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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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C-Corps Exempt from Full Scope of Foreign Income Inclusion

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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.

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I.R.S. Plan to Reject Foreign Taxpayers' Refunds Criticized by I.R.S. Advisory Committee

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The I.R.S. proposal to deny refunds of excess withholding tax in cases were the withheld tax is stolen by the withholding agent was harshly criticized by the Information Reporting Program Advisory Committee. It seems the I.R.S. does not have the authority to pass the loss onto the party that suffered withholding. Elizabeth V. Zanet and Andrew P. Mitchel discuss the issue in detail.

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A Foreign Taxpayer’s Refund or Credit Could Be Limited by Upcoming Regulations

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In Notice 2015-10 (the “Notice”), issued on April 28, 2015, the I.R.S. stated that it was concerned about cases in which persons subject to withholding under Code §§1441-1443 (“Chapter 3”) or Code §§1471 and 1472 (“Chapter 4”) are making or will make claims for refunds or credits in circumstances where a withholding agent failed to deposit the amounts required to be withheld under §6302.

If a withholding agent fails to deposit an amount withheld under Chapters 3 or 4, or reported as withheld on Form 1042-S, and the I.R.S. issues a refund or credit for the amount, the I.R.S. may not be able to recover that amount because the claimant, and in some cases the relevant withholding agent, may be outside the United States. The new regulations aim to reduce the risk that the I.R.S. may issue improper refunds or credits for fictitious withholding or amounts that have not been deposited and are difficult to collect.

As will be seen below, the new regulations would limit a foreign taxpayer’s refund or credit to the amount deposited by the withholding agent. Though collecting undeposited amounts from withholding agents located outside the United States may be difficult for the I.R.S., one wonders about the fairness of limiting a foreign taxpayer’s refund or credit when the I.R.S. could use its greater resources to collect against the withholding agent.

Tax 101: Understanding U.S. Taxation of Foreign Investment in Real Property - Part I

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INTRODUCTION

U.S. real estate has been a popular choice for foreign investors, whether the property is held for personal use, rental or sale, or long-term investment. Since the passage of the Foreign Investment in Real Property Tax Act of 1980 (“F.I.R.P.T.A.”), the governing tax rules have developed and evolved, but have not succeeded in discouraging foreign investment. F.I.R.P.T.A. can be a potential minefield for those unfamiliar with U.S. income, estate, and gift taxation – all of which come into play. This article is the first of a series on understanding U.S. taxation of foreign investment in real property.

TAXATION OF A FOREIGN PERSON

“A foreign person is subject to U.S. income tax only on income that is characterized as U.S. source income.”

As simple as the concept sounds, there are applicable nuances, caveats, exemptions, and exceptions. Therefore, several questions must first be answered to determine the U.S. income tax consequences for a foreign person engaged in U.S. economic activities, including ownership of real property:

  1. Is the income derived from a U.S. source and therefore potentially taxable?
  2. Is the income taxable or exempt from tax?
  3. Is the income passive or active, subject to a flat withholding tax on gross income or, alternatively, to graduated rates on net income?
  4. Is the income earned by an individual or corporation or other entity, each of which may have different rules and applicable tax rates?