January 24, 2021

French Treatment of Foreign Trusts

January 24, 2021/ Ruchelman P.L.L.C.

The French Trust Register was introduced in December 2013 by a law enacted to stop tax fraud and serious economic and financial crimes. In October 2016, the French Constitutional Court ruled that public access to the Trust Register was unconstitutional. In the period since that decision, French authorities have issued two rulings allowing a broad class of persons to gain access to trust data. including tax officers, customs officials, professionals having compliance duties to combat money laundering and terrorist financing, journalists, and N.G.O.’s. Dimitar Hadjiveltchev, Partner, Adea Meidani, Counsel, and Loïc Soubeyran-Viotto, Associate, all of CMS Francis Lefebvre Avocats in Paris, address recent events regarding French tax treatment of foreign trusts and beneficiaries. They begin with the trust register – who must report, what must be reported and who have access – and move on to explain the myriad of taxes that may be imposed on trusts, settlors, and beneficiaries including income tax on distributions, inheritance and gift taxes, and real estate wealth tax.

January 24, 2021

Continued D.A.C.6 Reporting Obligations After Brexit

January 24, 2021/ Ruchelman P.L.L.C.

At midnight on the December 31, 2020, the U.K. left the E.U., having secured a Free Trade Agreement (“F.T.A.”). The farewell headline grabber in the drawn-out departure process relates to D.A.C. 6, the Mandatory Disclosure Reporting (“M.D.R.”) rule that applies to Intermediaries. Beginning in 2021, the only reporting that will be required in the U.K. will involve the Category D Hallmark. It applies to fact patterns that are designed to hide ownership. Here, reporting will be required to maintain the integrity of the O.E.C.D. M.D.R. Gary Ashford, a Partner (non-lawyer) of Harbottle and Lewis L.L.P., London, explains the Category D Hallmark and the ongoing reporting requirements that apply to U.K.-based intermediaries after Brexit.

November 25, 2020

Exchanges of Information in Tax Matters and Fundamental Rights Of Taxpayers – E.C.J. Delivers Landmark Ruling in the Aftermath of Berlioz

November 25, 2020/ Ruchelman P.L.L.C.

In a post B.E.P.S. world, tax transparency is a mantra among stakeholders in government, media, and nongovernmental organizations. The taxpayer may own the funds, but the stakeholders wish to ensure that a chunk of the funds are spent as they deem appropriate. In this environment, governments have a stake in obtaining information on where taxpayers hold their funds and exchanges of information between governments has become a regular occurrence. In the European Union, questions arise as to whether an information request violates a taxpayer’s fundamental rights, and in the event of a fishing expedition, whether the taxpayer has an effective remedy. In a recent decision issued by the E.C.J., the court held that financial institutions holding information have rights to intervene, but not taxpayers must wait until a tax authority assesses tax. Werner Heyvaert, a partner in the Brussels Office of AKD Benelux Lawyers and Vicky Sheikh Mohammad, an associate in the Brussels Office of AKD Benelux Lawyers, explain the rationale of the court and question the validity of its conclusion.

November 25, 2020

Watch Out Whirlpool: The I.R.S. Has Put 50 Million Wrinkles in Your Permanent Press Cycle

November 25, 2020/ Ruchelman P.L.L.C.

As 2020 comes to a close, Subpart F is approaching its 59th anniversary as part of the Internal Revenue Code. During that period of time, various portions have been revised, but by and large, the branch rule has remained untouched. Under that rule, a C.F.C. based in a country that exempts income of a permanent establishment can be treated as two companies where manufacturing takes place in one country and selling activity takes place in a different country. From a U.S. viewpoint, the same abusive tax planning can be undertaken between the head office and the branch as can be undertaken between brother-sister or parent-subsidiary C.F.C.’s. Nonetheless, no taxpayer ever lost a case brought by the I.R.S. until this year. In Whirlpool Financial Corp. v. Commr., Whirlpool Corporation determined that the branch rule regulations were invalid when manufacturing operations were conducted by the branch and selling activities were conducted by the head office. Arguing that the law permitted the loophole because a single corporation conducted the manufacturing operations, Whirlpool became the first U.S. Shareholder to lose a case in which the I.R.S. asserted the application of the branch rule to a manufacturing branch. Gianluca Mazzoni, S.J.D. 2020 and L.L.M.2016 International Tax, University of Michigan Law School, explains the plan that was adopted, the argument presented by the taxpayer, the decision of the court, and the likely issues that will be addressed on appeal.

November 25, 2020

Final Regs Implement Changes to Source-of-Income Rules for Inventory Sales

November 25, 2020/ Ruchelman P.L.L.C.

In late 2019, the I.R.S. proposed regulations modifying rules for determining the source of income from sales of inventory property produced by a taxpayer outside the U.S. and sold within the U.S., or produced by the taxpayer within and sold without the U.S. Final regulations were published in October. The regulations implement changes made by the Tax Cuts and Jobs Act provide guidance under Code §865(e)(2) regarding sales of inventory through a U.S. office or fixed place of business. In her article, Léa Verdy, an attorney admitted to practice in New York and Paris, presents the sourcing rules for sales of inventory before the T.C.J.A, the changes implemented by the T.C.J.A., the guidance offered by the I.R.S., and the consequences of the regulations for taxpayers.

September 28, 2020

Home Thoughts from Abroad: When Foreigners Purchase U.S. Homes

September 28, 2020/ Ruchelman P.L.L.C.

Remember when tax planning was an exercise in solving two or three potential issues for a client? Memorandums ran eight pages or so. Those days are long gone, especially when planning for a non-U.S. individual’s purchase of a personal use residence in the U.S. A myriad of issues pop up once the property is identified, so that planning which begins at that time often misses significant tax issues encountered over the period of ownership and beyond. Michael J.A. Karlin, a partner of Karlin & Peebles, L.L.P., Los Angeles, and Stanley C. Ruchelman, address the big-picture issues in an article that exceeds 50 pages. Included are issues that arise leading up to the acquisition, during ownership and occupancy, the time of disposition, and at the conclusion of life. The article is the “go-to” document for tax planners.

June 02, 2020

U.K. Mandatory Disclosure Regime (DAC6)

June 02, 2020/ Ruchelman P.L.L.C.

DAC6, adopted by the European Commission and enacted into law in the U.K., imposes a mandatory obligation on intermediaries, or individual or corporate taxpayers, to make disclosures to H.M.R.C. of certain cross-border arrangements and structures that could be used to avoid or evade tax. It also provides for automatic exchanges of information among E.U. Member States. Intermediaries know a cross-border arrangement is reportable when it meets certain hallmarks. In his article, Gary Ashford, a non-lawyer partner of Harbottle & Lewis, London, explains in plain English all the key terms and obligations. The European Commission has proposed that Member States defer the start date for reporting, however, the U.K. Government has not made any public announcement. This article is timely for those who are intermediaries in a reportable transaction.

June 02, 2020

Taxation of Real Estate Investment in Israel

June 02, 2020/ Ruchelman P.L.L.C.

In almost every country, the way real estate investments are taxed depends on a wondrous blend of factors, including the status of the owner of the property (individual or corporation), the nature of the asset (residential property, commercial property, land) and the purpose of investment (producing rental income or entrepreneurial profit). Israel is no different. In their article, Anat Shavit, a partner of Fischer Behar Chen Well Orion & Co. in Tel Aviv, and Ofir Fartuk, a senior associate at the same firm summarize the main factors one should take into consideration when contemplating real estate-related investments in Israel.

March 20, 2020

Swiss Corporate Tax Reform: T.R.A.F. in a Nutshell

March 20, 2020/ Ruchelman P.L.L.C.

As a result of a favorable vote last year, T.R.A.F. – the tax reform in Switzerland – came into effect on January 1, 2020. T.R.A.F. was crafted to generate additional revenue for cantons, enhance old age pensions and survivors insurance funding, and reform corporate tax rules. Peter von Berg of Blum&Grob Attorneys at Law in Zurich, Switzerland, identifies the major changes for companies and individuals and provides examples of the effects on various entities.

March 20, 2020

The Netherlands Introduces Compensation Regulation to Discourage “Dormant Employment”

March 20, 2020/ Ruchelman P.L.L.C.

· For U.S. tax advisers not versed in Dutch labor law, the world of employee rights and employer obligations is a thing to behold. To illustrate, in 2015, the Dutch parliament enacted a law under which an employee in the Netherlands having spent 104 weeks on paid sick leave is entitled to a transition payment if the employment contract was terminated by the employer. However, many employers attempted to avoid the payment by retaining these employees under “dormant contracts,” where the contract remained in force but there was no position available and no pay. New legislation effective April 1, 2020, breaks the deadlock. The transition fee remains in effect, but all or most of the payment is funded on a deferred basis by the Dutch government. Rachida el Johari and Madeleine Molster of Saguire Legal, Amsterdam, the Netherlands, explain how the Compensation Regulation works and propose a winning strategy for employers.

March 20, 2020

The Multilateral Instrument and Its Applicability in India

March 20, 2020/ Ruchelman P.L.L.C.

One of the most significant outcomes of the B.E.P.S. Project is the signing of the multilateral instrument (“M.L.I.”) in 2017. The O.E.C.D. initiated the B.E.P.S. Project in 2013 with a view to curtail tax avoidance. The M.L.I. addresses B.E.P.S. concerns in thousands of bilateral tax treaties through one common treaty. India has been at the forefront of implementing B.E.P.S. measures, and India’s covered tax treaties will need to be read with the M.L.I. from April 1, 2020. Sakate Khaitan of Khaitan Legal Associates, Mumbai, India, and Abbas Jaorawala, a chartered accountant and consultant to that firm, explain India’s positions on various provisions of the M.L.I. for those engaged in trade or investment opportunities relating to India.

January 24, 2020

A gRETT-able Situation: New Trends in German Real Estate Transfer Tax on Share Deals

January 24, 2020/ Ruchelman P.L.L.C.

For decades, the German Real Estate Transfer Tax Act ("gRETT Act") has imposed a transaction tax on the sale of real estate in Germany. In recent years, the tax has applied to the sale of shares that indirectly transfer real estate located in Germany. When initially enacted, a sale of all shares was taxable under the gRETT Act. In the year 2000, the triggering percentage was reduced to 95%. Last year, proposed legislation would have reduced the triggering percentage to 90%, but the draft bill was never enacted. In 2020, the triggering percentage may be reduced to as low as 75% or some other percentage whenever new legislation is adopted. Exactly what constitutes an indirect sale of German real estate is surprisingly broad, and unlike comparable taxes in other countries, the sales need not be related nor contemporaneous. In recent years, a populist clamor has arisen to broaden the scope of indirect transfers subject to the tax. Michael Schmidt of Schmidt Taxlaw, Frankfurt am Main, Germany, explains how and when the tax is imposed under current law and how it may be modified in the coming months.

January 24, 2020

Portuguese Taxation of Distributions from Trust Capital: A Critical Assessment

January 24, 2020/ Ruchelman P.L.L.C.

How does a country adopt a law to tax the income of an entity that generally is not recognized under local law? In Portugal, there is room for improvement. The 2014 reform of the Portuguese Personal Income Tax ("P.I.T.") Code introduced certain taxing provisions that specifically address "fiduciary structures," the Portuguese term for trusts. Two separate categories of payments were established for purposes of imposing tax. Under the first category, all amounts paid or made available to a Portuguese tax resident are taxable. This includes capital distributions. Under the second category, gains realized by the taxpayer who formed the fiduciary structure are taxed at the time of a final distribution incident to the structure’s liquidation, unwinding, or termination. Other beneficiaries can receive liquidation distributions without suffering any tax. João Luís Araújo and Álvaro Silveira de Meneses of Telles Advogados, Porto and Lisbon, Portugal, suggest that solid arguments support the view that certain distributions should be seen as outside the scope of the P.I.T. Code, including (i) distributions of trust capital to the settlor during the ongoing existence of a trust and (ii) distributions to non-settlors that are akin to gifts.

January 24, 2020

Same Same, But Different: Taxing a Sale of Indian Stock by a U.S. Person

January 24, 2020/ Ruchelman P.L.L.C.

While tax rules generally appear to be similar in India and the U.S., several divergent provisions in the domestic law of each country produce adverse consequences for those who are not well-advised. The prime example involves the taxation of gains from the sale of shares of an Indian company by a U.S. person: India sources the gain based on the residence of the target while the U.S. sources the gain based on the residence of the seller. No relief from double taxation is provided, notwithstanding the capital gains and relief from double taxation articles in the U.S.-India income tax treaty. The result is tax that can be as high as 43.8% of the gain. Rahul Jain and Sanjay Sanghvi of Khaitan & Co., Mumbai, India, along with Neha Rastogi and Stanley C. Ruchelman explain the problem and, more importantly, suggest a path forward for U.S. individuals realizing sizable gains.

December 13, 2019

IR35 – Why Are U.K. Businesses So Concerned?

December 13, 2019/ Ruchelman P.L.L.C.

New U.K. tax rules are being introduced from April 2020 to make businesses liable for determining the employment tax status of contractors who work through personal service companies (“P.S.C.’s”). These outsourcing arrangements have had a devastating effect on tax collections and funding for National Insurance, the U.K. version of Social Security. The goal of the new rules is to make customers of P.S.C.’s liable for collecting wage withholding tax and National Insurance contributions that are not collected by the P.S.C. when the worker of the P.S.C. would otherwise be properly characterized for U.K. tax purposes as an employee of the customer of the P.S.C. under tests published by H.M.R.C. Any company involved in the P.S.C. arrangement may have inchoate liability for payments of wage withholding tax and National Insurance. Penny Simmons, of Pinsent Masons LLP, London, explains the scope of the exposure and expounds on procedures that should be adopted in advance of the April 2020 effective date.

November 20, 2019

Collecting Another Country’s Taxes – Recent Experience in the Canada-U.S. Context

November 20, 2019/ Ruchelman P.L.L.C.

In an age of multilateral agreements to exchange information and other agreements to cooperate in the collection of taxes of another country, many people are unaware of the “revenue rule.” This common law doctrine allows courts to decline entertaining suits to collect tax or enforce foreign tax judgments. In their article, Sunita Doobay of Blaney McMurtry L.L.P., Toronto, and Stanley C. Ruchelman explore (i) the general development of the revenue rule, (ii) its extension to North America, (iii) the applicable provisions of the Canada-U.S. Income Tax Treaty allowing for assistance in the collection of tax and exchange of information, (iv) one U.S. wire fraud case involving evasion of foreign import duties, and (v) several recent cases in the U.S. where taxpayers raised creative arguments to attack the validity of treaty provisions, but to no avail.

September 30, 2019

India Budget 2019-20

September 30, 2019/ Ruchelman P.L.L.C.

The first budget of the Modi 2.0 government was announced during the summer with a goal of bringing India to a growth trajectory. To that end, the Taxation Laws (Amendment) Ordinance, 2019, was introduced on September 20, 2019, to incorporate the proposed changes into law. Included are incentives for International Financial Services Centres, tax relief for start-ups, a boost for electric vehicles, and faceless tax examinations intended to ensure that tax examinations are carried out in a uniform way. Although anticipated by some, an inheritance tax was not introduced. Jairaj Purandare, the Founder and Chairman of JMP Advisors Pvt Ltd, Mumbai, explains the new provisions.

September 30, 2019

Israeli C.F.C. Rules Apply to Foreign Real Estate Companies Controlled by Israeli Shareholders

September 30, 2019/ Ruchelman P.L.L.C.

Controlled foreign corporation (“C.F.C.”) laws are all the rage with parliaments around the world. Israel is no exception. Israeli shareholders controlling offshore companies that derive low-tax passive income and gains can be taxed in Israel even though no dividend is received. A recent decision by the Israeli Supreme Court addresses a fundamental question in this area. Is passive income determined on a groupwide basis or on a company-by-company basis? The answer affects Israeli residents owning a chain of C.F.C.’s when an intermediary company in the chain sells shares of an operating subsidiary. Daniel Paserman, who leads the tax group at Gornitzky & Co., Tel-Aviv, explains the holding in Tax Assessor for Large Enterprises v. Rosebud. Israeli residents may not like the answer.

June 28, 2019

C.J.E.U. Judgments on Danish Beneficial Ownership Cases

June 28, 2019/ Ruchelman P.L.L.C.

Earlier this year, the C.J.E.U. released two judgments dealing with the interpretation of the Parent-Subsidiary Directive (“P.S.D.”) and the Interest & Royalties Directive in the E.U. In each case, a structure was meticulously built to comply with national and E.U. law allowing global investors to bring funds to the E.U. in return for dividends and interest that were subject to little or no national tax in any E.U. country. Nothing in the structure was unique, other than the reticence of the Danish tax authorities to grant withholding tax exemptions. To the surprise of many, the C.J.E.U. looked at the structure and concluded that it lacked economic substance and should be disregarded by reason of a general E.U. anti-abuse principal. The internal E.U. recipients of the dividend and interest payments were not considered to be the beneficial owners of the income. Almost 50 years after the Aiken Industries case in the U.S. Tax Court and 25 years after the anti-conduit regulations were adopted by the I.R.S., European substance-over-form rules have now been adopted by judicial fiat. Thierry Lesage and Adnand Sulejmani of Arendt & Medernach SA, Luxembourg, meticulously explain the reasoning of the court and suggest that the court may have erred by conflating anti-abuse rules with beneficial ownership concepts.