Daily Tax Update - November 12, 2014: Germany and UK Propose Rules for Preferential IP Regimes

Germany and UK Propose Rules for Preferential IP Regimes:  Germany and the United Kingdom developed a joint proposal for the consideration of the G20 and OECD member countries in the OECD Forum on Harmful Tax Practices (FHTP).  The FHTP had proposed rules, known as the Modified Nexus approach, based on the location of the R&D expenditure incurred in developing a patent or product.  Germany and the UK’s joint proposal aims to resolve issues some countries had with the Modified Nexus approach.  The joint proposal is based on four elements:

  • Under the FHTP proposal, qualifying expenditures act as a proxy for substantial activities and are defined narrowly; the joint proposal allows companies to increase (or “uplift”) their expenses by up to 30% to include actual expenses for outsourcing and acquisition costs.
  • The proposal allows for a transitional phase to allow for the closure and eventual abolition of IP regimes.
  • The proposal provides for grandfathering of current IP, to allow for the transition.
  • The proposal calls for the development of a tracking and tracing approach.

Germany and the UK will submit this proposal to the FHTP during its meeting on November 17-19, 2014.

IRS Issues Regulations on the Rebate of Overpayments on Tax-Exempt Bonds:  Today, the IRS and Treasury issued final regulations providing guidance on the recovery of overpayments of arbitrage rebate on tax-exempt bonds and other tax-advantaged bonds.  These final regulations amend regulations on the arbitrage investment restrictions on tax-exempt bonds and other tax-advantaged bonds under Section 148.  They finalize, with some changes, proposed regulations published on September 16, 2013.

Senator McConnell States Extenders Should be Priority for Lame-Duck Congress: Senate Minority Leader Mitch McConnell (R-KY) stated that Congress’s priorities for the lame-duck session should include the extension of expiring tax provisions, appropriations, and Department of Defense funding.