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Economic Substance: Views From the U.S., Europe, and the B.V.I., Cayman, and Nevis

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Economic Substance: Views From the U.S., Europe, and the B.V.I., Cayman, and Nevis

Like concepts of beauty, the presence or absence of economic substance in the tax context often is in the eye of the beholder. More importantly, economic substance means different things to tax authorities in different jurisdictions and the approaches in taxpayer obligations varies widely. This article looks at the concept of economic substance in three separate localities. Stanley C. Ruchelman and Wooyoung Lee look at the U.S., addressing case law establishing the requirement and the 2010 codification of the concept into the tax code. Werner Heyvaert, a partner in the Brussels Office of AKD Benelux Lawyers, and Vicky Sheik Mohammad, an associate in the Brussels Office of AKD Benelux Lawyers, look at the Danish Cases that establish an abuse of rights view for aggressive tax planning – the taxpayer abused rights granted to it by E.U. law – and the Unshell Directive designed to remove certain tax benefits from shell companies. David Payne, Global Head of Governance for Bolder Group, looks at the self-certification rules that have been adopted in the B.V.I., Cayman, and Nevis.

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Bittersweet Christmas in Spain – Beckham Regime 2.0 and Solidarity Tax

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Bittersweet Christmas in Spain – Beckham Regime 2.0 and Solidarity Tax

Last year, Christmas in Spain brought with it good news for some individuals and bad news for others. Regarding the good news, the Beckham Regime was improved as was the start-up ecosystem regime for entrepreneurs. Regarding the bad news, Spain adopted a second wealth tax to soak up wealth tax that appropriately went unpaid where certain regions provided relief for assets situated in the local region. Spanish residents that previously paid no Wealth tax will be subject to the Solidarity tax. Luis J. Durá Garcia, the Managing Partner of Durá Tax & Legal, Madrid and Valencia, tells all.

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French Tax Residence, Income Tax Treaties and Newcomers Regimes: Where Does France Stand?

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French Tax Residence, Income Tax Treaties and Newcomers Regimes: Where Does France Stand?

The determination of an individual’s tax residence is a delicate exercise, combining a review of factual elements in light of different sets of criteria and rules. Most jurisdictions other than the U.S. impose tax solely on the basis of residence. Hence, a definition of tax residence is required. French domestic tax law adopts a single definition of tax residence for personal income and inheritance taxes, relying on several alternative criteria. The matter of residence also can be looked at under a relevant income tax treaty. France has in effect a network of more than 120 income tax treaties. Michaël Khayat, a Partner of the Arkwood Law Firm, Paris, and Edouard Girard, an Associate of the Arkwood Law Firm, Paris, explain the criteria for determining tax residence under French domestic tax law and to resolve a dual resident situation under the O.E.C.D. Model Income Tax Treaty. They then address recent cases under which tax authorities challenged application of an income tax treaty for an individual claiming benefits under a favorable newcomer regime in a treaty partner jurisdiction.

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A.T.A.D.3 and How to Deal With Uncertainty in its Interpretation: A Quantitative Approach

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A.T.A.D.3 and How to Deal With Uncertainty in its Interpretation: A Quantitative Approach

A.T.A.D.3 adds a layer of complexity to an increasingly complex tax world. To illustrate, the rules under the Unshell Directive appear clear, but are nothing short of ambiguous. Moreover, certain elements of the A.T.A.D.3 analysis depend heavily on the facts and circumstances of the case, which often are not binary. Many questions are raised, and the answers affect the way operations will be carried out. Is an entity affected by A.T.A.D.3? What is A.T.A.D.3’s expected impact on a structure? Should an entity report as a shell entity in its tax return? Can a position be improved and is it worthwhile to do so? Firm answers do not come easily and nuanced responses by advisers often mean one thing to the adviser and another thing to the client. In their article, Stephan Kraan and Mark van Casteren, Partners in Huygens Quantitative Tax Consulting, Amsterdam, suggest that the proper approach involves quantitative analysis rather than qualitative advice. The goal is to adopt a statistical approach to evaluate potential results based on probability. At that point, rational decisions can be made by management and advisers. It is a fascinating read.

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Tax Issues for Remote Workers and Their Swiss Employers

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Tax Issues for Remote Workers and Their Swiss Employers

While COVID-19 had a profound effect on remote working in various countries, Switzerland has long experience with one form of remoter worker – the daily commuter across national borders. Surrounded on three sides by Italy, France, and Germany, Switzerland has negotiated several tax agreements with its neighbors that split the income tax pie and address social security coverage. Some agreements have national coverage, while others have local coverage affecting only the cantons and municipalities that straddle a specific international frontier. The stakes are high for a Swiss employer as the income tax rates and the social security charges can vary dramatically based on which country is allocated the right to tax. Thierry Boitelle, the founder of Boitelle Tax Sàrl, Geneva, and Sarah Meriguet, a Senior Tax Attorney at Boitelle Tax Sàrl, Geneva, explain all.

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Teleworking From Bulgaria: Different Arrangements Have Different Consequences

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Teleworking From Bulgaria: Different Arrangements Have Different Consequences

Bulgaria has benefitted as a preferred remote working location for digital businesses. While it does not have a digital nomad visa for work, it has a cadre of skilled individuals working as computer engineers available to be employed by foreign based multinationals. In their article, Viara M. Todorova, a Partner of Djingov, Gouginski, Kyutchukov & Velichkov, Sofia, and Ivan Punev, a Senior Associate at Djingov, Gouginski, Kyutchukov & Velichkov, Sofia explain the specific tax issues that face a foreign company looking to engage local talent to carry on functions from Bulgaria. Several different arrangements are common, and each has its own set of employment tax obligations for the service provider and the company. Adding to the mix, the threshold of activity in Bulgaria that creates a P.E. is relatively low and the choice of arrangement can affect the outcome.

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Telecommuting: Good Intentions, Bad Outcome

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Telecommuting: Good Intentions, Bad Outcome

In 2017, the O.E.C.D. stated that the question of whether a home office constitutes a P.E. is rarely a practical issue because the majority of employees reside in the state where their employer has an office. Although that observation was undoubtedly accurate at the time, today it is safe to say that it did not age well. Paul Kraan, a Partner of Van Campen Liem, Attorneys and Tax Advisers, Amsterdam, and Mitchell Karman, an associate at Van Campen Liem, Attorneys and Tax Advisers, Amsterdam, explain the international tax implications of remote workers from a corporate income tax perspective, based on the O.E.C.D. Model Convention framework. Not surprisingly they point out ways in which the current framework arguably does not result in a desirable outcome. The article concludes with several recommendations.

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Let's Talk About Nomad Employees!

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Let's Talk About Nomad Employees!

Over the years, a consensus developed overseas that the U.S. doeEmployees working from overseas is hardly a new phenomenon. However, the COVID-19 pandemic forced employees to work remotely. Indeed, some were forced to work abroad under lockdown or shelter-in-place rules. Not surprisingly, remote working morphed into nomad employees choosing to work from anywhere, any place, in any time zone. The hiring of remote employees brings with it exposure to all sorts of remote taxes for the employer in each place where a remote worker is based. Is there a P.E. for corporate income tax? Is there a fixed base for V.A.T.? Are there income tax withholding obligations for compensation payments? Are there social security obligations? Martin Phelan, a Partner in the Dublin Office of Simmons & Simmons where he is Head of Tax, and Fiachra Ó Raghallaigh, an Associate in the Dublin Office of Simmons & Simmons, provide big picture commentary. Interestingly, the United Nations Tax Committee is examining the policy issues that face nations and employers.

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Removing the Cloak: the Corporate Transparency Act of 2021 — New U.S. Legislation Targeting Global Corruption

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Removing the Cloak: the Corporate Transparency Act of 2021 — New U.S. Legislation Targeting Global Corruption

Over the years, a consensus developed overseas that the U.S. does not adhere to international beneficial ownership reporting standards. The U.S. is a member of the Financial Action Task Force, but did little to adopt the Task Force’s recommendations. Beginning in 2016, steps have been taken in the U.S. to change the view overseas. First, FinCEN adopted regulations requiring U.S. financial institutions to determine the natural persons who are the beneficial owners of accounts.  This was followed by the adoption of the Corporate Transparency Act of 2021 (“C.T.A.”) in 2021. The purpose of the C.T.A. is to create a national database of information regarding individuals who directly or indirectly hold substantial control over, or own a substantial interest in, certain domestic or foreign legal entities. Recently, final regulations were published that implement the reporting obligations of the C.T.A. In her article, Bari Zahn, the founding partner of Zahn Law Group, L.L.P. in New York City, provides a detailed explanation of who must report, whose information must be reported, and when the reporting will begin. 

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Tax 101: Is Crypto Growing Up?

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Tax 101: Is Crypto Growing Up?

Crypto assets are rarely out of the news these days, and the last months have been no exception. The well-publicized troubles of the FTX exchange have made crypto headline news again. Depending on one’s point of view, The FTX bankruptcy will underscore everything that some people think about the subject matter. Some will say the FTX bankruptcy is exactly what was to be expected and confirms the view that crypto assets are some sort of Ponzi scheme. Others will say this serves to justify the need for much greater regulation. And still others will point to the rise in the power of the exchanges, bemoaning that crypto was created to avoid powerful monopolies. Nonetheless, crypto and its technology are here to stay in the financial world. In his Tax 101 article, Gary Ashford, a Tax Partner (non-lawyer) of attorneys Harbottle & Lewis LLP, London, explains that (i) regulation of exchanges and service providers and (ii) taxation on a global basis are in the works. Will they effectively bring normalcy to a “wild west” asset? Readers should stay tuned.

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

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

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.

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Swiss Lump Sum Tax Regime – Based on Annual Expenditures

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Swiss Lump Sum Tax Regime – Based on Annual Expenditures

Switzerland can be an attractive country of residence for foreign nationals not pursuing an economic activity in Switzerland. Besides the ordinary income and wealth tax regime, Switzerland provides advantageous tax regimes for expatriates and for high-net-worth individuals. Lump sum tax regimes are based on rulings obtained from Cantonal tax authorities, and the tax base and tax rates vary among the Cantons. Aliasghar Kanani, a Partner of LE/AX Law Firm, Geneva, explains the rules that apply to income, wealth, and inheritance taxes and the advance planning that can prove helpful.

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Greek Tax Incentive Regimes for Newly Arrived Residents and Family Offices

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Greek Tax Incentive Regimes for Newly Arrived Residents and Family Offices

The segment of European countries that have enacted favorable tax regimes to attract the wealthy are well known. Switzerland has its forfait regime, the U.K. has its nondom tax regime, Portugal and Italy have new resident regimes, and Malta and Cyprus have favorable regimes designed to attract new residents. To that list of countries, Greece is a new arrival, having introduced several tax incentive regimes designed to create a favorable tax environment for nonresident individuals transferring tax residence to Greece and the establishment and operation of family offices in Greece. Natalia Skoulidou, a partner of Iason Skouzos Law Firm, Athens, provides an overview of (i) the 5A Nondom Tax Regime, (ii) the 5B Pensioner Regime, (iii) the 5C Employee and Self-Employed Regime, and (iv) the Family Office regime.

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Key Features of the New-Fangled Belgium-France Income Tax Treaty

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Key Features of the New-Fangled Belgium-France Income Tax Treaty

After nearly two decades of negotiations, Belgium and France signed a new Income Tax Treaty in November 2021. The new treaty is in line with the latest O.E.C.D. standards, incorporates the applicable provisions of the Multilateral Instrument, and addresses salient tax issues for taxpayers engaging in cross-border transactions involving the two countries. Key aspects of the New Treaty relate to closing loopholes, expanding coverage to include wealth taxes, and retaining favorable treatment for Belgian investors in French S.C.I.’s. Werner Heyvaert, a partner at AKD Benelux Lawyers, Brussels, and Vicky Sheikh Mohammad, a tax lawyer at the same firm, explain all.

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Italy: New Clarifications Concerning the Taxation of Trusts and Beneficiaries

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Italy: New Clarifications Concerning the Taxation of Trusts and Beneficiaries

Tax authorities in much of Europe look at trusts as a tax gimmick used by the wealthy as a tool to dodge taxes. However, trusts are commonly used as a tool in estate and succession planning in connection with generational transfers of family assets and businesses, the achievement of charitable purposes, and the protection of vulnerable individuals. In this context, the Italian tax authorities released Circular Letter No. 34/E in October, providing guidance on several key issues surrounding trusts. It provides many important clarifications making trusts more attractive for individuals resident in Italy and international families having one or more beneficiaries resident in Italy or wishing to relocate to Italy. Andrea Tavecchio, the Founder and Senior Partner of Tavecchio & Associati, Tax Advisers, Milan, and Riccardo Barone, a Partner at the same firm, explain how Italian tax authorities will treat various types of trusts in a logical way.

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Italian Supreme Court Issues a Landmark Decision on the Entitlement to the Foreign Tax Credit

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Italian Supreme Court Issues a Landmark Decision on the Entitlement to the Foreign Tax Credit

A common error among tax advisers is the expectation that tax law in a foreign country is applied in a straightforward way. For example, if a tax treaty provides that a foreign country will provide a foreign tax credit for taxes imposed by the other country, it seems clear that foreign tax will be reduced by that credit. Regrettably, this is not always the case. Francesco Capitta, who is Of Counsel to Facchini Rossi Michelutti, Studio Legale in Milan, and Andrea D’Ettorre, who is an associate at the same firm, explain that, in Italy, a decision of the Supreme Court was required in order to allow an Italian resident individual to reduce Italian tax by a foreign tax credit for U.S. income taxes withheld on U.S. source dividend income. Remarkably, there was a logical reason for the denial, but it was invalidated in the case.

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Tax Cases Affecting Remote Workers and Their Employers

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Tax Cases Affecting Remote Workers and Their Employers

The legacy of the pandemic has demonstrated that an employee does not need to be in the office in order to work efficiently. Employees have adjusted to working remotely. In North America, remote working may mean a location in the suburbs surrounding the location of a business office, or perhaps a nearby state. In Europe, remote working may mean relocation to a different country. This raises questions for the employer regarding to the establishment of a P.E. in the country where the employee resides. Sunita Doobay, a partner of Blainey McMurtry, L.L.P., Toronto, discusses two recent tax rulings in Denmark and Spain and one tax case in Finland that address the issue. While all acknowledge that facts control the decision, tax administrations do not exercise judgement consistently.

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Luxembourg Amends Law on Financial Collateral Arrangements

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Luxembourg Amends Law on Financial Collateral Arrangements

Luxembourg is the second largest investment fund center in the world after the U.S. Assets under management exceed U.S. $5.0 trillion. This largely is due to the advanced investment fund legislation and favorable legal framework for investors regarding pledged collateral. Earlier this year, the law was amended to reflect current market concepts. To illustrate, an enforcement event is now defined as an event of default or any other event that triggers an enforcement action as agreed between the parties. If an enforcement event occurs and the collateral consists of financial instruments that are traded on an exchange or market, the holder of the pledgee may, without prior notice (i) assign or cause the pledged collateral to be assigned on that exchange or market or (ii) appropriate the pledged financial instruments or have them appropriated by a third party, at market price. Also, execution on the pledge can be instituted when and as the parties have agreed in the pledge. A final legal determination against the pledgor is no longer a prerequisite for execution against the collateral. These and other aspects of the amended law are explained by Anton Baturin and Graham Wilson, members of Wilson Associates L.L.C., an international business law firm in Luxembourg.

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The U.K. Growth Plan 2022

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The U.K. Growth Plan 2022

Three weeks after Liz Truss became Prime Minister of the U.K., the Chancellor of the Exchequer, Kwasi Kwarteng, announced the new Government’s Growth Plan. Billed as a “Mini Budget,” it became a far greater set of announcements than expected. Among other items, tax rates are slashed at the corporate and individual levels, allowances for businesses are increased, and investment zone benefits enhanced. Kevin Offer, a Partner at Hardwick and Morris L.L.P., London summarizes the provisions.

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Perenco v. Ecuador and Achmea B.V. v. The Slovak Republic: Practical Limitations When Seeking Relief Under a B.I.T.

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Perenco v. Ecuador and Achmea B.V. v. The Slovak Republic: Practical Limitations When Seeking Relief Under a B.I.T.

While resorting to a B.I.T. provides a corporation access to an independent body when seeking to resolve a dispute with a foreign government, success is not always obtained easily or at all. Stanley C. Ruchelman and Marie de Jorna, a member of the Paris Bar learning U.S. tax law during a period of training with Ruchelman P.L.L.C., dive into two cases where relief has either been denied for over a decade (Perenco v. Ecuador) or where access to a B.I.T. was eliminated as a mechanism to resolve disputes for corporations that are resident in an E.U. Member State with the government of another E.U. Member Sate (Achmea B.V. v. The Slovak Republic).

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