Daily Tax Update - December 2, 2009

RANGEL AND CAMP INTRODUCE TAX TECHNICAL CORRECTIONS BILL: Today, House Ways and Means Committee Chairman Charles Rangel and Ranking Member Dave Camp introduced legislation (H.R. 4169) to make technical corrections to US tax laws. The companion bill is expected to be introduced in the Senate soon.

  • The bill makes changes to the 2009 economic stimulus law; the 2008 financial bailout bill; the 2008 military tax law; the 2008 economic stimulus law; and the 2007 tax technical corrections law.
  • Rangel said, “This bill responds to valuable feedback we have received to improve on how America's tax laws are operating.” Camp added, “As every individual, family and employer - both small and large - knows the tax code is excruciatingly complex and these corrections are an attempt to fix errors that further complicate compliance. With time running out on the calendar, I hope we can quickly remedy these provisions.”
  • The Joint Committee on Taxation’s description of the bill can be accessed here.
  • The text of the bill can be accessed here

OECD RELEASES REVISED DRAFT OF NEW MODEL CONVENTION ARTICLE 7 (BUSINESS PROFITS): On November 24, 2009, the OECD Committee on Fiscal Affairs released a revised draft of a new Article 7 (Business Profits) of the OECD Model Tax Convention, as well as related changes to the Commentary to the Model Tax Convention. The November 24 release revises the earlier proposed revision of Article 7 and the related Commentary released on July 7, 2008. Once finalized, the new Article 7 and related Commentary are expected to be included in the next update to the OECD Model Tax Convention.

  • The major revision to Article 7 in the November 24 release is the substitution of a new paragraph 3 in Article 7 that differs in some respects from the new paragraph 3 proposed in July 2008. Under new draft paragraph 3, when a Contracting State adjusts the profits attributable to a permanent establishment (“PE”) of an enterprise of one of the Contracting States and taxes profits of the enterprise that have been taxed in the other State, the other State shall, to the extent necessary to eliminate double taxation on those profits, make an appropriate adjustment of the tax charged on those profits. In determining the appropriate adjustment, the competent authorities of the Contracting States “shall if necessary” consult each other.
  • The Commentary to Article 7, paragraph 3, states that a corresponding adjustment is not automatically made, but is made only if the other Contracting State determines that the adjusted profits conform with the arm’s length method of paragraph 2. If the other Contracting State does so determine, however, it must make a corresponding adjustment.
  • The Commentary provides alternate language to be used when a Contracting State prefers that the Contracting States always negotiate the most appropriate arm’s length price or method when one State makes an adjustment. Under this approach, deference is not given to the adjusting State’s position.
  • Paragraph 3 of the July 7, 2008 discussion draft had previously provided that a Contracting State must accept, for the purpose of determining the amount of deductible interest used in computing double taxation relief, the attribution of “free” capital derived from the application of the approach used by the other Contracting State in which the PE of an enterprise of the first Contracting State is located, if two conditions are met: (1) the difference in capital attribution between the two States results from conflicting domestic law capital attribution methods, and (2) the Contracting States agree that the State in which the PE is located has used an authorized approach consistent with the arm’s length principle.
  • The revised Commentary to Article 7 also adds a statement that it is generally not intended that more burdensome documentation requirements be imposed in connection with dealings between a PE and other parts of the same enterprise than those that apply to transactions between associated enterprises, although the Commentary continues to state that dealings between a PE and other parts of the same enterprise imply a need for greater scrutiny because such dealings have no legal consequences for the enterprise as a whole.
  • The Committee on Fiscal Affairs has invited interested parties to submit comments on the revised draft before January 21, 2010.
  • For additional information, contact Philip R. Westpwest@steptoe.com or Michael C. Durstmdurst@steptoe.com

H.R.4168: To amend the Internal Revenue Code of 1986 to expand the definition of cellulosic biofuel to include algae-based biofuel for purposes of the cellulosic biofuel producer credit and the special allowance for cellulosic biofuel plant property.
Sponsor: Rep Teague, Harry [NM-2] (introduced 12/1/2009)      Cosponsors (2)

S.2822: A bill to amend the Internal Revenue Code of 1986 to provide additional tax relief for small businesses, and for other purposes.
Sponsor: Sen Snowe, Olympia J. [ME] (introduced 12/1/2009)      Cosponsors (1)

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