June 27, 2017

I.R.S. Pushes to Ease Implementation of Country-by-Country Reporting for U.S. M.N.E.’s

June 27, 2017/ Ruchelman P.L.L.C.

It is widely known that the U.S. is following its own path towards international tax compliance. It has not signed onto the O.E.C.D.’s Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports; it does not participate in the Common Reporting Standard; and it did not sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent B.E.P.S. Nonetheless, at the request of U.S. multinationals, the I.R.S. has adopted domestic income tax regulations on country-by-country (“CbC”) reporting. In May, the I.R.S. confirmed the first bilateral competent authority agreement regarding CbC reporting was signed with the Netherlands. That agreement has now been followed by agreements with Canada, Denmark, Guernsey, Iceland, Ireland, Korea, Latvia, New Zealand, Norway, Slovakia, and South Africa. Galia Antebi and Kenneth Lobo delve into the U.S. rules and forms for CbC reports.

May 23, 2017

Foreign Tax Credit May Not Be Available for Gains Derived Outside the U.S.

May 23, 2017/ Ruchelman P.L.L.C.

Merely because a foreign country imposes an income tax and the tax is creditable does not mean that effective relief from double taxation is available. The U.S. retains the first right to tax income and gains that are domestic in character, and the income or gain on which the foreign tax is imposed must be categorized as foreign for relief to be provided. Kenneth Lobo and Galia Antebi focus on this issue and advise that advance planning will be required.

April 28, 2017

Code §163(J) – Ignoring U.S. Thin Capitalization Rules May Leave Tax Advisors Thinly Prepared for Audits

April 28, 2017/ Ruchelman P.L.L.C.

B.E.P.S. Action 4 focuses on the need to address base erosion and profit shifting using deductible payments, such as interest, that can give rise to double nontaxation in inbound and outbound investment scenarios. The U.S. addressed this problem many years ago with Code §163(j). In light of recent I.R.S. guidance providing a step-by-step plan to assist auditors when analyzing interest payments, non-U.S. practitioners should be aware of the thin capitalization debt rules when planning for multinational structures. Kenneth Lobo and Beate Erwin explain how the provision works in general and in several illustrative fact patterns.

April 28, 2017

Valuation – More Art than Science

April 28, 2017/ Ruchelman P.L.L.C.

In a recent case, the Tax Court was asked to evaluate two Old Masters paintings from the 17th century. Sotheby’s provided the valuation for estate tax purposes on a gratuitous basis. The appraised value totaled $600,000 for the two works. The estate retained the same auction house to sell one of the paintings. The sale price at auction was $2.1 million before buyer’s premium, and the auction took place within 34 months of the issuance of the appraisal report. Kenneth Lobo and Nina Krauthamer explain why the court had no difficulty finding that the estate’s expert was not independent and that the subsequent sale was relevant

April 28, 2017

Cross-Border Complexities: What You Need to Know Before Your Non-U.S. Client Invests in the U.S.

April 28, 2017/ Ruchelman P.L.L.C.

When foreign tax counsel advises a client on a personal investment in the U.S., it is common for a U.S. tax adviser to comment on the scope of U.S. income, gift, and estate taxes. Sometimes the investment is made through a trust and other times it is made directly. In their article, Kenneth Lobo and Fanny Karaman answer questions raised in the context of fact patterns often used.

March 27, 2017

Implementing the Border Adjustment Tax: Winners & Losers

March 27, 2017/ Ruchelman P.L.L.C.

The border adjustment tax will harm certain companies and aid others. To be expected, exporters like the proposal and importers hate it. Philip R. Hirschfeld and Kenneth Lobo look at the industries that will be winners and those that will be losers if the border adjustment tax is adopted. Strangely, each side argues that employment will be increased if its position is adopted, an example of how voodoo economics support a politicized tax proposal.

February 21, 2017

Debt v. Equity: Judicial Factors Still Applicable Post-§385 Regulations

February 21, 2017/ Ruchelman P.L.L.C.

The last quarter of 2016 saw the introduction of final regulations establishing benchmarks for treating a debt instrument as true debt for U.S. income tax purposes. These regulations apply to companies over a certain size issuing debt instruments exceeding $50 million. Debt issued by owner-managed companies are not covered by the regulations and, as a result, tests established by case law will continue to apply. Galia Antebi and Kenneth Lobo look at a relatively recent case, Sensenig v. Commr., in which the standard tests were applied – the equivalent of comfort food for tax lawyers.

December 22, 2016

European State Aid: The Makings of A Global Trade War

December 22, 2016/ Ruchelman P.L.L.C.

This month, we reminisce on the best of 2016, with articles on the brewing transatlantic trade war disguised as European Commission attacks on illegal State Aid given to U.S.-based groups.

December 22, 2016

The 2016 U.S. Model Income Tax Treaty

December 22, 2016/ Ruchelman P.L.L.C.

On February 17, 2016, the U.S. Treasury Department released its 2016 Model Treaty. This month, as we reminisce on the best of 2016, we review significant revisions to the baseline text from which the U.S. initiates treaty negotiations.

November 30, 2016

I.R.S. Adds New Theory Why Merger Termination Fees are Capital Rather than Deductible Costs

November 30, 2016/ Ruchelman P.L.L.C.

The I.R.S. and taxpayers have long argued whether fees paid by one party to another in a failed merger are capital costs or deductible costs. The consequences of capitalization may be severe, as sufficiently large capitalized costs may never be fully offset by future income. Recently, the I.R.S. enunciated a new theory in support of its capitalization position. Kenneth Lobo and Nina Krauthamer look at two recent internal memoranda indicating the I.R.S. will continue to characterize most merger termination costs as capital rather than deductible costs.

October 26, 2016

Insights Vol. 3 No. 9: Updates & Other Tidbits

October 26, 2016/ Ruchelman P.L.L.C.

This month, the authors look briefly at several timely issues, including (i) the filing of appeals briefs in two major cases lost by the I.R.S., Altera and Xilinx, (ii) recent competent authority activity between the U.S. and India, (iii) the future of U.K. automobile assembly plants operated by U.K. subsidiaries of Japanese automakers, and (iv) final State Department rules concerning the revocation of U.S. passports issued to individuals who have a seriously delinquent tax debt. Kenneth Lobo, Michael Peggs, Nina Krauthamer, and Sultan Arab contribute.

September 29, 2016

Projected Tax Expense – Can It Be Computed on the Back of Envelope?

September 29, 2016/ Web Developer

Tax advisers are often asked to project tax expense arising from an anticipated transaction by multiplying book income by the statutory tax rate. This seems like an easy task, but a reliable answer is anything but straightforward, as more jurisdictions enact alternative minimum tax (“A.M.T.”) regimes to protect the tax base. Galia Antebi, Kenneth Lobo, and Stanley C. Ruchelman explain how the A.M.T. works in the U.S. and how a comparable tax in Puerto Rico lead to a proposed 132% effective tax rate.

September 29, 2016

Treasury Attacks European Commission on State Aid – What Next?

September 29, 2016/ Ruchelman P.L.L.C.

On August 30, 2016, the European Commission ordered Ireland to claw back €13 billion ($14.5 billion) plus interest from Apple after favorable Irish tax rulings were deemed to be illegal State Aid. The U.S. Treasury Department issued a white paper shortly before the decision staking out the reasons why the European Commission crusade is unjustified, especially in relation to its retroactive effect. This trans-Atlantic conflict is placed in context in an article by Kenneth Lobo and Beate Erwin.

September 29, 2016

O.E.C.D Targets Hybrid Mismatch Arrangements Using Branch Structures

September 29, 2016/ Ruchelman P.L.L.C.

Advisers who took comfort in the belief that the B.E.P.S. Project’s attack on hybrid mismatches did not apply to transactions between two branches of the same entity were disappointed when the O.E.C.D. released draft recommendations for domestic law that would neutralize income inclusion mismatches using branches located in different countries. Kenneth Lobo and Beate Erwin explain that D/NI, DD, and indirect D/NI outcomes are not legitimized when branches, rather than affiliates, are used.

August 29, 2016

Insights Vol. 3 No. 7: Updates & Other Tidbits

August 29, 2016/ Ruchelman P.L.L.C.

This month, “Tidbits” explores the following developments: (i) the extension of FinCEN reporting requirements by title companies involved in all-cash real estate transactions; (ii) a European Commission decision calling for Spain to recover over €30 million from seven Spanish soccer clubs that unlawfully received State Aid; (iii) other tax breaks involving Spain that are under consideration by the E.C.J. that could affect State Aid cases against U.S.-based companies; and (iv) new rules regarding the need to refresh I.T.I.N.’s issued to nonresident, non-citizen individuals. Kenneth Lobo, Fanny Karaman, and Galia Antebi discuss these developments.

August 29, 2016

Tax 101: Foreign Settlors, U.S. Domestic Trusts, and U.S. Taxation

August 29, 2016/ Ruchelman P.L.L.C.

Non-U.S. tax advisers to high net worth individuals are familiar, to some degree, with U.S. tax rules involving trusts, settlors, and beneficiaries. While they may know that a grantor trust allows for income to be taxed to a grantor, they are not always conversant with the differences between U.S. income tax rules for grantors and the U.S. gift and estate tax rules that cause trust property to be included in the taxable estates of trust settlors. Fanny Karaman, Kenneth Lobo, and Stanley C. Ruchelman explore the way these rules exist side by side – highlighting the differences, in the context of a nonresident, non-citizen settlor establishing a U.S. domestic trust for the benefit of an adult U.S. child wishing to acquire an apartment in the U.S.

August 29, 2016

I.R.S. Issues Proposed Regulations Affecting Valuation Discounts for Gift and Estate Tax Purposes

August 29, 2016/ Ruchelman P.L.L.C.

For corporate tax purposes, the I.R.S. maintains the view that a transaction between a taxpayer and a disinterested party – meaning a person that does not have an adverse interest to a taxpayer because tax neither increases nor decreases as a result of a particular term agreed upon – is not the result of arm’s length bargaining and can be disregarded where appropriate. Now, the I.R.S. proposes to expand that approach to estate plans. The proposal is embedded in regulations issued under Code §2704. As a result, commonly used tools may no longer be available to reduce gift or estate tax. Minority ownership discounts and unilateral governance rights that disappear at death are valuation planning tools that are at risk because of the common goals of the participants. Fanny Karaman, Stanley C. Ruchelman, and Kenneth Lobo explain.

August 10, 2016

Contract Manufacturing in a US-Controlled Group→

August 10, 2016/ Ruchelman P.L.L.C.

First published by the Canadian Tax Foundation in (2016) 24:7 Canadian Tax Highlights.

June 30, 2016

Insights Vol. 3 No. 6: B.E.P.S. Around the World

June 30, 2016/ Ruchelman P.L.L.C.

This month, we review steps toward implementation of anti-B.E.P.S. provisions in various countries and the E.U. Kenneth Lobo and Nina Krauthamer look at the latest items, including French tax raids on local offices of U.S. companies, disagreement with the E.U. over the adoption of blacklists and the tax treatment of C.F.C.’s, and pushback against proposed Code §385 regulations that deal with debt and equity.