WEEKEND INSIGHTS: Worldwide Interest Apportionment and Sales Tax

This is a weekend roundup of Bloomberg Tax Insights, written by practitioners and featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, Daily Tax Report: International, Transfer Pricing Report, and Financial Accounting.

This week we look at: keeping worldwide interest expense apportionment, sales tax in 2021, the OECD’s growing tax complexity, China’s perspective on the OECD’s pandemic transfer pricing guidance, and more. We’ll hear from:

• Ian Ross of Illinois Tool Works Inc. on keeping the worldwide interest expense apportionment provision in the U.S. tax code
• Liz Armbruester of Avalara on what to expect in 2021 in sales tax policies
• Academics Jean-Edouard Colliard, Lorraine Eden, and Co-Pierre Georg on the growing complexity of OECD and UN tax proposals and guidelines
• Lian Tang He, Mandy Yu, and Andre Lu of Deloitte China on the transfer pricing implications of the Covid-19 pandemic
• Anthony De Yurre of Bilzin Sumberg on relocating to tax-friendly states
• Mukesh Butani and Seema Kejriwal of BMR Legal on digital tax provisions in India’s budget
• Thierry Viu of CMS Francis Lefebvre Avocats on French tax policy and methods in international audits
• Robert Willens on the high price paid by a U.K. company that was late in filing its U.S. tax return

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Tax code Section 864(f) was intended to create an incentive for U.S.-based multinational groups to restructure their debt arrangements so that group members assume proportionate shares of the global group debt. The pending economic relief legislation would repeal this provision with the stated intent of raising tax revenue. Ian Ross of Illinois Tool Works Inc. says the provision should ideally be retained, because it increases focus on economic substance. Read: Worldwide Interest Expense Apportionment—A Provision Worth Keeping

2021 will likely bring new sales tax policies, expanded obligations for taxpayers, and expanded enforcement. Liz Armbruester of Avalara looks at what to expect from legislatures and tax authorities as states struggle to balance their budgets in the wake of the pandemic. Read: The State of Sales Tax in 2021

A key motivation underlying the October 2020 OECD Pillar One Blueprint and Pillar Two Blueprint is the goal of reducing tax complexity for taxpayers and tax authorities. Jean-Edouard Colliard, Lorraine Eden, and Co-Pierre Georg assess the tax complexity of the blueprints relative to the 2017 OECD Transfer Pricing Guidelines (TPG) and the 2017 UN Transfer Pricing Manual (TPM). Read: Tax Complexity and Transfer Pricing Blueprints, Guidelines, and Manuals

Lian Tang He, Mandy Yu, and Andre Lu of Deloitte China provide observations and comments on the transfer pricing implications of the Covid-19 pandemic from a China perspective. They consider the OECD Guidance in the context of the unique features of the Chinese economy, and key issues faced by Chinese taxpayers in transfer pricing management. Read: OECD Guidance on Covid-19 Transfer Pricing Implications: a China Perspective

The Covid-19 pandemic has accelerated the migration of businesses and individuals from high-tax to tax-friendly states. Anthony De Yurre of Bilzin Sumberg outlines five things to keep in mind when deciding whether and where to relocate your business. Read: Five Tips for Businesses and Individuals Looking to Relocate to Tax-Friendly States

India’s 2021 budget appears to further expand the scope of the digital sales tax imposed in 2020. Mukesh Butani and Seema Kejriwal of BMR Legal analyze the proposed changes to the current tax and posit that the proposals may not achieve the desired objective. Read: India’s Budget 2021—Expanding the Debate on Digital Taxes

A significant part of French tax audit activity is focused on international tax audits, and the last public report on the activity of the French tax audit services also shows that a large part of tax reassessments in the field of international transactions is related to transfer pricing adjustments. Thierry Viu of CMS Francis Lefebvre Avocats reviews the practices of the tax authorities and the results. Read: French Tax Policy and Methods in International Audits

A U.K. corporation recently lost its right to claim any deductions or credits on its U.S. effectively connected income for the 2009 and 2010 tax years, because it failed to file income tax returns for those years until 2017. Robert Willens highlights the key points of the U.S. Tax Court decision. Read: Foreign Corporation’s Tardiness Causes It to Forfeit Deductions

From the Archive

Bloomberg Tax contributors have been tracking and reporting the developments in national and international regulations treatment of related-party lending.

Doug Poms of KPMG looks at what a new Treasury may do, such as reinstating a tradition of providing legislative proposals (often referred to as Green Book proposals) along with its annual proposed budget—including suggested legislative changes to international tax provisions.

Rajeev Agarwal of Qatar Navigation QPSC examines the final report on transfer pricing aspects of financial transactions issued by the OECD, and discusses what businesses should check when determining transfer pricing aspect of financial transactions.

The OECD added financial transactions to its transfer pricing guidelines for the first time in February 2020. Duff & Phelps professionals examine the issues the guidance raises for the determination of the balance of debt and equity funding of an entity within a multinational enterprise for tax purposes.

Beyond Tax

What’s happening outside the world of tax?

WilmerHale partner Ronald Machen, former U.S. Attorney for the District of Columbia, examines what to expect under a Biden Justice Department, including ramped up antitrust and securities enforcement, and says corporate America should be ready for a robust and motivated DOJ. Read: Expect Turbocharged Enforcement Under a Biden DOJ

Georgetown University Law Professor Erin Carroll says that for justice and democracy to work, attorneys need to be able to persuade and be open to persuasion. Teaching first year law students the art of persuasion in 2021, when people are less open to changing their minds with new evidence or information, is difficult, she says, but it’s critical that attorneys listen, put themselves in their opponents’ shoes, and realize they might be wrong. Read: A Law Professor Asks 1Ls: Is Persuasion Dead?

The SEC’s enforcement action against Ripple and its principals illustrates the factors used to determine if a digital asset is a security. Blockchain companies should tread carefully until the U.S. regulatory landscape for crypto tokens is reformed, warns Ciaran Connelly, a partner and head of blockchain law at Ball Janik LLP. Read: SEC’s View That Crypto Tokens Are Securities Causes Legal Woes for Ripple

Data privacy is a growing concern for the expanding medical and recreational cannabis industry, but businesses too frequently fail to treat it as a significant risk and management priority, say Foley Hoag attorneys Chris Hart and Jeremy Meisinger. They examine legal considerations around data privacy and security in cannabis transactions. Read: Cannabis Data Privacy Issues to Watch in 2021

The PREP Act provides immunity to program planners administering Covid-19 vaccines, but that immunity is not absolute for private employers, Mintz attorneys explain. Avoiding liability when administering a workplace vaccination program requires careful design and implementation, including proper vetting of third-party vendors and protecting employee personal health information, they write. Read: Legal Risks of Employer-Sponsored Covid-19 Workplace Vaccination Clinics

Exclusive Content for Bloomberg Tax Subscribers

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The OECD is taking important steps toward more effective and efficient tax dispute resolution procedures. On Nov. 28, 2020, the OECD released a public consultation document, “Making Dispute Resolution Mechanisms More Effective,” with proposals to strengthen the Base Erosion and Profit Shifting (BEPS) Action 14 Minimum Standard. David Ernick, a principal in the transfer pricing practice of PricewaterhouseCoopers’ (PwC) Washington National Tax Services office, highlights the key provisions of the document.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.