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.

March 20, 2020

The Netherlands Introduces Compensation Regulation to Discourage “Dormant Employment”

March 20, 2020/ Ruchelman P.L.L.C.

· For U.S. tax advisers not versed in Dutch labor law, the world of employee rights and employer obligations is a thing to behold. To illustrate, in 2015, the Dutch parliament enacted a law under which an employee in the Netherlands having spent 104 weeks on paid sick leave is entitled to a transition payment if the employment contract was terminated by the employer. However, many employers attempted to avoid the payment by retaining these employees under “dormant contracts,” where the contract remained in force but there was no position available and no pay. New legislation effective April 1, 2020, breaks the deadlock. The transition fee remains in effect, but all or most of the payment is funded on a deferred basis by the Dutch government. Rachida el Johari and Madeleine Molster of Saguire Legal, Amsterdam, the Netherlands, explain how the Compensation Regulation works and propose a winning strategy for employers.

March 20, 2020

The Multilateral Instrument and Its Applicability in India

March 20, 2020/ Ruchelman P.L.L.C.

One of the most significant outcomes of the B.E.P.S. Project is the signing of the multilateral instrument (“M.L.I.”) in 2017. The O.E.C.D. initiated the B.E.P.S. Project in 2013 with a view to curtail tax avoidance. The M.L.I. addresses B.E.P.S. concerns in thousands of bilateral tax treaties through one common treaty. India has been at the forefront of implementing B.E.P.S. measures, and India’s covered tax treaties will need to be read with the M.L.I. from April 1, 2020. Sakate Khaitan of Khaitan Legal Associates, Mumbai, India, and Abbas Jaorawala, a chartered accountant and consultant to that firm, explain India’s positions on various provisions of the M.L.I. for those engaged in trade or investment opportunities relating to India.

January 24, 2020

A gRETT-able Situation: New Trends in German Real Estate Transfer Tax on Share Deals

January 24, 2020/ Ruchelman P.L.L.C.

For decades, the German Real Estate Transfer Tax Act ("gRETT Act") has imposed a transaction tax on the sale of real estate in Germany. In recent years, the tax has applied to the sale of shares that indirectly transfer real estate located in Germany. When initially enacted, a sale of all shares was taxable under the gRETT Act. In the year 2000, the triggering percentage was reduced to 95%. Last year, proposed legislation would have reduced the triggering percentage to 90%, but the draft bill was never enacted. In 2020, the triggering percentage may be reduced to as low as 75% or some other percentage whenever new legislation is adopted. Exactly what constitutes an indirect sale of German real estate is surprisingly broad, and unlike comparable taxes in other countries, the sales need not be related nor contemporaneous. In recent years, a populist clamor has arisen to broaden the scope of indirect transfers subject to the tax. Michael Schmidt of Schmidt Taxlaw, Frankfurt am Main, Germany, explains how and when the tax is imposed under current law and how it may be modified in the coming months.

January 24, 2020

Portuguese Taxation of Distributions from Trust Capital: A Critical Assessment

January 24, 2020/ Ruchelman P.L.L.C.

How does a country adopt a law to tax the income of an entity that generally is not recognized under local law? In Portugal, there is room for improvement. The 2014 reform of the Portuguese Personal Income Tax ("P.I.T.") Code introduced certain taxing provisions that specifically address "fiduciary structures," the Portuguese term for trusts. Two separate categories of payments were established for purposes of imposing tax. Under the first category, all amounts paid or made available to a Portuguese tax resident are taxable. This includes capital distributions. Under the second category, gains realized by the taxpayer who formed the fiduciary structure are taxed at the time of a final distribution incident to the structure’s liquidation, unwinding, or termination. Other beneficiaries can receive liquidation distributions without suffering any tax. João Luís Araújo and Álvaro Silveira de Meneses of Telles Advogados, Porto and Lisbon, Portugal, suggest that solid arguments support the view that certain distributions should be seen as outside the scope of the P.I.T. Code, including (i) distributions of trust capital to the settlor during the ongoing existence of a trust and (ii) distributions to non-settlors that are akin to gifts.

January 24, 2020

Same Same, But Different: Taxing a Sale of Indian Stock by a U.S. Person

January 24, 2020/ Ruchelman P.L.L.C.

While tax rules generally appear to be similar in India and the U.S., several divergent provisions in the domestic law of each country produce adverse consequences for those who are not well-advised. The prime example involves the taxation of gains from the sale of shares of an Indian company by a U.S. person: India sources the gain based on the residence of the target while the U.S. sources the gain based on the residence of the seller. No relief from double taxation is provided, notwithstanding the capital gains and relief from double taxation articles in the U.S.-India income tax treaty. The result is tax that can be as high as 43.8% of the gain. Rahul Jain and Sanjay Sanghvi of Khaitan & Co., Mumbai, India, along with Neha Rastogi and Stanley C. Ruchelman explain the problem and, more importantly, suggest a path forward for U.S. individuals realizing sizable gains.

December 13, 2019

IR35 – Why Are U.K. Businesses So Concerned?

December 13, 2019/ Ruchelman P.L.L.C.

New U.K. tax rules are being introduced from April 2020 to make businesses liable for determining the employment tax status of contractors who work through personal service companies (“P.S.C.’s”). These outsourcing arrangements have had a devastating effect on tax collections and funding for National Insurance, the U.K. version of Social Security. The goal of the new rules is to make customers of P.S.C.’s liable for collecting wage withholding tax and National Insurance contributions that are not collected by the P.S.C. when the worker of the P.S.C. would otherwise be properly characterized for U.K. tax purposes as an employee of the customer of the P.S.C. under tests published by H.M.R.C. Any company involved in the P.S.C. arrangement may have inchoate liability for payments of wage withholding tax and National Insurance. Penny Simmons, of Pinsent Masons LLP, London, explains the scope of the exposure and expounds on procedures that should be adopted in advance of the April 2020 effective date.

November 20, 2019

Collecting Another Country’s Taxes – Recent Experience in the Canada-U.S. Context

November 20, 2019/ Ruchelman P.L.L.C.

In an age of multilateral agreements to exchange information and other agreements to cooperate in the collection of taxes of another country, many people are unaware of the “revenue rule.” This common law doctrine allows courts to decline entertaining suits to collect tax or enforce foreign tax judgments. In their article, Sunita Doobay of Blaney McMurtry L.L.P., Toronto, and Stanley C. Ruchelman explore (i) the general development of the revenue rule, (ii) its extension to North America, (iii) the applicable provisions of the Canada-U.S. Income Tax Treaty allowing for assistance in the collection of tax and exchange of information, (iv) one U.S. wire fraud case involving evasion of foreign import duties, and (v) several recent cases in the U.S. where taxpayers raised creative arguments to attack the validity of treaty provisions, but to no avail.

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.