India’s $6.4 Billion Tax on Foreign Investment

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Foreign institutional investors in India have been troubled by the demands from Indian tax officials to pay liabilities owed under the newly enforced minimum alternate tax (“M.A.T.”). India’s Finance Minister, Arun Jaitley, announced that beginning April 1, portfolio investors residing in countries that have tax treaties with India are fully exempt from the tax and will not have to pay the accompanying 20% levy on past capital gains.

The M.A.T. is essentially a minimum corporate tax that creates an overall tax of 20% on capital gains. Previously, foreign investors paid 15% on short term listed equity gains, 5% on bond gains, and nothing on long term gains.

In 2014, India’s Finance Ministry began issuing notices to foreign companies for the payment of the M.A.T. on past capital gains amounting to $6.4 billion, collectively. The Finance Ministry has not enforced the M.A.T. on foreign institutional investors for over 20 years, according to the international fund organization, Investment Company Institute Global. Foreign institutional investors have been contending that the M.A.T. should only apply to Indian companies, not foreign entities.

“Trust” – A New Concept in Russia

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In recent years, Russia has introduced several economic and political reforms, including a deoffshorization policy that some would say appears to be sound economic policy but others would say is more politically motivated by the centralization of power in the office of the President. In principle, the idea is to make Russian legislation friendly for Western investors, although the context suggests otherwise. Nonetheless, Russia is attempting to westernize its domestic laws and introduce economic concepts that are familiar to Western businessmen.

BACKGROUND

In 2014, the Russian government came out with a plan that would attack capital flight by residents. This was the so-called “deoffshorization” of investments. Among other things, this legislation increases the tax burden of many offshore holding companies by requiring payment of Russian taxes in the absence of any repatriation of profits. It also requires the disclosure of beneficial owners in the accounting statements of these holding companies. Again, these are concepts that are popular among policy makers in Western Europe, albeit in a different context.

Now, the Russian government is contemplating introduction of the “trust” into the Russian legal system. New laws are anticipated that are intended to formalize Russian arrangements where the nominal owner and the beneficial owner are separate individuals.

Economic Distortions Arising from Deferral

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By Christine Long

This month, our team delves into the Joint Committee Report addressing international tax reform in a series of articles.The report explains what corporate tax executives know but most tax advisers and voters forget: The after-tax returns can be greater when one chooses to build a plant outside the U.S. Moreover, it never makes sense to repatriate the earnings and trigger the recognition of deferred tax expense. Is this the way to manage an economy? Christine Long comments.  See more →

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Competitiveness of the U.S. Tax System

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By Stanley C. Ruchelman, Andrew P. Mitchel, and Sheryl Shah

This month, our team delves into the Joint Committee Report addressing international tax reform in a series of articles. The report compares the U.S. tax system with the systems of other countries. Stanley C. Ruchelman, Andrew P. Mitchel, and Sheryl Shah explain what the J.C.T. staff believes. It is not pretty.  See more →

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The Future of Ireland as a Place to Carry On Business in Light of Recent E.U. & O.E.C.D. Initiatives

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INTRODUCTION

Ireland has long been established as the onshore location of choice for the world’s leading multinational enterprises (“M.N.E.’s”). Although Ireland’s attractiveness as a location for foreign direct investment is based on a number of factors, the low corporate tax rate of 12.5% is crucial.

Ireland’s corporate tax regime has received persistent and pervasive scrutiny from international media in recent times, focusing on topics such as the “Double Irish,” the O.E.C.D. B.E.P.S. initiative, and the Apple investigation. What must not be forgotten in the midst of such coverage is that Ireland has nothing to hide and nothing to fear from any of the above issues. Ireland is a small jurisdiction, and as far back as the 1950’s, the cornerstone of the economy has been foreign direct investment (“F.D.I.”).

Ireland makes no secret of its wish to compete with other jurisdictions for F.D.I., and its highly competitive corporate tax regime, including the 12.5% tax rate, forms part of a broader strategy that allows Ireland to “play to win.”

This article will discuss some of the main O.E.C.D. and E.U. initiatives impacting Ireland and the effects such initiatives are likely to have on Ireland and the M.N.E.’s which are based here.

Tax 101: Tax Planning and Compliance for Foreign Businesses with U.S. Activity

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I. INTRODUCTION

The U.S. tax laws affecting foreign businesses with activity in the U.S. contain some of the more complex provisions of the Internal Revenue Code. Examples include:

• Effectively connected income,
• Allocation of expenses to that income,
• Income tax treaties,
• Arm’s length transfer pricing rules,
• Permanent establishments under income tax treaties,
• Limitation on benefits provisions in income tax treaties that are designed to prevent “treaty shopping,”
• State tax apportionment,
• F.I.R.P.T.A. withholding tax for transactions categorized as real property transfers,
• Fixed and determinable annual and periodical income, and
• Interest on items of portfolio debt.

One can imagine that it is no easy task to identify income that is subject to tax, to identify the tax regime applicable to the income, and to quantify gross income, net income, and income subject to withholding tax. Nonetheless, the I.R.S. has identified withholding tax obligations of U.S. payers as a Tier I audit issue.