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Draft Valuation Rules for Indirect Transfers in India

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In May, draft rules were issued in India that implement legislation designed to reverse the holding in the Vodafone case. There, a taxpayer sold shares of an offshore company having as its principal asset shares of a large Indian telecommunication company. When Indian tax authorities attempted to tax the gain of the sale of foreign shares, the Indian Supreme Court held in the taxpayer’s favor and observed that the transaction was beyond India’s territorial tax jurisdiction. The law was changed in 2012, and in 2015, certain valuation benchmarks were set that established when tax would be imposed. Neha Rastogi, Kenneth Lobo, and Nina Krauthamer explain how the value of Indian and global assets will be determined. They also address associated reporting requirements.

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Insights Vol. 3. No. 5: B.E.P.S. Around The World

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Kenneth Lobo and Stanley C. Ruchelman look at recent happenings in the world of B.E.P.S.  Items covered include (i) recent decisions of the Canada Revenue Agency regarding tax rulings that will be exchanged automatically with other countries, (ii) I.R.S. consideration of accepting early CbC reports from U.S.-based groups, (iii) multilateral procedures to deal with the expected flood of mutual agreement requests arising from double taxation claims when B.E.P.S.-generated taxation claims begin to appear, and (iv) the emerging need for B.E.P.S. compliance officers in multinational groups.

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U.S. Immigration Tax Planning – Covered Expatriates→

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Published in Taxes & Wealth Management by Thomson Reuters, Issue 9-1: February 2016. (p.14)

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Insights Vol. 3 No. 4: B.E.P.S. Around The World

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Under political pressure from N.G.O. watchdogs, governments are striving to demonstrate their support for the B.E.P.S. Action Plan on a national level. Kenneth Lobo and Stanley C. Ruchelman look at implementation issues around the world. Included are issues in Germany related to exchanges of information, treatment of C.I.V.’s for income tax treaty purposes, and U.K. tax penalties for aggressive tax planning.

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Transfer Pricing Positions of Consolidated Groups: After Guidant

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Michael Peggs and Kenneth Lobo comment on the I.R.S. victory in the Guidant case where the I.R.S. applied the “one size fits all” approach to group-wide transactions. Their conclusion is that today’s I.R.S. victory may be tomorrow’s lost revenue where a taxpayer seeks competent authority relief for transfer pricing adjustments initiated abroad.

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Country-by-Country Reporting – Where Are We Going?

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B.E.P.S. Action 13 addresses country-by-country reporting among tax authorities as a means of ferreting out mismatches between functions and profits. Now, CbC reporting is morphing in Europe to a public disclosure tool to bring N.G.O.’s into the process. Your tax savings through planning becomes a global problem for the N.G.O.’s to redress through public outcry. Michael Peggs and Kenneth Lobo tell all.

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IRS Faces House Concerns About BEPS Initiative’s Impact on U.S. Companies→

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Published in GGi FYI International News No. 4, Spring 2016 (p.12).

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

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In the March 2016 edition of Insights, Kenneth Lobo, Sheryl Shah, and Beate Erwin look at the following recent developments: (i) an A.B.A. recommendation for higher Cuban compensation for seized U.S. businesses, (ii) U.S. inversions and European State Aid investigations targeting U.S. companies, (iii) an increase in the stakes faced by Coca Cola in its transfer pricing dispute with the I.R.S., and (iv) the U.K. reaction to the Google Settlement tax payment.

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2016 Model Treaty – Mandatory Arbitration

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On February 17, 2016, the Treasury Department released its 2016 Model Treaty. The model serves as the baseline from which the U.S. initiates treaty negotiations. Various provisions are discussed in detail in this month’s Insights.

Taking a cue from the U.S.-Canada Income Tax Treaty, the 2016 Model Treaty provides for mandatory arbitration as part of the article on Mutual Agreement Procedure. I.R.S. statistics indicate that under the Canadian treaty 80% of cases were resolved by the competent authorities in lieu of risking an adverse decision through arbitration. Kenneth Lobo explains the revised provision and places it in context.

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International Practice Unit: I.R.S. Releases Subpart F Sales and Manufacturing Rules

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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.

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Insights Vol. 3 No. 1: Updates & Other Tidbits

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This month, Insights discusses recent events including a Beanie Baby billionaire’s light sentence; a tax reform report by the European Parliament addressing tax rulings, a common consolidated corporate tax base, a crackdown on tax havens, whistle-blower protection, public access to country-by-country (CbC) reports, and a lower threshold to approve E.U. tax legislation; a House Ways and Means Committee action in regard to B.E.P.S., E.U. investigations on State Aid, patent box regimes, and inversions; identity theft risk in I.R.S. proposed regulations regarding charitable deductions; and allowance of accounting non-conformity for foreign-based groups that do not adopt L.I.F.O. accounting when that method is adopted by a U.S. member.

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Anti-Inversion Rules Expanded

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The latest step in inversion controversy involving U.S. publicly traded corporations is the upcoming merger between pharmaceutical giants, Pfizer and Allergan, in a stock transaction estimated to be worth $160 billion. Kenneth Lobo and Stanley C. Ruchelman look at recent I.R.S. countermeasures attacking cross-border mergers that the I.R.S. views as inversions. Among other measures, rules are announced to limit planning alternatives using check-the-box entities to stuff assets into an acquirer without exposing those assets to tax in the jurisdiction of residence of the acquirer and use of parent-company stock as the consideration for the acquisition.

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Planning for Canadian Parents with U.S. Children→

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Published in Taxes & Wealth Management by Thomson Reuters, Issue 8-4: November 2015.

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Russian Recovery Fund v. U.S.

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For many tax advisers, it is fashionable to complain about the O.E.C.D.’s B.E.P.S. project because it imposes an unrealistic standard of behavior on multinational groups. Then, along comes a case such as Russian Recovery Fund, Ltd. v. U.S. and one understands the problem of real base erosion.  The case involved a distressed asset/debt (D.A.D.) transaction. Here, hubris and greed in the financial services sector team up to make the O.E.C.D. look good.

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Indian Investors Purchasing U.S. Real Estate – From a U.S. Point of View→

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Published in International Taxation, Volume 13, Issue 3: September 2015.

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I.R.S. Proposed New Partnership Rules Under Code §956

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The I.R.S. recently released temporary and proposed regulations to limit the use of foreign partnerships to avoid income inclusions under Code §956. The Temporary Regulations are more limited in their scope while the Proposed Regulations are quite broad. If finalized in the current form, the Proposed Regulations would cause most C.F.C. loans to partnerships with related U.S. partners to be investments in U.S. property.

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Tax Planning for Indian Businesses Investing in the US – Part II→

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Published in Taxsutra: September 2015.

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Indian Businesses Investing in the US – Tax Challenges – Part I→

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Published in Taxsustra: September 2015.

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U.S. Taxation of Carried Interest

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Favorable long-term capital gains tax treatment for managers of hedge funds has been under attack by the Obama Administration. While the industry defended itself from outright changes to favorable tax treatment, the I.R.S. recently proposed to disallow favorable treatment where a manager’s right to payments bears no entrepreneurial risk. Nina Krauthamer, Philip R. Hirschfeld, and Kenneth Lobo explain.

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Reinsurance Case Invalidates Tax on Foreign-to-Foreign Withholding Transactions

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A “cascading tax” is a tax that is enforced more than once on the income from the same transaction or related transactions. A common example involves a back to back license in which:

  • A non-U.S. individual or corporation (“A Co.”) licenses the rights to use intellectual property (“I.P.”) in the U.S. to another non-U.S. corporation (“B Co.”); and
  • B Co. then sub-licenses the same rights to use the I.P. to a U.S. corporation (“C Co.”).