Daily Tax Report ®

OECD Here to There • Tax Havens & Covid • Substance in Flux

Aug. 2, 2020, 9:20 AM

This is a weekend roundup of Bloomberg Tax Insights, which are written by practitioners, 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, and Daily Tax Report: International.

This week we look at whether the OECD digital tax project can attain its objective, tax havens and the pandemic, transfer pricing substance in flux, and fighting the state tax battle on the sale of a pass-through entity. We’ll hear from:

  • Will Morris of PwC on getting the OECD digital tax project from here to there
  • Andrew Sams of TwinFocus on whether tax havens are susceptible to Covid-19
  • Mark Martin, Mark Horowitz, and Thomas Bettge of KPMG LLP on the role of substance in transfer pricing
  • Steve Wlodychak of Ernst & Young LLP and Bruce Ely of Bradley Arant Boult Cummings LLP on the sale of a pass-through entity
  • Monique van Herksen of Simmons & Simmons on navigating the new Dutch mutual agreement procedure guidance
  • Valentin Krustev of KPMG LLP on lease accounting and transfer pricing
  • Stroock & Stroock & Lavan LLP attorneys on foreclosing mezzanine loans during the pandemic
  • Jason Walter and Clint Flowers of National Land Realty LLC on five investments and their tax advantages
  • Simon Sutcliffe of Blick Rothenberg on challenges for U.K. businesses involved in trade with the EU post-Brexit
  • Elga Reana Tozzi of Niederer Kraft Frey Ltd. on Swiss withholding tax reform
  • Francesco Bonichi of Caiazzo Donnini Pappalardo & Associati on cross-border dispute resolution in Italy
Photographer: Darren McCollester/Getty Images

The OECD digital tax project on profit reallocation seems to be in an undesirable place. Will Morris of PwC looks at where the project is and says its original objective remains valid but the route may need some adjustments. Read: OECD Digital Tax Project: Profit Reallocation—How Do We Get ‘There’ From ‘Here’?

Covid-19 has given rise to worldwide travel restrictions, which are making it difficult for some companies incorporated in countries with zero or nominal tax rates to meet various requirements under the economic substance tests. Andrew Sams of TwinFocus highlights some of the implications and practical considerations such travel restrictions bring about and what actions ultra-high net worth families can take in light of the situation. Read: Are Tax Havens Susceptible (Or Immune) To Covid?

The OECD’s Base Erosion and Profit-Shifting (BEPS) project is bringing about significant developments in the role of substance in transfer pricing. Mark Martin, Mark Horowitz, and Thomas Bettge of KPMG LLP look at the role of substance under the OECD guidelines, tax authorities’ use of substance, complying with substance rules, and substance issues in light of the Covid-19 pandemic. Read: Substance in Flux—DEMPE, BEPS 2.0, and Covid-19

Navy SEAL persistence paid off in a fight against the Idaho State Tax Commission on the treatment of gain on the sale of interests in a pass-through entity. Steve Wlodychak of Ernst & Young LLP and Bruce Ely of Bradley Arant Boult Cummings LLP describe the battle in Noell Industries Inc. v. Idaho State Tax Commission and compare it to other recent engagements with similar facts but less favorable outcomes for the taxpayers. Read: Persistence Pays Off in Sale of Idaho Pass-Through Entity

The Dutch Ministry of Finance recently issued a new Mutual Agreement Procedure (MAP) Decree, which sets out the process to obtain competent authority assistance under tax treaties in order to provide relief from double taxation. Monique van Herksen of Simmons & Simmons explains what has changed and what taxpayers need to be aware of. Read: Finding Your Way Through MAP With New Dutch Guidance

Both the Financial Accounting Standards Board and the International Accounting Standards Board introduced new accounting standards for leases which became effective for public companies for their financial years starting Jan. 1, 2019, or afterward. Valentin Krustev of KPMG LLP (1) synthesizes the most important accounting changes that impact transfer pricing profit metrics; (2) explores a large sample of public filings to identify the most affected industries and quantify trends before and after the changes; and (3) proposes recommendations on adjustments to mitigate the transition issues and provide some level of comparability between future U.S. GAAP and IFRS data. Read: Effect of New Lease Accounting Standards on Transfer Pricing Benchmarks

Is it possible to conduct a “commercially reasonable” sale during a worldwide pandemic? Stroock & Stroock & Lavan attorneys look at how a New York court recently answered that question in a mezzanine loan foreclosure. Read: UCC Foreclosures, Mezzanine Loans, and Covid-19: What is ‘Commercially Reasonable’ in a Pandemic?

Investment in land can come with many tax advantages. Jason Walter and Clint Flowers of National Land Realty outline five investments and their tax characteristics. Read: Top 5 Tax Shelter Options for Landowners and Investors

Recent guidance from the U.K. government and the European Commission has brought into focus the many challenges for U.K. businesses involved in trade with the EU post-Brexit. Simon Sutcliffe of Blick Rothenberg takes a look at the recent developments and considers how companies may address the new requirements after the U.K. leaves the EU. Read: Brexit—Post Transition Developments and Repercussions

Elga Reana Tozzi of Niederer Kraft Frey Ltd looks at the consultation draft recently published on the Swiss withholding tax reform and considers the implications for companies and non-Swiss investors. Read: Swiss Withholding Tax Reform—Considerations for Multinationals with Swiss Operations

Significant improvements for solving cross-border tax disputes have recently been introduced in Italy, with the implementation of Decree No. 49/2020, as discussed by Francesco Bonichi of Caiazzo Donnini Pappalardo & Associati. Read: Implementing the EU Directive on Tax Dispute Resolution in Italy

Corporate Tax Chat: ADP

Bloomberg Tax recently talked with Pete Isberg, ADP LLP’s vice president for government affairs, about challenges in the payroll industry caused by the pandemic and ongoing work-from-home orders. He raises issues that companies should be watching as they attempt to keep up with guidance that is constantly being updated, and shares ideas for how the IRS could streamline its filing system as an increasing number of taxpayers potentially ramp up applications for tax relief. Read: Corporate Tax Chat With Pete Isberg of ADP

From the Archive

Bloomberg Tax contributors regularly refer to the use of mutual agreement procedures for multinational businesses to avoid double taxation.

Economies and markets have been hit by the Covid-19 outbreak, and businesses are contingency planning to ensure their operations continue. Baker McKenzie attorneys provided practical guidance for applying the arm’s-length principle during the economic crisis.

Jon Claypole and Ken Almand of BDO considered the impact of the U.K. tax authority’s Diverted Profits Tax so far, and what’s ahead for multinationals.

Steven C. Wrappe of Grant Thornton LLP discussed the three taxing approaches that have emerged to address the tax challenges of the digital economy—excise taxes, modified transfer pricing rules and tariffs. Each of these is a potent weapon in a global trade struggle and each imposes a very different tax impact on multinational enterprises.

Beyond Tax

What’s happening outside the world of tax?

Law firm work-at-home flexibilities during the pandemic have shown that we don’t need to chain lawyers to their desks and make them sweat under soul-draining fluorescent office lights to gain value. Olga V. Mack, CEO of Parley Pro, says law firms should continue to give attorneys upgraded technology to reduce time spent on dull, time-consuming tasks like document review and contract management activities that burn through hours without delivering much value. Read: Assessing the True Value of the Evolving Remote Lawyer

With all the Covid-19 related changes to remote work, including trials, in-house counsel should take a fresh look at the skills and resources of their litigation and trial teams. Julia Brickell, executive managing director and general counsel of H5, highlights issues and approaches for effective litigation preparation in the post-lockdown era. Read: Counsel Call for Strategic Attention to Covid-19 New Trial Dynamics

Paycheck Protection Program litigation is still in its early stages, and litigation risk exposure for banks will depend on a number of factors, according to Graham H. Ryan, partner with Jones Walker LLP. He offers some risk mitigation strategies and says additional guidance and forthcoming court opinions will provide more insight into the viability of litigation claims and defenses. Read: PPP Litigation Trends Signal Court Battles Ahead for Banks

The pandemic has changed the legal needs of the community. DLA Piper’s Anne Geraghty Helms speaks with Katherine W. Shank, deputy director of Legal Aid Chicago, on how the organization is helping address issues such as evictions, domestic violence, and racial justice. Read: Legal Aid Chicago Responds to the Covid-19 Crisis —A Conversation With DLA Piper

Exclusive Content for Bloomberg Tax Subscribers

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Following the elimination of personal property from the like-kind exchange provisions of tax code Section 1031 under the 2017 tax law, the IRS had to come up with a definition of “real property” still covered under the section. Aaron Gaynor of Roberts & Holland in New York examines the proposed regulations to find they provide a robust definition for purposes of the section but additional clarity is needed in some contexts.

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

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com

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