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The Sun is Setting on the T.C.J.A.: Time to Set Gaze on Pre-T.C.J.A. Tax Law

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The Sun is Setting on the T.C.J.A.: Time to Set Gaze on Pre-T.C.J.A. Tax Law

The Tax Cuts and Jobs Act (“T.C.J.A.”) was enacted in 2017, bringing substantial alterations to the tax landscape for individuals and corporations. Many of these alterations are set to expire at the end of 2025. Understanding these changes, including their implications and timelines, is crucial for individuals and corporations. Michael Bennett addresses some of the more problematic provisions that are scheduled to reappear in the tax law. Among other things, individual tax rates will increase, the standard deduction will decrease, S.A.L.T. deductions will be allowed, corporate tax rates will increase, the Q.B.I. deduction will expire, the corporate tax on G.I.L.T.I. will increase, and the tax benefit for F.D.I.I. will decrease.

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British Virgin Islands Economic Substance Requirements

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British Virgin Islands Economic Substance Requirements

Just as water flows downhill, action to prevent aggressive tax planning flows from (i) the O.E.C.D. in its B.E.P.S. Action Plan, especially Action 5 applicable to no or nominal tax jurisdictions (“N.T.J.’s”) to (ii) the E.U. Code of Conduct Group (“C.O.C.G.”), in its scoping paper identifying nine relevant activities and economic substance criteria for N.T.J.’s to avoid the E.U. blacklist, to (iii) the N.T.J.’s, themselves, in steps taken to police economic substance requirements of local law. The B.V.I. heard the message and has implemented a robust information reporting system for relevant entities. In their article, Joshua Mangeot, a partner in the B.V.I. office of Harneys and Kiril Pehlivanov, a member of the investment funds and regulatory team in the B.V.I office of Harneys, explain the effect of the B.V.I. economic substance regime on companies and limited partnerships registered in the B.V.I. and provide practical guidance for compliance and reporting.

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Key Features of the New-Fangled Belgium-France Income Tax Treaty

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Key Features of the New-Fangled Belgium-France Income Tax Treaty

After nearly two decades of negotiations, Belgium and France signed a new Income Tax Treaty in November 2021. The new treaty is in line with the latest O.E.C.D. standards, incorporates the applicable provisions of the Multilateral Instrument, and addresses salient tax issues for taxpayers engaging in cross-border transactions involving the two countries. Key aspects of the New Treaty relate to closing loopholes, expanding coverage to include wealth taxes, and retaining favorable treatment for Belgian investors in French S.C.I.’s. Werner Heyvaert, a partner at AKD Benelux Lawyers, Brussels, and Vicky Sheikh Mohammad, a tax lawyer at the same firm, explain all.

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Swiss Corporate Tax Reform: T.R.A.F. in a Nutshell

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Swiss Corporate Tax Reform: T.R.A.F. in a Nutshell

As a result of a favorable vote last year, T.R.A.F. – the tax reform in Switzerland – came into effect on January 1, 2020.  T.R.A.F. was crafted to generate additional revenue for cantons, enhance old age pensions and survivors insurance funding, and reform corporate tax rules.  Peter von Berg of Blum&Grob Attorneys at Law in Zurich, Switzerland, identifies the major changes for companies and individuals and provides examples of the effects on various entities.

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The Devil in the Detail: Choosing a U.S. Business Structure Post-Tax Reform

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The Devil in the Detail: Choosing a U.S. Business Structure Post-Tax Reform

Prior to the T.C.J.A. in 2017, the higher corporate income tax rate made it much easier to decide whether to operate in the U.S. market through a corporate entity or a pass-thru entity. With a Federal corporate income tax rate of up to 35%, a Federal qualified dividend rate of up to 20%, and a Federal net investment income tax on the distribution of 3.8%, the effective post-distribution tax rate was 50.47%, before taking into account State and local taxes. With the post-tax reform corporate income tax rate of 21% and the introduction of the qualified business income and foreign derived intangible income deductions, the decision to choose a pass-thru entity is no longer apparent. In their article, Fanny Karaman and Nina Krauthamer look into some important tax considerations when choosing the entity for a start-up business in the U.S.

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C-Corps Exempt from Full Scope of Foreign Income Inclusion

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C-Corps Exempt from Full Scope of Foreign Income Inclusion

One of the principal highlights of the T.C.J.A. is the 100% dividends received deduction ("D.R.D.") allowed to U.S. corporations that are U.S. Shareholders of foreign corporations. At the time of enactment, many U.S. tax advisers questioned why Congress did not repeal the investment in U.S. property rules of Subpart F. Under those rules, investment in many different items of U.S. tangible and intangible property are treated as disguised distribution. In proposed regulations issued in October, the I.R.S. announced that U.S. corporations that are U.S. Shareholders of C.F.C.'s are no longer subject to tax on investments in U.S. property made by the C.F.C. Stanley C. Ruchelman explains the new rules and their simple logic – if the C.F.C. were to distribute a hypothetical dividend to a U.S. Shareholder that would benefit from the 100% D.R.D., the taxable investment in U.S. property will be reduced by an amount that is equivalent to the D.R.D. allowed in connection with the hypothetical dividend.

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Revised Swiss Corporate Tax Reform Will Keep Switzerland a Top Corporate Location

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Revised Swiss Corporate Tax Reform Will Keep Switzerland a Top Corporate Location

Beginning in 2015, Switzerland has struggled over the adoption of a tax system that is consistent with B.E.P.S. Many different stakeholders are involved, ranging from the Swiss Federal government to the cantons, various political parties, and the E.U. At last, a version of tax reform has been adopted by the Swiss Federal National Assembly. Known as the Federal Act on Tax Reform and A.H.V. Financing ("T.R.A.F."), it contains provisions designed to please all participants while maintaining Switzerland's global reputation as an attractive jurisdiction for multinational enterprises. Danielle Wenger and Manuel Vogler of Prager Dreifuss AG, Zurich, guide the reader through the various iterations of the reform and the provisions of the T.R.A.F.

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Extension of German Taxation on Foreign Companies Holding German Real Estate

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Extension of German Taxation on Foreign Companies Holding German Real Estate

In August, the German Federal government proposed draft legislation that will expand the scope of German taxation to cover the sale of shares in “real estate rich companies” by nonresident taxpayers. The draft legislation proposes that capital gains from shares in non-German companies will be subject to German taxation if more than 50% of the share value is attributable to German real estate. The legislative proposal has wide application, reaching a shareholding that exceeds a 1% threshold at any time in the five years preceding the sale. Dr. Petra Eckl, a partner at GSK Stockmann + Kollegen in Frankfurt, explains the proposal and the practical exposure that arises from its overly broad language.

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Dutch Corporate Tax Reform: Dividend Tax Remains, A.T.A.D. Arrives, and Tax Rates Drop

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Dutch Corporate Tax Reform: Dividend Tax Remains, A.T.A.D. Arrives, and Tax Rates Drop

Across the globe, the landscape for international tax is in a constant state of change. Nowhere is this more evident than in the Netherlands. On the third Tuesday of September, a repeal of the dividend withholding tax was announced. Within a month, it was withdrawn. Paul Kraan, a partner of Van Campen Liem in Amsterdam, discusses the remaining tax proposals presented by the Dutch government on the eve of the third Tuesday of September. These include provisions related to A.T.A.D. 1, such as G.A.A.R., an exit tax for corporations, a C.F.C. anti-abuse rule, and a cap on the deductibility of net interest expense.  Also discussed is an existing unilateral exemption from withholding tax on cross-border dividend payments in (i) the context of an income tax treaty and (ii) the presence of economic substance for the direct or indirect shareholder. This exemption is likely to remain in the law.

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Swiss Federal Council Opens Consultation Process on Tax Proposal 17

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Swiss Federal Council Opens Consultation Process on Tax Proposal 17

When Swiss voters rejected the Corporate Tax Reform Act III (“C.T.R. III”) in a referendum on February 12, 2017, Swiss tax reform was not derailed, only delayed.  Events that took place in September have moved the process forward. Existing cantonal tax privileges will be abolished, as agreed with the E.U., and replaced by mandatory introduction of a patent box regime in all cantons, voluntary introduction of additional deductions for research and development (“R&D”) expense, and a step-up in basis of hidden reserves created under the old tax regimes or before immigration to Switzerland.  Reto Heuberger, Stefan Oesterhelt, and Martin Schenk of Homburger AG, Zurich, explain the most important aspects of these and other aspects of T.P. 17.

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New Proposal for Swiss Corporate Tax Reform

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New Proposal for Swiss Corporate Tax Reform

Through the first ten days of February, Swiss tax advisers were contemplating life after the adoption of the Corporate Tax Reform III (“C.T.R. III”).  Then, the bottom dropped out from under their feet as Swiss voters defeated the tax reform package by an almost 60-40 majority.  Now, a Steering Committee representing the cantons and Swiss Federation has issued T.P. 17, recommending a modified version of corporate tax reform.  Peter von Burg and Dr. Natalie Peter of Staiger Attorneys, Zurich, compare the provisions in T.P. 17 with those in C.T.R. III.

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A Look at the House G.O.P.’s “Destination-Based Cash Flow with Border Adjustment”

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A Look at the House G.O.P.’s “Destination-Based Cash Flow with Border Adjustment”

Last June, the House Ways and Means Committee released its tax reform plan, which includes sweeping changes to the U.S. corporate income tax.  The plan repeals the current corporate income tax and replaces it with a new regime, commonly referred to as the border adjustment tax.  This regime, which taxes imports and exempts exports, is viewed to be the principal funding mechanism for reductions in the corporate and individual tax rates.  Elizabeth V. Zanet explains the anticipated workings of the proposal.

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Swiss Corporate Tax Reform Postponed

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Swiss Corporate Tax Reform Postponed

Through the first ten days of February, Swiss tax advisers were contemplating life after the adoption of the Corporate Tax Reform III (“C.T.R. III”). Then, the bottom dropped out from under their feet as Swiss voters defeated the tax reform package by an almost 60-40 majority.  Peter von Burg and Dr. Natalie Peter of Staiger Attorneys at Law in Zurich explain the benefits that were contemplated under C.T.R. III and ponder about what will be adopted in its place.  Switzerland must act promptly to cobble together a replacement package that will appease opponents of C.T.R. III and meet the deadline under its agreement with the E.U. for eliminating existing special benefits allowed to base companies. How much of C.T.R. III can be salvaged?

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Anti-Inversion Rules Expanded

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The latest step in inversion controversy involving U.S. publicly traded corporations is the upcoming merger between pharmaceutical giants, Pfizer and Allergan, in a stock transaction estimated to be worth $160 billion. Kenneth Lobo and Stanley C. Ruchelman look at recent I.R.S. countermeasures attacking cross-border mergers that the I.R.S. views as inversions. Among other measures, rules are announced to limit planning alternatives using check-the-box entities to stuff assets into an acquirer without exposing those assets to tax in the jurisdiction of residence of the acquirer and use of parent-company stock as the consideration for the acquisition.

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Tax 101: How to Structure a Corporate Division

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With all the brouhaha over the announced Alibaba spinoff by Yahoo!, Elizabeth V. Zanet explains the circumstances in which a corporate division – known as a demerger in many countries – can be achieved in a tax-free manner under U.S. tax law. The path is not easy as these divisions are the lone vestiges allowing tax-free corporate distributions of appreciated assets under U.S. tax law.

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Congress Enacts Sweeping New Partnership Audit Rules

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Partnerships owning real estate or other assets sometimes take aggressive tax positions that may invite I.R.S. scrutiny. Philip R. Hirschfeld and Nina Krauthamer explain the new partnership audit rules enacted by Congress in November as part of the Bipartisan Budget Act of 2015. With limited exception, partnerships will become liable for tax increases arising from audit adjustments. This treatment raises the importance of tax indemnities when partnership interests are acquired.

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Indian MAT Exemption

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Following months of debate, the Indian Finance Ministry recently clarified that the Minimum Alternate Tax (M.A.T.) will not apply to foreign companies that do not have a permanent establishment and/or place of business in India.  Shibani Bakshi and Sheryl Shah discuss why the announcement is an affirmation of India’s positive attitude towards foreign investment.  The next move is up to the Indian Revenue.

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Insights Vol. 2 No. 7: Updates & Other Tidbits

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As Democrats and Republicans attempt to revamp the U.S. tax system, there is renewed discussion of lowering the corporate tax rate. In other national news, U.S. expatriation numbers are down in Q2 of 2015, the I.R.S. Transfer Pricing Operations Unit is officially here to stay, and three more banks agree to disclose activities to D.O.J.

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2015 Summer Budget Announced in U.K.

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The first Conservative budget in almost 20 years was announced in July. Large corporations are the winners. Non-domiciled individuals and hedge fund partners holding carried interests are the losers. More funds were appropriated for tax shelter witch-hunts. Martin Mann, Paul Howard, and John Hood of Gabelle L.L.P., London tell all.

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India’s $6.4 Billion Tax on Foreign Investment

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Foreign institutional investors in India have been troubled by the demands from Indian tax officials to pay liabilities owed under the newly enforced minimum alternate tax (“M.A.T.”). India’s Finance Minister, Arun Jaitley, announced that beginning April 1, portfolio investors residing in countries that have tax treaties with India are fully exempt from the tax and will not have to pay the accompanying 20% levy on past capital gains.

The M.A.T. is essentially a minimum corporate tax that creates an overall tax of 20% on capital gains. Previously, foreign investors paid 15% on short term listed equity gains, 5% on bond gains, and nothing on long term gains.

In 2014, India’s Finance Ministry began issuing notices to foreign companies for the payment of the M.A.T. on past capital gains amounting to $6.4 billion, collectively. The Finance Ministry has not enforced the M.A.T. on foreign institutional investors for over 20 years, according to the international fund organization, Investment Company Institute Global. Foreign institutional investors have been contending that the M.A.T. should only apply to Indian companies, not foreign entities.