author considers the OECD's "unified approach" proposal on the tax challenges of the digital economy, and questionswhether it represents a true international consensus.

The head of a Philippine business association said a tax reform program might be one of the reasonswhy 10 to 15 multinational companies' regional operating headquarters have pulled out of the country.

The OECD must address the lack of interaction between three categories of company profit thatwould be taxed under proposed new global tax rules, or else double taxation risks could increase, a trade representativewarned.

Robert Goulder examineswhether reverse transfer pricing could become a viable method to avoid the base erosion and antiabuse tax provisions.

Ambassadors and tax experts from EU countries recently spoke out against the decision of the Finnish EU Council presidency to try to reach an agreement on public country-by-country reporting by qualified majority.

The three British crown dependencies have jointly released updated guidance for applying each jurisdiction's new economic substance rules,with new sections on core income-generating activities of intellectual property companies, shipping, and the insurance industry.

The formulas for calculating local distributors' profit under pillar 1 of the OECD's two-pillar project on taxing the digital economy should produce results that generally alignwith the arm's-length standard, according to business representatives and practitioners.

The IRSwill selectively consider extending relief to the relatively small number ofaffected taxpayers that may suffer double taxation as a result of the Tax Cuts and JobsAct's international provisions.

An OECD plan to reallocate more of a multinational company's profits towhere it has users or consumerswould have a negligible impact on revenue, a French government advisory report said.

With April 2020 set to mark a raft of new tax legislation in the U.K., Paul Falvey, of BDO U.K., considerswhatwill impact business the most.

Companies and industry groups may agree it's time international tax systems catch up to the digital economy, but they don't agree on how. They raised concerns during a Nov. 21-22 public consultation in Paris that the OECD's first part of a plan to rewrite global tax ruleswill complicate their tax affairs.

The Netherlands is intensifying the fight against corporate tax dodgers that are using the country to evade billions of euros in payments to governments around theworld. There's no quick-fix though, according to a top official.

Boris Johnson's Conservative Partywill pledge not to increase several key tax measures if itwins next month's general election, part of a manifesto document that's set to promise to return the Brexit bill to Parliament before Christmas.

By Susan C. Morse

Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), the US allowed US parented multinationals to delay indefinitely their payment of US corporate income tax on non-US income earned by non-US corporate subsidiaries (CFCs). The TCJA revoked this permission through the enactment of a unilateral, current minimum tax on the "global intangible low-taxed income" (GILTI) of CFCs. The post-TCJA US international tax law generally imposes current US tax on CFC income subject to reductions for foreign income taxes paid or accrued. This US regime supports the continued existence of a corporate income tax and presents an opportunity to co-ordinate the details of corporate income tax systems globally. Similarity among systems, for instancewith respect to rate, timing and base,would further strengthen the corporate income tax and perhaps support innovations such as formulary apportionment. US tax administrators, non-US governments and taxpayerswill each play a role in negotiating the details of international corporate income tax law going forward.

By Terry S. Moon

This paper assesses the effects of capital gains taxes on investment by exploiting a unique institutional setting in Korea,where the capital gains tax rates vary by firm size. The author uses a difference-in-differences design that compares the outcomes of firmswhose tax rateswere reduced, due to an unanticipated reform in 2014, to the outcomes of unaffected firms. The author finds that firmswhose capital gains tax rates dropped from 24 percent to 10 percent increased investment by 48 log points,with the implied medium-run elasticity of 2.6with respect to the net of tax rate, and increased newly issued equity by 5 cents per dollar of lagged revenue. The effects of the tax cutwere larger for firms that appeared more cash-constrained. Taken together, these findings are consistentwith a class of the "traditional view" models predicting that lower capital taxes spur equity-financed investment by increasing the marginal returns on investment.

Study shows France, China and USwould raise barely any extratax under OECD proposal

A multilateral solution agreed through the OECD framework by the end of 2020will addressdigital services taxes, but how itwill do so remains to be seen, according to an OECD official

Mindy Herzfeld discusses recent academic and legislative proposals forwealth taxes, sayingthatwhile skeptics might find those ideas unlikely to become law, they should still pay attention to thedebate

Democrats are seizing on a report published by The New York Times on Sunday that found FedEx didn't owe anything in taxes in fiscal 2018, a year after President Trump signed off on a $1.5 trillion tax cut that sharply reduced tax rates for corporations in the country.According to the Times, the package signed by Trump in December 2017, forwhich FedEx reportedly lobbied hard, spelled good news the following year for the shipping company,whichwould later see a 34 percent drop in its effective tax rate in fiscal 2018. Its tax ratewas reportedly brought to less than zero at the time.

A project to more closely align Brazil's transfer pricing systemwith international norms ÔøΩ a key requirement in the country's quest to join the Organization for Economic Cooperation and Development ÔøΩ is occurring just as those norms are being eroded.

Officials around the globe hope that a minimum corporate tax is the best approach to tackling avoidance and complex tax planning, but developing a universal standard to measure tax payments could be a daunting technical challenge.

The first responses to the OECD on its public consultation on the digital economy show divisions continue,with some calling for an expansion of the FAR analysis or reverting to the G24 plan.The Paris-based organisation held a public consultation on the October report on its pillar one proposals. Sources close to the OECD hope the consultationwill demonstrate that there is support for the proposals. This could be crucial for the OECD to push aheadwith its ambitious project. So far, the signs have been mixed, but not necessarily bad for policymakers.

Lorraine Eden of Texas A&M and Oliver Treidler of TP&C offer six policy recommendations designed to move the global economy onto the BEPS 2 path, a path appropriate for 21st century digital multinationals thatwill benefit both developed and developing countries. This is Part II of a two-part analysis of the Pillar One proposals. In Part I, the authors provided a summary and analysis of the proposals. In Part II, the authors examine their implications and provide some recommendations.

Amit B. Jain and Ronak Sethi of Ernst & Young LLP take a look at recent tax measures introduced by the Indian governmentwith the aim of making the country more attractive to foreign investment.

Decades of falling tax rates are set to reverse course after enriching corporations around theworldwhile leaving many countries stuck in fiscal deficits, a dislocation that has sparked an uproar among politicians, according to Deutsche Bank.

More than 300 companies, industry groups, law firms, and others haveweighed in on the OECD's plans to rewrite global tax rules.

The Chinese State Administration of Taxation Oct. 26 announced a 4 percent tax on the total income earned from cross-border online retail exports made by e-commerce enterprises and completedwithin a Chinese-designated experimental zone.

The Unified Approach released on Oct. 9, 2019, by the OECD fundamentally changes international tax rules on the grounds that the current rules no longer ensure fairness. Glenn DeSouza of Dentons China analyzes the proposal from the perspective of China.

Final IRS tax rules limit application of attribution rules for determiningwhether U.S. individualswho have ownership in certain foreign companies are related to each other.

Democratic presidential candidate Andrew Yang proposed a tax on digital ads that takes aim at the revenue models of companies such as Facebook Inc. and Alphabet Inc.'s Google.

Labour leader Jeremy Corbyn pledged free high-speed broadband for allwith a 20 billion pound ($26 billion) plan to nationalize BT Group Plc's Openreach unit. The party's most striking move of the election campaignwill be partly paid forwith taxes on tech companies including Facebook and Google. BT shares fell.

U.K. Prime Minister Boris Johnson announced his Conservatives are canceling plans to cut corporation tax next April so the government can save money to spend more on voters' priorities, including the state-funded National Health Service.

By Lorraine Eden

The historical approach to taxing intrafirm transactions of multinational enterprises ÔøΩ the arm's-length standard (ALS) ÔøΩ has been criticized as unworkable, out of date and on death's door. Criticisms of the ALS fall into two broad categories. First are concerns that MNEs have been deliberately engaging in abusive transfer pricing that is extensive, unfair and draining development. Second is that the transfer pricing rules are too difficult to implement for various reasons, ofwhich the two most important reasons are the lack of arm's-length comparables (e.g., for hard-to-value intangibles) and that MNE have synergies not available to unrelated parties. As a result, many academics and policy makers advocate getting rid of the ALS and shifting to global formulary apportionment (GFA). Even the OECD, long a supporter of the ALS and opponent of GFA, now includes fractional apportionment as a possible method for attributing income among countries under its Pillar 1 proposals for taxing the digital economy. The author argues instead that the arm's-length standard remains the appropriate international norm for taxing MNEs, but that new thinking, particularly for the digital business models that are now starting to dominate international production, is probably needed, and that fine tuning the ALS for the 21st century is the appropriate solution.

By Tobias Bornemann, Stacie K. Laplante and Benjamin Osswald

The authors investigatewhether and towhat extent the adoption of an intellectual property box increases innovative activity and the extent towhich different types of firms benefit financially.we examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Their results indicate an overall increase in innovative activity as proxied by patent applications, grants, and highly-skilled employment, at the expense of patent quality. They also provide evidence that firmswith patents on average enjoy 7.2% to 7.9% lower effective tax rates,with the greatest financial benefits accruing to multinational firms compared to domestic firms.

By Kevin Markle and Leslie A. Robinson

The intersection of state aid and international tax has acquired a high profile in Europe. In response, disclosure policies are being proposed.with no empirical evidence, these policies are predicated on rhetoric that pervasive practices by host country governments unfairly benefit foreign-owned companies. Using several novel data sources on tax relief granted in the EU, the authors find that both domestic- and foreign-owned companies benefit from tax concessions. Their evidence that tax avoidance is a joint production function of business and government suggests that any jurisdiction can operate as a tax haven for a companywilling to negotiate.

By Susan C. Morse

Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), the US allowed US parented multinationals to delay indefinitely their payment of US corporate income tax on non-US income earned by non-US corporate subsidiaries (CFCs). The TCJA revoked this permission through the enactment of a unilateral, current minimum tax on the "global intangible low-taxed income" (GILTI) of CFCs. The post-TCJA US international tax law generally imposes current US tax on CFC income subject to reductions for foreign income taxes paid or accrued. This US regime supports the continued existence of a corporate income tax and presents an opportunity to co-ordinate the details of corporate income tax systems globally. The author argues that similarity among systems, for instancewith respect to rate, timing and base,would further strengthen the corporate income tax and perhaps support innovations such as formulary apportionment. US tax administrators, non-US governments and taxpayerswill each play a role in negotiating the details of international corporate income tax law going forward and in determiningwhether and onwhat terms these details converge.

The OECD'swork on overhauling global tax rules for the digital age must require countries towithdraw unilateral measures, such as digital services taxes, a trade group representing companies,including Amazon, Apple, and Facebook, said.

The Organization for Economic Cooperation and Development's proposed approach for how countrieswould tax income from businesses located outside their borders could cause double taxation if the rules don't lend themselves to consistent application, industry groups said Tuesday.

Sen. Elizabethwarren's "Medicare for All" funding plan has come under fire from her rivals for the Democratic nomination, but some in her own party say her framing of the issue could ease the concerns of centrist voters.She estimated that Medicare for Allwould require $20.5 trillion in federal spending and said thatwould be paid forwith taxes thatwould directly fall on employers, corporations,wealthy individuals and financial institutions.