Mayer Brown announced today that Sonal Majmudar, former international tax counsel with the Internal Revenue Service (IRS), joined its Tax practice as a partner. Sonal will be resident in the firm’s Washington DC office. Her arrival bolsters Mayer Brown’s market-leading, global tax offerings, particularly with regard to transfer pricing controversies and high-stakes international disputes.
Michael Lebovitz is a partner in Mayer Brown's Tax Transactions & Consulting practice. Mike advises on the tax aspects of international joint ventures, cross-border mergers and acquisitions, post-transaction integration, international corporate finance, capital market transactions and general international tax planning matters across multiple industries including life sciences, media and entertainment, telecom, technology, oil and gas, and industrial and consumer products.
Preparing for Bad Press (Redux): Tax Transparency Update
As companies prepare for the 2023 SEC filing season, they should also be ready for the inevitable press attention on the effective tax rates of high profile multinationals. In a Client Alert last year, we predicted a recurrence of press focus on whether companies are paying their fair share of tax. Since that time, numerous articles have appeared in the general and financial press, Senator Wyden has continued his attack on the tax positions on major pharmaceutical companies and activist shareholders have been initiating proxy battles to force enhanced public tax reporting.
Regardless of whether a company decides to publicly respond, every company should be ready for press about its global tax position. The need for preparation is obvious, but preparation will take on added significance as companies gear up for mandatory public disclosure of their country-by-country reporting in Europe. In this blog post, we revisit our recommendations to help companies prepare.…
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Tax Meets ESG: Shareholder Activism Expanding to Tax Transparency
In a recent Legal Update, we discussed the emerging intersection between Tax and ESG and highlighted the various external stakeholders pressuring for greater visibility into the global tax positions of multinational companies (MNEs). One increasingly vocal stakeholder group is activist shareholders. Recently, a group of institutional investors of a Fortune 50 company initiated a shareholder proposal calling for the company to publicly disclose where and how much tax it pays around the world. This is only the latest in what is becoming a regular request by activist shareholders.
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EU Sets Pillar Two In Motion
The European Commission has repeatedly expressed its ambition to implement the Two-Pillar agreement in a coherent and consistent way across Member States. On December 22, 2021, a mere two days after the Inclusive Framework released its Pillar Two package, the EC proposed a Directive to implement Pillar Two for large multinational groups operating in the European Union. The Directive would implement the GloBe Model rules only, leaving Pillar One for another time.
The proposal sets out how the effective tax rate will be calculated per jurisdiction, and includes binding rules that will ensure large groups in the EU pay a 15% minimum rate in every jurisdiction in which they operate. The design elements of the Directive consist of the OECD Model rules and the -still to be released-Commentary and detailed implementation guidance. The Commission proposes that the Directive be finalized by the middle of 2022 and transposed into national law in Member States and effective on January 1 ,2023. The timetable envisaged by the Commission is ambitious and raises an issue with regard to the OECD process. Indeed the explanatory Commentary is not scheduled to be released by the OECD before January or February and the implementation guidance will not be available until then end of 2022 or even early 2023.
It remains to be seen whether the EU is overly ambitious particularly in light of the fact that the US legislation that would implement Pillar Two is delayed and uncertain.…
The OECD’s Pillar Two Model Rules Have Arrived
On December 20, 2021, the OECD released the Model Rules for Pillar Two or the “Global Anti-Base Erosion” (GloBE) Rules. The GloBE Rules are the first step towards implementing the groundbreaking international agreement reached by more than 135 countries announced by the OECD/G20 Inclusive Framework in October 2021. Pillar Two provides for a minimum 15% tax on corporate profits for multinational enterprises (MNEs) with more than EUR 750 million in consolidated revenues.
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G20 Finance Ministers Endorse Landmark OECD/G20 Inclusive Framework Agreement: New Rules Likely to Put Added Pressure on Existing Transfer Pricing Rules
On October 13, 2021, the G20 Finance Ministers and Central Bank Governors issued a Communiqué formally endorsing the political agreement reached by 136 countries of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) on a two-pillar framework to dramatically change the taxation of multinational enterprises (MNEs). The Communiqué calls on the IF…
Whither FDII — OECD Discusses FDII in Harmful Tax Practices Update
On August 5, 2021, the OECD released updated Peer Review Results for preferential tax regimes reviewed by the OECD Forum on Harmful Tax Practices (“FHTP”) in connection with BEPS Action 5. Of particular interest to Multinational Enterprises (“MNEs”), the Peer Review Results report that the Foreign-Derived Intangible Income (“FDII”) regime is already “in the process of being eliminated” and that “the United States has committed to abolish this regime.”
The possibility that FDII might be repealed should come as no surprise given the Biden Administration’s Green Book proposal to eliminate FDII. And in any event, the repeal cannot actually take effect until and unless FDII is repealed by legislation. Nevertheless, for MNEs that would be adversely affected by the possible repeal, the references in the Peer Review Results send a strong signal that FDII repeal may be a key priority in future tax reform negotiations.…
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G20 Agrees on Framework for Pillars One and Two and Targets 2023 Effective Date
On July 10, 2021, the G20 endorsed a broad framework to advance Pillars One and Two, which includes an aggressive timetable for bringing the new rules into force in 2023. The endorsement came in a Communiqué, which approved the July 1 statement by the 139-country Inclusive Framework. The G20 agreement represents a political consensus on…
The Elusive “Amount A”
For over a decade, countries have been looking for ways to tax the digital economy. On July 1, 130 countries announced an agreement that would provide a new taxing right to enable a country to tax a portion of digital profits even in the absence of traditional taxable nexus with the country. This new taxing right is known as “Amount A”. The quantum of Amount A remained a mystery until the publication of the OECD’s “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy” on July 1, 2021 (the “Statement”) which quantified Amount A to be “between 20-30% of residual profit defined as profit in excess of 10% of revenue” for in-scope enterprises. Although this quantum of Amount A represents a political compromise, a solid theoretical basis underlying that compromise is essential to sustaining consensus.
The early proposals to modify profit allocation and nexus rules for the digital economy enterprises, which ultimately produced Amount A, strived to be based on certain subjective criteria, including the concepts of user participation, marketing intangibles and/or the concept of significant economic presence. The contemplated methods for profit allocation were the Modified Residual Profit Split method, Fractional Apportionment method, and Distribution-based approaches, along with the options for business line and regional segmentation. However, the criteria and methods of the early proposals are nowhere to be found to found in the OECD July 2021 Statement, leaving many questions about Amount A still unanswered. While the final compromise on Pillar One eliminates the focus on digital economy and shifts instead to high profitability when defining in-scope MNEs, the “digital essence” still surrounds Amount A. For one thing, the introduction to the Statement continues to refer to the “two-pillar solution to address the tax challenges arising from the digitalisation of the economy.” Moreover, a widely accepted assumption in the final Pillar One negotiations is that high profits are generated by intangibles and those are increasingly concentrated with digital businesses. Therefore, an analysis of Amount A cannot be divorced from the analysis of the factors that contribute to the digital economy.…
One Small Step but (Perhaps) One Giant Leap for Global Tax Reform: The G7 Agrees on a Broad Framework for Pillar One and Two
On June 5, 2021, the Finance Ministers and Central Bank Governors of the G7 countries issued a Communiqué announcing their agreement on the conceptual framework for a substantial revision to global tax policy (the “Communiqué”). The Communiqué puts the G7’s stamp of approval on recent efforts by the OECD (supported by a big push by…