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Insights Vol. 6 No. 1: Updates & Other Tidbits

Insights Vol. 6 No. 1: Updates & Other Tidbits

This month, Rusudan Shervashidze and Stanley C. Ruchelman look at several interesting items, including (i) the publication of draft legislation by the Crown Dependencies of Guernsey, Jersey, and Isle of Man calling for the existence of economic substance for resident companies engaged in certain businesses and defining what that means, (ii) the denial of benefits incident to foreign earned income for a military contractor in Afghanistan who maintained a place of abode in the U.S., (iii) an increase in fees charged by the I.R.S. to issue residency certificates, (iv) the establishment of a working group to combat transnational tax crime through increased enforcement collaboration among tax authorities in several countries, and (v) changes to China’s residency rules and the sharing of taxpayer financial information under C.R.S. 

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O.E.C.D. Receives Public Comments on Proposed Changes to the Model Tax Convention

O.E.C.D. Receives Public Comments on Proposed Changes to the Model Tax Convention

In August, the O.E.C.D. released public comments on proposed changes to the Model Tax Convention.  Beate Erwin and Stanley C. Ruchelman examines the suggestions received by the O.E.C.D. and provides observations on the interplay between the O.E.C.D. proposed changes and existing U.S. approaches to these issues.  Areas covered include whether competent authority agreements can define undefined terms thereby removing the interpretation from local courts, whether a limitation on benefits (“L.O.B.”) clause or a principle purpose test (“P.P.T.”) is the better approach to limit treaty shopping, and whether a home that is leased to others can be a permanent home for purposes of applying the residence tiebreaker provision in a treaty. 

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Pancake Day – End to Permanent Non-Domicile Status and Charging Non-Doms I.H.T. on U.K. Residential Property

Pancake Day – End to Permanent Non-Domicile Status and Charging Non-Doms I.H.T. on U.K. Residential Property

 In July, the U.K. government announced that proposals removed from the Finance Bill that was announced in March would be reproposed with a retroactive effective date, as if adopted when originally proposed.  This is bad news for non-domiciled individuals (“Non-Doms”) in general and for the estates of Non-Doms who died between March and the ultimate date of enactment.  If retroactive effective dates remain in the bill, rights granted by the European Convention for the Protection of Human Rights and Fundamental Freedoms, which were incorporated into U.K. law by the Human Rights Act 1998, could be violated.  William Hancock and Daniel Simon of Collyer Bristow L.L.P. explain that Non-Doms should expect “too little jam and too little cream” on their pancakes if the provisions are enacted retroactively.

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Circular Letter No. 17/E Clarifies Special Tax Regime for Italian “New Residents”

Circular Letter No. 17/E Clarifies Special Tax Regime for Italian “New Residents”

Late last year, the Italian government enacted a new regime designed to entice wealthy individuals into becoming tax residents.  In late May, operating rules for the new tax regime were announced.  In broad terms, the regime imposes an annual tax charge of €100,000 in lieu of tax imposed at standard rates and an exclusion from inheritance and gift tax on foreign assets.  Andrea Tavecchio and Riccardo Barone of Tavecchio Caldara & Associati in Milan, Italy explain the details of the new regime.

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Insights Vol. 4 No. 5: Updates & Other Tidbits

Insights Vol. 4 No. 5: Updates & Other Tidbits

This month, Astrid Champion and Nina Krauthamer look briefly at several timely issues, including (i) a novel claim of treaty residence in Ireland by a nonresident Irish domiciled individual subject to the domicile levy under Irish law and (ii) the introduction of a beneficial ownership register regime in the Cayman Islands regarding certain Cayman Islands corporations.

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U.K. Drops Changes to Non-Domicile Regime, But Likely Not for Long

U.K. Drops Changes to Non-Domicile Regime, But Likely Not for Long

After months of H.M.R.C. consultation, a new regime was put in place for non-domiciled U.K.-resident individuals (“Non-Doms”) on April 6, 2017, only to see the legislation pulled from Finance Bill 2017 on April 25.  The snap election in the U.K. put consideration of Non-Dom taxation on hold when 72 of the 135 clauses were removed from the bill.  This allowed Parliament to approve the legislation in two hours.  Gary Ashford of Harbottle Lewis, London, summarizes the short-lived provisions and those that failed to be enacted on April 6.  The proposed regime remains a work in process, and enacting legislation could be back on the table as early as this fall.

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Italy Introduces a 15-Year Preferential Tax Regime for Wealthy Individuals Taking Up Tax Residence in Italy

Italy Introduces a 15-Year Preferential Tax Regime for Wealthy Individuals Taking Up Tax Residence in Italy

As non-domiciled (“Non-Dom”) residents of the U.K. scramble to restructure in light of the new rules for persons holding Non-Dom status for more than 15 years, Italy has adopted new measures to attract high net worth individuals.  The rules are clearly derived from the Non-Dom rules in the U.K., but the weather is better.  Fabio Chiarenza of Gianni, Origoni, Grippo, Cappelli & Partners explains the new provisions.

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India – Guidelines Issued for Determining Place of Effective Management

India – Guidelines Issued for Determining Place of Effective Management

In Circular No. 6/2017, dated January 24, 2017, the Central Board of Direct Taxes issued final guidelines regarding the factors that will be looked to under Indian income tax treaties when determining the place of effective management (“P.O.E.M.”) of a foreign company that is part of an Indian-based group.  Almost as important as the substantive rules, the Circular establishes the procedure that must be followed before a tax officer may determine that the P.O.E.M. of a foreign company is in India.  There are winners and there are losers in the Circular.  Ashutosh Dixit, Parul Jain, and Kaushik Saranjame of BMR & Associates L.L.P. explain the new rules.

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U.K. Tax Residency Rules for Individuals and Companies

U.K. Tax Residency Rules for Individuals and Companies

Richard Holme and Simon Tadman of Creaseys, U.K., explain the wonderfully complex set of rules that are applied to determine whether an individual is a resident of the U.K. for income tax purposes and whether a company is a tax resident for corporation tax purposes. Can the new Statutory Residence Test bring certainty to the determination in light of the increase in complexity?

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Further Developments for U.K. Non-Dom Individuals

Further Developments for U.K. Non-Dom Individuals

A significant claw back of benefits for individuals with Non-Dom status was first announced in the Summer Budget of 2015.  In August, H.M.R.C. proposed implementing legislation in a follow-up consultation document.  Specific benefits covered included inheritance tax for shares of envelope companies owning U.K. residential real property, deemed domicile rules for long-term U.K. residents, and several provisions to lessen the impact of these changes.  Gary Ashford of Harbottle & Lewis, London explains.

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U.S. Tax Residency Certification and Spanish Withholding Tax: Early Application Recommended

Global taxpayers live in a process driven world. It is not enough to be correct when claiming a benefit, the paperwork must be completed.  In a detailed article on proper procedure, Beate Erwin and Christine Long explain that U.S. persons claiming treaty tax benefits with regard to payments from Spanish entities face two hurdles. First, they must meet the treaty qualification tests under the limitation on benefits article. Second, they must obtain a U.S. Tax Residency Certification from the I.R.S. before payment is met.

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Spanish Tax Regime for Incoming Professionals

Heard of the “Beckham Law” that limits income tax in Spain for certain non-domiciled individuals? Think of European football (soccer) players. Pablo Alarcón Espinosa of Alarcón-Espinosa, Abogados in Madrid explains how persons migrating to Spain for work purposes can avail themselves of a reduced tax regime for domestic income and an exemption for foreign income and gains. Like Switzerland, remittances from abroad are not penalized with tax.

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Non-Dom Taxation: Ireland as an Alternative to the U.K.

The benefits and possible pitfall of Ireland’s non-domiciled taxation rules are explained by Lisa Cantillon and Jane Florides of Kennelly Tax Advisers in Dublin. Remittance based taxation remains strong in Ireland, but planning is required to steer clear of deemed remittance traps and to minimize inheritance tax exposure.

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U.K. Non-Dom Taxation – Where it is and Where it is Going

With the 15-year limit enacted to remittance based tax rules for non-domiciled individuals resident in the U.K., we offer a series of articles this month addressing favorable tax rules for non-domiciled resident individuals in several countries. Gary Ashford of Harbottle and Lewis L.L.P. in London is the lead-off author, explaining the U.K. tax and immigration rules and suggesting strategies for the long-term non-domiciled resident who faces the 15-year ceiling. The ceiling becomes effective in 2017.

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An Englishman in New York – Tax Considerations for Foreign Individuals

The phrases “green card” and “U.S. citizen” have the ability to strike panic and even terror in tax advisors around the world. What inspires this fear? What tax challenges do foreign individuals face when they are present in the U.S. on a temporary, non-immigrant basis?

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Pre-Immigration Tax Planning, Part III: Remedying The Adverse Consequences of the Covered Expatriate Regime

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INTRODUCTION

Following our previous articles regarding pre-immigration planning and the expatriation rules applicable to covered expatriates (see here and here), this article considers some techniques for implementation before and after expatriation, with the objective to reduce the adverse treatment of the covered expatriate regime to the extent possible depending on the specific facts and circumstances of each individual.

For a Green Card holder, expatriating prior to becoming a long-term resident would eliminate the application of the covered expatriate regime. For a U.S. citizen (other than children under certain situations), the circumstances that will allow for a tax-free expatriation are more restrictive. An individual is considered a covered expatriate if he or she meets one of three tests. Pre-expatriation planning can eliminate the application of the covered expatriate regime for some individuals, while for others additional planning may be needed to reduce the unfavorable effect of the covered expatriate rules.

Pre-Immigration Income Tax Planning, Part II: Covered Expatriates

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INTRODUCTION

Continuing on from our previous article concerning pre-immigration planning, this article will explain the tax rules by which an individual seeking to renounce his or her U.S. citizenship or green card status may be affected.

To relinquish U.S. citizenship or a green card, a formal act of relinquishment is required. Therefore, a green card holder who moves outside the U.S. will continue to be treated as a U.S. resident for tax purposes until he or she formally relinquishes green card status or it is rescinded by the government. A U.S. citizen residing outside the U.S. will have to formally relinquish his or her citizenship in order to be removed from the U.S. tax system. As a general rule, termination of U.S. residency becomes effective on the last day of the calendar year in which the status was relinquished. However, under certain circumstances, termination may be effective midyear.

Upon expatriation, should an individual be considered a “covered expatriate,” he or she may be subject to an exit tax, and following expatriation, any gifts and bequests made by such an individual may be subject to a succession tax in the case of U.S.-resident recipients.

For planning purposes, U.S. citizens wishing to relinquish their citizenship should determine if they are covered expatriates prior to undertaking any such action. Green card holders wishing to relinquish green card status must first determine if they are treated as long-term residents. If so treated, green card holders should determine if they are covered expatriates under the same tests applicable to U.S. citizens.

J.C.T. Report on Competitiveness – A Step Toward Consideration of New Rules

volume 2 no 4   /   Read article

By Stanley C. Ruchelman

This month, our team delves into the Joint Committee Report addressing international tax reform in a series of articles. Stanley C. Ruchelman leads with comments on the J.C.T. analysis of Subchapter N of today’s Code – the foreign provisions.  See more →

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Pre-Immigration Income Tax Planning, Part I: U.S. Tax Residence

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INTRODUCTION

Income tax planning for an individual preparing to immigrate to the U.S. involves both understanding the jurisdictional concepts of U.S. tax law and making intelligent life decisions to take advantage of the rules. In comparison to a business investment in the U.S., which involves the use of funds to accomplish a specific goal, individuals wishing to come to the U.S. make a series of personal changes that will affect all aspects of their lives. U.S. tax planning considerations are merely one part of the puzzle that must be solved. The key to the planning often requires a timely decision to accelerate or defer income, gain, or loss, so as to avoid unnecessary exposure to tax while in the U.S. In addition, it entails knowledge of the tax cost involved in the event an individual wishes to continue to live in an accustomed life style.

This article is the first in a series that will discuss the rules affecting individuals moving across borders. The series will address important considerations before, during, and after undergoing a period of U.S. tax residence, income tax planning opportunities for persons wishing to immigrate to the U.S., and ethical considerations that may apply when providing advice to the foreign individual. Departure taxes in other countries are beyond the scope of this article.

This installment discusses the tests by which a foreign individual is deemed to be a U.S. tax resident under domestic law and provisions for determining residence under income tax treaties. Domestic law applies the “Substantial Presence Test” and the “Green Card Test.” If an individual meets the conditions of either test, he or she will be considered to be a resident for income tax purposes.

GREEN CARD TEST

A foreign individual becomes a resident with respect to a calendar year if he or she is a lawful permanent resident of the U.S. at any time during that calendar year. A lawful permanent resident is an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws.