Worldwide: Tax Policy Update - September 15, 2015

NUMBER OF THE WEEK: 9

As in the 9 percent "amusement tax" that the city of Chicago recently extended to online streaming services like Netflix and Amazon Prime, triggering a series of lawsuits alleging that the newly expanded tax was illegally imposed without approval from the city council and that it violates the federal Internet Tax Freedom Act. You can bet other cities around the country will be paying close attention… along with House of Cards fans.

LEGISLATIVE LANDSCAPE

House’s Highway Plan Losing Momentum. First came last week’s surprising news that current highway funding levels can carry the nation’s infrastructure through next summer—well beyond the October 29 expiration of the current authorization for highway spending. Then came the growing clamor from the business community against Rep. Paul Ryan’s effort to pair a long-term highway funding plan with an overhaul of the U.S. international tax system. Bottom line: chances for an international tax/highway funding combo appear to be running low on fuel.

Although precise details of Ryan’s plan have not yet been revealed, it is expected to include some kind of mandatory repatriation of U.S. multinationals’ foreign earnings at a significantly reduced rate, along with a transition to a territorial system of taxation with a foreign dividend exemption and a so-called “innovation box” – a special low tax rate on profits derived from intellectual property. Business groups who also want broad business tax reform (read: a significantly reduced corporate rate with parity for pass-through businesses) are increasingly opposed to Ryan’s international plan, which many believe would cripple future efforts to complete domestic business tax reforms.

Nevertheless, bipartisan and bicameral meetings are taking place this week among tax-writers to determine how best to proceed. Senate Finance Committee Chairman Orrin Hatch (R-UT) and Majority Leader Mitch McConnell (R-KY) have expressed opposition to the international reform-highway funding hybrid plan in the past.

Selection of Permanent "Extenders" Heading for Markup. The House Ways and Means Committee is preparing to mark up several bills that would make some currently expired tax provisions permanent fixtures in the tax code, including a “bonus depreciation” provision (H.R. 2510), which allows accelerated expensing of purchases or construction of qualifying property. Additional provisions expected to be marked up later this week include a bill to make permanent the exemption for subpart F foreign personal holding company income derived “in the active conduct of a banking, financing, or similar business;” the permanent look-through treatment of payments to controlled foreign corporations (H.R. 1430); and the permanent extension of the 15-year recovery period for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property (H.R. 765).”

Though the committee has yet to formally announce a markup, it’s reportedly hoping to schedule it as soon as this Thursday. The markup signals that the battle over which extenders to extend and for how long is about to heat up again, as pressure mounts on lawmakers to deal with the tax provisions before the end of the year. Last December, lawmakers extended all of the provisions retroactively for the 2014 tax year, which means they all expired again just days after the vote to extend them. A similar situation is shaping up this year, only House Republicans are hoping they’ll be successful this time in negotiating for a select few provisions to be made permanent.

Meanwhile, Senate tax-writers passed a package in July that would extend all of the 50-plus tax provisions for just two years (retroactively for all of 2015 and through 2016).

The Joint Committee on Taxation, which “scores” tax bills to determine how much revenue is raised or foregone, said the Senate’s two-year package would cost $95 billion, while an earlier attempt last year to make bonus depreciation permanent would, by itself, cost more than $260 billion over 10 years, without accounting for any dynamic impacts to the economy. While short-term extenders (one to two years) are generally not paid for by spending cuts or tax hikes elsewhere, Democrats have battled against House Republicans’ efforts to make some of the provisions permanent without offsetting the cost.

REGULATORY WORLD

IRS to Halt Many Spinoff Rulings, Increase Scrutiny. Following last week’s news that the IRS declined to issue a ruling to Yahoo! Inc. regarding its potential spin-off of Ali-Baba Group Holding Limited, the IRS announced that it will stop issuing new private letter rulings for a variety of spinoff transactions, including real estate investment trusts (REITs) and regulated investment companies (RICs), in addition to transactions in which the active trade or business is less than five percent of the gross assets or when investment securities are two-thirds or more of the gross assets. The announcement is effective as of Sept. 14.

The IRS also announced in Notice 2015-59, that it will use this hiatus to evaluate issues under Sections 337(d) and 355 related to spinoffs under these circumstances, and it is requesting comment. Explaining the rationale for the non-rule hiatus and the request for comment, the IRS said it believes “that these transactions may present evidence of device for the distribution of earnings and profits, may lack an adequate business purpose or a Qualifying Business, or may violate other [Section] 355 requirements.”

New Transfer Pricing Rules on Intangibles. The IRS yesterday released final, temporary and proposed regulations on the outbound transfer of intangibles under Section 367. The final and temporary regulations (T.D. 9738), clarify the interaction of the arm’s-length standard with other sections of the tax code. The proposed rules eliminate the foreign goodwill exception under Section 367 regulations and limit the scope of property that is eligible for the “active trade or business” exception to certain tangible property and financial assets.

Treasury Urged to Curb Earnings Stripping and Publish List of Inverted Companies. In a letter to Treasury Secretary Jack Lew, a group of Congressional Democrats urged him to annually publish a list of inverted corporations and issue new regulations to curb the practice of earnings stripping. The Democratic lawmakers noted that while inverted corporations are prohibited from benefiting from federal contracts, some of these companies have nevertheless been awarded government work. If Treasury is unable to publish this list, the Democrats offered their support in seeking statutory changes. As for reining in earnings stripping, the Senators recommended new regulations that re-characterize debt as equity for inverted corporations under Section 385.

EU Hopes to Conclude “State Aid” Tax Ruling Investigations Soon. The European Union’s Antitrust commissioner, Margrethe Vestager, said last week that the investigations of EU member countries’ tax rulings with certain multinational corporations were a “high priority” and that the findings would be concluded “soon.” She also said the European Commission plans to release the findings of their investigations on a case-by-case basis, rather than as a whole. As rumors swirl that Ireland, one of the countries under investigation for its tax agreements with multinationals, was likely to receive an adverse decision soon, there is increased chatter about appealing to the EU Court of Justice.

EU Financial-Transaction Tax Moving Ahead. EU finance ministers from 11 countries emerged from talks over the weekend with news that they’ve made progress towards a reaching a deal on a financial transaction tax. Their goal is to reach agreement before the end of the year and begin enforcing the new levy by 2017. Although details over how to implement the tax and what the rate would be are yet to be ironed out, the group apparently agreed to tax gross trades, rather than net transactions, including high-frequency trading. The only EU nations that have agreed to implement the tax are: Germany, France, Italy, Austria, Belgium, Estonia, Greece, Portugal, Slovakia, Slovenia and Spain.

LOOKING AHEAD

Relevant Congressional Activity

Wednesday, 9/16

Senate Finance Committee
The full committee holds a markup of a bipartisan bill to prevent identity theft and tax refund fraud. The bill includes a number of provisions that were a part of Hatch and Wyden’s Tax Refund Theft Prevention Act of 2014, as well as additional measures from Committee members. The Chairman’s Mark of the bill can be found here. A revenue estimate can be found here. A summary can be found here.

Thursday, 9/17

Senate Banking Committee
The full committee holds a hearing on the nomination of Adam Szubin to be Treasury’s undersecretary for terrorism and financial crimes. This hearing was originally scheduled for Sept. 10.

House Financial Services Committee
The full committee holds a hearing on “The Dodd-Frank Act Five Years Later: Are We More Free?” Read more here.

House Financial Services Committee
The Subcommittee on Monetary Policy holds a hearing on “Strengthening U.S. Leadership in a Turbulent Global Economy.” Read more here.

House Small Business Committee
The Subcommittee on Economic Growth, Tax and Capital Access holds a hearing on “Financing Main Street: How Dodd-Frank is Crippling Small Lenders and Access to Capital.” Read more here.

Relevant Agency Activity

Friday, 9/18

Internal Revenue Service
The IRS holds a hearing on proposed regulations that provide guidance regarding when a foreign insurance company’s income is excluded from the definition of passive income under section 1297(b)(2)(B). For more information and registration, please contact Oluwafunmilayo Taylor, 202.317.6901.

Other Activity

Tuesday, 9/15

Cato Institute
Cato holds a discussion on “Blessing or Scourge? Capitalism through the Eyes of Pope Francis. Read more here.

Wednesday, 9/16

4th OECD Forum on Tax and Crime
The 4th Forum, hosted by the Netherlands Tax and Customs Administration, will primarily focus on the future threats and opportunities for law enforcement agencies to work together in the tax and crime area and the use of technology. Experts will discuss topics that are currently high on the political agenda, such as corruption, terrorist financing, alternative payment methods, the dark web, the use of analytics and exploring emerging tax evasion risks in an era of greater transparency. Read more here.

Financial Services Roundtable
FSR holds a discussion on “The Squeeze on Gen X: The Sandwich Generation,” focusing on the challenges Generation Xers face while trying to save for retirement, financially support their aging parents and save to put their own children through college. Register here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.