March 20, 2020

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

March 20, 2020/ Ruchelman P.L.L.C.

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.

September 30, 2019

Israeli C.F.C. Rules Apply to Foreign Real Estate Companies Controlled by Israeli Shareholders

September 30, 2019/ Ruchelman P.L.L.C.

Controlled foreign corporation (“C.F.C.”) laws are all the rage with parliaments around the world. Israel is no exception. Israeli shareholders controlling offshore companies that derive low-tax passive income and gains can be taxed in Israel even though no dividend is received. A recent decision by the Israeli Supreme Court addresses a fundamental question in this area. Is passive income determined on a groupwide basis or on a company-by-company basis? The answer affects Israeli residents owning a chain of C.F.C.’s when an intermediary company in the chain sells shares of an operating subsidiary. Daniel Paserman, who leads the tax group at Gornitzky & Co., Tel-Aviv, explains the holding in Tax Assessor for Large Enterprises v. Rosebud. Israeli residents may not like the answer.

January 28, 2019

New Developments on the E.U. V.A.T. Regime of Holding Companies

January 28, 2019/ Ruchelman P.L.L.C.

Like state and local tax in the U.S., where tax exposure can be underestimated by many corporate tax planners, the V.A.T. rules in the E.U. contain many pitfalls. This is especially true when it comes to recovery of V.A.T. input taxes by holding companies. A corporate tax adviser may presume that all V.A.T. input taxes paid by a holding company are recoverable. Yet, despite abundant jurisprudence, debate continues regarding the V.A.T. recovery rights of holding companies. The starting point in the analysis is easy to state: Holding companies that actively manage subsidiaries can recover V.A.T., while holding companies that passively hold shares cannot. The problem is in the application of the theory, where the line between active and passive behavior is blurred by seemingly inconsistent decisions. Bruno Gasparotto and Claire Schmitt of Arendt & Medernach, Luxembourg, explain the rules and how they have been applied by the C.J.E.U.

July 30, 2018

Coming to the U.S. After Tax Reform

July 30, 2018/ Ruchelman P.L.L.C.

Now, more than six months after enactment of the Tax Cuts & Jobs Act, many tax advisers have achieved a level of comfort with the brave new world of Transition Tax, F.D.I.I., G.I.L.T.I., B.E.A.T., and incredibly low corporate tax rates. However, sleeper provisions in the new law can have drastic adverse tax consequences in the realm of cross-border transactions and investments: (i) the threshold for becoming a C.F.C. has been reduced significantly by several changes in U.S. tax law and (ii) the 10.5% tax rate for G.I.L.T.I. is limited to corporations so that individuals face ordinary income treatment for G.I.L.T.I. inclusions from foreign corporations that were not C.F.C’s. prior to the new law. Jeanne Goulet of Byrum River Consulting L.L.C., New York, addresses these problems and suggests several planning opportunities.

October 24, 2017

Double Dutch: Dividend Tax Reform Extends Exemption, Yet Tackles Abuse

October 24, 2017/ Ruchelman P.L.L.C.

This year’s budget in the Netherlands contains a legislative proposal that introduces a unilateral exemption applicable to corporate shareholders based in treaty countries, such as the U.S., subject to stringent anti-abuse rules. In addition, it proposes to bring cooperatives used as holding vehicles within the scope of the dividend withholding tax rules. Soon after the proposals were announced, a coalition government was formed and announced a complete elimination of dividend withholding tax. Paul Kraan of Van Campen Liem in Amsterdam explains.

September 15, 2015

The Past, Present, and Future of Luxembourg Special Purpose Companies

September 15, 2015/ Web Developer

Amid a global context of widespread budget deficits, it seems that politicians have finally discovered that multinational enterprises, entrepreneurs, and high net worth individuals have recourse to legal frameworks that allow for the tax efficient structuring of investments. This article addresses the evolution of international tax planning through the use of Luxembourg S.P.V.’s from its origins to its heyday and future prospects in light of ongoing discussions at the level of the O.E.C.D. and the European Commission.

July 15, 2014

Using the U.K. as a Holding Company Jurisdiction: Opportunities and Challenges

July 15, 2014/ Web Developer

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INTRODUCTION: AN IDEAL HOLDING JURISDICTION?

At a time when a quintet of septuagenarian comics attempt to revive former glories with a final run of a live show of Monty Python in London, it is worth reflecting on the Holy Grail of the international tax practitioner: to find the perfect international holding company jurisdiction.

In this, the holding company jurisdiction needs certain characteristics:

The possibility of returning profits to shareholders with minimal tax leakage;
The ability to receive profits from underlying subsidiaries without taxation at home;
The ability to dispose of investments in the underlying subsidiaries without triggering a tax charge on any profit or gain;
A good treaty network to ensure that profits can be repatriated to the holding company from underlying subsidiaries, whilst minimizing local withholding taxes; and
Low risk from anti-avoidance measures that profits of subsidiaries will otherwise be taxed in the holding company jurisdiction.

The U.K. has emerged over the last decade as an increasingly viable holding company jurisdiction, particularly for investments in countries within the European Union.

April 15, 2014

What Must Foreign Trusts and Family Corporations Do About F.A.T.C.A.?

April 15, 2014/ Web Developer

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After years of preparation and trepidation, the Foreign Account Tax Compliance Act (“F.A.T.C.A.”) will soon become effective. While F.A.T.C.A. was initially targeted to major commercial and investment banks aiding U.S. persons in avoiding paying tax on their income, F.A.T.C.A.’s effective scope is far broader, covering any foreign trust or family corporation. Starting on July 1, 2014, F.A.T.C.A. can impose a new 30% U.S. withholding tax on payments of interest, dividends and other amounts from the U.S. to any foreign person unless that person complies with F.A.T.C.A. regulations. If the foreign person is a foreign financial institution (“F.F.I.”), compliance is onerous. However, with the recent revisions to the regulations and careful planning, the foreign trust or family corporation may be considered a nonfinancial foreign entity (“N.F.F.E.”) and thus subject to far less burdensome requirements.

F.A.T.C.A. divides the world of non-U.S. investors into two categories: F.F.I.’s and N.F.F.E.’s. The crucial factor for any foreign person is to first determine its classification. As F.F.I. status results in a much greater burden for an entity and the deadlines for actions are fast approaching, obtaining N.F.F.E. status holds numerous advantages. For a typical foreign trust or family corporation that holds investments for its beneficiaries or shareholders, this determination had been clouded in uncertainty, until the I.R.S.’s recent issuance of temporary F.A.T.C.A. regulations.

January 15, 2014

Outbound Acquisitions: European Holding Company Structures [2014]→

January 15, 2014/ Web Developer

Published by the Practising Law Institute in the Corporate Tax Practice Series: Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Reorganizations & Restructurings, 2014.