October 26, 2016

Insights Vol. 3 No. 9: Updates & Other Tidbits

October 26, 2016/ Ruchelman P.L.L.C.

This month, the authors look briefly at several timely issues, including (i) the filing of appeals briefs in two major cases lost by the I.R.S., Altera and Xilinx, (ii) recent competent authority activity between the U.S. and India, (iii) the future of U.K. automobile assembly plants operated by U.K. subsidiaries of Japanese automakers, and (iv) final State Department rules concerning the revocation of U.S. passports issued to individuals who have a seriously delinquent tax debt. Kenneth Lobo, Michael Peggs, Nina Krauthamer, and Sultan Arab contribute.

October 26, 2016

Corporate Matters: Domestication of Non-U.S. Entities

October 26, 2016/ Ruchelman P.L.L.C.

Although not allowed under New York law, a non-U.S. entity may transfer its corporate charter from a foreign jurisdiction to the state of Delaware and many other states. The process allows a non-U.S. entity to become subject to all of the provisions of state corporate law, and the existence of the corporation is deemed to have commenced on the date the non-U.S. entity was first formed. When the process is completed, the corporation is legally formed under U.S. state law. Simon Prisk explains.

October 26, 2016

Estate of Bartell Offers Taxpayer Relief in a Reverse Deferred §1031 Exchange

October 26, 2016/ Ruchelman P.L.L.C.

Many countries provide a tax deferral benefit for property gains through the form of a reinvestment reserve. Although U.S. tax law does not provide reserves, it does permit a taxpayer to participated in a three-party exchange of properties that may offer deferral benefits that are comparable to a reserve. Most three-party exchanges involve a sale as the first step and a reinvestment of proceeds as the second step, but in some instances, the reinvestment may occur before the sale. The I.R.S. position on these reverse exchanges is that several enumerated hurdles must be overcome before tax deferral is allowed. However, as one recent U.S. Tax Court case demonstrates, the I.R.S. view is not the last word. Rusudan Shervashidze and Nina Krauthamer explain the holding in the case, place it in context, and suggest that it may offer hope for reverse three-party exchanges that do not meet I.R.S. guidelines.

October 26, 2016

Global Exchange of Information: How Does the U.S. Fit into the Puzzle? Meet the U.S. Foreign Trust

October 26, 2016/ Ruchelman P.L.L.C.

In the context of a model 1 I.G.A. under F.A.T.C.A., the U.S. undertakes certain reciprocal information exchanges. But reciprocal may not mean equal. This produces interesting results when a U.S. foreign trust is formed by a foreign individual. Galia Antebi and Nina Krauthamer compare C.R.S. reporting and F.A.T.C.A. reporting in the context of a U.S. foreign trust that invests in U.S. assets producing tax-free income for a foreign investor.

October 26, 2016

O.E.C.D. Reaction to Research Tax Incentives – Acceptance with a Limitation Blocking Mobility

October 26, 2016/ Ruchelman P.L.L.C.

Notwithstanding the war on State Aid within the E.U., the O.E.C.D. issued a Working Paper recognizing that the encouragement of R&D is an essential part of the development, innovation, and growth of an economy and that carefully tying incentives to the performance of R&D locally is not abusive. Philip R. Hirschfeld and Galia Antebi explain.

October 26, 2016

Regulations Would Address Foreign Tax Credit Planning for E.U. State Aid Adjustments

October 26, 2016/ Ruchelman P.L.L.C.

Now 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.

October 26, 2016

European State Aid and W.T.O. Subsidies

October 26, 2016/ Ruchelman P.L.L.C.

Recent 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.

October 26, 2016

Spanish Tax Implications of Nonresident Private Investment in Spanish Real Estate

October 26, 2016/ Ruchelman P.L.L.C.

Spanish real estate has become an attractive investment opportunity for those in search of high-quality real property at reasonable prices. Local knowledge of taxes is key for an unsuspecting, nonresident investor to avoid various tax traps. María Manzano, a partner specializing in tax at Altalex in Madrid, Spain, explains the main Spanish tax consequences that arise during the investment cycle of nonresident private investment in Spanish real estate.

October 07, 2016

New U.S. Model Treaty→

October 07, 2016/ Ruchelman P.L.L.C.

Published by GGi in FYI International Taxation News, No. 5: Autumn 2016.

September 29, 2016

Insights Vol. 3 No. 8: Updates & Other Tidbits

September 29, 2016/ Ruchelman P.L.L.C.

Fanny Karaman, Galia Antebi, and Nina Krauthamer address recent developments involving (i) the U.S. Treasury Department’s Priority Guidance Plan in the international arena, (ii) the negotiation of a new income tax treaty between the U.S. and Ireland, and (iii) a recently discovered abuse when a disregarded L.L.C. owned by a single foreign member sells U.S. real estate.

September 29, 2016

Projected Tax Expense – Can It Be Computed on the Back of Envelope?

September 29, 2016/ Web Developer

Tax advisers are often asked to project tax expense arising from an anticipated transaction by multiplying book income by the statutory tax rate. This seems like an easy task, but a reliable answer is anything but straightforward, as more jurisdictions enact alternative minimum tax (“A.M.T.”) regimes to protect the tax base. Galia Antebi, Kenneth Lobo, and Stanley C. Ruchelman explain how the A.M.T. works in the U.S. and how a comparable tax in Puerto Rico lead to a proposed 132% effective tax rate.

September 29, 2016

Corporate Matters: Initial Steps in Selling a Privately Held Corporation

September 29, 2016/ Ruchelman P.L.L.C.

Disclosure of information is a problem often encountered when representing the owners of a privately held business that is for sale. What should be disclosed? What should remain confidential? How is confidential information protected? These and other matters will arise in connection with the sale of a business. Owners often hate disclosure, while prospective purchasers demand as much as possible, and delegate the task to officious lawyers and accountants.

September 29, 2016

Treasury Attacks European Commission on State Aid – What Next?

September 29, 2016/ Ruchelman P.L.L.C.

On August 30, 2016, the European Commission ordered Ireland to claw back €13 billion ($14.5 billion) plus interest from Apple after favorable Irish tax rulings were deemed to be illegal State Aid. The U.S. Treasury Department issued a white paper shortly before the decision staking out the reasons why the European Commission crusade is unjustified, especially in relation to its retroactive effect. This trans-Atlantic conflict is placed in context in an article by Kenneth Lobo and Beate Erwin.

September 29, 2016

O.E.C.D Targets Hybrid Mismatch Arrangements Using Branch Structures

September 29, 2016/ Ruchelman P.L.L.C.

Advisers who took comfort in the belief that the B.E.P.S. Project’s attack on hybrid mismatches did not apply to transactions between two branches of the same entity were disappointed when the O.E.C.D. released draft recommendations for domestic law that would neutralize income inclusion mismatches using branches located in different countries. Kenneth Lobo and Beate Erwin explain that D/NI, DD, and indirect D/NI outcomes are not legitimized when branches, rather than affiliates, are used.

September 29, 2016

Usufruct, Bare Ownership, and U.S. Estate Tax: An Unlucky Trio

September 29, 2016/ Ruchelman P.L.L.C.

Splitting ownership into usufruct and bare ownership is a common estate planning technique in several civil law countries. However, this planning technique may have adverse tax consequences when the holder of the bare legal title resides in the U.S. Fanny Karaman and Stanley C. Ruchelman explain the civil law inheritance tax benefits and the pitfalls that are encountered in the U.S.

September 29, 2016

Further Developments for U.K. Non-Dom Individuals

September 29, 2016/ Ruchelman P.L.L.C.

A significant claw back of benefits for individuals with Non-Dom status was first announced in the Summer Budget of 2015. In August, H.M.R.C. proposed implementing legislation in a follow-up consultation document. Specific benefits covered included inheritance tax for shares of envelope companies owning U.K. residential real property, deemed domicile rules for long-term U.K. residents, and several provisions to lessen the impact of these changes. Gary Ashford of Harbottle & Lewis, London explains.

August 29, 2016

Insights Vol. 3 No. 7: Updates & Other Tidbits

August 29, 2016/ Ruchelman P.L.L.C.

This month, “Tidbits” explores the following developments: (i) the extension of FinCEN reporting requirements by title companies involved in all-cash real estate transactions; (ii) a European Commission decision calling for Spain to recover over €30 million from seven Spanish soccer clubs that unlawfully received State Aid; (iii) other tax breaks involving Spain that are under consideration by the E.C.J. that could affect State Aid cases against U.S.-based companies; and (iv) new rules regarding the need to refresh I.T.I.N.’s issued to nonresident, non-citizen individuals. Kenneth Lobo, Fanny Karaman, and Galia Antebi discuss these developments.

August 29, 2016

German-Trained Lawyer Could Not Deduct U.S. Educational Expenses

August 29, 2016/ Ruchelman P.L.L.C.

Taxpayers generally may deduct all the ordinary and necessary expenses paid or incurred, during the tax year, in carrying on a trade or business. Interesting questions arise when an individual moves to a new country of residence. This was recently illustrated by a Court of Appeals decision involving a U.S. citizen who was German lawyer. He returned to the U.S. and, in order to sit for the bar, was required to take additional law school classes. Elizabeth V. Zanet explores whether U.S. law school tuition was deductible.