Post your initial response to one of the following discussion topics (topic 1 or topic 2) Make sure your responses are substantive in nature and that you reference the applicable IRC code provisions and other professional sources used to support your postings.

Discussion Topic 1: In January of 2018, tax officials from some of the world’s leading economies launched a program to jointly assess the transfer pricing positions of multinational taxpayers in a cooperative manner through review of their country-by-country reports, local files, and other materials. The program, known as the International Compliance Assurance Programme (ICAP), recently received support for an expansion of the initial pilot program, known as “ICAP 2.0.” Discuss some of the key topics related to transfer pricing and international taxation covered in the most recently released version of the ICAP Handbook.

Discussion Topic 2: In 2016, after nearly 10 years without an update, the United States Treasury Department issued a newly revised U.S. Model Income Tax Convention (the “2016 Model”), which is the baseline text the Treasury Department uses when it negotiates tax treaties. What are some of the differences between the 2016 Model and the 2006 Model? Why were these changes needed?

Reference

Misey, J., & Schadewald, M. S. (2018). Practical guide to U.S. taxation of international transactions (11th ed.). CCH.

Do the discussion with citation and reference then reponse each posted below.

Posted 1

While there is much to the international compliance agreement programme, there are a few key areas of note. In short, it is a model designed to improve tax compliance via heightened transparency. It requires taxpayers to “demonstrate how they handle transactions and tax risks; in return, it requires tax administrations to provide early certainty as to how it will treat those tax risks.^{” (}Majdanska, Wu 2019). This model is built on seven primary concepts or pillars: transparency, disclosure, commercial awareness, impartiality, proportionality, openness, and responsiveness. It is important to note that these guidelines are simply optional. However, the assurance program effectively facilitates superior multilateral engagements between large multinational enterprises. The directly impacts international trade and the tax administrations within certain areas. More so, ICAP supports transfer pricing, which is the accounting practice of recording the price one division within a company charges another division for a certain product or service. There are a number of countries that are engaged in ICAP, including the United States. It would seem that this avenue to greater tax certainty creates more transparent, and thus effective global business opportunities.

Posted 2

Hi, everyone,

International Compliance Assurance Programme (ICAP) is a very new topic to me. I have learned that there are six key drivers behind the development of ICAP risk assessment and assurance process. It is designed to be an efficient, effective and co -ordinated approach to provide multinational enterprise groups to engage their activities and transactions. ICAP was first launched in Jan 2018 with a pilot including eight tax administrations. The purpose of ICAP is to providing a pathway to improved tax certainty for MNE group and have a more effective dispute resolution. It will provide a well established group compliance framework and international collaboration. As tax administrations and MNE groups enter an era of increased transparency, new opportunities arise to use the increased flow of information to support open, co-operative relationships between taxpayers and tax administrations, providing routes towards greater comfort or certainty, and a more effective use of resources. ICAP is suitable for dealing with a broad spectrum of international and cross-border tax risks, but is likely to be most effective where it is targeted at those risks that are a concern to all or most of the tax administrations involved, with primarily domestic tax risks dealt with through a tax administration’s usual domestic programmes. Transfer pricing and permanent establishment risks were the two main international tax risks covered by ICAP.

Posted 3

The 2016 Model includes a number of new provisions intended to implement the Treasury Department’s longstanding policy that tax treaties should eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance effectively. Below are the differences in form of inclusions in the 2016 model in contrast to the 2006 model:

• Preferential Tax Regimes: The 2016 Model does not allow a reduction of withholding taxes on payments of highly mobile income—income that taxpayers can easily shift around the globe through deductible payments such as royalties and interest—that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime. To protect against treaty abuse, the 2016 Model contains rules that deny treaty benefits on deductible payments of highly mobile income that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime.
• Article 11 (Interest) includes a new rule that would allow a treaty partner to tax interest arising in that country in accordance with domestic law if the interest is beneficially owned by a related person that benefits from “notional interest deductions” (NID).
• New Article 28 (Subsequent Changes in Law) obligates the treaty partners to consult with a view to amending the treaty as necessary when changes in the domestic law of a treaty partner draw into question the treaty’s original balance of negotiated benefits and the need for the treaty to reduce double taxation.
• Corporate Inversions: The 2016 Model also includes measures to reduce the tax benefits of corporate inversions. Specifically, it denies reduced withholding taxes on U.S. source payments made by companies that engage in inversions to related foreign persons.
• Required Arbitration: The 2016 Model contains rules requiring that such disputes be resolved through mandatory binding arbitration. The “last best offer” approach to arbitration in the 2016 Model is substantively the same as the arbitration provision in four U.S. tax treaties in force and three U.S. tax treaties that are awaiting the advice and consent of the Senate.
• Article 22 (Limitation on Benefits) has been updated to prevent so-called “treaty shopping” by third-country residents that are not intended beneficiaries of the treaty. The 2016 Model includes two new tests – a “derivative benefits” test and a “headquarters company” test. In addition, a number of the preexisting LOB tests have been tightened to prevent abuse by third-country residents.
• Triangular PEs: The 2016 Model also includes a rule (located in new paragraph 8 of Article 1 (General Scope)) that is a revised version of the “triangular permanent establishment” rule that has been included in some of the United States’ income treaties since the 1990s.