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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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Information Reporting on Foreign Trusts and Gifts – New Regulations

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Information Reporting on Foreign Trusts and Gifts – New Regulations

On May 8th, the Treasury Department and the I.R.S. proposed regulations regarding information reporting in the context of U.S. persons, foreign trusts, and gifts from non-U.S. persons. When adopted in final form, they will affect (i) U.S. persons who engage in transactions with, or are treated as the owners of, foreign trusts and (ii) U.S. persons who receive large gifts or bequests from foreign persons. The scope of the proposed regulations is broad, and many existing regulations are affected. Wooyoung Lee and Stanley C. Ruchelman take a deep dive addressing specific regulatory provisions that are affected. Many “open doors” that currently exist have been closed. The authors tell all, linking explanations in the preamble to the proposed regulations with specific regulations in the proposal.

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Developments in Anti-Abuse Measures And Acquisition Financing in the Netherlands

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Developments in Anti-Abuse Measures And Acquisition Financing in the Netherlands

Last year, Insights published an article by Michael Bennett on cases in which the Dutch tax authorities used Article 10a of Dutch tax law and the concept of fraus legis to challenge deductions for interest expense on certain internal borrowings. The article pointed out that many grey areas and interpretative issues remained. Since that article was published, the Dutch Supreme Court, the Advocate General for the C.J.E.U., and the Advocate General of the Netherlands have issued opinions on three separate cases. In his article in this edition of Insights, Michael Bennett reviews the opinions and points out the ongoing uncertainty surrounding the precise scope of Article 10a and its interaction with fraus legis.

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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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Altria, C.F.C.’s, Downward Attribution, and the “Real” Congressional Intent

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Altria, C.F.C.’s, Downward Attribution, and the “Real” Congressional Intent

Determining Congressional intent is not often an easy task, especially when Congress has been silent, one way or the other. Nonetheless, when it comes to “downward attribution” of share ownership, the intent of Congress rises to the level of an enigma, at least in the eyes of Altria Group, Inc. As part of the T.C.J.A., the scope of Subpart F was expanded by eliminating a ban on the attribution of ownership in a series of foreign subsidiaries from a foreign parent corporation to all its U.S. subsidiaries. In a nutshell, all such foreign subsidiaries could be categorized as controlled foreign corporations or C.F.C.’s. This did not necessarily raise tax revenue as much as expose significant numbers of U.S. corporations to penalties for failing to file forms required of “U.S. Shareholders” of C.F.C.’s. The Treasury Department says the statutory language is clear with no room for carveouts. Altria looks to several items of legislative history and statements by leading senators to suggest otherwise. As Wooyoung Lee explains in his article, this is the substance of the tax dispute between Altria and the I.R.S., which is now before the U.S. District Court for the Eastern District of Virginia.

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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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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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U.K. Budget Proclaims Death Knell For Remittance Basis Taxation

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U.K. Budget Proclaims Death Knell For Remittance Basis Taxation

As was widely anticipated, the Chancellor of the U.K. used his budget speech on March 6 to announce the termination of the non-domicile regime and remittance basis of taxation effective April 12, 2025. In its place, a new foreign income and gains (“F.I.G.”) regime will be available for individuals who become U.K. tax resident after a period of 10 tax years of nonresident status.  Individuals who qualify for the new regime will be able to bring F.I.G. to the U.K. free from any U.K. tax for up to four years. Current non-doms who cannot qualify for the F.I.G. regime can benefit from a 50% deduction on remittances through April 5, 2026. Kevin Offer, C.A., a partner of Hardwick and Morris L.L.P., London, explains these and other provisions that will apply as the U.K. enters a brave new world.

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Will Service Automation Companies Qualify for the Q.S.B.S. Exemption?

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Will Service Automation Companies Qualify for the Q.S.B.S. Exemption?

Many U.S. investors and business owners are familiar with the tax exemption provided to U.S. individuals recognizing gains from the sale of certain U.S. stock, defined as qualified small business stock (“Q.S.B.S.”). The Q.S.B.S. exemption plays an important role in the growth of hi-tech industry, which is dependent on investments by U.S. persons. It typically benefits U.S. individuals who invest in start-up software companies. However, the Q.S.B.S. exemption is not available for investment gains related to corporations engaged in the provision of nonqualified services, such as health care, brokerage, law, engineering, architecture, and accounting. However, a business that develops software that is used in those may qualify in certain circumstances, but not qualify in others. The key is whether the software is a tool for a person performing the nonqualified business or the software supplants the individual in performing the business. In this article, Stanley C. Ruchelman addresses two I.R.S. rulings illustrating the facts that distinguish a computer program that is a tool for service providers from facts that cause a program to be treated as a robot service provider.

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Unravelling of the Matryoshka Doll – Impact of the C.T.A. on entities having nexus to the U.S.

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Unravelling of the Matryoshka Doll – Impact of the C.T.A. on entities having nexus to the U.S.

Aimed at curbing money laundering, terrorism financing, and other nefarious activity, Congress enacted the Corporate Transparency Act (“C.T.A.”) on January 1, 2021. However, the C.T.A. became fully effective from January 1, 2024. It now requires certain domestic and foreign entities to disclose to the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Treasury Department, the identity of their beneficial owners and control persons. A failure to do so can attract heavy penalties. The targets of the C.T.A. are much like Matryoshka dolls, having many layers between what appears on the surface and what exists at the heart. Neha Rastogi and Stanley C. Ruchelman guide the reader through the in’s and out’s of what is likely the most invasive legislation enacted by Congress.

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Receipt of a Profits Interest in a Partnership by a Service Provider – Not Taxable

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Receipt of a Profits Interest in a Partnership by a Service Provider – Not Taxable

In E.S. N.P.A. Holding L.L.C. v. Commr., the U.S. Tax Court decided that the indirect receipt of a profits interest in a partnership in exchange for services was not a taxable event for the recipient. The decision was largely an application of Revenue Procedure 93-27, in which the I.R.S. provided guidance on the tax treatment of an individual who directly provides services to a partnership in exchange for the receipt of a profits interest. However, it is not a run-of-the-mill fact pattern that involves the grant of a profits interest to an individual in the financial services sector. Rather, it is about how an individual running a business through a taxable C-corporation was able to (i) arrange a sale of 70% of the C-corporation’s business to new investors bringing in fresh capital and (ii) by choosing a proper structure open a pathway to receive future profits without channeling income through the C-corporation. Wooyoung Lee, Nina Krauthamer, and Stanley C. Ruchelman explain the applicable I.R.S. regulations defining a “profits interest,” an important 8th Cir. Case reversing a decision of the U.S. Tax Court, the Revenue Procedure, and finally E.S. N.P.A. Holding v. Commr.

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Notice 2023-80: U.S. Foreign Tax Guidance for Pillar 2

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Notice 2023-80: U.S. Foreign Tax Guidance for Pillar 2

On December 11, 2023, the I.R.S. issued Notice 2023-55 (the “Notice”), announcing the intention to issue proposed regulations addressing the interaction between the Pillar 2 GloBE Rules and specific U.S. tax provisions, including the foreign tax credit rules and dual consolidated loss rules. The issuance of this guidance is timely, as the I.I.R.’s of most countries took effect at the start of this year. The U.T.P.R.’s are scheduled to come online in 2025. In his article, Michael Bennett tracks the way Notice 2023-80 addresses GloBE model rules and the foreign tax credit. Topics include the application of the foreign tax credit rules in the U.S. to final Top-Up Tax, the Q.M.D.T.T. in general, how the application of the separate levy rules will apply to a foreign country’s I.I.R., U.T.P.R., and Q.D.M.T.T, and the interplay of the GloBE rules of B.E.P.S. 2 and the dual consolidated loss rules of U.S. tax law.

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Mauritius – Gateway To Africa

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Mauritius – Gateway To Africa

Rightly called “the Pearl of the Indian Ocean,” Mauritius is much more than a popular tourist destination. Recent World Bank statistics identify Mauritius as the country with the second highest per capita G.D.P. in Africa. Mauritius maintains relationships with key African and international bodies, such as the Southern African Development Community (“S.A.D.C.”), the Common Market for Eastern and Southern Africa (“C.O.M.E.S.A.”), the World Trade Organization, and the Commonwealth of Nations. It has a low income tax rate and offers a range of incentives to boost its competitiveness. Sattar Abdoula, the C.E.O. of Grant Thornton Mauritius, and Mariam Rajabally, a partner in the international financial services and tax at Grant Thornton Mauritius, take a deep dive into the tax, financial, and commercial benefits that are available in Mauritius, and why it remains an important gateway into Africa.

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Square Pegs in Round Holes – You Like "To-May-To" and I Like "To-Mah-To"

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Square Pegs in Round Holes – You Like "To-May-To" and I Like "To-Mah-To"

In a post-COVID-19 world, anecdotal evidence suggests that individuals and families are relocating to new jurisdictions of residence. Equally, individuals have evidenced renewed vigor in acquiring and structuring assets across a range of jurisdictions. When the individual is a U.S. citizen and the place to relocate or acquire assets is the U.K., care must be taken to avoid common – and not so common – traps and pitfalls regarding taxation. In their article, Ed Powles, a Partner of Maurice Turnor Gardner, London and Emma-Jane Weider, the Managing Partner of Maurice Turnor Gardner, London, identify areas for which tax planning is crucially important prior to a move. Included are (i) tax residence and domicile rules for individuals, (ii) residence tests for trusts, companies, and charities, (iii) identifying areas for which income tax treaties do not necessarily provide relief against double taxation, and (iv) ways in which gift and estate planning, dissolution of marriages, forced heirship, and structures to own personal use residential real property are affected by the move.

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Andorra: A Comprehensive Tax And Legal Analysis

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Andorra: A Comprehensive Tax And Legal Analysis

Andorra is a tiny landlocked principality nestled in the Pyrenees mountains between France and Spain. While it offers many quality-of-life benefits, the country’s biggest attraction has been its favorable taxation system. In recent years, Andorra has worked diligently to enhance transparency and to promote international cooperation in an attempt to rid itself of a tax haven reputation. Today, Andorra is widely considered to have a modern tax system, making it an approved jurisdiction by the E.U. It is a party to 10 double tax agreements, participates in C.R.S., is not on the O.E.C.D. list of noncooperative tax jurisdictions, and has ongoing discussions of association with the E.U. All the while, Andorra maintains attractive tax rates for individuals and corporations. Albert Folguera Ventura, C.E.O., Partner, and Head of Tax at Addwill Partners, Barcelona, explains the ins-and-outs of the Andorran tax system applicable to corporations and individuals resident in the country.

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