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Joint Audits: A New Tool for Cross-Border Tax Evasion

Joint Audits: A New Tool for Cross-Border Tax Evasion

When a large corporate taxpayer receives an audit notification letter from the tax authority in its country of residence, the taxpayer typically knows what to expect: a lengthy process of documenting and defending its tax position. It also knows the process under domestic law for appealing adverse tax adjustments, and if cross-border issues are raised, it knows how to take advantage of Mutual Agreement Procedures between competent authorities under an income tax treaty. The full process can take years to resolve. Now, however, a pilot program between German and Italian tax authorities empowers a joint cross-border audit team to conduct a single joint audit of cross-border operations between the two countries. The joint audit is intended to be more effective for resolving issues of double taxation in cases involving complex facts related to (i) transfer pricing issues, (ii) residency or permanent establishment issues, and (iii) aggressive tax planning schemes. Marco Orlandi of Ludovici Piccone & Partners, Milan, examines the actual process followed in the pilot program and comments on whether the goals of the joint audit have been achieved.

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Coming to the U.S. After Tax Reform

Coming to the U.S. After Tax Reform

Now, more than six months after enactment of the Tax Cuts & Jobs Act, many tax advisers have achieved a level of comfort with the brave new world of Transition Tax, F.D.I.I., G.I.L.T.I., B.E.A.T., and incredibly low corporate tax rates. However, sleeper provisions in the new law can have drastic adverse tax consequences in the realm of cross-border transactions and investments: (i) the threshold for becoming a C.F.C. has been reduced significantly by several changes in U.S. tax law and (ii) the 10.5% tax rate for G.I.L.T.I. is limited to corporations so that individuals face ordinary income treatment for G.I.L.T.I. inclusions from foreign corporations that were not C.F.C’s. prior to the new law. Jeanne Goulet of Byrum River Consulting L.L.C., New York, addresses these problems and suggests several planning opportunities.

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Israeli Court Case First to Interpret Ten-Year Exemption

Israeli Court Case First to Interpret Ten-Year Exemption

Effective in 2007, Israel’s New Immigrant Benefits rules are intended to promote immigration through the grant of substantial tax benefits: (i) a ten-year tax exemption for foreign-source income produced or accrued outside Israel or income stemming from assets located outside Israel and (ii) an exemption for all tax reporting requirements related to exempt income. Over the years, the Israeli tax authorities applied strict rules in determining (i) whether a specific item of income should be considered to be foreign source income and (ii) the portion that is properly treated as foreign in circumstances of mixed income – part foreign and part domestic. Now, eleven years after the New Immigrant Benefits rules became effective, the first case addressing these open questions has been decided, Talmi v. Kfar Saba Tax Assessor. Daniel Paserman and Inbar Barak-Bilu of Gorntizky & Co., Tel Aviv, report on the holding. In brief, the taxpayer won on principles but lost on the basis of his facts.

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U.K. Requirement to Correct

U.K. Requirement to Correct

The “Requirement to Correct” (“R.T.C.”) rules for offshore tax affairs in the U.K. threaten steep penalties if noncompliant taxpayers at April 5, 2017, do not take action to correct the relevant noncompliance by September 30, 2018. In a detailed look at the R.T.C. rules, Gary Ashford of Harbottle & Lewis L.L.P., London, explains the ins and outs of the provisions, including (i) the definition of offshore noncompliance, (ii) covered taxes, (iii) penalties, (iv) the reasonable cause defense, (v) disqualified advice that cannot be reasonable cause, (v) the method that must be followed to implement a valid correction, (vi) the statute of limitations, and (vi) recent guidance from H.M.R.C. regarding last minute notifications by noncompliant taxpayers. The final date for completing a correction is December 29, 2018.

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O.E.C.D. and European Commission Unveil Proposals on Taxation of the Digital Economy

O.E.C.D. and European Commission Unveil Proposals on Taxation of the Digital Economy

Following the release of the O.E.C.D.’s B.E.P.S. Action Plan and the E.U.’s approval of the Anti-Tax Avoidance Package, the taxation of the digital economy continues to be unfinished business in the international tax arena.   New O.E.C.D. and the European Commission documents mark a milestone, especially the latter, which include two different approaches.  They also highlight the difficulties in achieving a consensus, which seems desirable when implementing measures that increase the tax burden of digital activities.  José Luis Gaudier of Cuatrecasas, Barcelona, delves into the O.E.C.D. and the European Commission approaches to taxing the digital economy.

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