December 03, 2023

Christensen v. U.S. – Reducing the N.I.I.T. by Claiming an F.T.C.

December 03, 2023/ Ruchelman P.L.L.C.

In Christensen, the Federal Claims Court allowed U.S. citizen/French tax resident taxpayers to claim the foreign tax credit to reduce the net investment income tax (“N.I.I.T.”) using Article 24(2)(b) of the France-U.S. Income Tax Treaty. This approach countered the Code’s explicit disallowance of the foreign tax credit as a way to reduce the N.I.I.T. The Federal Claims Court decision built upon the Tax Court’s previous decision in Toulouse, where the Tax Court denied the foreign tax credit claimed against the N.I.I.T. by a U.S. citizen/French resident taxpayer. Michael Bennett explains that the disparity in outcomes did not stem from a conflict in reasoning. Rather, it resulted from the application of different provisions of the treaty.

October 03, 2023

U.S. Income Tax Treaty Update

October 03, 2023/ Ruchelman P.L.L.C.

The past 12 months or so have seen an uptick in matters related to the network of U.S. income tax treaties. Perhaps most interesting is a legislative proposal to amend the Internal Revenue Code so that it adopts rules applicable to qualified residents of Taiwan that mirror income tax treaty benefits. The rules would go into effect when the Administration reports to Congress that Taiwan has adopted equivalent rules applicable to U.S. persons investing or working in Taiwan. Other recent events related to U.S. income tax treaties include (i) Senate approval of an income tax treaty with Chile, subject to certain reservations regarding the taxation of direct investment dividends and the imposition of the B.E.A.T. provisions of Code §59A, (ii) the signing of an income tax treaty with Croatia that will require the addition of similar language to the reservation in the treaty with Chile, (iii) announcements that signed income tax treaties with Poland and Vietnam that await Senate action will need to be revised related to double tax relief and B.E.A.T., (iv) the termination of the income tax treaty with Hungary, (v) the start of negotiations of a new income tax treaty with Israel, and (vi) and the completion of treaty negotiations with Romania and Norway, also subject to reservations regarding double tax relief for direct investment dividends and the B.E.A.T. provisions. Nina Krauthamer and Wooyoung Lee tell all.

March 28, 2023

French Tax Residence, Income Tax Treaties and Newcomers Regimes: Where Does France Stand?

March 28, 2023/ Ruchelman P.L.L.C.

The determination of an individual’s tax residence is a delicate exercise, combining a review of factual elements in light of different sets of criteria and rules. Most jurisdictions other than the U.S. impose tax solely on the basis of residence. Hence, a definition of tax residence is required. French domestic tax law adopts a single definition of tax residence for personal income and inheritance taxes, relying on several alternative criteria. The matter of residence also can be looked at under a relevant income tax treaty. France has in effect a network of more than 120 income tax treaties. Michaël Khayat, a Partner of the Arkwood Law Firm, Paris, and Edouard Girard, an Associate of the Arkwood Law Firm, Paris, explain the criteria for determining tax residence under French domestic tax law and to resolve a dual resident situation under the O.E.C.D. Model Income Tax Treaty. They then address recent cases under which tax authorities challenged application of an income tax treaty for an individual claiming benefits under a favorable newcomer regime in a treaty partner jurisdiction.

May 30, 2022

Dividend Income from India: Tax Treaty Issues for Nonresident Shareholders

May 30, 2022/ Ruchelman P.L.L.C.

Effective April 1, 2020, the dividend distribution tax (“D.D.T.”) imposed on Indian companies paying dividends was abolished. While Indian politicians may say otherwise, tax advisers outside India viewed the D.D.T. as a workaround allowing India to collect the equivalent of dividend withholding tax without having to take into account a lower rate provided by an income tax treaty. With the demise of the D.D.T., the Indian tax authorities are challenging claims for dividend withholding tax benefits. Sakate Khaitan, the senior partner of Khaitan Legal Associates, Mumbai, and Abbas Jaorawala, a Senior Director and Head-Direct Tax of Khaitan Legal Associates, Mumbai, review issues that have been raised by the Indian tax authorities at the time dividends are declared and paid to residents of several countries that are treaty partners of India. Terms such as G.A.A.R., P.P.T., and M.L.I. are often raised. In addition, treaties that have most-favored-nation (“M.F.N.”) provisions are now regularly challenged.

February 26, 2015

Guidance for Canadian Snowbirds→

February 26, 2015/ Web Admin

Published in The Bottom Line, December 2014.

August 15, 2014

Tax 101: Tax Planning and Compliance for Foreign Businesses with U.S. Activity

August 15, 2014/ Web Admin

Read Publication

I. INTRODUCTION

The U.S. tax laws affecting foreign businesses with activity in the U.S. contain some of the more complex provisions of the Internal Revenue Code. Examples include:

Effectively connected income,
Allocation of expenses to that income,
Income tax treaties,
Arm’s length transfer pricing rules,
Permanent establishments under income tax treaties,
Limitation on benefits provisions in income tax treaties that are designed to prevent “treaty shopping,”
State tax apportionment,
F.I.R.P.T.A. withholding tax for transactions categorized as real property transfers,
Fixed and determinable annual and periodical income, and
Interest on items of portfolio debt.

One can imagine that it is no easy task to identify income that is subject to tax, to identify the tax regime applicable to the income, and to quantify gross income, net income, and income subject to withholding tax. Nonetheless, the I.R.S. has identified withholding tax obligations of U.S. payers as a Tier I audit issue.