HIDE

Other Publications

Insights

Publications

Implementing the Border Adjustment Tax: Winners & Losers

Implementing the Border Adjustment Tax: Winners & Losers

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 More

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

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

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 More

Transfer Pricing Adjustment Does Not Reduce Dividend Received Deduction from C.F.C.

When the I.R.S. successfully maintains an adjustment to transfer pricing within an intercompany group, taxable income is increased to one participant but cash remains at the level that existed at year-end prior to the I.R.S. adjustment.  To avoid a second tax adjustment, the party with excessive cash – as determined after the I.R.S. adjustment – may be treated as if it incurred an account payable, which can be repaid free of additional tax.  In Analog Devices, the I.R.S. attempted to argue that the account payable of the C.F.C. should be treated as an actual borrowing.  The effect of an actual borrowing limited the favorable tax treatment under Code §965.  That provision temporarily allowed an 85% dividends received deduction for a U.S. corporation receiving a dividend from a controlled foreign corporation.  The Tax Court disagreed with the I.R.S. position. Kenneth Lobo and Beate Erwin explain.

Read More

European State Aid: The Makings of A Global Trade War

European State Aid: The Makings of A Global Trade War

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.

Read More

The 2016 U.S. Model Income Tax Treaty

The 2016 U.S. Model Income Tax Treaty

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.

Read More

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

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

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.

Read More

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

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.

Read More

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

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.

Read More

Treasury Attacks European Commission on State Aid – What Next?

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.

Read More

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

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.

Read More

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

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.

Read More

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

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.

Read More

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

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.

Read More

Contract Manufacturing in a US-Controlled Group

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

Read More

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

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

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.

Read More

Draft Valuation Rules for Indirect Transfers in India

In May, draft rules were issued in India that implement legislation designed to reverse the holding in the Vodafone case. There, a taxpayer sold shares of an offshore company having as its principal asset shares of a large Indian telecommunication company. When Indian tax authorities attempted to tax the gain of the sale of foreign shares, the Indian Supreme Court held in the taxpayer’s favor and observed that the transaction was beyond India’s territorial tax jurisdiction. The law was changed in 2012, and in 2015, certain valuation benchmarks were set that established when tax would be imposed. Neha Rastogi, Kenneth Lobo, and Nina Krauthamer explain how the value of Indian and global assets will be determined. They also address associated reporting requirements.

Read More

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

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.

Read More

U.S. Immigration Tax Planning – Covered Expatriates

Published in Taxes & Wealth Management by Thomson Reuters, Issue 9-1: February 2016. (p.14)

Read More

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

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.

Read More

Transfer Pricing Positions of Consolidated Groups: After Guidant

Michael Peggs and Kenneth Lobo comment on the I.R.S. victory in the Guidant case where the I.R.S. applied the “one size fits all” approach to group-wide transactions. Their conclusion is that today’s I.R.S. victory may be tomorrow’s lost revenue where a taxpayer seeks competent authority relief for transfer pricing adjustments initiated abroad.

Read More