September 30, 2019

India Budget 2019-20

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

The first budget of the Modi 2.0 government was announced during the summer with a goal of bringing India to a growth trajectory. To that end, the Taxation Laws (Amendment) Ordinance, 2019, was introduced on September 20, 2019, to incorporate the proposed changes into law. Included are incentives for International Financial Services Centres, tax relief for start-ups, a boost for electric vehicles, and faceless tax examinations intended to ensure that tax examinations are carried out in a uniform way. Although anticipated by some, an inheritance tax was not introduced. Jairaj Purandare, the Founder and Chairman of JMP Advisors Pvt Ltd, Mumbai, explains the new provisions.

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.

June 28, 2019

C.J.E.U. Judgments on Danish Beneficial Ownership Cases

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

Earlier this year, the C.J.E.U. released two judgments dealing with the interpretation of the Parent-Subsidiary Directive (“P.S.D.”) and the Interest & Royalties Directive in the E.U. In each case, a structure was meticulously built to comply with national and E.U. law allowing global investors to bring funds to the E.U. in return for dividends and interest that were subject to little or no national tax in any E.U. country. Nothing in the structure was unique, other than the reticence of the Danish tax authorities to grant withholding tax exemptions. To the surprise of many, the C.J.E.U. looked at the structure and concluded that it lacked economic substance and should be disregarded by reason of a general E.U. anti-abuse principal. The internal E.U. recipients of the dividend and interest payments were not considered to be the beneficial owners of the income. Almost 50 years after the Aiken Industries case in the U.S. Tax Court and 25 years after the anti-conduit regulations were adopted by the I.R.S., European substance-over-form rules have now been adopted by judicial fiat. Thierry Lesage and Adnand Sulejmani of Arendt & Medernach SA, Luxembourg, meticulously explain the reasoning of the court and suggest that the court may have erred by conflating anti-abuse rules with beneficial ownership concepts.

May 30, 2019

India and the Digital Economy – The Emerging P.E. and Attribution Issues

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

The exponential expansion of information and communication technology has made it possible for businesses to be conducted in ways that did not exist 15 years ago. It has given rise to new business models that rely almost exclusively on digital and telecommunication networks, do not require physical presence, and derive substantial value from data collected and transmitted through digital networks. So how and where should these companies be taxed? Sunil Agarwal, an advocate and senior tax partner of AZB & Partners New Delhi, evaluates proposals already enacted in India and the U.K. and those under consideration at the level of the European Commission and E.U. member countries Italy, France, and Austria. Should the digital tax be a consumption tax passed on to the final consumer or a minimum income tax based on global profits or substantial economic presence? At this point, consensus does not exist.

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

Reflections on My 66 Years in Public Accounting

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

Periodically in life, one comes across an individual who is best described as follows: He or she “gets it.” Difficult to describe analytically, in the tax world, the term means that (i) in solving technical problems, the person focuses the material, leaving the immaterial to others; (ii) in making decisions, the person can separate the important from the unimportant; and (iii) in advising others on the impact of a new accounting rule or provision of tax law, the person can digest the complex and explain it in a series of simple sentences. Often, the individual is self-effacing. Arthur J. Radin was all of the above. He passed away in April. In his memory, we are pleased to republish an article written for the CPA Journal describing the way professional accounting changed during his 60-year career and, more importantly, the way the world changed. Arthur will be missed.

April 30, 2019

Austria, France, and Italy to Introduce Digital Services Taxes

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

A limerick that is popular among members of the U.S. Congressional tax writing committees sheds wisdom on the development of tax policy: “Don’t tax you. Don’t tax me. Tax the person behind the tree.” Several countries in Europe have taken the rhyme to heart in developing unilateral digital services taxes designed to impose tax on extra-territorial activity of out-of-country companies. The issue, as Austria, France, and Italy see it, is that these companies make huge profits in Europe but pay no tax there, while payments for digital services are often tax deductible in the countries where the services are used. According to proponents such as Austria, it is only fair to tax those profits on a destination basis. Benjamin Twardosz of CHSH Attorneys-at-Law, Vienna, explains the various proposals under consideration.

April 30, 2019

Foreign Investment in U.S. Real Estate – A F.I.R.P.T.A. Introduction

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

Many economic, political, and cultural factors make U.S. real estate an attractive investment for high net worth individuals resident in other countries. These factors are supported by a set of straightforward tax rules that apply at the time of sale. Alicea Castellanos, the C.E.O. and Founder of Global Taxes L.L.C., looks at the U.S. Federal income taxes and reporting obligations that apply to a foreign investor from the time U.S. real property is acquired to the time of its sale.

April 30, 2019

The Impact of Brexit on German Taxes for Private Clients and Nonprofit Organizations

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

American business executives responsible for regional operations in Europe often see different approaches to problem solving in terms of cultural differences between various European countries. It can be said that British colleagues often continue to rethink decisions even after solutions are adopted, and German colleagues focus on engineering a unified approach to reach the best solution to the matter at hand. These cultural characteristics seem to have manifested in the different ways Parliament in the U.K. and the Bundestag in Germany are addressing Brexit. Parliament continues to debate whether, when, and how to implement Brexit, while the Bundestag has enacted several laws to address how a hard or soft Brexit will affect various aspects of German tax law. Dr. Andreas Richter of P+P Pöllath + Partners, Berlin and Frankfurt, provides the reader with an overview of the German tax consequences to be anticipated from a U.K. departure from the E.U. – with or without a formal Brexit agreement.

March 29, 2019

Strategies for Foreign Investment in Indian Start-Ups

March 29, 2019/ Ruchelman P.L.L.C.

Foreign investment in Indian high-tech start-ups can yield significant profit opportunities for savvy investors. During 2018, over 1,000 deals were struck, reflecting $38.3 billion in new investments. If these investments turn out to be profitable, the tax exposure for the investor will vary with the form of the investment. Choices of investment vehicles include (i) L.L.P.’s, (ii) Category I, Subcategory I alternative investment funds (“A.I.F.’s”) registered with the Securities Exchange Board, (iii) Category III A.I.F.’s, and (iv) trusts. Each has unique tax consequences for investors receiving dividends and realizing gains. Raghu Marwah and Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, explain the entities choices and the resulting tax costs.

March 29, 2019

Trust Regulations and Payment Services: Dutch Law in 2019

March 29, 2019/ Ruchelman P.L.L.C.

The Dutch government has taken steps in recent months to enhance regulatory oversight. The new Act on the Supervision of Trust Offices 2018 adopts serious best practices for trust companies designed to prevent Dutch entanglement in the next set of Panama Papers. KYC due diligence must be real. At the same time, the Second Payment Services Directive (“P.S.D. II”) was transposed into Dutch law. With customer permission, companies involved in payment service businesses will have greater access to information on spending habits of customers. This generates a win-win scenario – a miracle for companies engaged in marketing activities and insights for consumers into their spending patterns, enabling them to make better financial decisions. Lous Vervuurt of Buren N.V., the Hague, explains how the new rules work, including new standards of account security.

February 28, 2019

Can Tax Authorities Demand Access to Audit Workpapers? Canadian Experience Follows U.S. Rule

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

Recent victories in litigation have allowed the Canada Revenue Agency to review tax accrual workpapers of Canadian corporations, provided the request for access is not a “fishing expedition” attempting to find issues.In the U.S., the I.R.S. has enjoyed that power for many years. Sunita Doobay of Blaney McMurtry L.L.P., Toronto, examines the scope and limitations of the Canadian decisions. Stanley C. Ruchelman reviews case law in the U.S., the role of FIN 48, and the purpose behind Schedule UTP (reporting uncertain tax positions), which surprisingly is designed to limit examinations of tax accrual workpapers.

February 28, 2019

O.E.C.D. on Digital Business – Seriously?!

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

On February 13, 2019, the O.E.C.D. issued a discussion draft addressing the tax challenges of the dig- italization of the economy and asked for feedback in a shockingly brief time- frame. Is the discussion draft – which, in many respects, mimics G.I.L.T.I.provisions and highlights the value of a market as a key determiner of profitallocation – a move away from value of functions? In a stealth way, it may be a precursor to a global B.E.A.T. Christian Shoppe of Deloitte Deutschland, Frankfurt, cautions that the ultimate destination of B.E.P.S. may be added complexity in tax laws and expanded opportunity for double taxation. Bad news for taxpayers; more work for tax advisers.

February 28, 2019

Tax Authorities Eye GSK-HUL Merger: Could Attract Tax on Long-Term Capital Gains and Brand Transfer

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

GSK Consumer Healthcare India (“GSKIndia”) is in the process of merging with Hindustan Unilever Ltd (“HUL”) inthe biggest deal in India’s consumer packaged goods space, valued at ap- proximately $4.5 billion. Although the transaction is structured to be tax-free for shareholders, plenty of room exists for the Indian tax authorities to assert tax from the companies: The transfer of a brand owned outside India may generate Indian tax to the extent its value stems principally from India. In addition, arm’s length pricing for royalty payments and accompanying with- holding tax issues also come into play. Sanjay Sanghvi and Raghav Kumar Bajaj of Khaitan & Co., Mumbai and New Delhi, discuss the global tax issues surrounding the transaction.

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.

January 28, 2019

2019 Welcomes New Finnish Interest Deduction Limitations

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

Changes to the Finnish interest barrier regime have come into effect in 2019. They have been expected since 2016, when the E.U. released its Anti-Tax Avoidance Directive (“A.T.A.D.”), which sets forth the minimum standards for interest deduction restrictions within the E.U. The limitations affect E.B.I.T.D.A.-based rules (i.e., addressing earnings before interest, tax, depreciation, and amortization) adopted in 2014, which include the specific interest barrier rule affecting the deductibility of intra-group interest payments. Antti Lehtimaja and Sanna Lindqvist of Krogerus Ltd., Helsinki, explain the key elements of the new restrictions, including some considerations regarding the impact on Finnish taxpayers and investments in Finland.

November 29, 2018

The U.K. Digital Sales Tax – It Could Be You

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

On November 7, 2018, the U.K. government confirmed that it will proceed with the introduction of a digital services tax ("D.S.T.") on large businesses. The tax will be charged beginning April 2020. It will apply to three key areas, which the government has concluded derive a huge value from the participation of U.K. users and are largely untaxed. Eloise Walker of Pinsent Masons, London, provides an overview of the D.S.T., cautioning that problems exist in identifying both the revenue to which the D.S.T. will apply and the hallmarks of jurisdiction that must exist in order for the tax to be imposed.

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.

November 29, 2018

Alta Energy Affirms Treaty Benefits: A Canadian Case Study for Applying the M.L.I.

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

As part of its attack on B.E.P.S., the O.E.C.D. published its Multilateral Instrument, a device that revised more than 1,200 income tax treaties. One of the provisions of the M.L.I. targets treaty shopping by the adoption of, among other things, a principal purpose test ("P.P.T."). In simple terms, the P.P.T. disallows a treaty benefit when a principal purpose of a transaction is to obtain that benefit. Transactions in accordance with the object and purpose of the provisions of a treaty are not affected by the P.P.T. Many North American tax advisers know that the P.P.T. is based on a provision of Canadian law known as the General Anti-Avoidance Rule or G.A.A.R. A recent decision of the Tax Court of Canada addresses the application of G.A.A.R. to a cross-border tax plan set up by a U.S. financial institution designed specifically to obtain enhanced Canadian tax benefits by rechanneling a U.S. investment in Canada into a U.S. investment into Luxembourg that was then invested into Canada. The Canada Revenue Agency ("C.R.A.") attacked the Luxembourg company's entitlement to treaty benefits relying heavily on G.A.A.R. Kristy J. Balkwill and Benjamin Mann of Miller Thomson L.L.P., Toronto, explain the decision and its potential impact on the P.P.T. The case has been appealed by C.R.A.