Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
In June, the European Commission proposed a set of rules calling on tax advisers to report aggressive tax plans submitted to clients. The proposal identifies the hallmarks of aggressive plans and provides rules for the timing of reports and the exchange of information within Europe. Fanny Karaman and Stanley C. Ruchelman explain.
Read MoreTaxpayers having cross-border operations are confronted with numerous tax information forms to be filed as part of the annual tax return. Because the forms are not directly used to compute taxable income, they frequently are completed at the last minute and with less attention to detail. However, the I.R.S. imposes penalties for filing an incomplete form. Taxpayers faced with asserted penalties often argue that the forms are substantially complete. In a recent International Practice Unit (“I.P.U.”) issued by the Large Business & International Division of the I.R.S., the I.R.S. view regarding substantially complete form was explained. Not surprisingly, the I.R.S. view is significantly different from taxpayer expectations. It also differs from holdings in several Tax Court decisions involving other forms. Neha Rastogi and Stanley C. Ruchelman discuss the I.P.U. in detail.
Read MoreThe I.R.S. has a long history in misapplying U.S. tax rules applicable to a sale of a partnership interest. For U.S. tax purposes, a partnership interest is treated as an asset separate and apart from an indirect interest in partnership assets. In Rev. Rul. 91-32, the I.R.S. misinterpreted case law and Code provisions to conclude that gains derived by foreign investors in U.S. partnerships are subject to tax. No one thought the I.R.S. position was correct, but then, in a field advice to an agent setting up an adjustment, the I.R.S. publicly stated that the ruling was a proper application of U.S. law when issued and remains so today. The adjustment was challenged in the Tax Court, and the tax bar is eagerly awaiting a decision. Stanley C. Ruchelman and Beate Erwin examine the I.R.S. position, the string of losses encountered by the I.R.S. when challenged by taxpayers, and the Grecian Magnesite case awaiting decision.
Read MoreIn April, coordinated tax raids targeted three separate offices Credit Suisse involved in tax fraud examinations by the Netherlands, France, Germany, the U.K., and Australia. Was it merely a coincidence that these are countries with which the U.S. regularly cooperates in the exchange of tax information? Rusudan Shervashidze and Stanley C. Ruchelman discuss the many avenues through which the I.R.S. furnishes and receives information. One thing is clear: The I.R.S. had the means to transfer information to the relevant tax authorities.
Read MoreThis month, Tax 101 presents an overview of the basic U.S. Federal tax considerations of transactions that occur over the life cycle of intellectual property (“I.P.”) – from its creation to its acquisition, exploitation, and ultimate sale in a liquidity event. The article address several important questions: Should expenditures be capitalized or deducted? If capitalized, over what period is the expenditure amortized? How are acquisitions of I.P. reported to the I.R.S. when an entire business is acquired? What is the character of gain on sale? When is a sale treated as a license? And when is a license treated as a sale? Elizabeth V. Zanet and Stanley C. Ruchelman explain.
Read MoreCode §6038A provides that a U.S. corporation that is 25% or more foreign-owned must provide the I.R.S. with information on certain transactions with its 25% foreign owner and any other foreign related party. The goal is to obtain access to documents that are helpful in determining the correctness of the U.S. tax return. In an I.P.U., LB&I explains how it plans to obtain documents held outside the U.S. This may include a requested exchange under a tax information exchange agreement or a summons served on a domestic agent appointed to receive a summons that is enforceable abroad. Galia Antebi and Stanley C. Ruchelman explain the process that will be followed by the I.R.S.
Read MoreIf all currencies were pegged to one single standard and did not fluctuate in value among themselves, the concept of currency gain and loss would not be needed. However, no universal standard exists and major currencies tend to fluctuate. Consequently, a uniform method must be applied to identify the amount of a transaction when the conversion rate changes between a booking date and a payment date of a transaction denominated in a non-functional currency. In a recent International Practice Unit (“I.P.U.”), the LB&I Division of the I.R.S. provides a broad overview of how currency gains and losses are recognized for U.S. tax purposes. Elizabeth V. Zanet and Stanley C. Ruchelman examine the applicable rules in the I.P.U.
Read MoreAlthough the U.S. is the world’s largest economy, it is the only world economy that does not have a national value-added tax (“V.A.T.”). Until the border adjustment tax (“B.A.T.”) proposals were floated, most cross-border tax advisers in the U.S. only had vague concepts of the workings of a national V.A.T. Fanny Karaman and Stanley C. Ruchelman explain the mechanics of the V.A.T. as enacted in the E.U., cautioning that the B.A.T. is not a V.A.T.
Read MoreThe I.R.S. Large Business and International (“LB&I”) Division has announced 13 issue-based campaigns targeting specific “Practice Areas” for audit and other enforcement activity. The campaigns involve a combination of examinations, outreach, guidance, and other approaches. Galia Antebi and Stanley C. Ruchelman look at the new I.R.S. approach to tax examinations in an age of increased complexity and limited budgets for examiners.
Read MoreCode §338(g) allows a taxpayer to elect to treat certain share purchases as if the transactions were asset purchases. As a result, the premium paid for the shares can be pushed down to increase the basis in operating assets of the acquired company. The step-up in depreciable basis results in steeper depreciation and amortization deductions for U.S. tax purposes. Because a comparable tax benefit is not obtained in the jurisdiction where the target operates, the Code §338(g) treatment magnifies the effective tax rate in the foreign country when looked at from a U.S. tax viewpoint. This creates mountains of excess foreign tax credits that can be used to reduce U.S. tax on other items of foreign-source income, provided those items are subject to little or no foreign tax and fall within the same foreign tax credit limitation basket. A similar result can be achieved through a check-the-box election, which acts as a poor man’s Code §338(g) election. Code §901(m) attempts to disallow the enhanced level of the foreign tax credit, and the I.R.S. recently issued temporary and proposed regulations. Rusudan Shervashidze and Stanley C. Ruchelman explain the labyrinth of rules.
Read MoreIn Notice 2016-73, the I.R.S. announced that it intends to issue regulations preventing certain taxpayer abuses incident to triangular reorganizations involving foreign corporations. These are transactions in which a subsidiary is the acquisition vehicle and the shares used to acquire the target are shares of the parent company, hence the reference to a triangle. The Notice is another step in the saga of “Killer B” reorganizations in which U.S. corporations attempt to take cash out of foreign subsidiaries without paying significant U.S. tax. Transactions occurring in the past two years have been found to be abusive because they apply recently issued regulations in a way that was not intended at the time of publication. Fanny Karaman and Stanley C. Ruchelman explain the approach enunciated in the Notice.
Read MoreA globalized economy has been the driving force behind cross-border tax transparency and increased dissemination of tax information in recent years. The importance of F.A.T.C.A. reporting has paled as the O.E.C.D. Common Reporting Standard has taken effect in the E.U., State Aid cases are progressing, and country-by-country reports may be publicly available. Europe and the U.S. are moving in different directions. Philip R. Hirschfeld and Stanley C. Ruchelman explain.
Read MoreNew powers have been given to H.M.R.C. in recent legislation, and new criminal and civil penalties have been enacted as part of a massive legislative program designed to stop U.K. residents from participating in offshore tax avoidance and evasion schemes. Several criminal penalties are directed to advisory firms that facilitated tax offenses. In certain circumstances, advisory firms based outside the U.K. will be at risk of prosecution. Gary Ashford of Harbottle and Lewis L.L.P., London, and Stanley C. Ruchelman examine the new provisions.
Read MoreIn 2016, the U.S. Treasury Department resurrected an area of the tax law that lay dormant for almost 40 years – the debt-equity regulations under Code §385. As we reminisce on the best of 2016, we offer detailed analysis of the new tax treatment adopted under Code §385. These comprehensive and detailed regulations address whether a debt instrument will be treated as true debt for U.S. income tax purposes or re-characterized, in whole or in part, as equity.
Read MoreThis month, we reminisce on the best of 2016, with articles on the brewing transatlantic trade war disguised as European Commission attacks on illegal State Aid given to U.S.-based groups.
Read MoreOn February 17, 2016, the U.S. Treasury Department released its 2016 Model Treaty. This month, as we reminisce on the best of 2016, we review significant revisions to the baseline text from which the U.S. initiates treaty negotiations.
Read MoreShare-based compensation incentives are commonly used by corporations worldwide. Employees defer income or realize income immediately at a low value, and the employer accepts a deferred or reduced deduction for compensation expense. Three or four key moments in the life of a stock-based compensation plan can be identified as taxable events: (i) the grant of share-based compensation, (ii) the exercise of an option, (iii) the “vesting” of the underlying shares, and (iv) their subsequent sale. Fanny Karaman and Stanley C. Ruchelman explore tax treatment in France and the U.S. in the context of a French employee who participates in a French plan and is then assigned to the U.S.
Read MoreNow that Apple, Starbucks, and other U.S. companies face significant tax adjustments in Europe, the I.R.S. is concerned with protection of the U.S. tax base. In Notice 2016-52, the I.R.S. announced that the foreign tax credit splitter rules will be applied in future regulations to ensure that the increased taxes are not separated from the earnings and profits to which they relate. Elizabeth V. Zanet and Stanley C. Ruchelman explain these preemptive steps to prevent the creation of imaginative financial products that monetize unused foreign tax credits of target companies.
Read MoreRecent European Commission rulings have attacked tax rulings granted by Ireland and the Netherlands to Apple and Starbucks, respectively. These rulings are not meaningfully different from those granted for decades by various E.U. Member States. To the shock of these countries, the tax rulings distorted trade. At the same time, the World Trade Organization (“W.T.O.”) determined that several E.U. Member States have granted actionable subsidies to Airbus in order to assist the company in a way that distorts trade among W.T.O. members. Fanny Karaman, Stanley C. Ruchelman, and Astrid Champion explain (i) the basic internal procedures within the E.U. that outlaw State Aid and (ii) the applicable provisions of the global trade agreement embodied in the W.T.O. in connection with actionable subsidies. In light of the W.T.O. ruling, the question to be answered is whether the E.U. is being disingenuous by not recovering the European subsidies given to Airbus.
Read MorePublished by GGi in FYI International Taxation News, No. 5: Autumn 2016.
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