Daily Tax Update - February 21, 2017: European Council Reaches Compromise on Hybrid Mismatch Directive

European Council Reaches Compromise on Hybrid Mismatch Directive:  Today, the European Council reached a compromise on rules aimed at targeting “hybrid mismatches,” which allow multinational enterprises to exploit disparities between two or more tax jurisdictions in order to reduce their overall tax liability. The European Council agreed to a temporary carve-out from the rules for the banking sector, a delimited approach similar to that used by the Organization for Economic Cooperation and Development (OECD) for financial traders, and longer implementation timeline. The compromise updates Directive (EU) 2016/1164, which provided a framework to tackle hybrid mismatch arrangements, issued by the European Council in October 2016.

US Supreme Court Declines to Hear Two State Tax Cases:  Today, the US Supreme Court denied review of two state tax cases. The first, American Business USA Corp. v. Fla. Dep’t of Revenue (U.S. No. 16-567) involved a Florida florist’s challenge of the state’s authority to require the collection of sales taxes on orders received by the Florida florist but that were fulfilled by out-of-state florists and delivered to out-of-state customers.

The second case, First Marblehead Corp. v. Heffernan (U.S. No. 16-777) was a challenge of Massachusetts’s apportionment formula for student-loan income under the state’s financial institutions excise tax. First Marblehead sought review of the Massachusetts Supreme Judicial Court’s decision that allowed Massachusetts to tax 51% of student loan income because the property interest in the loans was located in state.

Washington Mutual Tax Refund Case Dismissed for Unreliable Valuations:  Today, the US Court of Federal Claims dismissed Wash. Mut., Inc. v. United States, Fed. Cl., No. 08-321T, 2/21/17 because Washington Mutual failed to justify its request for a $149 million tax refund since it was unable to reliably establish the cost basis in intangible assets resulting from its acquisition of several savings and loan institutions. The court held that even though Washington Mutual could establish the cost basis in certain packages of government assistance provided in the mergers, it could not provide reliable market value determinations for the intangible assets based on “economic and industry-specific realities” at the time of the transactions.