Accounting Makeover for Global Companies Seen Within U.S.: Taxes

House Ways and Means Chairman Dave Camp
House Ways and Means Chairman Dave Camp in 2011 unveiled a blueprint for corporate tax reform that would significantly lower the corporate tax rate and move the overall system to a territorial tax system similar to those used by Japan and the U.K. Photographer: Adam Bird/Bloomberg

Multinational companies expect the U.S. Congress to revamp the international section of the tax code, and they already are preparing for it.

Companies tell Ernst & Young LLP that fundamental reform will be complete by 2015 as Congress focuses on overhauling the tax code beginning in the next several months. Sixty-eight percent of U.S. multinationals say comprehensive international reform is coming, according to a survey by Ernst & Young. Fifty-one percent said lawmakers could accomplish the job in 2014, while 31 percent said reform is likely by 2015.

More than half said the prospect of big international reform already has affected their tax planning. Leaders in both parties have spent much of the 112th Congress gearing up for tax reform, which they expect to at least start next year.

“Tax directors are analyzing the impact of a new regime on their companies and evaluating the cost of different planning scenarios under the current system through any transition, as well as the impact of operating under the new system,” Jeff Michalak, head of Ernst & Young International Tax Services, said in a statement.

The survey found that 80 percent of multinationals would prefer a territorial regime. Currently, the system taxes the offshore profits of U.S.-based multinational companies -- a so-called worldwide system that means companies pay tax on business they do in other countries as well as domestically. Republican lawmakers have proposed shifting to a territorial tax system, where most of the income those companies generate abroad would be exempt from U.S. taxes.

House Ways and Means Chairman Dave Camp, a Republican from Michigan, in 2011 unveiled a blueprint for corporate tax reform that would significantly lower the corporate tax rate and move the overall system to a territorial tax system similar to those used by Japan and the U.K. Senate Finance Chairman Max Baucus, a Democrat from Montana, hasn’t offered a formal blueprint, though he laid out principles in a June speech. His approach includes focusing on jobs and competitiveness.

President Obama also has called for overhauling the Internal Revenue Code. His corporate tax plan focuses on lowering the rate and retaining the worldwide system while making it more difficult for companies to defer income.

Business Should Push Harder for IRS Fast-Track Audits

Businesses being audited by the Internal Revenue Service should push harder to get into the fast-track settlement program, a top agency official said.

The fast-track project aims to cut the time and cost of resolving tax disputes with the IRS. Businesses can settle tax disputes in as little as 90 days, according to Paul DeNard, a deputy commissioner at the IRS said this week.

“If you have not been offered fast-track, ask,” DeNard said. “If the exam team says no, they should tell you why. If you’re not happy with the answer, go to a manager. I would encourage all taxpayers to at least ask.”

IRS Commissioner Douglas Shulman in September said the fast-track program was part of an larger agency initiative to transform its relationship with taxpayers.

However, he said the program will only succeed only if both parties come to the table with a goal of reaching a solution. If one side is convinced that the other side is wrong, the settlement option will not work, DeNard told a conference co-sponsored by the LB&I Financial Services Industry and the New York Chapter of the Tax Executives Institute.

Attorneys Offer Medical Device Firms Advice for Excise Tax

Medical device makers will have to master a complex set of rule to comply with the new excise tax on devices that takes effect at the start of the new year, a panel of tax attorneys tell the Advanced Medical Technology Association Oct. 3.

IRS has built a tax plan around the Food and Drug Administration’s regulatory regime for medical devices, says Rita Cavanagh, a partner with Latham & Watkins. It will be a challenge for device companies to determine the right amount to pay and to prove it to the IRS, she says. IRS excise tax rules, in effect for more than 30 years, aren’t well adapted to this industry, she adds.

Devices that are listed with the FDA are subject to the tax. If a firm uses FDA labeling, it must list the device, says Benneville Haas, also a partner with Latham & Watkins. If during an inspection FDA determines that a product should have been listed, the tax will apply, he says.

Property Rules Will Help Increase Market Liquidity

Final tax rules on publicly traded property for purposes of determining the issue price are a good thing because they are likely to help increase the liquidity of the markets, an IRS official says.

Unveiled in September, the rules reflect changes to the easing of the debt markets in recent years. Mark Perwien of IRS’s Office of Chief Counsel says the rules are “a good thing from a policy perspective. The bigger a debt issue is, the more liquid it is.”

French Court Upholds Seizure of Google Tax Data

An appeals court in Paris rules that French tax law allows auditors to seize documents and other data from the foreign-based servers of a multinational corporation.

The court rejects arguments from Google France and Google Ireland that the seizure of documents from foreign-based servers violates French and European Union law. The court says data accessible through a computer on the local audited premises is considered as stored in that computer.

“It matters little that the seized data were on servers located abroad,” the court says.

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