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Coming to the U.S. After Tax Reform

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Coming to the U.S. After Tax Reform

Now, more than six months after enactment of the Tax Cuts & Jobs Act, many tax advisers have achieved a level of comfort with the brave new world of Transition Tax, F.D.I.I., G.I.L.T.I., B.E.A.T., and incredibly low corporate tax rates. However, sleeper provisions in the new law can have drastic adverse tax consequences in the realm of cross-border transactions and investments: (i) the threshold for becoming a C.F.C. has been reduced significantly by several changes in U.S. tax law and (ii) the 10.5% tax rate for G.I.L.T.I. is limited to corporations so that individuals face ordinary income treatment for G.I.L.T.I. inclusions from foreign corporations that were not C.F.C’s. prior to the new law. Jeanne Goulet of Byrum River Consulting L.L.C., New York, addresses these problems and suggests several planning opportunities.

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Israeli Court Case First to Interpret Ten-Year Exemption

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Israeli Court Case First to Interpret Ten-Year Exemption

Effective in 2007, Israel’s New Immigrant Benefits rules are intended to promote immigration through the grant of substantial tax benefits: (i) a ten-year tax exemption for foreign-source income produced or accrued outside Israel or income stemming from assets located outside Israel and (ii) an exemption for all tax reporting requirements related to exempt income. Over the years, the Israeli tax authorities applied strict rules in determining (i) whether a specific item of income should be considered to be foreign source income and (ii) the portion that is properly treated as foreign in circumstances of mixed income – part foreign and part domestic. Now, eleven years after the New Immigrant Benefits rules became effective, the first case addressing these open questions has been decided, Talmi v. Kfar Saba Tax Assessor. Daniel Paserman and Inbar Barak-Bilu of Gorntizky & Co., Tel Aviv, report on the holding. In brief, the taxpayer won on principles but lost on the basis of his facts.

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U.K. Requirement to Correct

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U.K. Requirement to Correct

The “Requirement to Correct” (“R.T.C.”) rules for offshore tax affairs in the U.K. threaten steep penalties if noncompliant taxpayers at April 5, 2017, do not take action to correct the relevant noncompliance by September 30, 2018. In a detailed look at the R.T.C. rules, Gary Ashford of Harbottle & Lewis L.L.P., London, explains the ins and outs of the provisions, including (i) the definition of offshore noncompliance, (ii) covered taxes, (iii) penalties, (iv) the reasonable cause defense, (v) disqualified advice that cannot be reasonable cause, (v) the method that must be followed to implement a valid correction, (vi) the statute of limitations, and (vi) recent guidance from H.M.R.C. regarding last minute notifications by noncompliant taxpayers. The final date for completing a correction is December 29, 2018.

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A Fundamental Change of the Professional Sports Landscape under the 2017 U.S. Tax Reform? The End of Like-Kind Exchanges for U.S. Sports Trades→

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Published by Nolot in Global Sports Law and Taxation Reports vol. 9, no. 2 (June 2018): pp. 49-54.

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O.E.C.D. and European Commission Unveil Proposals on Taxation of the Digital Economy

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O.E.C.D. and European Commission Unveil Proposals on Taxation of the Digital Economy

Following the release of the O.E.C.D.’s B.E.P.S. Action Plan and the E.U.’s approval of the Anti-Tax Avoidance Package, the taxation of the digital economy continues to be unfinished business in the international tax arena.   New O.E.C.D. and the European Commission documents mark a milestone, especially the latter, which include two different approaches.  They also highlight the difficulties in achieving a consensus, which seems desirable when implementing measures that increase the tax burden of digital activities.  José Luis Gaudier of Cuatrecasas, Barcelona, delves into the O.E.C.D. and the European Commission approaches to taxing the digital economy.

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Do India’s Amalgamation Revisions Prevent Misuse of Accumulated Losses?

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Do India’s Amalgamation Revisions Prevent Misuse of Accumulated Losses?

India’s recent Finance Act addressed a tax planning device intended to reduce or eliminate the imposition of the Dividend Distribution Tax ("D.D.T") that applies when a corporation exercises the right to distribute dividends to shareholders.   The statue targets plans involving an amalgamation between a profitable company and a loss company and prevents the reduction of earnings when the profitable company is the acquiring company.  Does this mean that earnings can be reduced when the loss company is the acquiring company?  Differing views have been expressed by Indian tax advisers.  CA Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, examines both views and explains why one view is technically preferable.

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Managing a Transfer Pricing Exam? Wash Your Hands with Soap and Water

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Managing a Transfer Pricing Exam? Wash Your Hands with Soap and Water

For management of a U.S. subsidiary of a foreign parent, the process by which the I.R.S. conducts an examination of a tax return creates a heightened stress level.  It begins with the arrival of an information document request ("I.D.R.") for transfer pricing documentation, which often comes as a surprise to a company.  Typically, two or three years have passed since the close of the year under examination and little is recalled about transactions.  From there, the expressed positions of I.R.S. examiners and management often are at odds.  Drawing on many years of experience in defending intercompany transfer pricing policies, Michael Peggs takes a step back from the fray to examine how opposing, pre-conceived notions on both sides combine with the Semmelweis Reflex to exacerbate what should be a straightforward tax examination.

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The F-1 Visa – Privileged U.S. Tax Status and How to Keep It

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The F-1 Visa – Privileged U.S. Tax Status and How to Keep It

Foreign students leaving their home country and arriving in the U.S. for higher education may come across many things that seem alien to them – like the accent, culture, and inexplicably large food portions. But one area where they are treated as the aliens is under U.S. Federal income tax law, where foreign students holding F-1 visas are treated as nonresident aliens who are subject to special tax provisions.  Neha Rastogi and Beate Erwin discuss tax residence status, Federal income tax consequences, and U.S. reporting requirements for holders of F-1 visas.

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Corporate Matters: Profits Interest Basics

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Corporate Matters: Profits Interest Basics

In the latest in his series of articles on the relative flexibility of limited liability companies and their desirability for use in many instances, including joint ventures, Simon H. Prisk looks at grants of profits interests as a means of compensating service providers and employees.  If done properly, these incentives can be optimized by favorable tax treatment, achieving the same or better tax results than incentive stock options available to C-corporations and S-corporations.  If done without proper thought and planning, the results may be suboptimal.  

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Foreign Investor in a U.S. L.L.C. – How to Minimize Withholding Tax on Sale of L.L.C. Interest

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Foreign Investor in a U.S. L.L.C. – How to Minimize Withholding Tax on Sale of L.L.C. Interest

U.S. tax law was revised in last year’s tax reform legislation to impose tax on non-U.S. persons recognizing a gain from the sale of a partnership that engages in a U.S. business.  Worse, purchasers must collect and pay over to the I.R.S. a withholding tax equal to 10% of the amount realized by the seller.  Because of the way U.S. tax law treats partners of partnerships financed with debt, the withholding tax can be greater than the cash that is set to be paid to the foreign seller.  In April, the I.R.S. issued guidance on the problem, leading some to recommend a two-step plan to align the withholding tax with the ultimate income tax that will be due.  Fanny Karaman and Stanley C. Ruchelman explain the I.R.S. guidance and the two-step plan.

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I.R.S. Announces Six Compliance Campaign

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I.R.S. Announces Six Compliance Campaign

The I.R.S. Large Business and International division ("LB&I") recently announced compliance campaigns that are principally directed at compliance in cross-border fact patterns.  Included are campaigns to address (i) non-compliance with respect to Form 3520, (ii) compliance issues related to Form 1042, (iii) nonresident, non-citizen individuals inappropriately claiming tax treaty exemptions, (iv) nonresident, non-citizen individuals inappropriately claiming itemized deductions on tax returns, and (v) inappropriate credits claimed by nonresident, non-citizen individuals. Elizabeth V. Zanet looks into the various campaigns and places into context the effect on individuals.

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Vol. 5 No. 5: Updates and Other Tidbits

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Vol. 5 No. 5: Updates and Other Tidbits

This month, Rusudan Shervashidze and Nina Krauthamer look at several interesting updates and tidbits, including (i) limited relief for transition tax, (ii) a new twist to phishing that involves fake I.R.S. calls, (iii) another twist on phony correspondence requesting W-8BEN information that is used to obtain persona information often used by banks to confirm identities of customers, and (iv) new FinCEN money transmitter rules that apply to I.C.O.’s.

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

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

This month, Tomi Oguntunde and Nina Krauthamer look briefly at several recent developments in international tax: (i) the Financial Accounting Standards Board continues to study the effect of the recent tax reform legislation on quarterly and annual reports, (ii) winners and losers under the recent tax reform legislation, and (iii) South Dakota v. Wayfair, Inc., a case involving the right of a state to impose an obligation on out-of-state internet retailers who maintain a “digital presence” in the state through internet sales.

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I.R.S. Notice 2018-28 Announces Code §163(j) Regulations on Interest Payment Deductions

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I.R.S. Notice 2018-28 Announces Code §163(j) Regulations on Interest Payment Deductions

Prior to recent tax reform legislation, Code §163(j) was an earnings stripping provision that placed a cap on interest expense deductions on debt instruments held or guaranteed by foreign related persons that were not subject to full 30% withholding tax on U.S.-source interest income or guarantee fees.  Under the T.C.J.A., Code §163(j) is now simply a cap on all business interest expense.  Notice 2018-28 addresses open matters arising from the change.  This includes the carryover of disallowed interest from prior years to 2018, the Super-Affiliation Rules under the new law, and the loss of excess limitation carryforwards.  Elizabeth V. Zanet and Beate Erwin explain these and other items in the Notice.

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A Comparative View of the Principal Purpose Test – U.S. Tax Court v. B.E.P.S.

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A Comparative View of the Principal Purpose Test – U.S. Tax Court v. B.E.P.S.

In a post-B.E.P.S. world, aggressive tax planning is a mortal sin.  If a principal purpose or a main purpose of entering a transaction is tax avoidance, the tax benefits are lost.  A ruling in a recent pre-trial hearing in the U.S. Tax Court addressed a clearly abusive transaction aimed at importing high-basis, low-value assets into a U.S. partnership so that the U.S. investors could benefit from losses on nonperforming loans.  The I.R.S. moved for summary judgment in its favor, but the motion was denied.  Under applicable case law, a transaction can be respected even if it is tax motivated as long as economic substance is present.  Consequently, the taxpayer is entitled to a day in court, even if the prospect of victory is slim.  Rusudan Shervashidze and Stanley C. Ruchelman compare the approach followed by the U.S. Tax Court with the principal purpose test rules of the A.T.A.D. and B.E.P.S.

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Code §962 Election Offers Benefits Under U.S. Tax Reform

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Code §962 Election Offers Benefits Under U.S. Tax Reform

Two provisions in the recent tax reform legislation – Code §§965 (transition tax) and 250 (50% deduction for G.I.L.T.I.) – focus on C.F.C.’s and their U.S. Shareholders.  In each case, corporate U.S. Shareholders are entitled to a deduction that is not granted to an individual with regard to income that is taxed under Subpart F.  However, Code §962 may allow an individual who is a U.S. Shareholder of a C.F.C. to elect to be taxed on the Subpart F Income as if a corporation.  This allows for tax at a lower rate and a foreign tax credit for corporate income taxes paid by the C.F.C.  Elizabeth V. Zanet and Galia Antebi explain the workings of Code §962 and focus on the position of naysayers who caution that it may not provide the relief it appears to provide.

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G.D.P.R. Is Imminent – Is Your U.S. Business Prepared?

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G.D.P.R. Is Imminent – Is Your U.S. Business Prepared?

In Europe, an individual’s right to the protection of personal data is a fundamental right.   The E.U. General Data Protection Regulation (“G.D.P.R.”) takes effect on May 25, 2018, to protect that right.  The G.D.P.R. is notable because it applies to all companies processing personal data of persons residing in the European Economic Area regardless of the company's location and irrespective of whether the company has a physical presence in these countries.  Severe penalties are provided for violators. Fanny Karaman and Beate Erwin provide a layman’s guide to the G.D.P.R.

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New Tax Treaty Between France and Luxembourg: French Tax Implications for Investors

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New Tax Treaty Between France and Luxembourg: French Tax Implications for Investors

France and Luxembourg signed a new double tax treaty on income and capital in late March.  Ratification by the end of the year is anticipated.  The new treaty reflects the current post-B.E.P.S. environment.  Among other things, the residence definition is tightened, the test for the existence of a permanent establishment is loosened, real estate funds face higher withholding tax, a credit method is adopted to avoid double taxation.  Christophe Jolk, Attorney at Law, Paris, explains the implications for investors.

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Failure to Prevent – The Future of Adviser Obligations

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Failure to Prevent – The Future of Adviser Obligations

The concept of failure to prevent has grown from its roots in the U.S. Foreign Corrupt Practices Act and is making inroads into the responsibilities of tax advisers.  The recent trend begs the question, do advisors have a duty to prevent the evasion or improper reduction of tax or to report the activity in advance?  A team of international advisors looks at the evolution of obligations: Peter Utterström of Peter Utterström Advokat AB, Stockholm, looks at the origin of the concept.  Gary Ashford of Harbottle & Lewis, London, looks at recently adopted legislation in the U.K. imposing strict liability on advisers to naughty clients.  Lawrence Feld, Attorney at Law, New York, looks at its presence in the U.S. Swiss Bank Program of the Justice Department.  Dick Barmentlo of Jaegers & Soons, Amsterdam, addresses a recent case in the Netherlands that imposes civil liability on a Netherlands trust company and its employees for lost taxes suffered by the Dutch tax administration.

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Insights Vol. 5 No. 3: Updates & Other Tidbits

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Insights Vol. 5 No. 3: Updates & Other Tidbits

This month, Tomi Oguntunde, Sheryl Shah, and Nina Krauthamer look briefly at four recent developments in international tax: (i) the E.U. counteroffensive to U.S. tax reform involving stricter tax rules, (ii) the amendment of Form 1023-EZ, which is a streamlined application for non-profit entities applying for tax exempt status, (iii) Spain’s crackdown on celebrities attempting to evade tax, and (iv) Luxembourg’s continued pushback against the Amazon State Aid case.

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