Int'l Tax News

Treasury Secretary Jack Lew is accusing European Union officials of disproportionately targeting U.S. companies in a sweeping corporate tax investigation.

Lew leveled the heavy criticism against the EU for a new and expansive interpretation of rules aboutwhether companies are unfairly receiving state aid. He said the approach raises "serious concerns about fundamental fairness and the finality of tax rulings throughout the entire European Union."


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Insistence on revenue neutrality shouldn't limit efforts to remake the U.S. tax code, especially given the benefits of dynamic scoring, Houseways and Means Committee Chairman Kevin Brady (R-Texas) said.

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Kimberly S. Blanchard ofweil, Gotshal & Manges examines the IRS's updated "inversion" guidance in Notice 2015-79, outlining rules designed to characterize more transactions as inversions and new rules applicable to 60 percent to 80 percent inversions.while practitioners had expected the Service to issue regulations fleshing out provisions in prior guidance, the new notice instead presents more unresolved questions, the authorwrites.
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With new reporting requirements bound to cause more public outrage about tax planning, preparation is key to navigating potential controversies, a tax executive from Microsoft Corp. said.
"We have some history of our profit allocations being published in the press. And so, the benefit of that is, you have a little history, you have a little data onwhat the downstream impacts of that are," saidwilliam Sample, corporate vice president ofworldwide tax for Microsoft.
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U.K. Chancellor of the Exchequer George Osborne said the European Union needs to make a push for companies to publish their country-by-country tax bills.
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The U.K.will accept "surrogate" filings of the country-by-country reporting template for 2016 accounting periods by U.K. subsidiaries of U.S. multinationals, a U.K. official said.
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In economic analysis, Martin A. Sullivan discusseswhy corporate integration is incompatiblewith a switch to a territorial system.

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Although interest stripping has been garnering much of the attention lately, there are more difficult inversion-related problems to solve, Danielle Rolfes, Treasury international tax counsel, said February 12.
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Houseways and Means Committee Chair Kevin Brady, R-Texas, continued his steady drumbeat on the need for international tax reform at a speech February 12, saying his committeewill move immediately to draft international tax reform legislationwhile alsoworking on a blueprint for comprehensive tax reform this year.
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Tax officials from the U.S., Canada, and the U.K. are optimistic that countrieswill be able to effectively coordinate implementation of country-by-country reporting, but the U.S. and U.K. governments disagree onwhether U.S. multinationals have been disproportionately targeted by the European Commission's state aid investigations.
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Jeffery M. Kadet explains the origin and objectives of the OECD base erosion and profit-shifting project, and he considers how the project may proceed.
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Mindy Herzfeld analyzes the details of the recently announced merger and inversion involving Tyco and Johnson Controls, and explains how that deal could serve as a roadmap for future successful inversions.
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The EU Councilwill support only a "phased approach" to fighting corporate tax evasion focused on limited legislative proposals such as country-by-country reporting of multinational enterprises' tax data, Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem said at an Economic and Financial Affairs Council meeting.
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Anna Binder, Laura Turcan, and Viktoriawöhrer of the Vienna University of Economics and Business summarize the topics discussed at the 11th session of the U.N. Committee of Experts on International Cooperation in Tax Matters, aswell as the international tax topics of relevance beyond developed countries' agendas.
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Auditors examining payments between foreign corporations and U.S. brokerages should consult IRS counselwhen determiningwhether the foreign entity is engaged in a U.S. trade or business, the agency said.

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Brazil's multinational corporations are being harmed by a lack of effective bilateral double tax treatieswith other nationsÔøΩincluding the U.S. and U.K., says an EY LLP study.

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In this paper, the authors analyze the profit shifting behavior of U.S. multinational firms using a unique panel data set of U.S. tax returns over the period 2002-2012. Prior research has found significant effects of tax rates in affiliate and parent countries on the profit shifting behavior of multinational entities,with semi-elasticities ranging from close to zero towell above one. They build on this priorwork by allowing more heterogeneity in response across the distribution of tax rates and by including affiliates located in tax havens around theworld. Their findings suggest that elasticities based on a log-linear specification may severely understate the sensitivity of profits to tax in low-tax jurisdictionswhile simultaneously overstating this elasticity in high-tax jurisdictions.
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Integrating the U.S. corporate tax code so there is no longer taxation of both the corporation and the shareholders could not only discourage inversions but also bring deferred income home and help lower the effective U.S. corporate tax rate, a policy adviser for the Senate Finance Committee said.

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Austrian Finance Minister Hans Joerg Schelling said European efforts to agree on a common financial transactions tax may fall apart if too few nations arewilling to move forward by March.
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European Union finance ministerswill meet Feb. 12 to discuss establishing terms for minimum effective taxation on royalty and interest paymentswith a possible floor of 10 percent to counter profit shifting by multinational corporations.

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A European Union spokesman rejected Treasury Secretary Jacob Lew's claims that the European Commission's state aid investigations have been biased against U.S. multinational corporations, noting that the majority of the European Commission's state aid rulings have ordered member states to recover unpaid taxes from European companies.
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Houseways and Means Committee Chair Kevin Brady, R-Texas, again called for international tax reform at a February 11 hearingwith Treasury Secretary Jacob Lew, but taxwriters continue to debate over how the reform efforts should address corporate inversions.
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Squire Patton Boggs has provided an overview of the implementation process for the OECD's country-by-country reporting recommendations in several jurisdictions, concluding that tax authorities have reached a consensus that all participating countries in the base erosion and profit-shifting projectwill implement new rules.
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TheU.S. stepped upaspatwithEuropean officialsovertheir investigationsofU.S. companies'tax practices,warningin aletterfrom theTreasury secretarythattheyarecreatinga "disturbing"precedent.
For thewall Street Journal story, go here.

Conflict over trans-Atlantic tax practices escalated after Treasury Secretary Jacob J. Lew told European Commission President Jean-Claude Juncker that U.S. companies are unfair targets of state aid investigations.

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If Congress and the administration can't arrive at an agreement on rewriting the business tax code this year, they must still reach a deal to stop corporate inversions, Treasury Secretary Jacob J. Lew told lawmakers during a hearing.

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Advocates for revising U.S. tax laws on international income this year continue to get pushback from Senate Finance Committee Chairman Orrin G. Hatch (R-Utah).
Congress doesn't have enough time to finish such an ambitious task, he said during a hearing on President Barack Obama's budget proposal for fiscal year 2017. As an alternative to slowing the pace of tax-driven corporate relocations, called inversions, Hatch pitched his own plan to end double taxation on corporations, known as "corporate integration."
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At a timewhen the administration is voicing growing concern about the untaxed earnings of U.S. companies overseas, the IRS is instructing its agents to put businesses under the microscopewhen they claim tax breaks for dividends and interest transferred between related controlled foreign corporations.

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Senate taxwriters seemed to have more questions than answerswhen discussing the best possibleway to stop corporate inversionswith Treasury Secretary Jacob Lew at a February 10 hearing on President Obama's fiscal 2017 budget proposal.
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Foreign businesses, like Amazon.com Inc. and Netflix Inc.,would be required to collect and pay goods and services taxes on digital products and services they sell online to Australian customers from July 1, 2017, according to a government proposal.
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Australia's landmark transfer pricing ruling against Chevron Corp.will embolden governments to contest more intragroup finance arrangements, analysts predicted at the International Bar Association's annual tax conference in London.

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The UK government is being urged to open its tax settlementswith multinationals to independent scrutiny, in response to public anger about alleged "sweetheart" deals.

As MPs prepare to question senior staff and HMRC officials about Google's £130m agreement thisweek, tax experts have called for new measures to tackle public concerns over the handling of corporate tax disputes.
For the Financial Times story, go here.

The American Congress is so incompetent that it is arbitrarily handing billions of dollars of U.S. tax revenues to Europe. The issue involves tax manipulation by America's top IT and pharmaceutical companies, including Google, Apple, Amazon, Microsoft, Gilead and others. These companies should be paying U.S. taxes that instead are increasingly being collected by European countries thanks to Congressional (and IRS) gross negligence.

The issue is simple and yet hopelessly muddled in U.S. tax policy.
For the Huffington Post story, go here.

The administrationwill keep pressing Congress in 2017 for provisions to stop corporate inversions and other devices companies use to shift income and operations overseas.
With the offshore income of U.S. companies jumping and more corporations restructuring to cut their U.S. tax bills, thosewill be major priorities for President Barack Obama in the year ahead, a senior Treasury official said in releasing theadministration's 2017 budget planFeb. 9.
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The international tax provisions in the Obama administration's fiscal 2017 budget proposal, released February 9, are a near carbon copy of those in last year's budget, including provisions to impose a minimum tax on foreign income and to strengthen anti-inversion rules.
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While critics of the anti-inversion guidance's third-country rule say that it fails to account for situationswhen a third-party parent jurisdiction is desirable for nontax reasons, John Merrick, special counsel to the IRS associate chief counsel (international), said in his experience there is always a tax motive for picking a locale like Ireland.
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Erik Cederwall argues that the profit-shifting debate as currently conceived is misguided and does a substantial disservice to the U.S. economy and U.S. taxpayers.
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If you thought therewas a problemwith inversions -- deals that allow American companies to relocate their headquarters to lower theirtaxbills --wait until you hear about the real secret to avoiding corporate taxes. It's called earnings stripping, and it is a technique that the Obama administration has so far failed to stop.
For the New York Times story, go here.

We all know about the famous Supreme Court decision that said corporations should be treated like people. It's too bad that this ruling doesn't apply to U.S. companies that give up their citizenship in order to cut their taxeswhile remaining in this country and benefiting from all it has to offer.
For thewashington Post column, go here.

The risk of protectionist tax measures being taken by national governments has abated as a result of the OECD's Base Erosion and Profit Shifting (Beps) project, a key official has told a conference in Dublin.
For the Irish Times story, go here.

Chile on February 8, 2016, enacted significant amendments to the country's 2014 tax reform through Law No. 20.899,which amends Law No. 20.780, enacted on September 29, 2014.

Multinational companieswith Chilean subsidiaries should consider how the newly enacted law could affect their structures, operations, or transactions in Chile.

For the PwC Insight, gohere.

A flat-rate consumption tax collected at the business level, such as the type proposed by some Republican presidential candidates, could lead to European-style high taxation, a top free-market advocate told the Heritage Foundation.
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Differences between the U.S. and the rest of the OECD on how to approach treaty abuse are likely to continue, a U.S. attorney said at the opening session of a two-day international tax conference in London.
The Treasury Department,which isworking on proposed revisions to the U.S. model income tax convention, "does not like, andwould almost certainly never include in any tax treaty" the principal purpose testÔøΩa general anti-abuse rule, said Kimberly S. Blanchard, a partnerwith New York firmweil, Gotshal & Manges LLP.
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Ajay Gupta reviews the history and impact of U.S. anti-inversion measures andweighs the costs that some new measures -- both announced and proposed -- may impose on investors andworkers.
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Practitioners on February 8 challenged both the validity and scope of the IRS's proposed rules thatwould eliminate the foreign goodwill exception in the context of recognition of gain upon outbound transfers of intangibles.
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Proposed regulations on outbound transfers of intangibles are in danger of legal challenges because of the Treasury Department's insistence the rules aren't subject to notice and comment requirements of the Administrative Procedure Act, a practitioner said.

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