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Democrats vs. Republicans: OPPOSITE VIEWS on Taxes

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Democrats vs. Republicans: OPPOSITE VIEWS on Taxes

One political party promotes higher taxes to fund a better life for voters in underserved places. The other political party promotes freedom to succeed financially from succeeding in business. Which political party will attract the most voters? It is anybody’s guess. Nina Krauthamer and Wooyoung Lee review the stated tax policies of the two parties. What is clear is that the supporters of the party that does not succeed will be very unhappy with the tax policy of the victor.

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The Aftermath of YA Global: Who is a Partner?

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The Aftermath of YA Global: Who is a Partner?

The YA Global case has drawn widespread attention due to the U.S. tax implications for foreign investment partnerships investing in U.S. securities or making use of a U.S. investment manager. The I.R.S. prevailed in the U.S. Tax Court, and the foreign investment partnership was found to have been engaged in the conduct of a U.S. trade or business in the facts presented. The Tax Court has now released a follow-up memorandum opinion that addresses the following question: what standard should be applied when determining whether a foreign recipient of an income payment from a partnership should be recognized as a partner for income tax purposes and subject to Section 1446 withholding tax? At stake is the U.S. withholding tax imposed on partnerships with foreign partners and U.S. effectively connected income. Wooyoung Lee and Stanley C. Ruchelman address the issue. Sometimes, financial engineers develop a plan that works well when stress tested in the office, but is far too complicated for the I.R.S. and Tax Court judges.

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French Life Insurance “101” – For U.S. Persons, Run Away

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French Life Insurance “101” – For U.S. Persons, Run Away

An individual takes out life insurance in order to provide for his heirs and to obtain peace of mind. Tax treatment for the individual during life and the heirs is straightforward when everyone resides in one country. But when a life insurance policy is written in France and the insured or the heirs are U.S. citizens or residents, what the policy holder, his estate, or the beneficiaries may encounter is anything but peace of mind. To their chagrin, each may find that he or she is in the crosshairs of contrary laws in two countries resulting in sub-optimal tax results. In their article, Sophie Borenstein, of attorneys Klein Wenner in Paris, Neha Rastogi, and Stanley C. Ruchelman discusses the French and U.S. tax rules applicable to a French life insurance policy. Grown men have cried over less complicated matters.

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Blunders in International Estate Planning

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Blunders in International Estate Planning

Trust & estate lawyers who dabble infrequently in cross border matters, take notice! It is relatively easy to lose your way when advising a non-U.S. person with assets in the U.S. Shortcuts that work when clients and properties are located in the same jurisdiction may lead to horrific problems when clients are domiciled in one jurisdiction and property is located in another. Examples are (A) drafting two wills where each revokes the other, (B) allowing an individual having a foreign domicile to directly own financial assets in the U.S., such as shares of publicly traded stock or mutual funds, can result in unanticipated estate tax and long delays before heirs have access to the assets, (C) not knowing which I.R.S. information reporting forms must be filed when a new client is a recent arrival from abroad can yield significant penalties for the client, (D) allowing a resident, non-citizen individual to return to the home country is an invitation to unnecessary U.S. estate tax if the client retains investment assets and real property in the U.S., and (E) not noticing inconsistencies in residuary clauses in a principal will drafted in the home country and a U.S. property only will drafted in the U.S. begs for a will fight. Diane K. Roskies, a principal in the New York office of the Offit Kurman law firm, and Zachary Weitz, an attorney in the Los Angeles office of the same firm, explain the severe problems that may be encountered, but do so in a light hearted manner.

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Design and Impact of the Colombian “Significant Economic Presence” Regime

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Design and Impact of the Colombian “Significant Economic Presence” Regime

Before and after joining the O.E.C.D. in 2020, Colombia was an enthusiastic adopter of international tax policies promoted by the O.E.C.D.’s B.E.P.S. Project. Two motivations spurred this action. First, the government wished to overcome technical gaps in the domestic legislation of cross-border taxation. Second, the government sought additional revenue from nonresident companies doing business with clients based in Colombia. However, the Significant Economic Presence (“S.E.P.) regime breaks with the tradition of adopting modifications in a way that is consistent with O.E.C.D. policies. Colombia created the S.E.P. regime as a unilateral alternative to the global proposal of Pillar 1, rejecting this proposal based on two strategic considerations. The first was the low probability of global implementation. The second was the expansion of the tax base beyond that provided by Pillar 2. Depending on your viewpoint, the S.E.P. regime contains certain elements that resemble an income tax and other elements that resemble a V.A.T. Eric Thompson, a Partner of attorneys Cañón Thompson in Bogota, takes a deep dive in his article and tells all. He suggests that a tax that was intended to raise revenue from nonresident suppliers may simply result in price increases in Colombia. Who knew that could happen?

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Demystifying Key Complexities of the India Budget 2024-25

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Demystifying Key Complexities of the India Budget 2024-25

The Indian finance minister presented Budget 2024-25 (the “Budget”) earlier this year. During the last financial year, the Indian economy reported growth rate in G.D.P. of 8.2%. Surpassing the United Kingdom, India has sprinted to the position of the fifth largest economy in the world. Budget 2024-25 has been crafted to continue the economic growth of the county. To that end, the budget includes the following provisions regarding direct taxation: (A) Favorable changes in the holding period and tax rates for long-term capital gains, (B) Limitations on the availability to index costs when computing capital gains that in many instances are taxed at lower rates, (C) Parity in rates for residents and nonresidents, (D) Abolition of the Angel Tax, (E) New tax rules for the taxation of a corporate buyback of shares, and (F) The repeal of Equalization Levy 2.0 on e-commerce transactions. Jairaj Purandare, the Founder & Chairman of JMP Advisors Pvt Ltd, Shibani Bakshi, an Associate Director of the firm, and Siddhita Desai, an Associate with the firm, explain the new provisions.

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Earning My Credits: Life At Ruchelman P.L.L.C.

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Earning My Credits: Life At Ruchelman P.L.L.C.

Ruchelman P.L.L.C. actively participates in the extern program for students in the LLM Program at New York Law School. We provide real life professional experience to the extern and the extern receives two credits towards the award of a degree. Our younger lawyers benefit by providing hands-on supervision of the extern, a needed step in professional development. Recently, we expanded our extern program to include J.D. students at New York Law School who have taken enough tax courses to demonstrate a desire to pursue a tax focus in the practice of law. This spring, our extern was Vanessa Lebbos, now a law school graduate. In her article, Vanessa explains her journey in law school, her interest in taking tax courses, and her experience at our firm. Mentoring an extern can be its own reward. That certainly was our experience with Vanessa. 

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Information Reporting on Foreign Trusts and Gifts – New Regulations

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Information Reporting on Foreign Trusts and Gifts – New Regulations

On May 8th, the Treasury Department and the I.R.S. proposed regulations regarding information reporting in the context of U.S. persons, foreign trusts, and gifts from non-U.S. persons. When adopted in final form, they will affect (i) U.S. persons who engage in transactions with, or are treated as the owners of, foreign trusts and (ii) U.S. persons who receive large gifts or bequests from foreign persons. The scope of the proposed regulations is broad, and many existing regulations are affected. Wooyoung Lee and Stanley C. Ruchelman take a deep dive addressing specific regulatory provisions that are affected. Many “open doors” that currently exist have been closed. The authors tell all, linking explanations in the preamble to the proposed regulations with specific regulations in the proposal.

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Developments in Anti-Abuse Measures And Acquisition Financing in the Netherlands

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Developments in Anti-Abuse Measures And Acquisition Financing in the Netherlands

Last year, Insights published an article by Michael Bennett on cases in which the Dutch tax authorities used Article 10a of Dutch tax law and the concept of fraus legis to challenge deductions for interest expense on certain internal borrowings. The article pointed out that many grey areas and interpretative issues remained. Since that article was published, the Dutch Supreme Court, the Advocate General for the C.J.E.U., and the Advocate General of the Netherlands have issued opinions on three separate cases. In his article in this edition of Insights, Michael Bennett reviews the opinions and points out the ongoing uncertainty surrounding the precise scope of Article 10a and its interaction with fraus legis.

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Netherlands: New Legislation to Combat Hybrid Mismatches

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Netherlands: New Legislation to Combat Hybrid Mismatches

Late in 2023, the Netherlands parliament adopted a legislative proposal intended to significantly reduce the use of hybrid mismatch arrangements by companies operating internationally. While the legislative proposal reflects the policy of A.T.A.D. 2. – combatting hybrid mismatches – it does so through the adoption of a system to achieve uniform classification of entities on a cross border basis. Gerard van der Linden, a partner of Van Olde Tax Lawyers in Amsterdam, and Thijs Poelert, an associate at Van Olde Tax Lawyers in Amsterdam, explain the fixed method and the symmetric method for classifying foreign entities that are at the core of the law. Classification rules for certain domestic and foreign entities have been modified significantly. C.V.’s, L.P.’s, and L.L.C.’s will be treated as fiscally transparent. The new law is scheduled to take effect on January 1, 2025.

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French Reporting Obligations for Foreign Financial Trusts

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French Reporting Obligations for Foreign Financial Trusts

In general, French information reporting obligations regarding foreign financial trusts are broad, the scope of reporting persons and transactions are broader, and the risk of penalties is severe. By definition, foreign financial trusts are formed under foreign law, have only non-French individuals as settlors and beneficiaries, and in France own only financial investment assets. French reporting obligations can be a burden for the trustees of these trusts and foreign trustees often are not aware of the full scope of the French rules. Even when the rules are known by the trustee, they are ambiguous and imprecise, leading to legal uncertainty. The problem often affects U.S. individuals who invest in French financial assets through trusts upon the recommendation of U.S. asset managers or private bankers. Programs to issue U.S. Dollar Denominated Medium-Term Notes (“U.S.D.M.T.N.’s”) represent a major source of U.S. Dollar liquidity for French banks. In their article, Benoit Bailly, a partner in the Paris office of CMS Francis Lefebvre, and Carl Meak, an associate in the Paris office of CMS Francis Lefebvre, address the labyrinth of reporting obligations that exist in the guidelines issued by French tax authorities. They point out that several rulings of the the Service de la sécurité juridique et du contrôle fiscal appear to be helpful. Nonetheless, more work is left to be done.

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U.S. Citizens Owning Swiss Real Estate – Cross Border Estate Planning is a Necessity

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U.S. Citizens Owning Swiss Real Estate – Cross Border Estate Planning is a Necessity

More and more Americans are living and working in Switzerland. Today, it is common for American citizens to own assets in Switzerland, especially real estate. While impediments to acquire Swiss real estate are easily overcome, the ability to transfer real estate at death in a way that meets the expectations of the American owner requires careful planning in advance. Differences in the inheritance and tax laws of the two countries make estate planning in U.S.-Swiss inheritance cases particularly complex. The problem is exacerbated by differences in conflict-of-law laws. Daniel Gabrieli, a partner in the Private Clients practice group of attorneys Wenger Plattner in Zurich, and Nils Kern, an associate in the Private Clients practice group of attorneys Wenger Plattner in Zurich, explain the issues that are faced under Swiss law, provide a typical fact pattern that may create problems at death, and suggest steps that can be taken during life to avoid the issue altogether.

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Italy Introduces a Penalty Protection Regime for Hybrid Mismatches: Trick Or Treat?

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Italy Introduces a Penalty Protection Regime for Hybrid Mismatches: Trick Or Treat?

Anti-hybrid legislation consistent with A.T.A.D. 2 has been in effect in Italy for fiscal years beginning on or after January 1, 2020. But towards the close of last year, legislation was enacted under which penalty relief is available as of the 2023. The key to obtaining relief is the “hybrid dossier,” which is submitted to the tax authorities and provides full disclosure of the hybrid transactions, the relevant laws in Italy and the other country, and the reasoning why the anti-hybrid penalties are inapplicable. While the new rules clearly apply beginning with the 2023 fiscal year, retroactive relief back to the 2020 fiscal year is allowed, provided one hurdle is overcome. Retroactive relief is available if, and only if, Italian tax authorities “have not started a tax audit, investigation activities, or other similar actions for those fiscal years.” It is understood that Italian tax authorities have already begun to notify targeted taxpayers with questionnaires. In their article, Federico Di Cesare, a Partner of Macchi di Cellere Gangemi in Rome and Milan, and Dimitra Michalopoulos, an Associate in the tax practice of Macchi di Cellere Gangemi in Rome, explain the legislation, address the content of the hybrid dossier, and address the most important issue for many taxpayers: have Italian tax authorities taken action similar to a tax audit by the circulation of the questionnaire?

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Adventures In Transfer Pricing – Practical Experience In Germany

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Adventures In Transfer Pricing – Practical Experience In Germany

 For many years, German tax authorities suspected that M.N.C.’s transfer pricing policies were not in line with the arm’s length principle. Consequently, it comes as no surprise that Germany spearheaded international regulatory developments related to the arm’s length standard. International M.N.C.’s face ever increasing tax controversies in matters related to transfer pricing. In some cases, T.N.M.M. benchmarking is challenged under the view that a German sales entity makes intangible-related D.E.M.P.E. contributions in the field of marketing. In other cases ,C.U.T. benchmarking for intercompany license fees is challenged on grounds that the intangible property licensed to a German affiliate is unique by definition, thereby leading to a profit split. Restructures are attacked using inflated values for routine activities that remain in Germany. However, all is not bleak. In three case studies, Dr. Yves Herve, a Senior Managing Director in the Frankfurt Office of NERA and Philip de Homont, MSc, a Managing Director in the Frankfurt Office of NERA, illustrate in “plain language” the ways by which in-depth economic analysis has been used to overcome aggressive assertions by tax examiners.

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Altria, C.F.C.’s, Downward Attribution, and the “Real” Congressional Intent

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Altria, C.F.C.’s, Downward Attribution, and the “Real” Congressional Intent

Determining Congressional intent is not often an easy task, especially when Congress has been silent, one way or the other. Nonetheless, when it comes to “downward attribution” of share ownership, the intent of Congress rises to the level of an enigma, at least in the eyes of Altria Group, Inc. As part of the T.C.J.A., the scope of Subpart F was expanded by eliminating a ban on the attribution of ownership in a series of foreign subsidiaries from a foreign parent corporation to all its U.S. subsidiaries. In a nutshell, all such foreign subsidiaries could be categorized as controlled foreign corporations or C.F.C.’s. This did not necessarily raise tax revenue as much as expose significant numbers of U.S. corporations to penalties for failing to file forms required of “U.S. Shareholders” of C.F.C.’s. The Treasury Department says the statutory language is clear with no room for carveouts. Altria looks to several items of legislative history and statements by leading senators to suggest otherwise. As Wooyoung Lee explains in his article, this is the substance of the tax dispute between Altria and the I.R.S., which is now before the U.S. District Court for the Eastern District of Virginia.

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The Sun is Setting on the T.C.J.A.: Time to Set Gaze on Pre-T.C.J.A. Tax Law

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The Sun is Setting on the T.C.J.A.: Time to Set Gaze on Pre-T.C.J.A. Tax Law

The Tax Cuts and Jobs Act (“T.C.J.A.”) was enacted in 2017, bringing substantial alterations to the tax landscape for individuals and corporations. Many of these alterations are set to expire at the end of 2025. Understanding these changes, including their implications and timelines, is crucial for individuals and corporations. Michael Bennett addresses some of the more problematic provisions that are scheduled to reappear in the tax law. Among other things, individual tax rates will increase, the standard deduction will decrease, S.A.L.T. deductions will be allowed, corporate tax rates will increase, the Q.B.I. deduction will expire, the corporate tax on G.I.L.T.I. will increase, and the tax benefit for F.D.I.I. will decrease.

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Israel Proposes Modifications to Tax Reporting Obligations for Olim

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Israel Proposes Modifications to Tax Reporting Obligations for Olim

Acting in response to recommendations by the O.E.C.D. Global Forum on Transparency and Exchange of Information for Tax Purposes, legislation has been proposed in Israel to adopt new reporting obligations for Israeli entities, certain trusts, and individuals known as “Residents for the First Time” and “Senior Returning Residents.”  The proposed amendment does not alter tax liabilities in Israel or eliminate preferred tax treatment of Olim. Rather, it revises certain reporting obligations in order to increase transparency. As of April 1, 2024, adoption is imminent. Boaz Feinberg, a partner of Arnon, Tadmor-Levy Law Firm, Tel Aviv, explains all. 

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The Most Important 15 Questions to Ask About the Forfait in Switzerland

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The Most Important 15 Questions to Ask About the Forfait in Switzerland

As one door closes for non-doms in the U.K., a tried and true door may open in Switzerland, in the form of a negotiated annual tax amount. For many decades, several cantons in Switzerland have adopted a special taxation regime known as the forfait. It allows foreign nationals relocating to the respective canton to pay tax based on worldwide living costs. Although the forfait regime was abolished in a number of cantons, a national vote was held in 2014 turning down a proposal calling for its elimination. In his article, Michael Fischer, the founding partner of Fischer Ramp Buchmann AG, Zürich, asks – and answers – questions about the most important elements to be considered when considering Switzerland as a new place of residence.

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U.K. Budget Proclaims Death Knell For Remittance Basis Taxation

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U.K. Budget Proclaims Death Knell For Remittance Basis Taxation

As was widely anticipated, the Chancellor of the U.K. used his budget speech on March 6 to announce the termination of the non-domicile regime and remittance basis of taxation effective April 12, 2025. In its place, a new foreign income and gains (“F.I.G.”) regime will be available for individuals who become U.K. tax resident after a period of 10 tax years of nonresident status.  Individuals who qualify for the new regime will be able to bring F.I.G. to the U.K. free from any U.K. tax for up to four years. Current non-doms who cannot qualify for the F.I.G. regime can benefit from a 50% deduction on remittances through April 5, 2026. Kevin Offer, C.A., a partner of Hardwick and Morris L.L.P., London, explains these and other provisions that will apply as the U.K. enters a brave new world.

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Will Service Automation Companies Qualify for the Q.S.B.S. Exemption?

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Will Service Automation Companies Qualify for the Q.S.B.S. Exemption?

Many U.S. investors and business owners are familiar with the tax exemption provided to U.S. individuals recognizing gains from the sale of certain U.S. stock, defined as qualified small business stock (“Q.S.B.S.”). The Q.S.B.S. exemption plays an important role in the growth of hi-tech industry, which is dependent on investments by U.S. persons. It typically benefits U.S. individuals who invest in start-up software companies. However, the Q.S.B.S. exemption is not available for investment gains related to corporations engaged in the provision of nonqualified services, such as health care, brokerage, law, engineering, architecture, and accounting. However, a business that develops software that is used in those may qualify in certain circumstances, but not qualify in others. The key is whether the software is a tool for a person performing the nonqualified business or the software supplants the individual in performing the business. In this article, Stanley C. Ruchelman addresses two I.R.S. rulings illustrating the facts that distinguish a computer program that is a tool for service providers from facts that cause a program to be treated as a robot service provider.

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