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TEI prepares for Annual Canadian liaison meetings; files Supreme Court brief in apportionment case.

As the east coast of the United States copes with Hurricane Sandy, the United States held its presidential election, and the world mulled America's speeding toward the fiscal cliff, Tax Executives Institute constructively engaged in advocacy projects in Canada, the United States, and India.

SALT: U.S. Supreme Court Urged to Address Apportionable Business Income

On October 26, 2012, TEI filed a brief as amicus curiae with the Supreme Court of the United States in Kimberly-Clark Corp. v. Alabama Department of Revenue, which involves the characterization of income from the sale of assets as apportionable business income versus allocable nonbusiness income for state tax purposes. The brief, whose development was overseen by TEI's State and Local Tax Committee, urged the Court to hold that gain from the sale of property used in a taxpayer's unitary business constituted nonbusiness income allocable in full to Alabama.

"The multijurisdictional companies represented by the Institute's membership are significantly affected by the rules governing state taxes generally, and especially those governing the allocation and apportionment of income among the various States," explained TEI International President Carita R. Twinem. "As a result, nearly all Institute members will be affected by the resolution of this case."

The taxpayer, Kimberly-Clark, a major producer of paper-related consumer products, sold timberland that it had used for 34 years in its paper-producing business. After several levels of appeals, the Alabama Supreme Court held that the gain from the sale constituted nonbusiness income allocable in full to Alabama, rather than being apportionable across Kimberly-Clark's entire business. In other states, Kimberly-Clark had apportioned the gain from this transaction, resulting in significant double taxation. TEI's brief in support of Kimberly-Clark's appeal to the U.S. Supreme Court argued that the timberland was clearly part of Kimberly-Clark's unitary business, and thus Alabama was constitutionally required to apportion the gain rather than allocate it entirely to Alabama.

"If the decision of the Alabama Supreme Court stands, taxpayers throughout the nation will suffer uncertainty, an increase in the cost and burden of compliance, and enhanced potential for duplicative taxation," Ms. Twinem noted. For this reason, TEI has urged the Court to take this case and resolve this important issue."

TEI's brief is reproduced in this issue of The Tax Executive, beginning at page 459.

India: TEI Praises Expert Report on Retrospective Tax Legislation

Following up on an earlier submission, on October 19, TEI submitted a letter to the Government of India regarding its "Draft Report on Retrospective Amendments Relating to Indirect Transfer," which was released earlier in the month. The government report was prepared in response to the comments from multinational enterprises protesting legislation passed earlier in the year that generally made retrospective changes to the Indian tax code. In particular, the legislation had the effect of overturning the Indian Supreme Court's decision in the Vodafone case, relating to the Indian Department of Revenue's assessment of a large tax on an indirect stock transfer.

The report concluded that, in general, retrospective tax legislation should be implemented only in rare and exceptional cases, and that the indirect stock transfer tax should be narrowed and applied prospectively. TEI's letter embraced the report's conclusions and commended the Indian Government for forming the commission to study the issue.

TEI's letter is reproduced in this issue, beginning at page 463.

Canada: Contingent Fee Arrangements for SR&ED Claims

On October 12, TEI filed comments with the Canadian Department of Finance on a government consultation relating to the use of contingent fee arrangements in prosecuting claims for the Scientific Research and Experimental Development (SR&ED) tax incentives.

The SR&ED tax incentive program encourages Canadian businesses to conduct research and development in Canada. Out of concern that contingency fees may be diminishing the benefits of the program to Canadian businesses and the economy, the Canadian government announced an intention in Economic Action Plan 2012 to study contingency fees charged by tax preparers. The consultations are aimed at gaining an understanding of (i) why firms choose to hire third-party tax preparers on a contingency-fee basis, (ii) why these tax preparers charge such fees, (iii) the prevalence of the practice, (iv) the size of the fees charged, and (v) the effect of the practice on the benefits derived by Canadian businesses and the economy from the SR&ED program.

TEI's comments address each of these issues. For example, the Institute explained that taxpayers use contingency fee arrangements to expand the resources available for identifying whether new or existing projects qualify for the incentive and, as important, to determine whether a taxpayer's business processes properly document the qualification of its projects. In addition, contingent fee arrangements are usually undertaken pursuant to a request for proposals, which advances the taxpayer's due diligence inquiry into the reputation and skill of the consultants who respond.

TEI's added that contingency fee charges have declined in recent years. Further, because companies know their businesses and know their processes, consultants are often hired to ensure that the documentation necessary to claim the incentive is optimal, and to provide benchmarking services for a well-functioning internal SR&ED compliance program. Finally, a properly structured contingency fee SR&ED arrangement does not generally result in higher costs than a more traditional per diem, per hour, or fixed-fee billing method.

TEI's comments are reproduced in this issue, beginning at page 465.

Canadian Liaison Meetings

On December 4 and 5, delegations of TEI members headed to Ottawa, Ontario, to meet with representatives of Canada Revenue Agency and the Canadian Department of Finance on income and excise tax issues. The meetings were managed by Canadian Income Tax Committee Chair Bonnie Dawe of Finning International, Inc., and Canadian Commodity Tax Committee Chair Robert J. Smith of McKesson Canada. The delegations included members of the Canadian Income and Commodity Tax Committees, as well as TEI Executive Director Timothy J. McCormally, TEI Senior Tax Counsel Jeffrey R Rasmussen, and TEI Tax Counsel Daniel B. De Jong. Regrettably, TEI President Carita Twinem and Vice President for Canadian Affairs Kim Berjian were unable to participate.

The first meeting on December 4 with CRA addressed a wide range of significant income tax issues. Later that day, there was a separate meeting with CRA on a range of commodity and excise tax matters. The next day, two contingents of members met with the Department of Finance on income and excise tax matters.

"These yearly meetings reflect the strong relationship TEI developed over the past 30 years with CRA and the Canadian Department of Finance," Mr. McCormally said. "The positive environment allows for frank and productive discussions on key topics important to taxpayers. I am proud of TEI's extensive Canadian liaison activities and was grateful for the opportunity to participate in this year's meetings with TEI's terrific team of members and staff." Mr. McCormally observed this would be the last liaison he attended before retiring.

Mr. Rassmussen added that the Institute is at work on the agendas for its annual liaison meetings with the Internal Revenue Service and its Large Business & International division, as well as with representatives of the Treasury Department. He stated that the annual meetings, which will be held in late February or early March in Washington, D.C., provide a good opportunity to discuss TEI's submissions and to work toward making rules more administrable for taxpayers and the government alike.

The agendas for the Canadian liaison meetings are reprinted in this issue, beginning at page 469. The responses provided by CRA and the Department of Finance to the questions posed in the agendas will be posted on TEI's website upon their release by the Canadian government.
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Title Annotation:Recent Activities
Publication:Tax Executive
Date:Nov 1, 2012
Previous Article:TEI Annual Conference carries on: Hurricane Sandy disrupts travel, but registrants and speakers persevere.
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