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

Basis Planning in the Usufruct and Bare Ownership Context

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

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.

March 27, 2017

E.U. Data Protection and the Fight Against Tax Evasion: A Delicate Balance

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

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.

February 21, 2017

Accumulated Earnings Tax Will Hit Taxpayers, Despite Lack of Liquidity or Control

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

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.

January 26, 2017

Insights Vol. 4 No. 1: Updates & Other Tidbits

January 26, 2017/ Ruchelman P.L.L.C.

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.

January 26, 2017

New Regulations Imminent for Triangular Reorganizations and Inbound Nonrecognition Transactions

January 26, 2017/ Ruchelman P.L.L.C.

In Notice 2016-73, the I.R.S. announced that it intends to issue regulations preventing certain taxpayer abuses incident to triangular reorganizations involving foreign corporations. These are transactions in which a subsidiary is the acquisition vehicle and the shares used to acquire the target are shares of the parent company, hence the reference to a triangle. The Notice is another step in the saga of “Killer B” reorganizations in which U.S. corporations attempt to take cash out of foreign subsidiaries without paying significant U.S. tax. Transactions occurring in the past two years have been found to be abusive because they apply recently issued regulations in a way that was not intended at the time of publication. Fanny Karaman and Stanley C. Ruchelman explain the approach enunciated in the Notice.

January 26, 2017

News on the French Front: Tax Law Changes for Corporations and Individuals

January 26, 2017/ Ruchelman P.L.L.C.

In France, the enactment of new tax law provisions requires a multi-faceted procedure involving many steps carried out by the government, two houses of parliament, specialized committees, a conference of both houses of parliament, and a review by the French Constitutional Court. Once the full procedure is completed, the new law may be effective retroactively. Many changes in tax law were made in 2016, including the adoption of employee withholding tax, changes to the free share regime, a reduction to the corporate tax rate, extension of exemptions to the corporate tax on the payment of dividends, and the parent-subsidiary regime. Fanny Karaman and Astrid Champion discuss these and other changes.

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.

November 30, 2016

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

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

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.

October 26, 2016

European State Aid and W.T.O. Subsidies

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

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.

September 29, 2016

Insights Vol. 3 No. 8: Updates & Other Tidbits

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

Fanny Karaman, Galia Antebi, and Nina Krauthamer address recent developments involving (i) the U.S. Treasury Department’s Priority Guidance Plan in the international arena, (ii) the negotiation of a new income tax treaty between the U.S. and Ireland, and (iii) a recently discovered abuse when a disregarded L.L.C. owned by a single foreign member sells U.S. real estate.

September 29, 2016

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

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

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.

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 29, 2016

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

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

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.

June 30, 2016

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

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

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.

December 15, 2014

Voluntary Tax Regularization: A U.S. and French Comparison

December 15, 2014/ Web Developer

In the U.S., "the Tax Division is committed to using every tool available in its efforts to identify, investigate, and prosecute" noncompliant U.S. taxpayers who would use secret offshore bank accounts. France has also joined in the effort to combat international tax avoidance, tightening up its rules by allowing taxpayers to voluntarily declare assets held abroad. Nicolas Melot, Fanny Karaman, and Sheryl Shah explore the differences in France and the U.S. in the disclosure programs that cover undisclosed foreign financial accounts.

October 15, 2014

Action Item 1: The O.E.C.D.'s Approach to the Tax Challenges of the Digital Economy

October 15, 2014/ Web Developer

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The O.E.C.D.’s Action Plan adopted in Saint Petersburg in 2013 aims at tracking where economic activities generating taxable profits are performed and where value is created. It aims at ensuring that taxation follows the economic activities and the creation of value and not the other way around. Action Item 1 of the Action Plan (the “Action 1 Deliverable”) focuses on the tax challenges of the digital economy. Along with the 2014 Deliverable on Action 15 (Developing a Multilateral Instrument to Modify Bilateral Tax Treaties), the Action 1 Deliverable is a final report.

The Action 1 Deliverable published on September 16, 2014 mainly reiterates the March 2014 Public Discussion Draft on Action 1 (click here to access our article on the 2014 Public Discussion Draft). It restates that, while B.E.P.S. is exacerbated in the digital economy space, the digital economy cannot be ring-fenced from other sectors of the economy for B.E.P.S. purposes because the digital economy is an ever growing portion of the entire economy. The Action 1 Deliverable thus refers to other Actions to address common B.E.P.S. issues that are not specific to the digital economy. Action Item 1 also refers to the O.E.C.D.’s International V.A.T./G.S.T. Guidelines with regard to V.A.T. issues raised by the digital economy. Although the Action 1 Deliverable adds relatively little to the previously published Public Discussion Draft on Action Item 1, the benefit of a set of uniformly accepted rules should not be understated. With European countries struggling to raise tax revenue in order to close budget gaps, the risk of adverse unilateral action by one or more countries is real. During a symposium held in Rome at the beginning of the month, certain European countries, and especially Italy, pushed for unilateral action with regard to the taxation of the digital economy. If that action proceeds to enactment, digital tax chaos could be encountered.