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The B.V.I., Cayman Islands, and Bermuda – Current Practice, Enforcement, and Emerging Trends

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The B.V.I., Cayman Islands, and Bermuda – Current Practice, Enforcement, and Emerging Trends

These three leading Caribbean international financial centers are members of the Caribbean Financial Action Task Force and have consistently implemented O.E.C.D. initiatives and E.U. requirements. They pride themselves in following international best practices. None of the regimes discussed below is a taxing regime. Consequently, their compliance focus is on information exchange, increased transparency and economic substance. Joshua Mangeot, a partner of the B.V.I. office of Harneys Celeste Aubee, an associate in the B.V.I. office of Harneys, explain the hurdles that have been overcome to remain in good standing with Europe and the U.S.

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Recent Developments to Combat Tax Avoidance in Germany

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Recent Developments to Combat Tax Avoidance in Germany

“Paper is patient.” This is a common German saying, typically used to highlight the sluggishness of processes and plans of all kinds. However, paper can also catch up with you or even take you by surprise in a way that may be embarrassing or worse when your name pops up in leaked information relating to offshore accounts. Jurisdictions with preferential tax regimes are under the scrutiny of tax and investigative authorities in Germany. This affects multinational corporations, family offices, entrepreneurial families, and wealthy private individuals who invest their assets internationally in a diversified and international manner. Dr. Marco Ottenwälder, a partner in the Frankfurt Office of Andersen Tax, and his colleague, Andreas Gesel, a senior associate of the firm, explain recent measures taken in Germany to combat tax avoidance and follow up with recent practical experience. The tax authorities are aggressive, exit tax has a wider scope than might be commonly expected, and unhappy events occur for individuals and associated companies stemming from arrival in Germany and also departure. Not a pretty sight.

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Focus on H.N.W.I.’S and Offshore Structures – an Indian Perspective

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Focus on H.N.W.I.’S and Offshore Structures – an Indian Perspective

The topic of offshore assets held by H.N.W.I.’s based in India is a topic of substantial interest for various governmental authorities in India. It is not just the Indian Tax Authority that is interested in offshore accounts. Substantial exchange control regulations are in place in India and other regulatory authorities keep a close track of the offshore interests of Indian residents. Over the years, Indian names appeared in data leaks of offshore structures and bank accounts, triggering significant administrative focus and amendments to the law. In 2015, the Black Money Act was introduced in India, with the stated intent of enacting provisions to deal with the problem of undisclosed foreign income and assets and to impose tax on undisclosed foreign income and assets. Ashish Mehta, a partner in the Direct Tax Practice in the Mumbai office of Khaitan & Co., and his colleague, Ujjval Gangwal, a principal associate of the firm, explain in infinite detail the risks that apply to residents hiding funds abroad, the aggressive steps taken by Indian tax authorities in seeking information, the traps for returning Indian nationals stemming from the ownership foreign assets, and the steps to ensure compliance.

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Trusts In Italy: The View of Italian Tax Authorities & Recent Developments

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Trusts In Italy: The View of Italian Tax Authorities & Recent Developments

The legal construct of a trust is a common law arrangement having features that make it suitable for a wide range of uses. Italy lacks a specific legal framework for trusts, which limits its use in a purely Italian set of circumstances. Nevertheless, Italy ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition (1985) and in so doing, introduced a degree of recognition of trusts governed by foreign law. The absence of a specific civil law framework for trusts, combined with Italy’s fragmented and evolving tax law regarding the treatment of trust structures has led to significant interpretative uncertainty both as to income tax matters for the settlor and the beneficiaries and inheritance and estate tax matters. Fabio Chiarenza, a partner in the Rome office of Gianni & Origoni, Francesca Staffieri, also a partner of Gianni & Origoni, and Alessandro Minniti, a managing associate of that firm explain all, including opaque trusts, transparent trusts, timing of the imposition of inheritance and gift tax, and the concept of fictitious interposition of trust as applied by the Italian tax authorities. Good read.

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The Evolution of Tax Enforcement in Switzerland

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The Evolution of Tax Enforcement in Switzerland

As in the rest of Europe, Swiss tax authorities have ramped up examinations of cross border transactions of Swiss residents and cooperation with tax authorities in other countries. Examinations of Swiss residents focus on the abuse of offshore structures and increases in the number of tax examinations and aggressiveness of tax authorities. Regarding Swiss holding companies owned by nonresidents, Switzerland now has an active exchange of information program that provides administrative assistance within the framework of the more than 100 double tax treaties. Thierry Boitelle, the Founding Member of Boitelle Tax Sàrl, in Geneva, and his colleagues Sarah Meriguet and Marine Antunes, Senior Associates at the firm, explain all.

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International Tax Investigations in the U.K.

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International Tax Investigations in the U.K.

It is no secret that the U.K. government is anxious to raise revenue as the public sector debt is estimated to be equivalent to 98.5% of G.D.P. (approximately £2.7665 trillion). The Labour government is dead set on raising income. Non-dom taxation is gone, tax rates are on the rise, and what was capital gains for certain carried interests is ordinary income. Part of the labor program is an attack on tax evasion and avoidance. There are plans for the Labour government to invest £855m over five years in resources for H.M.R.C. to raise £2.7 billion per annum from this investment. In those circumstances, it is not unexpected that assertions of tax fraud and evasion will be raised against those caught up by the compliance initiative. Gary Ashford, a partner of Harbottle & Lewis in London, explains H.M.R.C.’s definition of tax fraud and goes on to discuss the steps that are available for those wishing to make a voluntary disclosure. It is not a pretty picture, especially for those having used offshore vehicles.

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Examining High Net Worth Taxpayers in the U.S.

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Examining High Net Worth Taxpayers in the U.S.

Beginning in 2023, I.R.S. D.O.J. took up the call with programs of enhanced (i) I.R.S. examinations of high-net-worth individuals, large partnerships, and large corporations and (ii) D.O.J. prosecutions of persons accused of criminal tax offenses. The first initiative focused on taxpayers with income of more than $1 million and tax debt in excess of $250,000. The second initiative expanded the focus to large partnerships, which traditionally have more than $10 million in assets. Included were hedge funds, real estate investment partnerships, publicly traded partnerships, and large law firms. At the same time, D.O.J. began prosecuting a slew of recalcitrant taxpayers with significant means, whose tax schemes resulted in millions of dollars in lost tax revenue. Philip Colasanto, a senior associate in the New York Office of Withers Bergman L.L.P. (WithersWorldwide) takes a deep dive into the initiatives and the prosecutions. He goes on to explain various ways that are available to taxpayers wishing to come into compliance regarding past reporting failures.

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Developments In Cross-Border Tax Investigations Target High Net Worth Individuals

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Developments In Cross-Border Tax Investigations Target High Net Worth Individuals

Tax collection and tax policy remain high priorities for the F.A.T.F. and the O.E.C.D. These organizations are responsible for developing and monitoring implementation of standards aimed at enhancing transparency, combatting financial crime, and ensuring effective regulation. The past decade saw adoption of accelerated reforms and ambitious deadlines. Differences between implementation and interpretation of international standards and unilateral or bilateral initiatives increase complexity and uncertainty for H.N.W.I.’s. In an introductory chapter to this edition of Insights, Joshua Mangeot, a partner of the B.V.I. office of Harneys, sets the table for the articles that follow.

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French Life Insurance “101” – For U.S. Persons, Run Away

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French Life Insurance “101” – For U.S. Persons, Run Away

An individual takes out life insurance in order to provide for his heirs and to obtain peace of mind. Tax treatment for the individual during life and the heirs is straightforward when everyone resides in one country. But when a life insurance policy is written in France and the insured or the heirs are U.S. citizens or residents, what the policy holder, his estate, or the beneficiaries may encounter is anything but peace of mind. To their chagrin, each may find that he or she is in the crosshairs of contrary laws in two countries resulting in sub-optimal tax results. In their article, Sophie Borenstein, of attorneys Klein Wenner in Paris, Neha Rastogi, and Stanley C. Ruchelman discusses the French and U.S. tax rules applicable to a French life insurance policy. Grown men have cried over less complicated matters.

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Blunders in International Estate Planning

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Blunders in International Estate Planning

Trust & estate lawyers who dabble infrequently in cross border matters, take notice! It is relatively easy to lose your way when advising a non-U.S. person with assets in the U.S. Shortcuts that work when clients and properties are located in the same jurisdiction may lead to horrific problems when clients are domiciled in one jurisdiction and property is located in another. Examples are (A) drafting two wills where each revokes the other, (B) allowing an individual having a foreign domicile to directly own financial assets in the U.S., such as shares of publicly traded stock or mutual funds, can result in unanticipated estate tax and long delays before heirs have access to the assets, (C) not knowing which I.R.S. information reporting forms must be filed when a new client is a recent arrival from abroad can yield significant penalties for the client, (D) allowing a resident, non-citizen individual to return to the home country is an invitation to unnecessary U.S. estate tax if the client retains investment assets and real property in the U.S., and (E) not noticing inconsistencies in residuary clauses in a principal will drafted in the home country and a U.S. property only will drafted in the U.S. begs for a will fight. Diane K. Roskies, a principal in the New York office of the Offit Kurman law firm, and Zachary Weitz, an attorney in the Los Angeles office of the same firm, explain the severe problems that may be encountered, but do so in a light hearted manner.

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Design and Impact of the Colombian “Significant Economic Presence” Regime

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Design and Impact of the Colombian “Significant Economic Presence” Regime

Before and after joining the O.E.C.D. in 2020, Colombia was an enthusiastic adopter of international tax policies promoted by the O.E.C.D.’s B.E.P.S. Project. Two motivations spurred this action. First, the government wished to overcome technical gaps in the domestic legislation of cross-border taxation. Second, the government sought additional revenue from nonresident companies doing business with clients based in Colombia. However, the Significant Economic Presence (“S.E.P.) regime breaks with the tradition of adopting modifications in a way that is consistent with O.E.C.D. policies. Colombia created the S.E.P. regime as a unilateral alternative to the global proposal of Pillar 1, rejecting this proposal based on two strategic considerations. The first was the low probability of global implementation. The second was the expansion of the tax base beyond that provided by Pillar 2. Depending on your viewpoint, the S.E.P. regime contains certain elements that resemble an income tax and other elements that resemble a V.A.T. Eric Thompson, a Partner of attorneys Cañón Thompson in Bogota, takes a deep dive in his article and tells all. He suggests that a tax that was intended to raise revenue from nonresident suppliers may simply result in price increases in Colombia. Who knew that could happen?

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Demystifying Key Complexities of the India Budget 2024-25

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Demystifying Key Complexities of the India Budget 2024-25

The Indian finance minister presented Budget 2024-25 (the “Budget”) earlier this year. During the last financial year, the Indian economy reported growth rate in G.D.P. of 8.2%. Surpassing the United Kingdom, India has sprinted to the position of the fifth largest economy in the world. Budget 2024-25 has been crafted to continue the economic growth of the county. To that end, the budget includes the following provisions regarding direct taxation: (A) Favorable changes in the holding period and tax rates for long-term capital gains, (B) Limitations on the availability to index costs when computing capital gains that in many instances are taxed at lower rates, (C) Parity in rates for residents and nonresidents, (D) Abolition of the Angel Tax, (E) New tax rules for the taxation of a corporate buyback of shares, and (F) The repeal of Equalization Levy 2.0 on e-commerce transactions. Jairaj Purandare, the Founder & Chairman of JMP Advisors Pvt Ltd, Shibani Bakshi, an Associate Director of the firm, and Siddhita Desai, an Associate with the firm, explain the new provisions.

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Earning My Credits: Life At Ruchelman P.L.L.C.

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Earning My Credits: Life At Ruchelman P.L.L.C.

Ruchelman P.L.L.C. actively participates in the extern program for students in the LLM Program at New York Law School. We provide real life professional experience to the extern and the extern receives two credits towards the award of a degree. Our younger lawyers benefit by providing hands-on supervision of the extern, a needed step in professional development. Recently, we expanded our extern program to include J.D. students at New York Law School who have taken enough tax courses to demonstrate a desire to pursue a tax focus in the practice of law. This spring, our extern was Vanessa Lebbos, now a law school graduate. In her article, Vanessa explains her journey in law school, her interest in taking tax courses, and her experience at our firm. Mentoring an extern can be its own reward. That certainly was our experience with Vanessa. 

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Netherlands: New Legislation to Combat Hybrid Mismatches

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Netherlands: New Legislation to Combat Hybrid Mismatches

Late in 2023, the Netherlands parliament adopted a legislative proposal intended to significantly reduce the use of hybrid mismatch arrangements by companies operating internationally. While the legislative proposal reflects the policy of A.T.A.D. 2. – combatting hybrid mismatches – it does so through the adoption of a system to achieve uniform classification of entities on a cross border basis. Gerard van der Linden, a partner of Van Olde Tax Lawyers in Amsterdam, and Thijs Poelert, an associate at Van Olde Tax Lawyers in Amsterdam, explain the fixed method and the symmetric method for classifying foreign entities that are at the core of the law. Classification rules for certain domestic and foreign entities have been modified significantly. C.V.’s, L.P.’s, and L.L.C.’s will be treated as fiscally transparent. The new law is scheduled to take effect on January 1, 2025.

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French Reporting Obligations for Foreign Financial Trusts

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French Reporting Obligations for Foreign Financial Trusts

In general, French information reporting obligations regarding foreign financial trusts are broad, the scope of reporting persons and transactions are broader, and the risk of penalties is severe. By definition, foreign financial trusts are formed under foreign law, have only non-French individuals as settlors and beneficiaries, and in France own only financial investment assets. French reporting obligations can be a burden for the trustees of these trusts and foreign trustees often are not aware of the full scope of the French rules. Even when the rules are known by the trustee, they are ambiguous and imprecise, leading to legal uncertainty. The problem often affects U.S. individuals who invest in French financial assets through trusts upon the recommendation of U.S. asset managers or private bankers. Programs to issue U.S. Dollar Denominated Medium-Term Notes (“U.S.D.M.T.N.’s”) represent a major source of U.S. Dollar liquidity for French banks. In their article, Benoit Bailly, a partner in the Paris office of CMS Francis Lefebvre, and Carl Meak, an associate in the Paris office of CMS Francis Lefebvre, address the labyrinth of reporting obligations that exist in the guidelines issued by French tax authorities. They point out that several rulings of the the Service de la sécurité juridique et du contrôle fiscal appear to be helpful. Nonetheless, more work is left to be done.

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U.S. Citizens Owning Swiss Real Estate – Cross Border Estate Planning is a Necessity

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U.S. Citizens Owning Swiss Real Estate – Cross Border Estate Planning is a Necessity

More and more Americans are living and working in Switzerland. Today, it is common for American citizens to own assets in Switzerland, especially real estate. While impediments to acquire Swiss real estate are easily overcome, the ability to transfer real estate at death in a way that meets the expectations of the American owner requires careful planning in advance. Differences in the inheritance and tax laws of the two countries make estate planning in U.S.-Swiss inheritance cases particularly complex. The problem is exacerbated by differences in conflict-of-law laws. Daniel Gabrieli, a partner in the Private Clients practice group of attorneys Wenger Plattner in Zurich, and Nils Kern, an associate in the Private Clients practice group of attorneys Wenger Plattner in Zurich, explain the issues that are faced under Swiss law, provide a typical fact pattern that may create problems at death, and suggest steps that can be taken during life to avoid the issue altogether.

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Italy Introduces a Penalty Protection Regime for Hybrid Mismatches: Trick Or Treat?

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Italy Introduces a Penalty Protection Regime for Hybrid Mismatches: Trick Or Treat?

Anti-hybrid legislation consistent with A.T.A.D. 2 has been in effect in Italy for fiscal years beginning on or after January 1, 2020. But towards the close of last year, legislation was enacted under which penalty relief is available as of the 2023. The key to obtaining relief is the “hybrid dossier,” which is submitted to the tax authorities and provides full disclosure of the hybrid transactions, the relevant laws in Italy and the other country, and the reasoning why the anti-hybrid penalties are inapplicable. While the new rules clearly apply beginning with the 2023 fiscal year, retroactive relief back to the 2020 fiscal year is allowed, provided one hurdle is overcome. Retroactive relief is available if, and only if, Italian tax authorities “have not started a tax audit, investigation activities, or other similar actions for those fiscal years.” It is understood that Italian tax authorities have already begun to notify targeted taxpayers with questionnaires. In their article, Federico Di Cesare, a Partner of Macchi di Cellere Gangemi in Rome and Milan, and Dimitra Michalopoulos, an Associate in the tax practice of Macchi di Cellere Gangemi in Rome, explain the legislation, address the content of the hybrid dossier, and address the most important issue for many taxpayers: have Italian tax authorities taken action similar to a tax audit by the circulation of the questionnaire?

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Adventures In Transfer Pricing – Practical Experience In Germany

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Adventures In Transfer Pricing – Practical Experience In Germany

 For many years, German tax authorities suspected that M.N.C.’s transfer pricing policies were not in line with the arm’s length principle. Consequently, it comes as no surprise that Germany spearheaded international regulatory developments related to the arm’s length standard. International M.N.C.’s face ever increasing tax controversies in matters related to transfer pricing. In some cases, T.N.M.M. benchmarking is challenged under the view that a German sales entity makes intangible-related D.E.M.P.E. contributions in the field of marketing. In other cases ,C.U.T. benchmarking for intercompany license fees is challenged on grounds that the intangible property licensed to a German affiliate is unique by definition, thereby leading to a profit split. Restructures are attacked using inflated values for routine activities that remain in Germany. However, all is not bleak. In three case studies, Dr. Yves Herve, a Senior Managing Director in the Frankfurt Office of NERA and Philip de Homont, MSc, a Managing Director in the Frankfurt Office of NERA, illustrate in “plain language” the ways by which in-depth economic analysis has been used to overcome aggressive assertions by tax examiners.

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Israel Proposes Modifications to Tax Reporting Obligations for Olim

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Israel Proposes Modifications to Tax Reporting Obligations for Olim

Acting in response to recommendations by the O.E.C.D. Global Forum on Transparency and Exchange of Information for Tax Purposes, legislation has been proposed in Israel to adopt new reporting obligations for Israeli entities, certain trusts, and individuals known as “Residents for the First Time” and “Senior Returning Residents.”  The proposed amendment does not alter tax liabilities in Israel or eliminate preferred tax treatment of Olim. Rather, it revises certain reporting obligations in order to increase transparency. As of April 1, 2024, adoption is imminent. Boaz Feinberg, a partner of Arnon, Tadmor-Levy Law Firm, Tel Aviv, explains all. 

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The Most Important 15 Questions to Ask About the Forfait in Switzerland

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The Most Important 15 Questions to Ask About the Forfait in Switzerland

As one door closes for non-doms in the U.K., a tried and true door may open in Switzerland, in the form of a negotiated annual tax amount. For many decades, several cantons in Switzerland have adopted a special taxation regime known as the forfait. It allows foreign nationals relocating to the respective canton to pay tax based on worldwide living costs. Although the forfait regime was abolished in a number of cantons, a national vote was held in 2014 turning down a proposal calling for its elimination. In his article, Michael Fischer, the founding partner of Fischer Ramp Buchmann AG, Zürich, asks – and answers – questions about the most important elements to be considered when considering Switzerland as a new place of residence.

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