This month, Tomi Oguntunde, Sheryl Shah, and Nina Krauthamer look briefly at four recent developments in international tax: (i) the E.U. counteroffensive to U.S. tax reform involving stricter tax rules, (ii) the amendment of Form 1023-EZ, which is a streamlined application for non-profit entities applying for tax exempt status, (iii) Spain’s crackdown on celebrities attempting to evade tax, and (iv) Luxembourg’s continued pushback against the Amazon State Aid case.

When the T.C.J.A. capped the deduction for state and local income and property taxes at $10,000 – more tax can be paid, but only $10,000 can be deducted – state governments did not take the provision lightly.  One proposal that has gained traction in Albany and other state capitals involves creating charitable funds that would raise voluntary capital for specific governmental purposes.  The goal is for taxpayers to claim the charitable contributions as a deduction for Federal tax purposes and, at the same time, benefitting from a substantial credit against their state income tax liabilities.  Another, less contentious proposal would utilize employer-side payroll taxes to offer employees a credit against state and local taxes.  Nina Krauthamer, Elizabeth V. Zanet, and Sheryl Shah assess the viability of these proposals and the likely impact of tax reform on New York State.  Opinions are not consistent.  Stay tuned.

Experienced tax litigators know that Congress often protects the I.R.S. when an important case is lost.  Yes, the taxpayer wins.  But Congress codifies the I.R.S. position by an amendment to the law.  The T.C.J.A. revised Code §482 legislatively, thereby reversing Tax Court decisions in the Amazon and Veritas cases that dismissed two arguments raised by the I.R.S. in transfer pricing litigation – mandatory use of aggregate basis of valuation (grouping of intangibles for valuation purposes) and the realistic alternative principle (challenging the business judgment for the transaction).  Michael Peggs and Sheryl Shah explain this attack on the arm’s length principle of taxation.

T.C.J.A. changes to the Subpart F rules have the effect of deconstructing cross-border arrangements structured to prevent the creation of a C.F.C.  A change to constructive ownership rules may cause all foreign members of a foreign-based group to be treated as C.F.C.’s for certain reporting purposes merely because the group includes a member in the U.S.  A change to the definition of a U.S. Shareholder of a C.F.C. makes the value of shares owned as important as voting power in determining whether a U.S. person is a U.S. Shareholder and a foreign corporation is a C.F.C.  The 30-day requirement for a C.F.C. to be owned by a U.S. Shareholder before Subpart F applies has been eliminated.  In some instances, the changes are retroactive to the 2017 tax year.  Neha Rastogi, Sheryl Shah, Beate Erwin, and Elizabeth V. Zanet explain and provide a case study that ties everything together

This month, Tomi Oguntunde, Sheryl Shah, and Nina Krauthamer look briefly at four recent developments in international tax: (i) an I.R.S. directive temporarily halting new examinations involving cost sharing agreements that do not include stock-based compensation costs, (ii) an I.R.S. appeal of a Texas District Court case in which certain anti-inversion rules were invalidated for nonconformance with the Administrative Procedures Act, (iii) Dutch measures to eliminate intragroup dividend withholding tax and address abusive tax planning channeled through the Netherlands, and (iv) a revised timeline for implementation of withholding tax on transfers involving effectively connected gain under Code §1446(f).

Most cross-border tax advisers with clients that are impacted by the T.C.J.A. focus on the principal items, such as B.E.A.T., G.I.L.T.I., and the like.  However, the act contains many additional provisions that can affect the non-corporate cross-border investor.  Taxes have been reduced, a holding period for capital gains treatment now applies to carried interests, the scope of like-kind exchanges has been limited, and the tax treatment of alimony payments has been changed.  These are just a few of the items addressed by Sheryl Shah.

Cross-border payments to related parties have been an arrow in the quiver of cross-border tax planners since the time that income tax and global trade first intersected.  The new Code §59A introduces the Base Erosion and Anti-Abuse Tax (“B.E.A.T.”) on large corporations that significantly reduce their U.S. tax liability through the use of cross-border payments to related persons.  It is structured as another form of the now-repealed corporate Alternative Minimum Tax rather than a disallowance of a deduction in computing regular taxable income.  Banks that have significant interest payments and U.S. companies that pay significant royalties for trademarks, copyrights, and know-how are the targets of the tax to the extent full 30% withholding tax is not imposed.  Galia Antebi and Sheryl Shah explain how the tax is computed.  Is this another step towards a global trade war?

Following the lead of the O.E.C.D. and the European Commission (“E.C.”), the T.C.J.A. adopts several provisions designed to end tax planning opportunities.  In some instances, the new provisions closely follow their foreign counterparts.  In others, the provisions that are specific to U.S. tax law.  Among these changes are (i) the introduction of the G.I.L.T.I. minimum tax on the use of foreign intangible property by C.F.C.’s, (ii) the total revamp of Code §163(j) so that it reflects an interest ceiling rather than an earnings stripping provision, (iii) the restriction of tax benefits derived from the use of hybrid entities and transactions, (iv) the broadened scope of Subpart F through definitional changes, (v) legislative reversals of judicial decisions in which I.R.S. positions in transfer pricing matters were successfully challenged, and (vi) legislative reversals of a judicial decision invalidating Rev. Rul. 91-32 regarding the sale of partnership interests by foreign partner.  Sheryl Shah and Stanley C. Ruchelman discuss these provisions and place them in context. 

This month, Sheryl Shah and Nina Krauthamer look briefly at two I.R.S. actions: (i) the roll out of a long-awaited passport denial program and (ii) the end of favorable rulings on certain worthless stock deductions and spinoffs.

The final months of the Obama administration saw the hurried adoption of temporary regulations in an attempt to extend its tax policy into the current administration.  However, reliance on temporary regulations that are adopted without a public comment period may have been misguided.  In October, a U.S. District Court struck down a provision under temporary anti-inversion regulations for violating the required notice and comment period under the Administrative Procedure Act.  Beate Erwin and Sheryl Shah explain the web of issues involved in the decision.

This month, Sheryl Shah, Neha Rastogi, and Nina Krauthamer look briefly at certain timely issues: (i) Swiss nexus requirements to be eligible for treaty benefits, (ii) the impact of technology tax reporting and information sharing, (iii) an I.R.S. pilot program expanding the scope of letter rulings to Code §355 stock and security distributions, and (iv) recent application of the 2016 anti-inversion regulations issued by the Obama Administration under Code §7874.

On October 4, the “other shoe dropped” on eight regulations issued by the Obama administration in 2016 and January 2017.  These eight measures, which were first identified in an interim report to the president as unnecessary, unduly complex, excessively burdensome, or failing to provide clarity and useful guidance, will be withdrawn, revoked, or modified.  Stanley C. Ruchelman, Sheryl Shah, and Neha Rastogi identify the targets and explain the plans of the Treasury Department.

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.

In December, the I.R.S. released Prop. Treas. Reg. §1.60384 -15, which details the country-by-country (CbC) reporting that will be required of large U.S.-based business entities. The proposed regulations define the persons required to file the CbC report, companies that are to included in the report, information that must be reported, acceptable measurement methodologies to be used, and uses to which data may be put.

These regulations closely follow the model recommended by the O.E.C.D. B.E.P.S. report. Sheryl Shah and Stanley C. Ruchelman explain the I.R.S.’s reasons and request for input regarding national security exemptions not otherwise considered by the O.E.C.D.

Taxpayers are usually taxed on net gains from the sale of property. However, tax may be deferred if the transaction is cast as an exchange and certain conditions are met. Art investors are now employing these methods to defer tax on gains from the sale of appreciated art by exchanging one piece of artwork for another. In this article, Nina Krauthamer and Sheryl Shah address the application of the like-kind exchange provisions under Code §1031, traditionally used for investment and business real estate, to the exchange of works of art.