handbook-tb

Peter A. Harrisa PE in the jurisdiction of the controller. That is also not a satisfactoryanswer because corporate groups that suffer CFC rules are at acompetitive disadvantage to groups that do not, whatever the market,including the market in the jurisdiction of the controller. There havebeen a number of recent headline examples involving base erosion andprofit shifting which demonstrate that CFC rules should be carefulwhen incorporating an exemption for foreign active business. jA.3.14 The mismatch in example 13 would largely be addressed byquarantining foreign expenses and denying duplication of losses. Thisexample is similar to the double-dip deduction in example 3, and thediscussion with respect to that example is relevant here. The losses ofZ are likely to have a foreign source for either Country A or CountryB (or both) and thus would not be available to offset domestic sourceincome. If, for example, the losses have a source in Country A and aresurrendered to a related company there, then Country B would denya deduction for the losses. Similarly, Country A would deny the lossesif they are surrendered under group relief in Country B. The possibilitythat the loss would be denied in both countries is something thattax planners can usually address and does not seem to warrant specificconsideration. Figure 8 [figure 3.2 in the OECD Action 2 — 2014Deliverable] in the OECD Public Discussion Draft on BEPS Action2 — Domestic Issues is effectively the same as example 13.A.3.15 Figure 21 in the OECD Public Discussion Draft on BEPS Action2 — Domestic Issues involves a mismatch in characterizing an entity(not whether it exists or not) that causes a mismatch in determiningwho is allocated the benefit of a payment made by the entity. The hostState (Country B) sees B Co as a taxable entity and thus recognizesthat B Co has the benefit of the deduction for interest, which can besurrendered under group relief to B Sub 1. The investor State (CountryA) sees a partnership and allocates the interest expense to the partner(A Co). The result is a double deduction for (part of) the sameexpense. Comprehensive withholding by the State of payer (CountryB) will largely address the mismatch in this case. For the investor State,the expense is foreign and might be quarantined for use only againstjFor example, see Anthony Ting, “iTax — Apple’s International TaxStructure and the Double Non-Taxation Issue,” (2014), No. 2 British TaxReview, 40-71.272