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Pancake Day – End to Permanent Non-Domicile Status and Charging Non-Doms I.H.T. on U.K. Residential Property

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Pancake Day – End to Permanent Non-Domicile Status and Charging Non-Doms I.H.T. on U.K. Residential Property

 In July, the U.K. government announced that proposals removed from the Finance Bill that was announced in March would be reproposed with a retroactive effective date, as if adopted when originally proposed.  This is bad news for non-domiciled individuals (“Non-Doms”) in general and for the estates of Non-Doms who died between March and the ultimate date of enactment.  If retroactive effective dates remain in the bill, rights granted by the European Convention for the Protection of Human Rights and Fundamental Freedoms, which were incorporated into U.K. law by the Human Rights Act 1998, could be violated.  William Hancock and Daniel Simon of Collyer Bristow L.L.P. explain that Non-Doms should expect “too little jam and too little cream” on their pancakes if the provisions are enacted retroactively.

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Tax 101: Taxation of Intellectual Property – Selected Issues Involving Corporations and Partnerships

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Tax 101: Taxation of Intellectual Property – Selected Issues Involving Corporations and Partnerships

Tax 101 continues its series regarding the U.S. Federal tax considerations involving the creation, acquisition, use, license, and disposition of intellectual property (“I.P.”).  This month, Elizabeth V. Zanet and Stanley C. Ruchelman focus on I.P. held through a corporation or a partnership/L.L.C.  In particular, the not-well-understood rules regarding the sale of interests in a partnerships/L.L.C.’s owning “hot assets” are explained.  Not all gain benefits from favorable long-term capital gains tax rates.

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European Commission Proposes New Advisor Disclosure Obligation for Aggressive Tax Planning

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European Commission Proposes New Advisor Disclosure Obligation for Aggressive Tax Planning

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.

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I.R.S. Explains “Substantially Complete” in Relation to International Information Return

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I.R.S. Explains “Substantially Complete” in Relation to International Information Return

Taxpayers 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.

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Family Limited Partnerships in Estate Planning – Is Estate of Powell the End or the Beginning of Aggressive Tax Planning?

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Family Limited Partnerships in Estate Planning – Is Estate of Powell the End or the Beginning of Aggressive Tax Planning?

When transactional tax advisers come across estate planning advice, amazement is often expressed over the importance given to form rather than economic substance.  Value can be reduced when property is transferred to a family partnership.  In Estate of Powell, the Tax Court went beyond form to look at substance in determining the scope of the decedent’s taxable estate.  Galia Antebi and Rusudan Shervashidze explore the holding of the case.

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Circular Letter No. 17/E Clarifies Special Tax Regime for Italian “New Residents”

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Circular Letter No. 17/E Clarifies Special Tax Regime for Italian “New Residents”

Late last year, the Italian government enacted a new regime designed to entice wealthy individuals into becoming tax residents.  In late May, operating rules for the new tax regime were announced.  In broad terms, the regime imposes an annual tax charge of €100,000 in lieu of tax imposed at standard rates and an exclusion from inheritance and gift tax on foreign assets.  Andrea Tavecchio and Riccardo Barone of Tavecchio Caldara & Associati in Milan, Italy explain the details of the new regime.

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Caveat Dominus: A Comparison of Post-Employment Entitlements in the U.S. and Italy When Executive Employment is Terminated Without Cause

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Caveat Dominus: A Comparison of Post-Employment Entitlements in the U.S. and Italy When Executive Employment is Terminated Without Cause

When companies expand business operations across the Atlantic Ocean, various cultural differences between the U.S. and Europe come to the fore.  The most noticeable are found in the area of employment, and among those are expectations of the rights of employers, employees, and executives at the time of termination of employment.  George Birnbaum of the Law Offices of George Birnbaum P.L.L.C. and Ariane Rauber and Fabio Tavecchia of Palmer Studio Legale compare and contrast employee rights in the U.S. and Italy.

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Insights Vol. 4 No. 6: Updates and Tidbits

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This month, Beate Erwin, Astrid Champion, and Nina Krauthamer look briefly at several timely issues, including (i) the return of foreign certified acceptance agents to the passport certification process in connection with the issuance of U.S. I.T.I.N.’s, (ii) the effect of the French election on French tax reform proposals, and (iii) demands for the U.S. to provide the same type of information as is supplied to I.G.A. partner countries.

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I.R.S. Breaks the Silence with Rev. Rul. 2017-09, Issues Guidance on “North-South” Transactions

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I.R.S. Breaks the Silence with Rev. Rul. 2017-09, Issues Guidance on “North-South” Transactions

In Rev. Rul. 2017-09, the I.R.S. addressed “north-south” transactions.  In these transactions, a shareholder transfers property to a corporation in a transaction structured to be free of tax under Code §351.  At about the same time, the corporation distributes shares of its subsidiary to the shareholder in a spinoff.  If the transactions are considered separate for income tax purposes, each can be effected free of gain recognition and the imposition of income tax.  On the other hand, if the transactions are integrated into a single multi-step transaction, gain will be recognized and tax imposed on each step of the arrangement.  The ruling announces that the I.R.S. will once again rule on the status of these transactions and provides guidance on the standard that the I.R.S. will apply.  Rusudan Shervashidze and Nina Krauthamer explain the factual context and the approach of the I.R.S. in granting relief.

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New Proposal for Swiss Corporate Tax Reform

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New Proposal for Swiss Corporate Tax Reform

Through the first ten days of February, Swiss tax advisers were contemplating life after the adoption of the Corporate Tax Reform III (“C.T.R. III”).  Then, the bottom dropped out from under their feet as Swiss voters defeated the tax reform package by an almost 60-40 majority.  Now, a Steering Committee representing the cantons and Swiss Federation has issued T.P. 17, recommending a modified version of corporate tax reform.  Peter von Burg and Dr. Natalie Peter of Staiger Attorneys, Zurich, compare the provisions in T.P. 17 with those in C.T.R. III.

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I.R.S. Pushes to Ease Implementation of Country-by-Country Reporting for U.S. M.N.E.’s

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I.R.S. Pushes to Ease Implementation of Country-by-Country Reporting for U.S. M.N.E.’s

It is widely known that the U.S. is following its own path towards international tax compliance.  It has not signed onto the O.E.C.D.’s Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports; it does not participate in the Common Reporting Standard; and it did not sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent B.E.P.S.  Nonetheless, at the request of U.S. multinationals, the I.R.S. has adopted domestic income tax regulations on country-by-country (“CbC”) reporting.  In May, the I.R.S. confirmed the first bilateral competent authority agreement regarding CbC reporting was signed with the Netherlands.  That agreement has now been followed by agreements with Canada, Denmark, Guernsey, Iceland, Ireland, Korea, Latvia, New Zealand, Norway, Slovakia, and South Africa.  Galia Antebi and Kenneth Lobo delve into the U.S. rules and forms for CbC reports.

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Sale of a Partnership Interest by a Foreign Partner – Is Rev. Rul. 91-32 Based on Law or Administrative Wishes?

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Sale of a Partnership Interest by a Foreign Partner – Is Rev. Rul. 91-32 Based on Law or Administrative Wishes?

The 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.

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Qualified Small Business Stock & the EB-5 Visa Program – An Attractive Combination for Potential Investors

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Qualified Small Business Stock & the EB-5 Visa Program – An Attractive Combination for Potential Investors

Ever heard of qualified small business stock (“Q.S.B.S.”) as a means of investing in start-up companies?  Although it is not typically thought of as a tax planning tool for foreign investors, when the foreign person is an applicant for an EB-5 visa, the tax results can be surprisingly good.  Fanny Karaman and Beate Erwin explain.

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High-Speed Tax Reform: The U.K. Diverted Profits Tax & Restrictions on Corporate Interest Deductions

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High-Speed Tax Reform: The U.K. Diverted Profits Tax & Restrictions on Corporate Interest Deductions

Among the most notable changes made to U.K. corporate tax over the past 24 months are the introduction of the diverted profits tax (“D.P.T.”) and the reduction of tax relief for corporate interest payments.  D.P.T. is aimed at multinationals operating in the U.K. that try to avoid maintaining a permanent establishment in order to escape U.K. corporate tax.  D.P.T. is imposed at the rate of 25% and treaty relief is not available.  The reduction in relief for corporate interest payments implements the recommendations of B.E.P.S. Action 4.  Eloise Walker and Penny Simmons of Pinsent Masons, London, explain the working of these provisions.

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Insights Vol. 4 No. 5: Updates & Other Tidbits

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Insights Vol. 4 No. 5: Updates & Other Tidbits

This month, Astrid Champion and Nina Krauthamer look briefly at several timely issues, including (i) a novel claim of treaty residence in Ireland by a nonresident Irish domiciled individual subject to the domicile levy under Irish law and (ii) the introduction of a beneficial ownership register regime in the Cayman Islands regarding certain Cayman Islands corporations.

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Corporate Matters:  Five Steps for Leveraging your Start-Up’s Emerging Intellectual Property

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Corporate Matters:  Five Steps for Leveraging your Start-Up’s Emerging Intellectual Property

For an emerging business, intellectual property (“I.P.”) can be the business’s most important asset and the difference between its success and failure.  That is why steps must be taken early on to protect those “jewels.”  Barry Lewin of Gottlieb, Rackman & Reisman, P.C. in New York explains five important actions designed to protect and enhance value.

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Amazon Makes the C.U.T. – An Important Taxpayer Win, A Reminder to Consider Transactional Evidence

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Amazon Makes the C.U.T. – An Important Taxpayer Win, A Reminder to Consider Transactional Evidence

Last month, Insights reported on the Tax Court decision in Amazon v. Commr., involving the “buy-in” payment made as compensation for the right to use pre-existing I.P. in a related-party cost-sharing arrangement (“C.S.A.”).  This month, Michael Peggs comments on the lessons learned from the taxpayer victory in that case regarding (i) the transfer pricing method used, (ii) the assumptions made and analyses used to value the buy-in payment, and (iii) the correct treatment of intangible development costs within the term of the C.S.A.

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Net Operating Losses: A Valuable Asset Worth Preserving

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Net Operating Losses: A Valuable Asset Worth Preserving

Troubled companies that incur significant net operating losses (“N.O.L.’s”) can carry back those losses for up to two years in order to obtain refunds of tax.  In addition, the losses can be carried forward for up to 20 years to reduce future taxable income.  However, the losses cannot be monetized through transfers to others.  Code §§382 and 269 and separate return limitation year (“S.R.L.Y.”) provisions under the consolidated tax return regulations are designed to prevent taxpayers from selling the benefit of the N.O.L. directly or indirectly.  Philip R. Hirschfeld explains how the loss limitation rules are applied when (i) a change occurs in the ownership of the loss corporation, (ii) a reshuffle of profitable and unprofitable businesses occurs to benefit from a “mixing bowl” effect, or (iii) companies with existing losses enter an affiliated group filing a consolidated Federal income tax return.

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Foreign Tax Credits: General Principles and Audit Risks

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Foreign Tax Credits: General Principles and Audit Risks

In April, the Large Business & International Division (“LB&I”) of the I.R.S. published an International Practice Unit directed to the foreign tax credit claimed by individuals.  Tax advisers to Americans living abroad or having global investment portfolios may find that the Practice Unit indicates topics of interest for the I.R.S.  Fanny Karaman and Galia Antebi explain the concepts covered, including persons eligible to claim the credit, foreign taxes that qualify for credit, whether to deduct or credit a foreign income taxes, foreign tax credit limitations, and means of ameliorating the effect of unused credits in a particular year.

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I.R.S. Information Exchanges & the Coordinated Tax Raids on Credit Suisse

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I.R.S. Information Exchanges & the Coordinated Tax Raids on Credit Suisse

In 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.

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