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Brazil 2017: Tax Developments for Business Transactions

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Brazil 2017: Tax Developments for Business Transactions

In Brazil, the year 2017 saw many important developments regarding cross-border and intrastate business transactions.  These developments focus on the implemention of various B.E.P.S. actions, the categorization of software transactions, and subjecting certain intrastate transactions to competing levels of state and municipal tax, all done the Brazilian way by emphasizing gross basis taxation on consumption payments.  Erika Tukiama, Rogério Gaspari Coelho, and Nathália Fraga of Machado Associados, São Paulo, provide guidance on these developments.

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Insights Vol. 4 No. 10: Updates & Other Tidbits

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Insights Vol. 4 No. 10: Updates & Other Tidbits

This month, Sheryl Shah, Neha Rastogi, and Nina Krauthamer look briefly at certain timely issues: (i) Swiss nexus requirements to be eligible for treaty benefits, (ii) the impact of technology tax reporting and information sharing, (iii) an I.R.S. pilot program expanding the scope of letter rulings to Code §355 stock and security distributions, and (iv) recent application of the 2016 anti-inversion regulations issued by the Obama Administration under Code §7874.

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Treasury Turns Back the Clock on 2016 Tax Regulations

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Treasury Turns Back the Clock on 2016 Tax Regulations

On October 4, the “other shoe dropped” on eight regulations issued by the Obama administration in 2016 and January 2017.  These eight measures, which were first identified in an interim report to the president as unnecessary, unduly complex, excessively burdensome, or failing to provide clarity and useful guidance, will be withdrawn, revoked, or modified.  Stanley C. Ruchelman, Sheryl Shah, and Neha Rastogi identify the targets and explain the plans of the Treasury Department.

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Art and the Estate: Why Planning is Important, Part I – U.S. Taxpayers

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Art and the Estate: Why Planning is Important, Part I – U.S. Taxpayers

Taxpayers holding valuable works of art receive different tax treatment, depending on the characterization of the individual.  Is the individual the artist, a dealer, an investor, or a collector?  Rusudan Shervashidze and Nina Krauthamer examine various planning tools available, focusing mostly on the collector.

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When Does an Aged Account Receivable Give Rise to a Deemed Repatriation?

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When Does an Aged Account Receivable Give Rise to a Deemed Repatriation?

One form of taxation under Subpart F is an “investment in U.S. Property.”  The law treats the investment as a form of taxable repatriation of earnings.  Under certain circumstances, aged accounts receivable may be seen as a form of taxable investment in U.S. property.  Most U.S. tax advisers look to a 60-day rule under which the account receivable is treated as a loan if not settled by the last day of the second month following a sale.  However, that is a safe harbor.  I.R.S. private letter rulings and Tax Court cases have addressed fact patterns in which the account receivable remains open for a much longer time.  Some taxpayers win and others lose.  Elizabeth V. Zanet and Stanley C. Ruchelman explain.

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Swiss Federal Council Opens Consultation Process on Tax Proposal 17

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Swiss Federal Council Opens Consultation Process on Tax Proposal 17

When Swiss voters rejected the Corporate Tax Reform Act III (“C.T.R. III”) in a referendum on February 12, 2017, Swiss tax reform was not derailed, only delayed.  Events that took place in September have moved the process forward. Existing cantonal tax privileges will be abolished, as agreed with the E.U., and replaced by mandatory introduction of a patent box regime in all cantons, voluntary introduction of additional deductions for research and development (“R&D”) expense, and a step-up in basis of hidden reserves created under the old tax regimes or before immigration to Switzerland.  Reto Heuberger, Stefan Oesterhelt, and Martin Schenk of Homburger AG, Zurich, explain the most important aspects of these and other aspects of T.P. 17.

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O.E.C.D. Receives Public Comments on Proposed Changes to the Model Tax Convention

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O.E.C.D. Receives Public Comments on Proposed Changes to the Model Tax Convention

In August, the O.E.C.D. released public comments on proposed changes to the Model Tax Convention.  Beate Erwin and Stanley C. Ruchelman examines the suggestions received by the O.E.C.D. and provides observations on the interplay between the O.E.C.D. proposed changes and existing U.S. approaches to these issues.  Areas covered include whether competent authority agreements can define undefined terms thereby removing the interpretation from local courts, whether a limitation on benefits (“L.O.B.”) clause or a principle purpose test (“P.P.T.”) is the better approach to limit treaty shopping, and whether a home that is leased to others can be a permanent home for purposes of applying the residence tiebreaker provision in a treaty. 

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The Sharing Economy Part 1: New Business Models + Traditional Tax Rules Don’t Mix

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The Sharing Economy Part 1: New Business Models + Traditional Tax Rules Don’t Mix

The current international tax system was established on principles dating back to the first half of the 19th century, when a nation’s retail economy consisted mostly of brick-and-mortar stores.  As the purchase of services and goods was gradually dematerialized and internet giants such as Google or Microsoft appeared, governments struggled adapt tax rules to keep up with new business models.  Now, governments around the world have shifted their focus to a relatively new part of the digital economy called the “sharing economy.”  Fanny Karaman and Beate Erwin look at recent tax developments in the world of Airbnb and Uber.

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Double Dutch: Dividend Tax Reform Extends Exemption, Yet Tackles Abuse

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Double Dutch: Dividend Tax Reform Extends Exemption, Yet Tackles Abuse

This year’s budget in the Netherlands contains a legislative proposal that introduces a unilateral exemption applicable to corporate shareholders based in treaty countries, such as the U.S., subject to stringent anti-abuse rules.  In addition, it proposes to bring cooperatives used as holding vehicles within the scope of the dividend withholding tax rules.  Soon after the proposals were announced, a coalition government was formed and announced a complete elimination of dividend withholding tax.  Paul Kraan of Van Campen Liem in Amsterdam explains.

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An American In London: Due Diligence Observations

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An American In London: Due Diligence Observations

Performing due diligence on private companies for a potential merger or acquisition has been described as an exercise in educated guessing.  The quality of the target’s financial information, potential hidden liabilities, financing, and similar deficiencies may result in a valuation that is neither straightforward nor reliable.  When the target is abroad, the culture, language, and business norms may cause the educated guess to be more guess and less educated.  Knowing how to overcome this dilemma is a skill set that can be obtained only through experience.  Nick Magone, founder of Magone & Company, P.C., in Roseland, New Jersey, shares his experiences in performing due diligence on potential target companies in the U.K.  His advice?  Numbers are only the beginning.

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The Changing Face of Service Permanent Establishments

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The Changing Face of Service Permanent Establishments

As governments struggle to adapt the old rules of taxable presence within a jurisdiction to economic activities in the digital age, new concepts have been asserted to impose tax on foreign service providers who are based abroad but regularly furnish services within a country.  India is among the global leaders rejecting physical presence in favor of location of the customer.  Neha Rastogi and Stanley C. Ruchelman look at the concept of destination based taxation and a recent case, where an Indian Income Tax Appellate Tribunal held that the physical presence of the foreign taxpayer’s employees is not relevant for determining the existence of a Service P.E. in the source country.

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

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Published in The Licensing Journal vol. 37, no. 9 (October 2017): pp. 11-18.

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A Case of Nonacquiescence: I.R.S. Opposes Bartell Decision

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A Case of Nonacquiescence: I.R.S. Opposes Bartell Decision

Tax-smart investors in U.S. real estate understand that the principal method of disposing real property is to participate in a two-party swap transaction with the ultimate purchaser or a three-party deferred swap through a qualified intermediary.  In Bartell v. Commr., the U.S. Tax Court allowed a replacement property to be purchased by an exchange accommodation title holder with whom it was parked for 17 months prior to its transfer.  However, the I.R.S. has issued a notice of nonacquiescence, advising taxpayers that it disagrees with the holding of the court.  Rusudan Shervashidze and Nina Krauthamer explain the facts in Bartell, the safe harbor that was published in Rev. Proc 2000-37, and the status of the facilitator as a beneficial owner for purposes of allowing tax deferral in the swap transaction.

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Eaton A.P.A. Cancellations Were an Abuse of I.R.S. Discretion

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Eaton A.P.A. Cancellations Were an Abuse of I.R.S. Discretion

A recent U.S. Tax Court decision involving Eaton Corporation affirmed that the I.R.S. cannot arbitrarily circumvent administrative rules that are set down in revenue procedures and relied upon by the I.R.S. and a taxpayer.  As a result, the I.R.S. must reasonably exercise its discretion when seeking to terminate an advance pricing agreement with a taxpayer.  Michael Peggs looks at the process of obtaining an advanced pricing agreement and comments on the court’s decision.

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O.E.C.D. Issues Proposed Changes to Permanent Establishment Provisions Under Model Tax Convention

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O.E.C.D. Issues Proposed Changes to Permanent Establishment Provisions Under Model Tax Convention

Earlier this year, the O.E.C.D. proposed amendments to Article 5 (Permanent Establishment) of the Model Tax Convention and Commentary.  The revisions eliminate loopholes that exist for commissionaire arrangements, artificial characterization of core activities as “preparatory,” avoidance of permanent establishment status through artificial fragmentation of contracts, and the use of not-so-independent agents.  Neha Rastogi, Beate Erwin, and Stanley C. Ruchelman explain the replacement provisions.

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Bilateral Investment Treaties: When Double Taxation Agreements Are Not Enough

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Bilateral Investment Treaties: When Double Taxation Agreements Are Not Enough

The U.S. enters into bilateral investment treaties to protect and promote foreign investment.  Unlike double taxation agreements, which relate exclusively to tax matters, they are not usually seen as a defense mechanism when dealing with foreign tax authorities.  Interestingly, they are!   Rusudan Shervashidze and Nina Krauthamer explain.

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Tax 101: Deemed Annual Royalty on Outbound Transfers of I.P. to Foreign Corporations

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Tax 101: Deemed Annual Royalty on Outbound Transfers of I.P. to Foreign Corporations

U.S. tax law contains provisions that attempt to discourage the outbound migration of intangible assets including specific rules that target transfers affected through corporate inversions.  Elizabeth V. Zanet and Stanley C. Ruchelman discuss the history and current standing of those provisions, while pointing out an alternative that is currently available to limit ongoing tax liability in the context of a start-up operation.

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Tax Roulette: Buying a Business Jet in 2017 – Why Following the Patriot’s Example May Lead to a Jackpot

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Tax Roulette: Buying a Business Jet in 2017 – Why Following the Patriot’s Example May Lead to a Jackpot

The New England Patriots recently made headlines with the purchase of two private team jets.  Was this plan implemented only to provide more space for beefy footballers, or did ownership identify the nifty situation that could lead to a jackpot of tax savings for high-ticket assets purchased in 2017?  Beate Erwin and Stanley C. Ruchelman explain that with increased depreciation deductions this year at high tax rates and possible recapture in a future year at low tax rates, the odds are good.

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India: Legal and Practical Strategies for Managing Tax Disputes

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India: Legal and Practical Strategies for Managing Tax Disputes

Most readers of this journal are front-end tax planners, proposing plans to be implemented by clients.  Regrettably, not all plans escape examination by the tax inspector, and in India, that number is on the rise.  Sanjay Sanghvi of Attorneys Khaitan & Co., Mumbai explains how to prepare for a tax examination in India and provides practical insights into the examination, appeals, and judicial review processes.

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The Economic Substance Doctrine: A U.S. Anti-Abuse Rule

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The Economic Substance Doctrine: A U.S. Anti-Abuse Rule

While the O.E.C.D. and the European Commission have only recently discovered the “principal purpose” test as a tool to combat aggressive tax planning, U.S. case law has enforced an economic substance rule for over 85 years and that rule was codified in 2010.  Fanny Karaman, Neha Rastogi, and Stanley C. Ruchelman explain the hurdles that must be achieved in order for a plan to have economic substance.

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