Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
This month, we review steps toward implementation of anti-B.E.P.S. provisions in various countries and the E.U. Kenneth Lobo and Nina Krauthamer look at the latest items, including French tax raids on local offices of U.S. companies, disagreement with the E.U. over the adoption of blacklists and the tax treatment of C.F.C.’s, and pushback against proposed Code §385 regulations that deal with debt and equity.
Read MoreTo withhold, or not to withhold: that is the question. Neha Rastogi and Nina Krauthamer review the Herbalife case in India that allowed an Indian subsidiary to deduct an administration fee paid to a related parent company for services performed in the U.S. without imposing an obligation on the company to withhold Indian tax. The case, which relates to the tax year 2000 to 2001, has dragged on for many years. In 2004, the law was changed, but the litigation continued.
Read MoreThe Tax Section of the American Bar Association recently commented on a set of proposed rules that appear in Notice 2015-54. When adopted, these rules would limit the ability of U.S. persons to transfer appreciated property to a partnership in a tax-free transaction when the partnership has a non-U.S. person as a partner. The I.R.S. is concerned that through special allocations of gain, built-in appreciation in contributed assets may escape taxation. The Tax Section makes a case for additional guidance concerning the methods proposed to eliminate that result. Philip R. Hirschfeld and Nina Krauthamer discuss the I.R.S. proposal and A.B.A. comments.
Read MoreRecently-proposed regulations will require information reporting for single member L.L.C.’s that are owned by non-U.S. persons and treated as disregarded entities. Typically, this structure is used for the acquisition of an apartment by camera-shy, high net worth individuals and offshore trading companies wishing to appear as U.S. persons. The regulations are designed to supply the I.R.S. with information about the operations and ownership so that information may be exchanged with tax treaty partner jurisdictions. Philip R. Hirschfeld and Nina Krauthamer examine the proposed reporting rules.
Read MoreIn 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.
Read MoreRusudan Shervashidze and Andrew P. Mitchel continue their examination of U.S. tax rules applicable to cross-border reorganizations, formations, and liquidations. This month, they review the rules embodied in Code §1248, a provision that converts capital gain from the sale of shares in a C.F.C. into dividend income for certain shareholders. Although for individuals, the tax rates for qualified dividends and gains are the same, the source of the income is changed in a way that may allow a benefit for unused foreign taxes. If the dividend is not qualified, tax is imposed at a much greater rate. For corporations that are shareholders, dividend income may bring along indirect foreign tax credits. Code §1248 also defines the extent of a toll charge if a foreign corporation undergoes a tax-free reorganization that eliminates C.F.C. status.
Read MoreAsk most tax advisers outside the U.S. about the way to resolve a conflict between the provisions of an income tax treaty and domestic law, and the almost universal view is to look to the treaty for resolution. However, in some countries, an income tax treaty is not the last word in resolving conflicts. In the U.S., the saving clause of a treaty preserves the supremacy of U.S. domestic tax rules as they affect U.S. citizens and residents, as defined in the treaty. In Brazil, a presidential decree may govern the outcome. And in India, a domestic tax provision may be crafted in such a way as to circumvent a treaty by altering the identity of the technical taxpayer. Elizabeth V. Zanet, Galia Antebi, and Neha Rastogi examine ways in which those three countries directly or indirectly override treaty provisions that are deemed domestically undesirable.
Read MoreFor several years, the European Commission has been on a mission to raise on a retroactive basis the income tax of large corporations that received favorable tax rulings from national authorities. Using as its tool the rules prohibiting State Aid, the Commission has gone after Fiat Chrysler, McDonald’s, Starbucks, and others. Christine Long and Beate Erwin explore the Commission’s latest push and the outcry it is causing on both sides of the Atlantic. Luxembourg and the Netherlands have appealed recent rulings and the mood in Washington, D.C. is chilly, at best.
Read MoreThe world of available insurance policies on an individual’s life is broad and complex within the context of only one country. Add a foreign element, and one is faced with a legal and tax labyrinth. Fanny Karaman and Stanley C. Ruchelman explain how a typical French life insurance policy is taxed for a policy holder having contacts with both France and the U.S.
Read MoreAfter several years of negotiations, a new protocol to the Mauritius-India Income Tax Treaty has been agreed between the parties. In a nutshell, India benefits from amended provisions that are in line with other bilateral treaties, while Mauritius benefits from the adoption of grandfathering provisions regarding capital gains from the disposition of certain shares. Investors in both countries will benefit from greater certainty in taxing outcomes. Anurag Jain and Parul Jain of Attorneys BMR & Associates L.L.P., Gurgaon, address the highlights of the new provisions.
Read MoreGlobal taxpayers live in a process driven world. It is not enough to be correct when claiming a benefit, the paperwork must be completed. In a detailed article on proper procedure, Beate Erwin and Christine Long explain that U.S. persons claiming treaty tax benefits with regard to payments from Spanish entities face two hurdles. First, they must meet the treaty qualification tests under the limitation on benefits article. Second, they must obtain a U.S. Tax Residency Certification from the I.R.S. before payment is met.
Read MoreIn this month’s update, Elizabeth V. Zanet and Nina Krauthamer report on (i) attacks on cash pooling arrangements as part of earnings-stripping rules under Code §385, (ii) the latest regulations aimed at increasing financial transparency, including adoption of a customer due diligence (“C.D.D.”) final rule, (iii) proposed beneficial ownership legislation, and (iv) new reporting rules for foreign-owned, single member L.L.C.’s that engage in business with the foreign owner; as well as a new wave hiring by the I.R.S. of enforcement officers.
Read MoreKenneth 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.
Read MoreWhat is an earnout? When is it used? How long a term should be considered when computing an earnout? Simon H. Prisk explores the ins and outs of this useful corporate acquisition tactic that makes a portion of the purchase price contingent on a target company achieving certain milestones.
Read MoreRusudan Shervashidze and Andrew P. Mitchel continue their examination of U.S. tax rules applicable to cross-border reorganizations, formations, and liquidations. This month, they review rules applicable to the liquidation of a wholly-owned domestic subsidiary corporation into its foreign parent corporation. Also discussed is the toll charge imposed on asset reorganizations that result in the domestication of a foreign subsidiary.
Read MoreOne of the fallouts of the Panama Papers is a European call for a blacklist of countries that fail to meet the O.E.C.D. C.R.S. standards. The European Parliament and several E.U. Member States contend that if the U.S. should be declared a tax haven and added to the European Commission’s new blacklist if it does not implement the C.R.S. and B.E.P.S. Project recommendations. Are these contentions based on fact or on political agenda? Christine Long and Beate Erwin explain a trend that that is inching towards an outright trade war.
Read MoreIn a follow-up piece on newly proposed anti-inversion regulations, Phillip R. Hirschfeld offers a detailed analysis of new debt equity regulations. Mind-boggling complexity is proposed for rules in an area of the tax law that lay dormant for almost 40 years.
Read MoreIn a Circular Letter issued in March by the Agenzia delle Entrate, the Italian tax authority, rules were issued providing for rational tax treatment of costs and gains arising in the context of leveraged buyout transactions. Luca Rossi and Marina Ampolilla of Studio Tributario Associato Facchini Rossi & Soci explain the changes and bring good news to investment bankers and their clients.
Read MoreOn January 1, new income tax rules came into effect regarding the Canadian taxation of trusts and estates. Use of graduated tax rates for multiple trust, charitable donation credits for estates, and allocation of gains at death are the targets. Amanda Stacey, Nicole D’Aoust, and Rahul Sharma of Miller Thomson LLP, Toronto explain.
Read MorePublished in Taxes & Wealth Management by Thomson Reuters, Issue 9-1: February 2016. (p.14)
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