Published by Prager Dreifuss, Tax Newsletter (February 2018).
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Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
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Insights
Publications
Insights Vol. 5 No. 1: Updates & Tidbits
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This month, Neha Rastogi and Nina Krauthamer look briefly at three recent developments in international tax: (i) expired I.T.I.N.’s and how tax returns that use an expired I.T.I.N. will be treated by the I.R.S., (ii) the E.U. blacklist of uncooperative jurisdictions, which includes American Samoa and Guam, and (iii) and unanticipated tax demands on contributions to the Brexit campaign.
Read MoreIncome Shifting: Common Ownership or Control Under Code §482 in an Inbound Transaction
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The Large Business and International Division of the I.R.S. (“LB&I”) periodically develops international practice units (“I.P.U.’s”) that serve as training material for international examiners. In November 2017, an I.P.U. entitled “Common Ownership or Control Under IRC 482 – Inbound” was published. On the same date, the I.R.S. issued a sister I.P.U. for outbound transactions, “Common Ownership or Control Under IRC 482 – Outbound.” Together, they serve as a primer for determining whether sufficient control exists between two parties to bring the arm’s length transfer pricing rules of Code §482 into play. Stanley C. Ruchelman explains how the I.R.S. trains its examiners when determining whether a transfer pricing adjustment is appropriate.
Read MoreIndividual, Corporate, and Trust News from France
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The end of each year in France is marked by a fiscal legislative process to amend the current year’s finance law and to draft the law for the upcoming year. The year 2017 was no exception. Changes will be made to wealth tax, tax brackets, tax on investment income, corporate tax rates, and the 3% additional tax on dividend distributions (retroactively). Fanny Karaman and Nina Krauthamer explain the tax changes.
Read MoreCircular Letter No. 25/E Clarifies Italy’s New Carried Interest Regime
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Early last year, the Italian government announced new rules regarding favorable taxation of carried interests. Graduated tax rates and social charges would be replaced by a flat 26% tax on investment income. Towards the end of the year, guidelines were published by the Italian tax authorities providing significant clarifications on the scope, requirements, and conditions under the new tax regime. Andrea Tavecchio and Riccardo Barone of Tavecchio Caldara & Associati, Milan, examine how the new regime will work in practice.
Read MoreNew U.S. Tax Law Adopts Provisions to Prevent Base Erosion
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Following the lead of the O.E.C.D. and the European Commission (“E.C.”), the T.C.J.A. adopts several provisions designed to end tax planning opportunities. In some instances, the new provisions closely follow their foreign counterparts. In others, the provisions that are specific to U.S. tax law. Among these changes are (i) the introduction of the G.I.L.T.I. minimum tax on the use of foreign intangible property by C.F.C.’s, (ii) the total revamp of Code §163(j) so that it reflects an interest ceiling rather than an earnings stripping provision, (iii) the restriction of tax benefits derived from the use of hybrid entities and transactions, (iv) the broadened scope of Subpart F through definitional changes, (v) legislative reversals of judicial decisions in which I.R.S. positions in transfer pricing matters were successfully challenged, and (vi) legislative reversals of a judicial decision invalidating Rev. Rul. 91-32 regarding the sale of partnership interests by foreign partner. Sheryl Shah and Stanley C. Ruchelman discuss these provisions and place them in context.
Read MoreModifications to the Foreign Tax Credit System Under the Tax Cuts and Jobs Act
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The T.C.J.A. introduces new concepts in foreign tax credit planning and eliminates others. Gone are the pool of post-1986 earnings & profits and deemed-paid foreign tax credits for intercompany dividends. In their place is a dividends received deduction. Allocations of interest expense between foreign-source income and domestic income now must be based on tax book value. Entities that manufacture in one jurisdiction and sell in another will find that the source of income is controlled only by production activities. Neha Rastogi and Stanley C. Ruchelman explain.
Read MoreImpact of the Tax Cuts and Jobs Act on U.S. Investors in Foreign Corporations
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International tax planning in the U.S. has been turned on its head by the Tax Cuts and Jobs Act (“T.C.J.A.”). This article looks at (i) the new dividends received deduction that eliminates U.S. tax on the receipt of direct investment dividends paid by a 10%-owned foreign corporation to a U.S. corporation, (ii) the repatriation of post-1986 net accumulated earnings of 10%-owned foreign corporations by U.S. persons and the accompanying deferred tax rules, (iii) changes to Code §367(a) that eliminate an exemption from tax on outbound transfers of assets that will be used in the active conduct of a foreign trade or business, and (iv) a broadening of the scope of Subpart F income by reason of a change to certain definitions. Rusudan Shervashidze and Stanley C. Ruchelman address and comment on these revisions.
Read MoreA New Tax Regime for C.F.C.’s: Who Is G.I.L.T.I.?
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The T.C.J.A. introduces a new minimum tax regime applicable to controlled foreign corporations (“C.F.C.’s”). It also provides tax benefits for incomefrom “intangibles” used to exploit foreign markets. The former is known as G.I.L.T.I. and the latter is known as F.D.I.I. Together, G.I.L.T.I. and F.D.I.I. change the dynamics of cross-border taxation and can be seen as an incentive to supply foreign markets with goods and services produced in the U.S. Both provisions reflect a view that only two value drivers exist in business: (i) hard assets (such as property, plant, and equipment) and (ii) intangible property. In a detailed set of Q&A’s, Elizabeth V. Zanet and Stanley C. Ruchelman look at the ins and outs of the new provisions.
Read MoreTax 101: Virtual Currency – What Is It? And How Is It Taxed?
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With the recent launch of Bitcoin futures trading, this once obscure asset class may soon become a mainstream investment. Alev Fanny Karaman delves into the details of virtual currency in the U.S. context. She explains the blockchain computations that make Bitcoin and other cryptocurrencies attractive to investors and the U.S. tax treatment and reporting obligations of virtual currency holders.
Read MoreAustrian Guidance on Taxation of Bitcoin and Other Cryptocurrencies
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While wild fluctuations in the value of Bitcoin are reported daily in global press and social media, the Austrian Ministry of Finance recently summarized its views on the tax consequences of investing in this relatively new asset class. Niklas J.R.M. Schmidt and Eva Stadler of Wolf Theiss, Vienna, explain the real-life consequences of the transacting in virtual currencies.
Read MoreThe U.K. Trust Registration Service: Impact for Trustees
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The past few years have seen a steep increase in trust reporting obligations in the context of F.A.T.C.A. and the Common Reporting Standard. Trustees must come to grips with a new set of record keeping and disclosure obligations introduced by the U.K. Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which came into force from June 26, 2017. Jennifer Smithson and Isobel Morton of Macfarlanes LLP, London, explain the wide-ranging effect of the regulations and the dividing line between non-U.K. trustees that fall inside the regime and those who are outside.
Read MoreInsights Vol. 4 No. 11: Updates & Other Tidbits
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This month, Sheryl Shah and Nina Krauthamer look briefly at two I.R.S. actions: (i) the roll out of a long-awaited passport denial program and (ii) the end of favorable rulings on certain worthless stock deductions and spinoffs.
Read MoreArt and the Estate Part II – Nonresidents
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Foreign persons owning artwork physically located in the U.S. must be mindful of special income, estate, and gift taxes associated with that ownership. In the second of a series, Rusudan Shervashidze and Nina Krauthamer look at issues such as use tax, which is the U.S. equivalent of a reverse charge of V.A.T., estate tax, and gift tax.
Read MoreEmployment Tax Basics and Paths to Compliance
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When a company expands across a border, it faces a complex web of employment-related taxes. Penalties for failure to properly comply with these rules can be severe. Fanny Karaman looks at the U.S. rules that are applicable to the payment of wages and bonuses, the penalties that can be imposed on compliance failures, and the procedures that are available to cure errors. The rules are not straightforward, guidance is often minimal, and an experienced advisor is extremely valuable.
Read MoreTexas District Court on Anti-Inversion Legislation – One Down but Not Out
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The final months of the Obama administration saw the hurried adoption of temporary regulations in an attempt to extend its tax policy into the current administration. However, reliance on temporary regulations that are adopted without a public comment period may have been misguided. In October, a U.S. District Court struck down a provision under temporary anti-inversion regulations for violating the required notice and comment period under the Administrative Procedure Act. Beate Erwin and Sheryl Shah explain the web of issues involved in the decision.
Read MoreAnti-Inversion Rules Are Not Just for Mega-Mergers – Private Client Advisors Take Note
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The U.S. has rules that attack inversion transactions, wherein U.S.-based multinationals effectively move tax residence to low-tax jurisdictions. If successful, these moves allow for tax-free repatriation of offshore profits to the inverted parent company based outside the U.S. However, the scope of the anti-inversion rules is broad and can also affect non-citizen, nonresident individuals who directly own shares of private U.S. corporations. Attempts to place those shares under a foreign holding company as an estate planning tool may find that the exercise is all for naught once the anti-inversion rules are applied. Elizabeth V. Zanet, Galia Antebi, and Stanley C. Ruchelman discuss the hidden reach of the anti-inversion rules to private structures.
Read MoreO.E.C.D. Releases Mutual Agreement Procedure Peer Review Report for the U.S.
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The B.E.P.S. Action 14 Report, Making Dispute Resolution Mechanisms More Effective, acknowledged that the actions to counter B.E.P.S. must be complemented with effective dispute resolution mechanisms. Participating countries agreed to have their compliance with the minimum standard reviewed by their peers. The U.S. is among the first few countries that have been reviewed. Neha Rastogi and Michael Peggs summarize the M.A.P. report card issued for the U.S.
Read MoreThe Sharing Economy Part 2: Governments Strike Back
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The sharing economy uses digital platforms to connect suppliers willing to provide services or use of assets with consumers. Think of Uber and Airbnb. These multinationals are structured to channel profits to low-tax jurisdictions. As with Google and Microsoft, tax authorities have begun to challenge these business models. In part two of this series, Fanny Karaman and Beate Erwin explain how these business models are being challenged.
Read MoreThe New Transparency Register in Germany
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October 1, 2017, was the due date for entering information on Germany’s beneficial owner registry. The register brings transparency to all sorts of entities, including private law foundations and trusts, as data will be open to public inspection from December 27, 2017. Dr. Andreas Richter of P+P Pöllath + Partners, Berlin, sheds light on the registration requirements.
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