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New Partnership International Information Return Schedules

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New Partnership International Information Return Schedules

· The I.R.S. recently released drafts of two new partnership return schedules and accompanying instructions to address the reporting of income from international transactions. The new forms are required because of tax law changes enacted as part of the Tax Cuts & Jobs Act in 2017 and recent changes in I.R.S. policy regarding partnerships as aggregates rather than entities. Schedule K-2 and Schedule K-3 each contain nine parts, generally covering the information required with respect to the most common international tax provisions of U.S. tax law. Schedule K-3 contains a tenth part applicable only to the distributive share of a partner in relation to a sale of a partnership interest. Galia Antebi and Nina Krauthamer explain all.

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Final G.I.L.T.I. High-Tax Regulations and the Tested Unit: Would a Rose by Any Other Name Smell as Sweet?

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Final G.I.L.T.I. High-Tax Regulations and the Tested Unit: Would a Rose by Any Other Name Smell as Sweet?

A precursor to a global minimum tax for multinational enterprises, the G.I.L.T.I. rules under Subpart F ensure that tax is imposed on cross-border income. The tax rate on G.I.L.T.I. reported by U.S. corporations is relatively low, currently 10.5% and a foreign tax credit is allowed for 80% of the foreign taxes imposed on tested income taxed under the G.I.L.T.I. provisions. In the summer, the I.R.S. issued proposed and final regulations allowing taxpayers to avoid the tax by claiming an exclusion for highly taxed income of tested units. Are the regulations a true benefit or is the benefit illusory? Andreas Apostolides and Neha Rastogi explain all.

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When an Exchange of Vows is Followed by Separate Ownership of Shares Should Either Spouse Feel G.I.L.T.I.?

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When an Exchange of Vows is Followed by Separate Ownership of Shares Should Either Spouse Feel G.I.L.T.I.?

Cross border tax planners are expected to know all there is about various provisions of Subchapter N of the Internal Revenue Code. An example might be the G.I.L.T.I. provisions adopted in the Tax Cuts & Jobs Act of 2017. They are not expected to know more mundane provisions of tax law such as rules that apply to married persons filing a joint tax return. In their article, Andreas Apostolides and Stanley C. Ruchelman examine a recent hiccup in G.I.L.T.I. provisions that focus computations in a top-down way. What happens when the marital property regime adopted by the married couple is that of separate property (or they are domiciled in a common law jurisdictions), one spouse separately owns C.F.C.’s with losses, the other spouse separately owns C.F.C.’s with positive earnings, and none of the C.F.C.’s generates Subpart F income? Is the married couple treated as one unit or simply an aggregate of two separate taxpayers? The answer may be troubling.

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Help – My Exclusively Foreign Trust Now Has a U.S. beneficiary! What Are the Issues a Trustee Will Now Face in 2020?

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Help – My Exclusively Foreign Trust Now Has a U.S. beneficiary! What Are the Issues a Trustee Will Now Face in 2020?

For many wealthy families based in Europe, elegant private client planning is performed to high European standards. Then, one or more of the heirs moves to the U.S. What should be done to keep the family assets away from U.S. income tax and future estate tax? Good answers are not easy to come by, especially when the adviser suggests disqualifying the U.S. beneficiary from trust benefits. Surely, there must be a better way. There is, and in her article, Nina Krauthamer explores the issues and possible solutions to the ultimate conundrum.

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U.S.: CARES Act Loans and Business Tax Provisions and I.R.S. Announcements on Stranded Individuals

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U.S.: CARES Act Loans and Business Tax Provisions and I.R.S. Announcements on Stranded Individuals

New York City and much of the U.S. has been under some form of COVID-19 lockdown since the middle of March. During that time, Congress has enacted two stimulus packages, and a follow-up package has been approved by the House of Representatives. Stanley C. Ruchelman looks back at all that has happened in the past two and one-half months to protect the economic health of the country.

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Anti-Abuse Rules of Temp. Reg. §1.245A-5T – A New Cerberus for the U.S. Tax System

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Anti-Abuse Rules of Temp. Reg. §1.245A-5T – A New Cerberus for the U.S. Tax System

In a companion piece to the preceding article, Andreas A. Apostolides and Stanley C. Ruchelman explore many of the anti-abuse rules attached to the foreign D.R.D. provisions. These rules are designed to close the door on financial products that undermine the I.R.S. view of the global biosphere comprised of the D.R.D., Subpart F, P.T.I., and G.I.L.T.I. The goal is to ensure that the benefit of the foreign D.R.D. is not expanded beyond boundaries viewed proper by the writers of the regulations. The D.R.D. is not a tool to shift profits abroad and to bring those profits back to the U.S. tax-free.

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Corporate Matters – The Value of Par Value

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Corporate Matters – The Value of Par Value

Winston Churchill is known to have said that the U.S. and the U.K. are separated by a common language. The gap is much wider with the rest of Europe as tax and business terminology may be similar, but the gap in understanding is wider. One area of the law where the chasm remains wide relates to everyday corporate terms, such as par and par value for stock. Not an important term in the U.S., the concept of “par value” in Europe is extremely important, especially if the shareholders in the U.S. want dividends and the managing director in Europe desperately keeps away from any transaction that could give rise to liability if dividend distributions are found to impair capital. Simon Prisk comments on the accepted meaning of the term in the U.S. and the surprise response he encounters when advising European clients.

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U.K. Mandatory Disclosure Regime (DAC6)

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U.K. Mandatory Disclosure Regime (DAC6)

DAC6, adopted by the European Commission and enacted into law in the U.K., imposes a mandatory obligation on intermediaries, or individual or corporate taxpayers, to make disclosures to H.M.R.C. of certain cross-border arrangements and structures that could be used to avoid or evade tax. It also provides for automatic exchanges of information among E.U. Member States. Intermediaries know a cross-border arrangement is reportable when it meets certain hallmarks. In his article, Gary Ashford, a non-lawyer partner of Harbottle & Lewis, London, explains in plain English all the key terms and obligations. The European Commission has proposed that Member States defer the start date for reporting, however, the U.K. Government has not made any public announcement. This article is timely for those who are intermediaries in a reportable transaction.

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How Not to Borrow a Treaty: Smith v. Commr.

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How Not to Borrow a Treaty: Smith v. Commr.

For individual entrepreneurs operating across the globe, generating profits in corporations based in tax favored jurisdictions is a key ingredient in making and keeping a substantial share of profits. However, when the entrepreneur is a U.S. citizen, bringing those profits home requires careful planning in order to take advantage of the qualified dividend rules. Having a structure that is on the right side of the rules reduces the income tax rate on dividends to 20%. Having a structure on the wrong side, leaves the top rate at 37%. Too many entrepreneurs wait until the last minute to plan and even then have difficulty in following a plan based on tax law and economic substance. Galia Antebi and Stanley C. Ruchelman discuss a case in which one taxpayer was addicted to cutting corners or did not appreciate the risk when deviating from a plan. Whatever the reason, the plan crafted by his tax advisers never made it to the implementation stage. On paper, the plan worked. In substance, nothing was done. Big tax resulted.

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Heads I Win, Tails You (I.R.S.) Lose – Not Any More: Hybrid Dividends And Code §245A(e)

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Heads I Win, Tails You (I.R.S.) Lose – Not Any More: Hybrid Dividends And Code §245A(e)

With the enactment of the Tax Cuts and Jobs Act, much hoopla was made regarding the adoption of a territorial tax system in the U.S. What was not appreciated at the time was that so many anti-abuse rules were adopted in conjunction with the adoption of the G.I.L.T.I. rules, that the foreign D.R.D. is less of a lion and more like a hamster for most cross-border businesses based in the U.S. Neha Rastogi and Nina Krauthamer explore all the nuances and exceptions that make global tax planning under prior law an ever fonder memory.

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Taxation of Real Estate Investment in Israel

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Taxation of Real Estate Investment in Israel

In almost every country, the way real estate investments are taxed depends on a wondrous blend of factors, including the status of the owner of the property (individual or corporation), the nature of the asset (residential property, commercial property, land) and the purpose of investment (producing rental income or entrepreneurial profit). Israel is no different. In their article, Anat Shavit, a partner of Fischer Behar Chen Well Orion & Co. in Tel Aviv, and Ofir Fartuk, a senior associate at the same firm summarize the main factors one should take into consideration when contemplating real estate-related investments in Israel.

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Swiss Corporate Tax Reform: T.R.A.F. in a Nutshell

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Swiss Corporate Tax Reform: T.R.A.F. in a Nutshell

As a result of a favorable vote last year, T.R.A.F. – the tax reform in Switzerland – came into effect on January 1, 2020.  T.R.A.F. was crafted to generate additional revenue for cantons, enhance old age pensions and survivors insurance funding, and reform corporate tax rules.  Peter von Berg of Blum&Grob Attorneys at Law in Zurich, Switzerland, identifies the major changes for companies and individuals and provides examples of the effects on various entities.

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The Netherlands Introduces Compensation Regulation to Discourage “Dormant Employment”

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The Netherlands Introduces Compensation Regulation to Discourage “Dormant Employment”

· For U.S. tax advisers not versed in Dutch labor law, the world of employee rights and employer obligations is a thing to behold. To illustrate, in 2015, the Dutch parliament enacted a law under which an employee in the Netherlands having spent 104 weeks on paid sick leave is entitled to a transition payment if the employment contract was terminated by the employer. However, many employers attempted to avoid the payment by retaining these employees under “dormant contracts,” where the contract remained in force but there was no position available and no pay. New legislation effective April 1, 2020, breaks the deadlock. The transition fee remains in effect, but all or most of the payment is funded on a deferred basis by the Dutch government. Rachida el Johari and Madeleine Molster of Saguire Legal, Amsterdam, the Netherlands, explain how the Compensation Regulation works and propose a winning strategy for employers.

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The Multilateral Instrument and Its Applicability in India

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The Multilateral Instrument and Its Applicability in India

One of the most significant outcomes of the B.E.P.S. Project is the signing of the multilateral instrument (“M.L.I.”) in 2017.  The O.E.C.D. initiated the B.E.P.S. Project in 2013 with a view to curtail tax avoidance.  The M.L.I. addresses B.E.P.S. concerns in thousands of bilateral tax treaties through one common treaty.  India has been at the forefront of implementing B.E.P.S. measures, and India’s covered tax treaties will need to be read with the M.L.I. from April 1, 2020.  Sakate Khaitan of Khaitan Legal Associates, Mumbai, India, and Abbas Jaorawala, a chartered accountant and consultant to that firm, explain India’s positions on various provisions of the M.L.I. for those engaged in trade or investment opportunities relating to India.

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Foreign Tokens – U.S. Tax Characterization: Questions and Discussion

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Foreign Tokens – U.S. Tax Characterization: Questions and Discussion

· Initial coin offerings (“I.C.O.’s”) provide blockchain-based companies with a new way to raise capital. Companies in the U.S. and abroad have been raising capital using blockchain technology since 2016. As this means of raising funds gained popularity, the S.E.C. ruled that some tokens are securities, making U.S. I.C.O.’s subject to Federal securities laws. Tax questions also arose, but not all questions have been addressed by the I.R.S. Specifically, no guidance exists with respect to the proper characterization of a token, and as a result, U.S. investors are not assured of the tax consequences of their investments. Galia Antebi and Andreas A. Apostolides guide the reader through the issues, identify the problems, and suggest solutions where appropriate.

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O.E.C.D. to Use Hybrid Model to Develop Digital Economy Nexus and Profit Attribution Rules

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O.E.C.D. to Use Hybrid Model to Develop Digital Economy Nexus and Profit Attribution Rules

The O.E.C.D. announced on January 31, 2020, that its policy development efforts under Pillar One, related to the taxation of the digital economy, will move forward using the non-consensus “Unified Approach” as a working model.  The O.E.C.D.’s deadline for obtaining a consensus outcome is highly ambitious.  Michael Peggs provides his views.  Despite what people may think about when this effort should have begun, it is crucially important that it has begun at last and in an organized way.

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Variety Is the Spice of Life: Alternate Tax Structures for a U.S. Individual Disposing of Foreign Real Property

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Variety Is the Spice of Life: Alternate Tax Structures for a U.S. Individual Disposing of Foreign Real Property

When U.S. individuals acquire personal use real property or fallow land located abroad, the property often is owned by a corporation.  Typically, that decision is driven by local considerations, of one kind or another.  However, corporate ownership poses income tax issues in the U.S. at the time the property or the shares are sold.  Neha Rastogi, Nina Krauthamer, and Stanley C. Ruchelman explore various ways by which a sale can be effected and the U.S. tax considerations that result.  The answers may not be what the client expects to hear, especially if the sale transaction is cast as a sale of real property by a foreign corporation.

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Transfer of Business Contracts – I.R.S. Disagrees with Greenteam, No Capital Gains Without a Fight

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Transfer of Business Contracts – I.R.S. Disagrees with Greenteam, No Capital Gains Without a Fight

In an Action on Decision (“A.O.D.”) published in late 2019, the I.R.S. announced its nonacquiescence to the Tax Court’s decision in Greenteam Materials Recovery Facility v. Commr.  The case involved Code §1253, the provision that standardizes the rules under which payments that are incident to the transfer of a franchise, trademark, or trade name may or may not be properly treated as capital gains.  The case was decided in the taxpayer’s favor because the taxpayer’s agreement avoided all the terms that would otherwise cause the sales proceeds to be characterized as ordinary income.  The nonacquiescence means that the I.R.S. will not follow the holding in cases appealable in Circuit Courts of Appeals other than the 9th Circuit.  The I.R.S. position is that the assets were limited-term contracts to provide services under fixed-term arrangements and looked more like a sale of future income than the sale of an appreciated asset.  Lisa Marie Singh and Stanley C. Ruchelman discuss the case and the nonacquiescence, cautioning that a franchise contract that cannot appreciate over time because the payments are fixed in amount or in scope of service is not an appreciating asset in the eyes of the I.R.S.

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J-5 Step Up Anti-Money Laundering in 2020, Sights Set on Central America

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J-5 Step Up Anti-Money Laundering in 2020, Sights Set on Central America

The Joint Chiefs of Global Tax Enforcement, known as the J-5, is a coordinated team of crime-fighting tax authorities from the U.K., the U.S., Canada, Australia, and the Netherlands. Formed in 2018, the mandate of the J-5 is to stop the facilitation of offshore tax evasion and money laundering. In January, the J-5 conducted coordinated action regarding a Central American financial institution believed to be involved in money laundering and tax evasion on a global basis. Denisse Lopez reports.

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A gRETT-able Situation: New Trends in German Real Estate Transfer Tax on Share Deals

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A gRETT-able Situation: New Trends in German Real Estate Transfer Tax on Share Deals

For decades, the German Real Estate Transfer Tax Act ("gRETT Act") has imposed a transaction tax on the sale of real estate in Germany. In recent years, the tax has applied to the sale of shares that indirectly transfer real estate located in Germany. When initially enacted, a sale of all shares was taxable under the gRETT Act. In the year 2000, the triggering percentage was reduced to 95%. Last year, proposed legislation would have reduced the triggering percentage to 90%, but the draft bill was never enacted. In 2020, the triggering percentage may be reduced to as low as 75% or some other percentage whenever new legislation is adopted. Exactly what constitutes an indirect sale of German real estate is surprisingly broad, and unlike comparable taxes in other countries, the sales need not be related nor contemporaneous. In recent years, a populist clamor has arisen to broaden the scope of indirect transfers subject to the tax. Michael Schmidt of Schmidt Taxlaw, Frankfurt am Main, Germany, explains how and when the tax is imposed under current law and how it may be modified in the coming months.

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