October 03, 2023

British Virgin Islands Economic Substance Requirements

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

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.

January 30, 2023

Major International Tax Reform in Israel – Proposal Takes Aim at Tax Residence Rules

January 30, 2023/ Ruchelman P.L.L.C.

In November 2021, the Israel Tax Authority Committee for International Tax Reform published a report proposing substantial reform to international tax rules in Israel. Regarding rules for determining tax residence in Israel, the purported goal was to simplify the rules for determining an individual’s tax residence. To that end, it introduces a day-count rule as a supplement to the existing center-of-vital-interest rule. Boaz Feinberg, a Partner of Arnon, Tadmor-Levy Law Firm in Tel Aviv and Rosa Peled, an associate at the law firm of Arnon, Tadmor-Levy Law Firm in Tel Aviv, explain that for most taxpayers, the center-of-vital-interest rule will continue to apply. However, because assessing officers will no longer address cases at the fringes, where the day-count rule is applied, more assessing offices can free-up to examine the remaining cases based on the center-of-vital interest rule.

September 28, 2020

Final G.I.L.T.I. High-Tax Regulations and the Tested Unit: Would a Rose by Any Other Name Smell as Sweet?

September 28, 2020/ Ruchelman P.L.L.C.

A precursor to a global minimum tax for multinational enterprises, the G.I.L.T.I. rules under Subpart F ensure that tax is imposed on cross-border income. The tax rate on G.I.L.T.I. reported by U.S. corporations is relatively low, currently 10.5% and a foreign tax credit is allowed for 80% of the foreign taxes imposed on tested income taxed under the G.I.L.T.I. provisions. In the summer, the I.R.S. issued proposed and final regulations allowing taxpayers to avoid the tax by claiming an exclusion for highly taxed income of tested units. Are the regulations a true benefit or is the benefit illusory? Andreas Apostolides and Neha Rastogi explain all.

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.

June 28, 2019

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

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

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.

May 30, 2019

2020 Will Mark the End of an Era: Swiss Corporate Tax Reform Accepted

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

On May 19, 2019, Swiss Federal and Genevan cantonal voters accepted proposed corporate tax reforms by a large majority. As explained by Thierry Boitelle and Aliasghar Kanani of Bonnard Lawson Geneva, Switzerland will abolish its widely criticized cantonal special tax regimes and certain Federal regimes. At the same time, Switzerland and the cantons will introduce generally applicable reduced and attractive corporate income tax rates and several new special regimes, meeting current international standards and requirements. These changes will be effective as of 2020.

May 30, 2019

Proposed F.D.I.I. Regulations: Deductions, Sales, and Services

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

The foreign derived intangible income (“F.D.I.I.”) regime allows for a reduced rate of corporate tax rate on hypothetical intangible income used in a U.S. business to exploit foreign markets. Many implementation issues that were left open when the provision was enacted have been addressed in proposed I.R.S. proposed regulations issued early March. In their article, Fanny Karaman and Beate Erwin explain (i) which taxpayers benefit from the regime, (ii) the way deductions are taken into account, (iii) whether the deduction is always available when a U.S. corporation sells on a foreign market, (iv) the way in which foreign use of sales or services is established, and (v) the way in which related-party transactions can qualify as F.D.D.E.I. sales or services.

November 29, 2018

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

November 29, 2018/ Ruchelman P.L.L.C.

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.

October 31, 2018

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

October 31, 2018/ Ruchelman P.L.L.C.

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.

April 01, 2018

Insights Vol. 5 No. 3: Updates & Other Tidbits

April 01, 2018/ Ruchelman P.L.L.C.

This month, Tomi Oguntunde, Sheryl Shah, and Nina Krauthamer look briefly at four recent developments in international tax: (i) the E.U. counteroffensive to U.S. tax reform involving stricter tax rules, (ii) the amendment of Form 1023-EZ, which is a streamlined application for non-profit entities applying for tax exempt status, (iii) Spain’s crackdown on celebrities attempting to evade tax, and (iv) Luxembourg’s continued pushback against the Amazon State Aid case.

April 01, 2018

New York Resisting S.A.L.T. Cap Under Federal Tax Reform

April 01, 2018/ Ruchelman P.L.L.C.

When the T.C.J.A. capped the deduction for state and local income and property taxes at $10,000 – more tax can be paid, but only $10,000 can be deducted – state governments did not take the provision lightly. One proposal that has gained traction in Albany and other state capitals involves creating charitable funds that would raise voluntary capital for specific governmental purposes. The goal is for taxpayers to claim the charitable contributions as a deduction for Federal tax purposes and, at the same time, benefitting from a substantial credit against their state income tax liabilities. Another, less contentious proposal would utilize employer-side payroll taxes to offer employees a credit against state and local taxes. Nina Krauthamer, Elizabeth V. Zanet, and Sheryl Shah assess the viability of these proposals and the likely impact of tax reform on New York State. Opinions are not consistent. Stay tuned.

April 01, 2018

Investing in U.S. Real Estate on a (Possibly) Tax-Free Basis

April 01, 2018/ Ruchelman P.L.L.C.

A Real Estate Investment Trust, or R.E.I.T., is a popular type of investment vehicle. A R.E.I.T. is an entity that generally owns and typically operates a pool of income-producing real estate properties, including mortgages. Its investors generally look to a return on investment in two forms: (i) distributions from the R.E.I.T. and (ii) dispositions of the R.E.I.T. stock. If certain facts exist, U.S. tax law offers foreign investors a completely tax-free avenue to invest in a R.E.I.T. Galia Antebi and Neha Rastogi explain the ins and outs of tax-free treatment for the foreign investor.

April 01, 2018

Changes to C.F.C. Rules – More C.F.C.’s, More U.S. Shareholders, More Attribution, More Compliance

April 01, 2018/ Ruchelman P.L.L.C.

T.C.J.A. changes to the Subpart F rules have the effect of deconstructing cross-border arrangements structured to prevent the creation of a C.F.C. A change to constructive ownership rules may cause all foreign members of a foreign-based group to be treated as C.F.C.’s for certain reporting purposes merely because the group includes a member in the U.S. A change to the definition of a U.S. Shareholder of a C.F.C. makes the value of shares owned as important as voting power in determining whether a U.S. person is a U.S. Shareholder and a foreign corporation is a C.F.C. The 30-day requirement for a C.F.C. to be owned by a U.S. Shareholder before Subpart F applies has been eliminated. In some instances, the changes are retroactive to the 2017 tax year. Neha Rastogi, Sheryl Shah, Beate Erwin, and Elizabeth V. Zanet explain and provide a case study that ties everything together

March 14, 2018

US Tax Reforms - Anti-Abuse Regime for CFCs→

March 14, 2018/ Ruchelman P.L.L.C.

Published on Out-law.com (March 2018).

February 28, 2018

Non-Corporate Taxation: Individuals & Partnerships Face Highs & Lows Under the T.C.J.A.

February 28, 2018/ Ruchelman P.L.L.C.

Most cross-border tax advisers with clients that are impacted by the T.C.J.A. focus on the principal items, such as B.E.A.T., G.I.L.T.I., and the like. However, the act contains many additional provisions that can affect the non-corporate cross-border investor. Taxes have been reduced, a holding period for capital gains treatment now applies to carried interests, the scope of like-kind exchanges has been limited, and the tax treatment of alimony payments has been changed. These are just a few of the items addressed by Sheryl Shah.

February 28, 2018

B.E.A.T.-ing Base Erosion: U.S. Subjects Large Corporations to Anti-Abuse Tax

February 28, 2018/ Ruchelman P.L.L.C.

Cross-border payments to related parties have been an arrow in the quiver of cross-border tax planners since the time that income tax and global trade first intersected. The new Code §59A introduces the Base Erosion and Anti-Abuse Tax (“B.E.A.T.”) on large corporations that significantly reduce their U.S. tax liability through the use of cross-border payments to related persons. It is structured as another form of the now-repealed corporate Alternative Minimum Tax rather than a disallowance of a deduction in computing regular taxable income. Banks that have significant interest payments and U.S. companies that pay significant royalties for trademarks, copyrights, and know-how are the targets of the tax to the extent full 30% withholding tax is not imposed. Galia Antebi and Sheryl Shah explain how the tax is computed. Is this another step towards a global trade war?

February 07, 2018

Reform of the U.S. Tax Regime – The Swiss Perspective→

February 07, 2018/ Ruchelman P.L.L.C.

Published by Prager Dreifuss, Tax Newsletter (February 2018).

November 30, 2017

Texas District Court on Anti-Inversion Legislation – One Down but Not Out

November 30, 2017/ Ruchelman P.L.L.C.

The final months of the Obama administration saw the hurried adoption of temporary regulations in an attempt to extend its tax policy into the current administration. However, reliance on temporary regulations that are adopted without a public comment period may have been misguided. In October, a U.S. District Court struck down a provision under temporary anti-inversion regulations for violating the required notice and comment period under the Administrative Procedure Act. Beate Erwin and Sheryl Shah explain the web of issues involved in the decision.

October 24, 2017

Treasury Turns Back the Clock on 2016 Tax Regulations

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

On October 4, the “other shoe dropped” on eight regulations issued by the Obama administration in 2016 and January 2017. These eight measures, which were first identified in an interim report to the president as unnecessary, unduly complex, excessively burdensome, or failing to provide clarity and useful guidance, will be withdrawn, revoked, or modified. Stanley C. Ruchelman, Sheryl Shah, and Neha Rastogi identify the targets and explain the plans of the Treasury Department.