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FEATURED ARTICLESISSUE 30 | JUNE 6, 2013Topical News Briefing: ItalyBetween A Rock And A Hard Placeby the Global Tax Weekly Editorial TeamAlthough the tax-raising steps taken last year by"technocrat" Mario Monti's government has succeededin reducing the fiscal deficit from 5 percentto below 3 percent, it has been at the cost of plungingthe country into a downward spiral of anemicconsumption, which in turn affects forward levelsof tax collection.Or does it? The figures say that consumption fellby 7 percent in 2012, and that may be true, but itmay also be the case that people's reaction to highertaxes is to cheat more effectively on their incomedeclarations. Italy has one of the largest "black"economies in Europe, and one of the lowest levelsof respect for government. The authorities havetried to limit the use of cash by putting ceilings oncash withdrawals and requiring banks to providea mass of data about account movements, but theeffect of those measures may just be to turn peopleaway from using banks at all.The news that the European Commission is endingits "excessive deficit procedure" against Italywas welcomed by the Government, but it actuallymeans nothing in real terms this year; next year itwill mean the unblocking of somewhere betweenEUR5bn and 10bn in EU support funds, but muchof that money has prescribed uses, and it won't allcount against the deficit.Meanwhile, the Government is in a hole. The coalitionhas two halves, essentially, left wing and rightwing, and the condition set by Silvio Berlusconi forhis right-wing party's participation was the abandonmentof IMU, a property tax imposed by MarioMonti and which reaped about EUR8bn last year.The first installment, of two, was due in June andhas been postponed pending a grand settlement ofthe nation's fiscal affairs which is supposed to takeplace before September; in the meantime there willbe a 1 percent VAT increase in July unless the Government,by magic, can find a way of avoiding it.In fact the coalition is at war with itself, and thefear must be that Berlusconi is simply waiting forthe moment to bring it down, hoping for a betteroutcome for his party is renewed elections. Anotherchange of government at this moment in historywould be a disaster. Poor Italy.34
FEATURED ARTICLESISSUE 30 | JUNE 6, 2013Payments To Related ForeignPersons: Beware Of StateAddback Provisionsby Michael S. Schadewald©2013 M.S. SchadewaldMichael S. Schadewald, Ph.D., CPA, is a Professorin the Lubar School of Business at the Universityof Wisconsin Milwaukee.Subject to U.S. constitutional constraints and federalstatutory restrictions, each U.S. state has theauthority to adopt its own unique definition ofcorporate taxable income. Over the years, Congresshas enacted numerous restrictions on a domesticcorporation's deductions for interest androyalty payments made to a related foreign person,including Code Secs. 163(j) , 267 and 482 . Inaddition to these federal restrictions, many stateshave enacted the requirement that a domestic corporationmust add back any federal deductionsfor interest expenses and royalty expenses paid toa related person in computing its state taxable income.These state restrictions are important becausestate income taxes represent a significantcomponent of a domestic corporation s overalltax burden. 1 Th us, tax practitioners must considerthe implications of these state addback provisionswhen evaluating the tax consequences of intercompanyfinancing or licensing arrangementsbetween a domestic corporation and its foreignparent company or other related foreign person. 2This article provides a comprehensive analysis ofthe impact of state-related party expense addbackprovisions on the deductibility of payments madeto related foreign persons.Federal Restrictions On PaymentsTo Related Foreign PersonsMost states that impose a corporate income tax useeither federal taxable income before the net operatingloss and special deductions (federal Form 1120,Line 28) or federal taxable income (federal Form1120, Line 30) as the starting place for computinga domestic corporation's state taxable income. 3Consequently, states generally conform to the federalrestrictions on deductions for interest and royaltypayments made to a related foreign person.In computing federal taxable income, a domesticcorporation generally may deduct all interest paidor accrued, 4 as well as all rentals or other paymentsmade for the use of property. 5 However, federallaw imposes numerous restrictions on deductionsfor interest and royalty expenses paid to a relatedforeign person.35
Page 1 and 2: GLOBAL TAX WEEKLYa closer lookISSUE
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Page 5 and 6: FEATURED ARTICLESISSUE 30 | JUNE 6,
Page 7 and 8: taxation treaties concluded by Swit
Page 13 and 14: UK, its offshore dependencies, and
Page 15 and 16: financing and all forms of financia
Page 17 and 18: Th e Government pointed out in part
Page 19 and 20: Talks are now underway. The TIEA wi
Page 21 and 22: through which they can clamber in o
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Page 25 and 26: office space, or own tangible asset
Page 27 and 28: extended for 2 years in December 20
Page 29 and 30: Financial transactions ( e.g. inter
Page 31 and 32: OECD Section E - Redraft On Safe Ha
Page 33: suggests that the following items m
Page 37 and 38: State Interest And IntangibleExpens
Page 39 and 40: States generally define "intangible
Page 41 and 42: Code Sec. 1563(controlledgroup)Stat
Page 43 and 44: ConnecticutGeorgiaIllinoisIndianaRe
Page 45 and 46: Rhode IslandTennesseeVirginiaWest V
Page 47 and 48: Table 4. Comprehensive Income Tax T
Page 49 and 50: include federal interest income, st
Page 51 and 52: Recurring IssuesRestructuring of th
Page 53 and 54: M&A. Nick has extensive experience
Page 55 and 56: and consumers." As Germany and Chin
Page 57 and 58: on many levels. The panel found tha
Page 59 and 60: equirements placed on the states, i
Page 61 and 62: NEWS ROUND-UP: COUNTRY FOCUS - ITAL
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Page 65 and 66: ates - such that, in 2014, the 4 pe
Page 67 and 68: NEWS ROUND-UP: FTTISSUE 30 | JUNE 6
Page 69 and 70: NEWS ROUND-UP: ENVIRONMENTAL TAXESI
Page 71 and 72: Finally, the Federal Council veheme
Page 73 and 74: Singapore Plugs Benefits For SMEsOf
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Page 77 and 78: CONFERENCE CALENDARISSUE 30 | JUNE
Page 79 and 80: Key speakers: John Capasso (Alvarez
Page 81 and 82: Key speakers: TBA6/27/2013 - 6/27/2
Page 83 and 84: 6/14/2013 - 6/14/2013http://www.con
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THE CYPRUS BAIL-OUT ANDFOREIGN CLIE
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Chair: Jonathan Levy (Partner, Reyn
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IN THE COURTSISSUE 30 | JUNE 6, 201
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on including the profit from the do
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deduct VAT as a result of incomplet
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where the taxpayer had somehow offs
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een paid in the destination State.
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that Spain has gone its own way fir
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