HIDE

Other Publications

Insights

Publications

C.J.E.U. Judgments on Danish Beneficial Ownership Cases

C.J.E.U. Judgments on Danish Beneficial Ownership Cases

Earlier this year, the C.J.E.U. released two judgments dealing with the interpretation of the Parent-Subsidiary Directive (“P.S.D.”) and the Interest & Royalties Directive in the E.U.  In each case, a structure was meticulously built to comply with national and E.U. law allowing global investors to bring funds to the E.U. in return for dividends and interest that were subject to little or no national tax in any E.U. country.  Nothing in the structure was unique, other than the reticence of the Danish tax authorities to grant withholding tax exemptions.  To the surprise of many, the C.J.E.U. looked at the structure and concluded that it lacked economic substance and should be disregarded by reason of a general E.U. anti-abuse principal.  The internal E.U. recipients of the dividend and interest payments were not considered to be the beneficial owners of the income.  Almost 50 years after the Aiken Industries case in the U.S. Tax Court and 25 years after the anti-conduit regulations were adopted by the I.R.S., European substance-over-form rules have now been adopted by judicial fiat.  Thierry Lesage and Adnand Sulejmani of Arendt & Medernach SA, Luxembourg, meticulously explain the reasoning of the court and suggest that the court may have erred by conflating anti-abuse rules with beneficial ownership concepts.

Read More
/Source

Employers in the Netherlands: Prepare for Changes to Labor and Dismissal Laws In 2020

Employers in the Netherlands: Prepare for Changes to Labor and Dismissal Laws In 2020

In May, the Dutch Senate adopted the Labor Market in Balance Act designed to reduce the gap in legal protection and financial compensation between employment arrangements under fixed-term contracts and employment arrangements with indefinite term. The act provides greater rights on termination and, as a result, is unpopular with employers. It also aims to resolve some of the negative effects of an earlier amendment to the law that has been the subject of relentless criticism. Rachida el Johari and Madeleine Molster of Sagiure Legal, Amsterdam, explain the way Dutch labor law will affect termination rights for employees and suggest a path forward for management. This is another area of E.U. law in which companies will need to re-educate executives on proper patterns of behavior.

Read More

The Devil in the Detail: Choosing a U.S. Business Structure Post-Tax Reform

The Devil in the Detail: Choosing a U.S. Business Structure Post-Tax Reform

Prior to the T.C.J.A. in 2017, the higher corporate income tax rate made it much easier to decide whether to operate in the U.S. market through a corporate entity or a pass-thru entity. With a Federal corporate income tax rate of up to 35%, a Federal qualified dividend rate of up to 20%, and a Federal net investment income tax on the distribution of 3.8%, the effective post-distribution tax rate was 50.47%, before taking into account State and local taxes. With the post-tax reform corporate income tax rate of 21% and the introduction of the qualified business income and foreign derived intangible income deductions, the decision to choose a pass-thru entity is no longer apparent. In their article, Fanny Karaman and Nina Krauthamer look into some important tax considerations when choosing the entity for a start-up business in the U.S.

Read More

Debt Characterization and Deductibility Under Domesticated International Rules

Debt Characterization and Deductibility Under Domesticated International Rules

The limitation of interest deductibility to 30% of adjusted E.B.I.T.D.A. has focused the attention of U.S. corporations and their lenders on new constraints. How does a borrower demonstrate the capacity to carry and service debt, and how do related parties demonstrate that the rate of interest and other terms attaching to a cross-border loan are arm’s length? Michael Peggs and Stanley C. Ruchelman address these issues, explaining the three methods used to identify the boundary between debt and equity: (i) the qualitative approach of case law (I know it when a I see it, although I can’t agree to a uniform standard of application), (ii) the data-driven approach of comparative analysis (I know it when I can measure the effect, much like gravity), and (iii) the procedural approach for borrowers as set out in the Code §385 regulations which were in effect for a short period of time (I know it when I follow the recipe in the regulatory cookbook).

Read More

Qualified Opportunity Zones: Second Set of Proposed Regulations Offers Greater Clarity to Investors

Qualified Opportunity Zones: Second Set of Proposed Regulations Offers Greater Clarity to Investors

The Opportunity Zone tax benefit, which was crafted as part of the 2017 tax reform, aims to encourage taxpayers to sell appreciated capital properties and rollover the gains into low-income areas in the U.S.  One major benefit – reducing recognition of deferred gains by up to 15% – is available only to investments made before the end of 2019, although other benefits will continue to be available to later investments.  The clock is ticking on the 15% reduction, and the I.R.S. is accelerating the issuance of guidance.  In late April, the I.R.S. released a second set of proposed regulations that address many of the issues that were deferred in the initial set.  They also address issues raised by written comments and testimony at the well-attended public hearing in February.  In their article, Galia Antebi and Nina Krauthamer lead the reader through the important and the practical parts of the second set of guidance.

Read More