Browse Articles:   By Category   /   By Author
HIDE

Other Publications

Insights

Publications

O.E.C.D. on Digital Business – Seriously?!

/
O.E.C.D. on Digital Business – Seriously?!

On February 13, 2019, the O.E.C.D. issued a discussion draft addressing the tax challenges of the dig- italization of the economy and asked for feedback in a shockingly brief time- frame. Is the discussion draft – which, in many respects, mimics G.I.L.T.I.provisions and highlights the value of a market as a key determiner of profitallocation – a move away from value of functions? In a stealth way, it may be a precursor to a global B.E.A.T. Christian Shoppe of Deloitte Deutschland, Frankfurt, cautions that the ultimate destination of B.E.P.S. may be added complexity in tax laws and expanded opportunity for double taxation. Bad news for taxpayers; more work for tax advisers.

Read More

Tax Authorities Eye GSK-HUL Merger: Could Attract Tax on Long-Term Capital Gains and Brand Transfer

/
Tax Authorities Eye GSK-HUL Merger: Could Attract Tax on Long-Term Capital Gains and Brand Transfer

GSK Consumer Healthcare India (“GSKIndia”) is in the process of merging with Hindustan Unilever Ltd (“HUL”) inthe biggest deal in India’s consumer packaged goods space, valued at ap- proximately $4.5 billion. Although the transaction is structured to be tax-free for shareholders, plenty of room exists for the Indian tax authorities to assert tax from the companies: The transfer of a brand owned outside India may generate Indian tax to the extent its value stems principally from India. In addition, arm’s length pricing for royalty payments and accompanying with- holding tax issues also come into play. Sanjay Sanghvi and Raghav Kumar Bajaj of Khaitan & Co., Mumbai and New Delhi, discuss the global tax issues surrounding the transaction.

Read More

Proposed Code §864(c)(8) Regulations Codify Tax on Gain from Sale of Partnership Interest

/
Proposed Code §864(c)(8) Regulations Codify Tax on Gain from Sale of Partnership Interest

Enacted as part of the Tax Cuts and Jobs Act, Code§864(c)(8) codifies the holding in Rev. Rul. 91-32 and overturns the result ofthe Grecian Magnesite case. In late December 2018, the I.R.S. released pro- posed regulations containing guidance under new Code §864(c)(8). Among the points addressed in the proposed regulations are (i) rules to compute the amount of E.C.I. gain or loss, (ii) coordination with F.I.R.P.T.A. tax and withholding, (iii) interaction with income tax treaties, and (iv) anti-abuse rules. Fanny Karaman and Nina Krauthamer discuss these and other aspects of the proposed regulations.

Read More

Proposed Amendments to F.A.T.C.A. Suggest Reducing or Deferring Withholding

/
Proposed Amendments to F.A.T.C.A. Suggest Reducing or Deferring Withholding

In mid-December 2018, revised F.A.T.C.A. regulations were proposed by the I.R.S. Highlights included (i) the elimination of withholding on payments of gross proceeds, (ii) deferral, but not elimination, of withholding on foreign passthru payments, (iii) clarification of the definition of an investment entity, and (iv) changes to the consequence of hold-mail instructions on presumptions of residence. Galia Antebi explains all.

Read More

Who’s Got the B.E.A.T.? A Playbook for Determining Applicable Taxpayers and Payments

/
Who’s Got the B.E.A.T.? A Playbook for Determining Applicable Taxpayers and Payments

Code §59A imposes tax on U.S. corporations with substantial gross receipts when base erosion payments to related entities significantly reduce regular corporate income tax. The new tax is known as the base erosion and anti-abuse tax (“B.E.A.T.”). In late December 2019, the I.R.S. proposed regulations that provide guidance for affected taxpayers. The proposed regulations provide a playbook for making required computations including (i) the gross receipts test to determine if the taxpayer meets the $500 million gross receipts requirement, (ii) the base erosion percentage test, (iii) how to apply the tests when a taxpayer is member of an Aggregate Group having members with differing year-ends, (iv) various computations to determine whether a non-cash transaction is considered to be a payment to a related party outside the U.S. or is outside the scope of the B.E.A.T., and (v) other exceptions from the B.E.A.T. In the first of a multi-part series, Rusudan Shervashidze and Stanley C. Ruchelman tell all.

Read More

Insights Vol. 6 No. 2: Updates & Other Tidbits

/
Insights Vol. 6 No. 2: Updates & Other Tidbits

This month, Neha Rastogi and Nina Krauthamer look at interesting items of tax news from around the world: A new foreign investment law could ease the U.S.-China trade war, and another illegal State Aid investigation has been announced — this time over Dutch tax rulings issued to Nike and Converse.

Read More

New Developments on the E.U. V.A.T. Regime of Holding Companies

/
New Developments on the E.U. V.A.T. Regime of Holding Companies

Like state and local tax in the U.S., where tax exposure can be underestimated by many corporate tax planners, the V.A.T. rules in the E.U. contain many pitfalls. This is especially true when it comes to recovery of V.A.T. input taxes by holding companies. A corporate tax adviser may presume that all V.A.T. input taxes paid by a holding company are recoverable. Yet, despite abundant jurisprudence, debate continues regarding the V.A.T. recovery rights of holding companies. The starting point in the analysis is easy to state: Holding companies that actively manage subsidiaries can recover V.A.T., while holding companies that passively hold shares cannot. The problem is in the application of the theory, where the line between active and passive behavior is blurred by seemingly inconsistent decisions. Bruno Gasparotto and Claire Schmitt of Arendt & Medernach, Luxembourg, explain the rules and how they have been applied by the C.J.E.U.

Read More

2019 Welcomes New Finnish Interest Deduction Limitations

/
2019 Welcomes New Finnish Interest Deduction Limitations

Changes to the Finnish interest barrier regime have come into effect in 2019. They have been expected since 2016, when the E.U. released its Anti-Tax Avoidance Directive (“A.T.A.D.”), which sets forth the minimum standards for interest deduction restrictions within the E.U. The limitations affect E.B.I.T.D.A.-based rules (i.e., addressing earnings before interest, tax, depreciation, and amortization) adopted in 2014, which include the specific interest barrier rule affecting the deductibility of intra-group interest payments. Antti Lehtimaja and Sanna Lindqvist of Krogerus Ltd., Helsinki, explain the key elements of the new restrictions, including some considerations regarding the impact on Finnish taxpayers and investments in Finland.

Read More

Additional Guidance on New Opportunity Zone Funds

/
Additional Guidance on New Opportunity Zone Funds

Days after Galia Antebi and Nina Krauthamer published “The Opportunity Zone Tax Benefit – How Does It Work and Can Foreign Investors Benefit,” the I.R.S. issued guidance in proposed regulations. Now, in a follow-up article, Galia Antebi and Nina Krauthamer focus on the new guidance as it relates to the deferral election and the Qualified Opportunity Zone Fund. In particular, they address (i) which taxpayers are eligible to make the deferral election, (ii) the gains eligible for deferral, (iii) the measurement of the 180-day limitation, (iv) the tax attributes of deferred gains, and (v) the effect of an expiration of a qualifying zone status on the step-up in basis to fair market value after ten years.

Read More

Code §962 Election: One or Two Levels of Taxation?

/
Code §962 Election: One or Two Levels of Taxation?

Code §962 allows an Individual U.S. Shareholder to apply corporate tax rates and offers relief from double taxation in certain situations, but where new provisions of the Tax Cuts & Jobs Act (“T.C.J.A.”) are involved, the application is murky. The T.C.J.A. introduced two provisions designed to limit the scope of deferral for the earnings of foreign subsidiaries operating abroad. One provision is the one-time deemed repatriation tax regime of Code §965, which looks backward to tax what had been permanently deferred earnings. The other provision is the global intangible low taxed income (“G.I.L.T.I.”) regime, which eliminates most deferral on a go-forward basis. Each provision limits deferral but, at the same time, imposes relatively benign tax on U.S.-based multinationals. Interestingly, it seems that it was only in the last days of the legislative process that Congress became aware that owner-managed businesses also operate abroad. While the provisions clearly apply to corporations, Congress may or may not have provided a benefit for the U.S. individuals who own of these companies. Sound cryptic? Fanny Karaman and Nina Krauthamer explain all.

Read More

Attorney-Client Privilege Extends to Accountants Retained by Legal Counsel

/
Attorney-Client Privilege Extends to Accountants Retained by Legal Counsel

Over time, the attorney-client privilege, which protects information disclosed by a client, has been extended to include certain client communications to accountants retained by legal counsel to provide input regarding the application of accounting rules. However, the privilege does not apply when a client retains the accountant prepare tax returns. In U.S. v. Adams, the I.R.S. challenged the extension of the privilege to an accountant who provided advice to the client’s defense counsel and later prepared U.S. tax returns for the client. The decision likely satisfies neither the I.R.S. nor the taxpayer. Rusudan Shervashidze and Stanley C. Ruchelman explain the I.R.S. challenge and the Solomon-like solution reached by the court.

Read More

I.R.S. Adds New Issues of Focus for Cross-Border Audits

/
I.R.S. Adds New Issues of Focus for Cross-Border Audits

In late 2018, LB&I announced five additional campaigns aimed at determining whether taxpayers are complying with tax rules in the following areas of the law: (i) foreign tax credits claimed by U.S. individuals, (ii) offshore service providers that assist taxpayers in creating foreign entities and tiered structures to conceal the U.S. beneficial ownership of foreign financial accounts, (iii) F.A.T.C.A. compliance by F.F.I.’s and N.F.F.E.’s, (iv) tax return compliance by foreign corporations that ignore the fact that they are engaged in a U.S. trade or business under the rules of U.S. tax law, and (v) late issuance of Work Opportunity Tax Credit (“W.O.T.C.”) certifications that result in the need to file amended tax returns and result in a misuse of I.R.S. resources when returns are filed without the W.O.T.C certifications. The move follows more than two years, of I.R.S. publications that alert the public to certain issue-based approaches being followed by examiners. Galia Antebi and Elizabeth V. Zanet summarize the new releases.

Read More

Mirror, Mirror, On the Wall, Which Is My Tax Home of Them All? – Foreign Students Face Dilemma in the U.S.

/
Mirror, Mirror, On the Wall, Which Is My Tax Home of Them All? – Foreign Students Face Dilemma in the U.S.

The U.S. Department of State administers the Exchange Visitor Program, which designates sponsors to provide foreign nationals with opportunities to participate in educational and cultural programs in the U.S. and return home to share their experiences. These students receive taxable stipends, file tax returns, and reduce taxable income by costs associated with participation. Unfortunately, a recent Tax Court case, Liljeberg v. Commr., has determined that the travel and lodging costs of these individuals could not be deducted. Neha Rastogi and Beate Erwin explain that while home is where the heart is, a “tax home” is where a person is expected to live taking into consideration the person’s principal place of employment.

Read More

Insights Vol. 6 No. 1: Updates & Other Tidbits

/
Insights Vol. 6 No. 1: Updates & Other Tidbits

This month, Rusudan Shervashidze and Stanley C. Ruchelman look at several interesting items, including (i) the publication of draft legislation by the Crown Dependencies of Guernsey, Jersey, and Isle of Man calling for the existence of economic substance for resident companies engaged in certain businesses and defining what that means, (ii) the denial of benefits incident to foreign earned income for a military contractor in Afghanistan who maintained a place of abode in the U.S., (iii) an increase in fees charged by the I.R.S. to issue residency certificates, (iv) the establishment of a working group to combat transnational tax crime through increased enforcement collaboration among tax authorities in several countries, and (v) changes to China’s residency rules and the sharing of taxpayer financial information under C.R.S. 

Read More

How to Handle Dual Residents: The I.R.S. View on Treaty Tie-Breaker Rules

/
How to Handle Dual Residents: The I.R.S. View on Treaty Tie-Breaker Rules

The first step in advising a foreign individual who is neither a U.S. citizen nor a green card holder on U.S. income tax laws is to determine the person's residence for income tax purposes. But what is to be done when the individual is resident in multiple jurisdictions? A recent LB&I International Practice Unit offers a quick understanding of the tax issues I.R.S. examiners raise when dealing with individuals who are dual residents for tax purposes. Virtually all income tax treaties entered into by the U.S. contain a tiebreaker rule under which the exclusive residence of an individual is determined for purposes of applying the income tax treaty. Fanny Karaman and Beate Erwin explain how these rules are applied. One point to remember is that the tiebreaker test for treaty residence purposes does not affect an individual's obligation to file an F.B.A.R. form.

Read More

C-Corps Exempt from Full Scope of Foreign Income Inclusion

/
C-Corps Exempt from Full Scope of Foreign Income Inclusion

One of the principal highlights of the T.C.J.A. is the 100% dividends received deduction ("D.R.D.") allowed to U.S. corporations that are U.S. Shareholders of foreign corporations. At the time of enactment, many U.S. tax advisers questioned why Congress did not repeal the investment in U.S. property rules of Subpart F. Under those rules, investment in many different items of U.S. tangible and intangible property are treated as disguised distribution. In proposed regulations issued in October, the I.R.S. announced that U.S. corporations that are U.S. Shareholders of C.F.C.'s are no longer subject to tax on investments in U.S. property made by the C.F.C. Stanley C. Ruchelman explains the new rules and their simple logic – if the C.F.C. were to distribute a hypothetical dividend to a U.S. Shareholder that would benefit from the 100% D.R.D., the taxable investment in U.S. property will be reduced by an amount that is equivalent to the D.R.D. allowed in connection with the hypothetical dividend.

Read More

A Deep Dive into G.I.L.T.I. Guidance

/
A Deep Dive into G.I.L.T.I. Guidance

The I.R.S. has published proposed regulations on the global intangible low-taxed income ("G.I.L.T.I.") regime, which is applicable to those controlled foreign corporations that manage to operate globally without generating effectively connected income taxable to the foreign corporation or Subpart F Income taxable to its U.S. Shareholders. In a detailed article, Rusudan Shervashidze, Elizabeth V. Zanet, and Stanley C. Ruchelman examine the proposed regulations and all their complexity.

Read More

The U.K. Digital Sales Tax – It Could Be You

/
The U.K. Digital Sales Tax – It Could Be You

On November 7, 2018, the U.K. government confirmed that it will proceed with the introduction of a digital services tax ("D.S.T.") on large businesses. The tax will be charged beginning April 2020. It will apply to three key areas, which the government has concluded derive a huge value from the participation of U.K. users and are largely untaxed. Eloise Walker of Pinsent Masons, London, provides an overview of the D.S.T., cautioning that problems exist in identifying both the revenue to which the D.S.T. will apply and the hallmarks of jurisdiction that must exist in order for the tax to be imposed.

Read More

Revised Swiss Corporate Tax Reform Will Keep Switzerland a Top Corporate Location

/
Revised Swiss Corporate Tax Reform Will Keep Switzerland a Top Corporate Location

Beginning in 2015, Switzerland has struggled over the adoption of a tax system that is consistent with B.E.P.S. Many different stakeholders are involved, ranging from the Swiss Federal government to the cantons, various political parties, and the E.U. At last, a version of tax reform has been adopted by the Swiss Federal National Assembly. Known as the Federal Act on Tax Reform and A.H.V. Financing ("T.R.A.F."), it contains provisions designed to please all participants while maintaining Switzerland's global reputation as an attractive jurisdiction for multinational enterprises. Danielle Wenger and Manuel Vogler of Prager Dreifuss AG, Zurich, guide the reader through the various iterations of the reform and the provisions of the T.R.A.F.

Read More

Alta Energy Affirms Treaty Benefits: A Canadian Case Study for Applying the M.L.I.

/
Alta Energy Affirms Treaty Benefits: A Canadian Case Study for Applying the M.L.I.

As part of its attack on B.E.P.S., the O.E.C.D. published its Multilateral Instrument, a device that revised more than 1,200 income tax treaties. One of the provisions of the M.L.I. targets treaty shopping by the adoption of, among other things, a principal purpose test ("P.P.T."). In simple terms, the P.P.T. disallows a treaty benefit when a principal purpose of a transaction is to obtain that benefit. Transactions in accordance with the object and purpose of the provisions of a treaty are not affected by the P.P.T. Many North American tax advisers know that the P.P.T. is based on a provision of Canadian law known as the General Anti-Avoidance Rule or G.A.A.R. A recent decision of the Tax Court of Canada addresses the application of G.A.A.R. to a cross-border tax plan set up by a U.S. financial institution designed specifically to obtain enhanced Canadian tax benefits by rechanneling a U.S. investment in Canada into a U.S. investment into Luxembourg that was then invested into Canada. The Canada Revenue Agency ("C.R.A.") attacked the Luxembourg company's entitlement to treaty benefits relying heavily on G.A.A.R. Kristy J. Balkwill and Benjamin Mann of Miller Thomson L.L.P., Toronto, explain the decision and its potential impact on the P.P.T. The case has been appealed by C.R.A.

Read More