Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
Beate Erwin, Kenneth Lobo, and Stanley C. Ruchelman explain how the branch rule works when a C.F.C. operates a manufacturing or selling branch in another country. While the concept is easy to explain, the computations are somewhat confusing. The article explains all.
Read MorePublished in Lawyer Monthly, Issue 69-16: January 2016.
Read MoreWe address the I.R.S.’s latest attempt to shut down schemes to avoid U.S. taxation by cracking down on what some may have considered a loop-hole under applicable partnership rules. In Notice 2015-54, 2015-34 IRB 210 (8/06/2015), the I.R.S. announced that it intends to issue regulations that would change the nonrecognition rules on certain property contributions to partnerships and L.L.C.’s with foreign partners. The new regulations would require that income or gain attributable to property be taken into account by the U.S. transferor, either immediately or periodically. Regulations would also be issued under §§482 and 6662 of the Internal Revenue Code (the Code) that apply to controlled transactions involving partnerships to ensure appropriate valuation of such transactions.
Read MoreThe EDF experience in France demonstrates that State Aid in Europe comes in many forms, and it can be harshly treated when discovered. Beate Erwin looks at the case against France’s main electricity provider and other developments in the European Commission’s attack on State Aid through private tax rulings. She finds that the result in the EDF case is not an anomaly.
Read MoreIs the Altera case important because it struck down the I.R.S.’s stock-based compensation regulations related to cost sharing agreements? Or is it important because of the procedural analysis, which enabled the Tax Court to be in position to strike down a regulation? Beate Erwin, Stanley C. Ruchelman, and Michael Peggs explain why the case is important for both reasons.
Read MoreThe European Union’s plan on putting an end to corporate tax breaks granted by means of letter rulings ran into German privacy concerns as E.U. Finance ministers met on June 19, 2015. The initiative, aimed at implementing an automatic exchange of letter rulings granted by E.U. Member States, will affect E.U. businesses as well as European operations of foreign multinationals, including those based in the United States. Examples of the latter are already under review by the E.U. Commission with regard to letter rulings issued by Ireland and the Netherlands, respectively, to local operations of Apple and Starbucks. Although the E.U. Commission, the executive body of the European Union, has no direct authority over national tax systems, it can investigate whether certain fiscal regimes, including those that issue advance private tax rulings, constitute an infringement of E.U. principles, in particular “unjustifiable” State Aid to companies. Such allegedly incompatible State Aid would comprise, inter alia, selective tax advantages granted by an E.U. Member State to companies with operations in its jurisdiction.
The Commission is very clear on its intent to use its powers and pursue its initiative vigorously. The financial press has widely reported a statement made by a spokesman for Competition Commissioner Margrethe Vestager that combating tax evasion and avoidance is a top priority of the Commission. In line with that concern, the Commission is taking a structured approach when using its State Aid enforcement powers to investigate selective tax advantages that distort fair competition.
The following provides an overview on the legislative framework with respect to State Aid, developments and an outlook on the future of tax rulings in an environment of increased tax transparency.
A Connecticut business executive, George Landegger, pled guilty to willfully failing to report $8.4 million held in Swiss bank accounts to the I.R.S. During the early 2000’s until 2010, Landegger maintained undeclared accounts which reached a maximum value of over $8.4 million at an unidentified Swiss bank.
While Landegger’s defense attorney confirmed that Landegger has not been accepted to the Offshore Voluntary Disclosure Program (“O.V.D.P.”), Landegger, according to the prosecutors, repeatedly rejected the possibility of disclosing his undeclared accounts to the I.R.S. through the O.V.D.P. and instead proactively took steps to conceal his accounts. Landegger held his undeclared accounts in a sham entity formed by a Swiss lawyer under the laws of Liechtenstein. In August 2013, the Swiss lawyer pled guilty to tax fraud conspiracy charges and has been cooperating with prosecutors.
Landegger agreed to pay a civil penalty of over $4.2 million and more than $71,000 in back taxes as part of his plea, entered on January 15, 2015. Landegger’s sentencing will be held May 12. He faces a maximum sentence of five years in prison. In his statement, I.R.S. Acting Special Agent-in-Charge Thomas E. Bishop stressed that uncovering hidden offshore accounts and income is the Service’s top priority and that it will continue working with the Department of Justice to do so. This case illustrustrates the importance of a timely O.V.D.P. submission.
President Obama has proposed a 28% tax rate on capital gains for couples with $500,000 in annual income and eliminating the stepped-up basis on inherited investments. Obama believes that these tax increases will help to pay for expanded benefits for middle- and low-income households. Congressional Republicans have indicated that they would not support Obama’s proposal.
On December 19, 2014, the Organisation of Economic Co-operation and Development (“O.E.C.D.”) released a discussion draft on Actions 8, 9, and 10 of the Base Erosion and Profit Shifting (“B.E.P.S.”) Action Plan (“Discussion Draft” or “Draft”). Actions 8, 9, and 10 reinforce the goal of assuring that transfer pricing outcomes are in line with value creation.
In July 2013, the O.E.C.D. published the B.E.P.S. Action Plan for the purpose of establishing a comprehensive agenda to resolve B.E.P.S. issues. The B.E.P.S. Action Plan identifies 15 actions to combat B.E.P.S. and establishes deadlines for application of each action.
The Discussion Draft introduces revisions to Chapter I of the Transfer Pricing Guidelines and addresses the related topics in Actions 8, 9, and 10. Specifically, the Discussion Draft focuses on the development of the following:
(i) rules to prevent B.E.P.S. by transferring risks among, or allocating excessive capital to, group members. This will involve adopting transfer pricing rules or special measures to ensure that inappropriate returns will not accrue to an entity solely because it has contractually assumed risks or has provided capital. The rules to be developed will also require alignment of returns with value creation.
(ii) rules to prevent B.E.P.S. by engaging in transactions which would not, or would only very rarely, occur between third parties. This will involve adopting transfer pricing rules or special measures to: (i) clarify the circumstances in which transactions can be recharacterized.
(iii) transfer pricing rules or special measures for transfers of hard-to-value intangibles.
Whether a trust is categorized as a U.S. domestic trust or a foreign trust leads to different tax consequences and different filing obligations. This leads to the following questions: Which tax return must be filed when a trust is converted from a U.S. domestic trust to a foreign trust, and which applies when a foreign trust is converted to a U.S. domestic trust? A Chief Counsel Advice Memorandum, C.C.A. 201432022 issued on August 8, 2014, provides guidance on filing requirements in these fact patterns. Though it stated the obvious, the C.C.A. still leaves questions open, in particular with respect to grantor trusts. This article summarizes the conclusion reached by the C.C.A. and addresses issues for which clarification was not provided.
In approaching the issue, the C.C.A. began by outlining the rules under which the filing status of a trust is determined for U.S. federal income tax purposes.
U.S. Trust versus Foreign Trust – General Tax Rules
Domestic trusts, like U.S. citizens and residents, are taxed on worldwide income, whereas foreign trusts, like nonresident aliens, are taxed only on U.S.-source income and income effectively connected with the conduct of business in the United States.
