Published in the GGi Insider, No. 88, March 2017 (p. 44).
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Publications
Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
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Insights
Publications
Basis Planning in the Usufruct and Bare Ownership Context
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Concepts of usufruct and bare legal ownership are widely used estate planning tools by parents resident in civil law jurisdictions in Europe. However, when the next generation is resident in a common law jurisdiction such as the U.S., the results are not always pretty. Fanny Karaman and Beate Erwin examine the tax consequences for the U.S. children and the steps available to the European parents that may limit adverse tax consequences in the U.S.
Read MorePre-Immigration Planning: Drop-Off Trusts + Private Placement Life Insurance – If the Tools Fit, Use Them
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Wealthy persons moving to the U.S. often engage a tax adviser to craft a pre-immigration plan. Typically, the plans focus on harvesting gains, stepping up the basis in appreciated assets that cannot be sold, and simplifying structures to ensure that future gains will benefit from favorable long-term capital gains rates. However, the truly sophisticated client may wish to take a long-range approach that maximizes the accumulation of wealth during life. John F. McLaughlin and Shelly Meerovitch of Bernstein’s Wealth Planning and Analysis Group, New York, explain the benefits of forming a pre-immigration drop-off trust to invest in a private placement life insurance (“P.P.L.I.”) policy. In optimal circumstances, the P.P.L.I. investment portfolio can maximize the accumulation of wealth, provided the client obtains timely and competent legal advice in the country of residence and the U.S.
Read MoreE.U. Data Protection and the Fight Against Tax Evasion: A Delicate Balance
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The tax world has seen an important shift in global policies, with an emphasis on tax transparency and exchange of information. The transparency measures are contained in tax-driven and non-tax-driven legislation, and while the goals of the legislation may be lofty, the policies may violate fundamental individual rights, including data protection. Fanny Karaman and Astrid Champion examine the E.U.’s non-fiscally-driven approach to tax transparency and, more precisely, the legal limits of such transparency as evidenced in recent cases.
Read MoreImplementing the Border Adjustment Tax: Winners & Losers
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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.
Read MoreIndia Budget 2017-18
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Provisions in Budget 2017-18 announced by the Finance Minister that relate to infrastructure, the financial sector, accountability, prudent fiscal management, and tax administration reflect a view that times are changing in India. The government appears to remain steadfast in its efforts to bring the Indian tax and regulatory environment up to global standards. Jairaj Purandare of JPM Advisors Pvt Ltd, Mumbai, explains the focus of the budget
Read MoreI.R.S. LB&I Announces 13 New “Campaigns” for Audit Guidance
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The I.R.S. Large Business and International (“LB&I”) Division has announced 13 issue-based campaigns targeting specific “Practice Areas” for audit and other enforcement activity. The campaigns involve a combination of examinations, outreach, guidance, and other approaches. Galia Antebi and Stanley C. Ruchelman look at the new I.R.S. approach to tax examinations in an age of increased complexity and limited budgets for examiners.
Read MoreA Look at the House G.O.P.’s “Destination-Based Cash Flow with Border Adjustment”
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Last June, the House Ways and Means Committee released its tax reform plan, which includes sweeping changes to the U.S. corporate income tax. The plan repeals the current corporate income tax and replaces it with a new regime, commonly referred to as the border adjustment tax. This regime, which taxes imports and exempts exports, is viewed to be the principal funding mechanism for reductions in the corporate and individual tax rates. Elizabeth V. Zanet explains the anticipated workings of the proposal.
Read MoreNew Developments in the World of Reverse Like-Kind Exchanges
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Tax planners to New York City real estate families understand that real estate should never be sold. Rather, it should be exchanged in a tax-free, like-kind exchange. The exchange can be bifurcated into two independent transactions – one a purchase and the other a sale – without affecting tax-free treatment, provided certain well identified rules are followed. Moreover, the replacement can be acquired before the sale of an existing parcel is effected. In a recent advisory opinion affecting property in New York State, the Department of Taxation and Finance issued a taxpayer-friendly advisory opinion involving real estate transfer tax exposure in a reverse like-kind exchange. Rusudan Shervashidze and Nina Krauthamer explain the ruling.
Read MoreProposed Directive on the E.U. Common (Consolidated) Corporate Tax Base – A Primer
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For decades, European bureaucrats looked with disdain at the way the various states within the U.S. compute state tax. The arm’s length principle within Europe trumped state apportionment. Now, however, the European Commission has issued three proposal directives that deal with (i) the Common Corporate Tax Base (“C.C.T.B.”) and the Common Consolidated Corporate Tax Base (“C.C.C.T.B.”), (ii) resolution of double tax disputes, and (iii) mismatches with non-E.U. countries. To the surprise of many, the C.C.C.T.B. includes a three-factor apportionment rule for the sharing of global income by the members of a corporate group operating throughout the E.U. Stefano Grilli of Gianni, Origoni, Grippo, Cappelli & Partners, Milan, explains proposals that have been introduced.
Read MoreInsights Vol. 4 No. 2: Updates & Other Tidbits
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This month, Astrid Champion and Nina Krauthamer look briefly at several timely issues, including (i) the expansion of the European Commission’s attack on illegal State Aid to the French multinational group Engie (formerly G.D.F. Suez), (ii) the request for review by the French Constitutional Court of the penalties imposed under Article 1736, IV bis of the French Tax Code, regarding the failure to disclose a connection with a foreign trust, and (iii) the decision of the European Commission in World Duty Free Group, which affirms the criteria for judging whether a measure by a Member State is selective in relation to certain companies and not others and, for that reason, constitutes illegal State Aid.
Read MoreI.R.S. Rules Subpart F & P.F.I.C. Income Inclusions Are R.E.I.T. Qualifying Income
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A R.E.I.T. is a tax-favorable investment entity used for investment in real estate and real estate mortgages. R.E.I.T.’s that invest in non-U.S. real estate often make such investments through foreign corporate entities that may be classified as C.F.C.’s or P.F.I.C.’s. Qualification as a R.E.I.T. requires the entity to meet certain income and passive asset tests designed to ensure that a R.E.I.T.’s gross income is largely composed of passive income related to real estate or real estate mortgage investments. In a recent private letter ruling, income from a R.E.I.T.’s ownership of C.F.C.’s and P.F.I.C.’s was determined to be passive investment income, thereby providing favorable treatment for the R.E.I.T. Elizabeth V. Zanet and Philip R. Hirschfeld explain the R.E.I.T. rules and the private letter ruling.
Read MoreItaly Introduces a 15-Year Preferential Tax Regime for Wealthy Individuals Taking Up Tax Residence in Italy
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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.
Read MoreSwiss Corporate Tax Reform Postponed
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Through the first ten days of February, Swiss tax advisers were contemplating life after the adoption of the Corporate Tax Reform III (“C.T.R. III”). Then, the bottom dropped out from under their feet as Swiss voters defeated the tax reform package by an almost 60-40 majority. Peter von Burg and Dr. Natalie Peter of Staiger Attorneys at Law in Zurich explain the benefits that were contemplated under C.T.R. III and ponder about what will be adopted in its place. Switzerland must act promptly to cobble together a replacement package that will appease opponents of C.T.R. III and meet the deadline under its agreement with the E.U. for eliminating existing special benefits allowed to base companies. How much of C.T.R. III can be salvaged?
Read More§338(g) Election in the Cross-Border Context: I.R.S. Targets Foreign Tax Credit Enhancer
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Code §338(g) allows a taxpayer to elect to treat certain share purchases as if the transactions were asset purchases. As a result, the premium paid for the shares can be pushed down to increase the basis in operating assets of the acquired company. The step-up in depreciable basis results in steeper depreciation and amortization deductions for U.S. tax purposes. Because a comparable tax benefit is not obtained in the jurisdiction where the target operates, the Code §338(g) treatment magnifies the effective tax rate in the foreign country when looked at from a U.S. tax viewpoint. This creates mountains of excess foreign tax credits that can be used to reduce U.S. tax on other items of foreign-source income, provided those items are subject to little or no foreign tax and fall within the same foreign tax credit limitation basket. A similar result can be achieved through a check-the-box election, which acts as a poor man’s Code §338(g) election. Code §901(m) attempts to disallow the enhanced level of the foreign tax credit, and the I.R.S. recently issued temporary and proposed regulations. Rusudan Shervashidze and Stanley C. Ruchelman explain the labyrinth of rules.
Read MoreIndia – Guidelines Issued for Determining Place of Effective Management
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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.
Read MoreDebt v. Equity: Judicial Factors Still Applicable Post-§385 Regulations
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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.
Read MoreAccumulated Earnings Tax Will Hit Taxpayers, Despite Lack of Liquidity or Control
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Even absent a distribution, shareholders of U.S. corporations may, under certain circumstances, be subject to a second layer of tax: the accumulated earnings tax (“A.E.T.”). The tax is imposed on the accumulation of earnings beyond the reasonable needs of the business. Although rarely imposed on well-advised taxpayers, the A.E.T. could become increasingly important if the tax rate disparity between the corporate and individual income taxes increases under proposals put forth by the current administration. Fanny Karaman and Beate Erwin look at a recent Chief Counsel Advice Memorandum where the absence of liquidity within the corporation was found to be an irrelevant factor in determining that earnings were unreasonably accumulated by the corporate taxpayer.
Read MoreInsights Vol. 4 No. 1: Updates & Other Tidbits
/This month, we look briefly at several timely issues, including (i) the termination of foreign acceptance agent agreements used to confirm copies of passports outside the U.S. when a non-U.S. individual obtains an I.T.I.N., (ii) a court order in Canada upholding a demand for disclosure of client names and documentation relating to participation in a discredited tax shelter, (iii) E.U. steps that identify potentially blacklisted low-tax or no-tax countries, and (iv) worsening relations between the U.S. and the E.U. stemming from widening differences in tax policies.
Read MoreCorporate Matters: Joint Venture Considerations
/The term “joint venture” is more a term of art than a legal concept. Joint ventures have been described by the courts as an association of two or more persons, in the nature of a partnership, to carry on a business enterprise for profit. Simon H. Prisk examines the decision points faced when drafting a joint venture agreement.
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