Discussion Draft Research Articles

Submission to Committee on Ways and Means - Comments Presented to the International Tax Reform Working Group

The House Ways & Means Committee Discussion Draft proposes a territorial system for the United States. This document is the author's comments as submitted to the Committee in conjunction with a hearing held on 17 November 2011. In connection with the Committee’s initiation in early 2013 of further consideration of international tax reform, this document was resubmitted on 3 March 2013. The draft importantly includes a dividend-received deduction of 95% instead of 100% as a mechanism to disallow expenses that are attributable to exempt foreign earnings. This mechanism causes the receipt of a dividend to be a event. The Draft also proposes elimination of the section 956 investment in U.S. property rules. This elimination along with a dividend being a taxable event will continue the current encouragement of U.S. MNCs to stockpile earnings overseas in tax havens and will encourage intercompany loans of such funds that will further reduce the US tax base from the interest charged. Changes are suggested that will eliminate these detrimental effects. Comments and suggested changes are also proposed for a number of other matters within the Discussion Draft. The submission includes discussion under the following headings: 1. New §965 – Adjustment Needed to Avoid Rewarding Tax Structured Vehicles 2. New §245A and §956 – Dividend-Received Deduction Structure and Erosion of US Domestic Tax Base – A Flawed Mechanism Requiring Change 3. New §245A – Effect of Subpart F §954(b)(3)(A) De Minimis Rule – Need to Amend to Reflect Territorial System or Eliminate Completely 4. New §245A(b)(2)(A) – Treatment of Foreign Branches 5. New §245A(b)(2)(B) – Foreign Branch Defined 6. New §245A and §246(c)(5) – Effect of Becoming a CFC 7. New §1247 – Issues Concerning Sales and Exchanges 8. New §245A – Noncontrolled 10/50 Corporations – Foreign Tax Credit 9. New §904(b)(3) – Indirectly Allocable Expenses – Erosion of Domestic Tax Base 10. Deletion of §904(d) – Separate “Baskets” 11. §909 – Repeal 12. §§959 and 961 – Elimination 13. §1248 – Continued Application 14. §960 – Effect of Elimination of §902 15. Option A – New category of subpart F income for intangibles 16. Option B – New Low-Taxed Cross-Border Foreign Income 17. Option C – New Foreign Intangible Income 18. Which of the Three Options Should Be Used?

A Tentative Improvement: Comments on OECD Discussion Draft on the Transfer Pricing of Intangibles

This article analyses the OECD Discussion Draft on transfer pricing of intangibles released in 2012. The author compares the new Draft with the existing OECD transfer pricing guidelines on intangibles. Improvements and imperfections within the Draft have been highlighted.

International Tax Reform Comment Letter to House Ways and Means Committee - Why a Worldwide Full-Inclusion System is Far Better for Our Country and Society than a Territorial System

I am commenting on the form that International Tax Reform should take. In brief, the Territorial System strongly lobbied for by the U.S.-based multinational corporations (MNCs) standing to benefit from such a system is not what’s best for our country or our society. It is bad tax policy in today’s environment where it is so easy for MNCs with their extensive resources to shift profits from the U.S. and into low-tax countries. Rather than implementing a Territorial System such as that proposed in the October 26, 2011 Ways and Means Discussion Draft (W&MDD) or continuing our current Deferral System, our country, its people, and yes even our MNCs would best be served by implementing a Worldwide Full-Inclusion System (WFI System). Such a system would actually eliminate or severely curtail the strong motivation (even stronger under a Territorial System) that MNCs now have to shift profits out of the U.S. and into low-taxed countries, thereby achieving non-taxation. Profit shifting motivation disappears when achieving double non-taxation is no longer possible because there’s a current federal tax on all earnings and that tax cannot be eliminated through any tax schemes and creative avoidance. So, this is what is needed: A taxation system that eliminates the present strong motivation to achieve double non-taxation through operating, owning assets, and bearing risks outside the U.S. These efforts, which shift profits and jobs out of the U.S., distort the business and investment decisions of our MNCs. International Tax Reform must put in place a new taxation system that will leave our MNCs free to make their business decisions based solely on business and investment factors such as location of raw materials and customers, employee wage rates, transportation costs, availability of qualified personnel, etc. Only the WFI System accomplishes this.

OECD: Transfer Pricing Safe Harbours

The author considers the discussion draft on safe harbours issued by Working Party No. 6 of the OECD Committee on Fiscal Affairs, the main public comments on it, and the potential impact thereof for taxpayers and tax administrations.

The OECD Discussion Draft on the Transfer of Intangibles (Revision of Chapter VI of the OECD Transfer Pricing Guidelines) – Main Comments

On 6 June 2012, the Organisation for Economic Co-operation and Development (OECD) released a discussion draft on the Proposed Revision of Chapter VI of the OECD Transfer Pricing Guidelines (TPG) and Related Provisions. Intertax publishes the full text of the discussion draft together with the comments submitted by members of Baker & McKenzie Global Transfer Pricing Practice and Global Tax Policy Group. While applauding the document for clarifying a number of important issues related to the application of the arm's length principle to situations involving intangibles, the commentators also believe that the Discussion Draft on several occasions presents departures from the arm's length principle and from the existing guidance in the 2010 TPG. They suggest that the concerns expressed by some countries in relation to specific structures should be addressed within the appropriate legal and policy parameters and that the TPG should remain an interpretative tool of the arm's length principle as set forth in Article 9 of the OECD Model Tax Convention. In addition, they suggest that the guidance in the revised Chapter VI should be balanced and acknowledge that the facts and circumstances of each case ought to be taken into account in a transfer pricing analysis. Prescriptive requirements should not be set as substitutes for comparability analysis.

Opinion Statement of the CFE on the OECD Discussion Draft “Proposed Revision of the Section on Safe Harbours in Chapter IV of the OECD Transfer Pricing Guidelines”

Comments on the Discussion Draft “Proposed Revision of the Section on Safe Harbours in Chapter IV of the OECD Transfer Pricing Guidelines and Related Provisions and Draft Sample Memoranda of Understanding for Competent Authorities to Establish Bilateral Safe Harbours”.

Opinion Statement of the CFE on the OECD Discussion Draft “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions”

Comments on the Discussion Draft “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions”

Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions

This article examines the OECD’s discussion draft of Chapter VI from a Dutch transfer pricing perspective. The new OECD Chapter VI (to be included in the OECD Transfer Pricing Guidelines when finalized) aims to provide further guidance on intangibles.

Valuation of Intangible Assets: An Indian Perspective

The author looks into the common approaches for valuing intangibles and the recent OECD Discussion Draft on intangibles, before presenting a detailed analysis of the Indian Tally case.

The Definition and Ownership of Intangibles: Inside the Box? Outside the Box? What is the Box?

The examination by the Organisation for Economic Co-operation and Development (OECD) of how to take account of “intangibles” in a transfer pricing analysis opens the door to a critical review of important but sometimes understated questions about the significance of the “arm’s length principle”, and the capacity of that principle and the Transfer Pricing Guidelines that manifest it to capture “economic value” inherent in a multinational enterprise as an economic “firm” though possibly not transferred according to typical transactions on which transfer pricing analysis generally depends. This paper examines the meaning of “intangibles” and “ownership” in the context of transfer pricing generally and the OECD’s Discussion Draft entitled “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions” (6 June to 14 September 2012). It considers, as does the Discussion Draft, whether legal or accounting notions need or should be expected to govern the significance of these terms in a transfer pricing analysis. The paper also raises questions about how, and how readily, the manner of conceiving “intangibles” contemplated in the Discussion Draft would be accommodated by countries’ tax and private law, and discusses how significant the answers to these further questions may be not only for the effective application of OECD guidance on “intangibles” but in relation to more general questions about how countries may successfully and sustainably assert jurisdiction to tax income of an MNE which somehow may be connected to or originate in those countries.

The Definition of Permanent Establishment: Current OECD and German Case Law Developments

Article 5 of the OECD MTC settles the definition of the treaty concept of permanent establishments. Although in the past Article 5 has remained untouched, the commentary on the OECD MTC has several times been adjusted on the changing forms of international business, constantly lowering the bar for what constitutes a permanent establishment. Furthermore recent rulings of Germany's Federal Finance Court illustrate, that the court also seems to sympathize with an increasingly broader understanding. Since the practical application of Article 5 raises a number of questions, the OECD has released a public discussion draft listing proposals for changes to the 2014 update of the commentary on Article 5. The authors give an overview of the proposed changes as well as on recent rulings of the German Federal Finance Court addressing the requirements needed to constitute a permanent establishment.

Two Tales of a Treaty Revisited: The Proposed Anti-Counterfeiting Trade Agreement (ACTA)

Over the past four years, through a coordinated series of public announcements that seemed to have been stimulated in part by previously leaked documents, details gradually came to light concerning negotiations over a proposed new Anti-Counterfeiting Trade Agreement (ACTA). According to the governments involved in these closed-door “plurilateral” trade negotiations, the purpose of ACTA was simply to help fight the proliferation of counterfeit and pirated goods in international trade. From the outset, however, the negotiations were embroiled in controversy, for at least four reasons. First, while the negotiations were initially carried out behind closed doors, industry representatives were apparently being supplied with information that was not being disseminated to the public. Second, the “plurilateral” nature of the negotiations aroused suspicions that the ACTA negotiations were but the latest example of “forum-shifting” — a well-documented tactic that is apparently being deployed by owners of intellectual property (IP) in an effort to ratchet up up international standards for the protection of private intellectual property rights (IPRs). These procedural concerns about the conduct of the negotiations, in turn, contributed to two further suspicions about the substantive purpose and scope of ACTA. The first suspicion was that ACTA was simply an effort on the part of intellectual property owners to socialize the enforcement costs of their private IPRs by enhanced civil, criminal, and border enforcement proceedings and remedies. The second suspicion — generated in part by a leaked negotiating document — was that the focus of these civil, criminal, and border enforcement provisions would not be limited to targeting commercial trade in counterfeit and pirated physical goods, but would also extend to “significant willful infringements without motivation for financial gain to such an extent as to prejudicially affect the copyright owner (e.g., Internet piracy).” To the suspicious eye, this verbatim quote from the leaked document clearly seemed to be referring to digital file-sharing — a controversial consumer phenomenon, to be sure, but quite distinct from the issue of commercial trade in counterfeit and pirated physical goods.A particularly jolting development in the effort by critics to secure more specifics concerning the ACTA negotiations occurred in March 2009, when, notwithstanding President Obama's campaign promises of greater transparency in U.S. government policymaking, the Office of the U.S. Trade Representative (USTR) denied a Freedom of Information Act (FOIA) request for a copy of the ACTA discussion draft and related materials on the ground that they were “classified in the interest of national security.” While the invocation of national security may have been simply a ruse to camouflage and avoid exacerbating growing divisions among the negotiating parties, it proved useful to take this national security claim at face value, as it offered a starting point for this article’s predecessor — which sought “to provide two alternative tales of the treaty with a view to identifying and clarifying the various controversies currently surrounding the negotiations.”After revisiting the two tales told prior to the approval of the final draft of ACTA, this article will offer two additional cautionary tales about ACTA’s ultimate impact on the development of intellectual property enforcement standards.

Interpretation and Application of Article 5 (Permanent Establishment) of the OECD Model Tax Convention: Response from IBFD Research Staff

IBFD research staff provide comment on the 2011 OECD discussion draft on the interpretation and application of article 5 (permanent establishments, PEs) of the OECD Model (2010). Following general observations on the concept of PE and the relationship between article 5 and its Commentary, comment is provided on 11 of the issues in the discussion draft.

Recent Developments Regarding Beneficial Ownership in Denmark

This article describes the background to the term “beneficial owner” and how the term has been interpreted in Denmark. It is followed by some comments on the OECD’s discussion draft, “Clarification of the meaning of ‘beneficial owner’ in the OECD Model Tax Convention”.

Efectos del debido proceso en la formulación de la NIIF 13: mediciones a valor razonable

<em>La NIIF 13 es el resultado de un extenso período de deliberación y socialización de planteamientos, orientados a definir los criterios de las mediciones a valor razonable. Esta norma surge en el proceso de convergencia adelantado entre IASB y FASB, como respuesta a una necesidad de homogeneizar las bases de esta medición, dado que su aplicación es transversal en el conjunto de Normas Internacionales de Información Financiera. Para tal fin, el debido proceso se convierte en un mecanismo para legitimar las prácticas que se esperan sean de aplicación universal. El presente documento analiza la evolución de los planteamientos conceptuales y técnicos de la NIIF 13, a partir de los desarrollos evidenciados desde el borrador de discusión de 2006. Como resultado, se evidencian los efectos derivados del debido proceso en las premisas que finalmente quedaron incorporadas en la norma definitiva</em>

Developing Sustainability Indicators for Woody Biomass Harvesting in the United States

Bioenergy production has increased significantly in the last decade, and recent legislative efforts such as the discussion draft for the American Clean Energy and Security Act of 2009 and the Energy Independence and Security Act (EISA) of 2007 are expected to encourage even more growth. The growing demand for bioenergy will necessitate production of large quantities of woody biomass and plant residues if it is to be met. However, concerns are being raised as to how increased pressures will affect the sustainability of woody biomass. In order to avoid potential pitfalls and ensure the sustainability of wood-based bioenergy systems, a set of sustainability indicators needs to be developed. Some of these indicators can be based on standards similar to those developed for sustainable forest management, energy balances, greenhouse gas emission reductions, and existing codes and guidelines for biomass harvesting. This article discusses a potential set of sustainability indicators encompassing ecological, economic, and social principles for harvesting woody biomass for bioenergy. The extent to which existing standards and certification systems reflect these indicators is elaborated upon. Methods for making these standards operational are also suggested.

Submission to Hearing on Ways and Means International Tax Reform Discussion Draft

The House Ways & Means Committee Discussion Draft proposes a territorial system for the United States. This document is the author's comments as submitted to the Committee in conjunction with a hearing held on 17 November 2011.The draft importantly includes a dividend-received deduction of 95% instead of 100% as a mechanism to disallow expenses that are attributable to exempt foreign earnings. This mechanism causes the receipt of a dividend to be a event. The Draft also proposes elimination of the section 956 investment in U.S. property rules. This elimination along with a dividend being a taxable event will continue the current encouragement of U.S. MNCs to stockpile earnings overseas in tax havens and will encourage intercompany loans of such funds that will further reduce the US tax base from the interest charged. Changes are suggested that will eliminate these detrimental effects.Comments and suggested changes are also proposed for a number of other matters within the Discussion Draft.The submission includes discussion under the following headings:1. New §965 – Adjustment Needed to Avoid Rewarding Tax Structured Vehicles2. New §245A and §956 – Dividend-Received Deduction Structure and Erosion of US Domestic Tax Base – A Flawed Mechanism Requiring Change3. New §245A – Effect of Subpart F §954(b)(3)(A) De Minimis Rule – Need to Amend to Reflect Territorial System or Eliminate Completely4. New §245A(b)(2)(A) – Treatment of Foreign Branches5. New §245A(b)(2)(B) – Foreign Branch Defined6. New §245A and §246(c)(5) – Effect of Becoming a CFC7. New §1247 – Issues Concerning Sales and Exchanges8. New §245A – Noncontrolled 10/50 Corporations – Foreign Tax Credit9. New §904(b)(3) – Indirectly Allocable Expenses – Erosion of Domestic Tax Base10. Deletion of §904(d) – Separate “Baskets”11. §909 – Repeal12. §§959 and 961 – Elimination13. §1248 – Continued Application14. §960 – Effect of Elimination of §90215. Option A – New category of subpart F income for intangibles16. Option B – New Low-Taxed Cross-Border Foreign Income17. Option C – New Foreign Intangible Income18. Which of the Three Options Should Be Used?

Expert Delphi survey on research and development into drugs for neglected diseases

BackgroundTropical infectious diseases are called neglected, because they are, inter alia, characterized by an R&D deficit. A similar deficit exists for rare (orphan) diseases which neither promise a sufficient return on R&D investment. To encourage the development of treatments for rare diseases, orphan drug acts were created which contain financial and non-financial incentives for the pharmaceutical industry. Similar instruments aimed exclusively at neglected diseases do not yet exist. Proposals for a regulatory approach to promote R&D for neglected diseases include the application of selected orphan drug incentives, or the implementation of a Medical Research and Development Treaty (MRDT) with national funding obligations for medical R&D. We compiled and analyzed experts' opinions on causes for the treatment deficit for neglected diseases and on desirable and feasible measures to promote neglected disease R&D. Hereby, the focus was on mechanisms contained in orphan drug regulations and in the Medical Research and Development Treaty draft (Discussion draft 4, 2005). Lastly, we solicited experts' opinions on the desirability and feasibility of a regulatory instrument to foster R&D for neglected diseases.MethodsAn international online-Delphi survey was conducted with 117 (first round) and 56 (second round) experts of different professional backgrounds and professional affiliations who formulated and ranked causes and solutions related to the treatment deficit for neglected diseases.ResultsIn both rounds of survey, the majority of the participating experts (88.4% first round, 86.8% second round) advocated the development of a regulatory instrument to promote R&D for neglected diseases. Most experts (77.9% first round, 79.3% second round) also considered this to be a feasible option. With the exception of market exclusivity, which was viewed critically, key provisions contained in orphan drug regulations were judged favorably also for neglected diseases. A majority (87.1% first round, 77.2% second round) supported national funding obligations for neglected diseases which are proposed by the Medical Research and Development Treaty draft.ConclusionsWhile not all features of orphan drug regulations and of the MRDT draft received equal support, the view was expressed that a regulatory instrument would be a desirable and feasible measure to promote R&D for neglected diseases.

More Than 70% Delivered by Other Methods

What I missed in the article was any mention of the fact that in the outpatient setting, more than 70% of psychotherapy for children and adolescents is delivered by other methods, such as psychoanalytic and psychodynamic methods, rather than behavioral therapy alone. I would consider including these approaches as scientifically respectable, since psychoanalysis has been dealing with the theory and treatment of obsessive-compulsive disorders for more than 100 years. With regard to the present day it is worth mentioning that concerning psychodynamic therapies a discussion draft for a psychoanalytic guideline has been available since 2007 (Zeitschrift fur “Analytische Kinder- und Jugendlichenpsychotherapie,” issue 134, 2/2007).

Clarification of the Meaning of "Beneficial Owner" in the OECD Model Tax Convention – Comment on the April 2011 Discussion Draft

In April 2011, the OECD released an important discussion draft that is intended to clarify the meaning of the term "beneficial ownership" under articles 10, 11 and 12 of the OECD Model (2010). This article discusses these proposals and demonstrates that some refinement is necessary.