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French v. U.S. Share-based Compensation Plans: A Comparative Analysis

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French v. U.S. Share-based Compensation Plans: A Comparative Analysis

Share-based compensation incentives are commonly used by corporations worldwide.  Employees defer income or realize income immediately at a low value, and the employer accepts a deferred or reduced deduction for compensation expense.  Three or four key moments in the life of a stock-based compensation plan can be identified as taxable events: (i) the grant of share-based compensation, (ii) the exercise of an option, (iii) the “vesting” of the underlying shares, and (iv) their subsequent sale.  Fanny Karaman and Stanley C. Ruchelman explore tax treatment in France and the U.S. in the context of a French employee who participates in a French plan and is then assigned to the U.S.

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Regulations Would Address Foreign Tax Credit Planning for E.U. State Aid Adjustments

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Regulations Would Address Foreign Tax Credit Planning for E.U. State Aid Adjustments

Now that Apple, Starbucks, and other U.S. companies face significant tax adjustments in Europe, the I.R.S. is concerned with protection of the U.S. tax base.  In Notice 2016-52, the I.R.S. announced that the foreign tax credit splitter rules will be applied in future regulations to ensure that the increased taxes are not separated from the earnings and profits to which they relate.  Elizabeth V. Zanet and Stanley C. Ruchelman explain these preemptive steps to prevent the creation of imaginative financial products that monetize unused foreign tax credits of target companies.

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European State Aid and W.T.O. Subsidies

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Recent European Commission rulings have attacked tax rulings granted by Ireland and the Netherlands to Apple and Starbucks, respectively.  These rulings are not meaningfully different from those granted for decades by various E.U. Member States.  To the shock of these countries, the tax rulings distorted trade.  At the same time, the World Trade Organization (“W.T.O.”) determined that several E.U. Member States have granted actionable subsidies to Airbus in order to assist the company in a way that distorts trade among W.T.O. members.  Fanny Karaman, Stanley C. Ruchelman, and Astrid Champion explain (i) the basic internal procedures within the E.U. that outlaw State Aid and (ii) the applicable provisions of the global trade agreement embodied in the W.T.O. in connection with actionable subsidies.  In light of the W.T.O. ruling, the question to be answered is whether the E.U. is being disingenuous by not recovering the European subsidies given to Airbus.

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New U.S. Model Treaty→

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Published by GGi in FYI International Taxation News, No. 5: Autumn 2016.

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

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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.

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Uproar Over Proposed §385 Regulations: Will Treasury Delay Adoption?

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Earlier this year, the U.S. Treasury Department issued comprehensive and detailed proposed regulations under Code §385 that address whether a debt instrument will be treated as true debt for U.S. income tax purposes or re-characterized, in whole or in part, as equity.  Not surprisingly, significant pushback has been encountered from members of Congress, professional bodies, and affected taxpayers.  It seems that the one-size-fits-all approach contains many defects.  Philip R. Hirschfeld and Stanley C. Ruchelman explain.

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Usufruct, Bare Ownership, and U.S. Estate Tax: An Unlucky Trio

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Splitting ownership into usufruct and bare ownership is a common estate planning technique in several civil law countries.  However, this planning technique may have adverse tax consequences when the holder of the bare legal title resides in the U.S.  Fanny Karaman and Stanley C. Ruchelman explain the civil law inheritance tax benefits and the pitfalls that are encountered in the U.S.

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

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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.

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

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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.

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European Registration & French Tax Law Create Pitfalls for U.S. Trusts

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Events that have taken place in the E.U. during July confirm that a U.S. person who establishes a U.S. domestic or foreign trust for the benefit of a European resident, may face significant pitfalls regarding confidentiality and tax.  While trusts historically constitute a testamentary dispositive tool in common law countries, the recent UBS and Panama Papers scandals have shed a harsh light on these instruments.  At the level of the E.U., enhancements to existing anti-money laundering provisions have been floated.  The legislation would eliminate certain exceptions to reporting.  In France, adverse tax rules already exist for trusts, settlors, and beneficiaries that fail to take into account fundamental differences among trust instruments.  In addition, wealth tax issues and public disclosure issues must be considered.  Fanny Karaman and Stanley C. Ruchelman explore these and other problem areas.

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Contract Manufacturing in a US-Controlled Group→

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

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French Life Insurance Policies: A U.S. Income Tax Perspective

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The world of available insurance policies on an individual’s life is broad and complex within the context of only one country.  Add a foreign element, and one is faced with a legal and tax labyrinth.  Fanny Karaman and Stanley C. Ruchelman explain how a typical French life insurance policy is taxed for a policy holder having contacts with both France and the U.S.

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Insights Vol. 3. No. 5: B.E.P.S. Around The World

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Kenneth Lobo and Stanley C. Ruchelman look at recent happenings in the world of B.E.P.S.  Items covered include (i) recent decisions of the Canada Revenue Agency regarding tax rulings that will be exchanged automatically with other countries, (ii) I.R.S. consideration of accepting early CbC reports from U.S.-based groups, (iii) multilateral procedures to deal with the expected flood of mutual agreement requests arising from double taxation claims when B.E.P.S.-generated taxation claims begin to appear, and (iv) the emerging need for B.E.P.S. compliance officers in multinational groups.

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Insights Vol. 3 No. 4: Updates & Other Tidbits

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In this month’s update, Sheryl Shah and Stanley C. Ruchelman look at the following recent developments: (i) one-time payments for off-the-shelf software are not considered to be royalties in India, (ii) offshore voluntary disclosure in Greece, (iii) the movement of Slovak companies to other jurisdictions, and (iv) the effect of the Panama Papers on CbC reporting in Europe.

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Insights Vol. 3 No. 4: B.E.P.S. Around The World

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Under political pressure from N.G.O. watchdogs, governments are striving to demonstrate their support for the B.E.P.S. Action Plan on a national level. Kenneth Lobo and Stanley C. Ruchelman look at implementation issues around the world. Included are issues in Germany related to exchanges of information, treatment of C.I.V.’s for income tax treaty purposes, and U.K. tax penalties for aggressive tax planning.

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2016 Model Treaty – Special Tax Regimes

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On February 17, 2016, the Treasury Department released its 2016 Model Treaty. The model serves as the baseline from which the U.S. initiates treaty negotiations. Various provisions are discussed in detail in this month’s Insights.

A new provision of the 2016 Model Treaty attacks special tax regimes. Treaty benefits are denied for payments to connected persons who benefit from such provisions. Patent box regimes and regimes that allow for notional interest deductions are specifically targeted. Christine Long and Stanley C. Ruchelman explain.

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2016 Model Treaty – Introduction

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On February 17, 2016, the Treasury Department released its 2016 Model Treaty. The model serves as the baseline from which the U.S. initiates treaty negotiations. Various provisions are discussed in detail in this month’s Insights.  

Stanley C. Ruchelman examines several provisions, pointing out various areas of super-complexity that are encountered in the 2016 Model Treaty in order to prevent double non-taxation. This shift in policy is a byproduct of the O.E.C.D.’s B.E.P.S. initiative.

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Insights Vol. 3 No. 2: Updates & Other Tidbits

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This month, Insights looks at the latest development in the deferred prosecution agreement with Swiss banks, a property tax increase in Jerusalem for “ghost apartments,” Canadian procedures to exempt foreign employers from withholding tax on salaries paid to certain individuals that are resident outside of Canada but work in Canada from time to time, and the adverse effect outside the U.S. of deferred CbC reporting for U.S.-based multinationals.

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Field Procedures for Handling Foreign-Initiated “Specific” Requests Under E.O.I. Agreements

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Once again, Insights looks at the I.R.S.'s International Practice Units, this time focusing on how the I.R.S. deals with information exchanges at its field level. Sheryl Shah and Stanley C. Ruchelman explain the procedures followed by the Large Business & International (LB&I) division.

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B.E.P.S. Initiative Spawns Unfavorable Permanent Establishment Court Decisions

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Two court cases in different parts of the world attack tax plans premised on the absence of a permanent establishment. Pertinent U.S. income tax treaties, with Japan and India respectively, were effectively ignored in each case. Taketsugu Osada, Christine Long, and Stanley C. Ruchelman explain.

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