Monday, November 27, 2017
While many small-business clients would welcome the 25% maximum tax rate for pass-through income proposed by the GOP tax reform framework, the proposed tax rate structure has the potential to hinder these clients’ retirement planning options.
Although the issue itself could be resolved in the actual legislation generated by the framework, there is a realistic possibility that the proposal could very easily discourage small-business owners from providing the currently available retirement savings options to their employees. However, many have pointed to the significant non-tax reasons that can motivate small-business owners to develop retirement planning options for both themselves and employees—and only time will tell which side Washington will find most persuasive.
Interested in wealth management? Check it out here
Sunday, November 26, 2017
The GOP tax reform framework may contain few details, but it has introduced uncertainty for those who receive stock options. Primary considerations include when to exercise those options and how to maximize value for estate planning. Several key reform issues could impact planning for stock options as the framework currently stands.
Income Tax Planning Impact ...
Interested in wealth management? Check it out here
Saturday, November 25, 2017
Mining Led Growth Across Southwestern States in the Second Quarter
Real gross domestic product (GDP) increased in 48 states and the District of Columbia in the second quarter of 2017, according to statistics on the geographic breakout of GDP released today by the U.S. Bureau of Economic Analysis. Real GDP by state growth in the second quarter ranged from 8.3 percent in North Dakota to -0.7 percent in Iowa (table 1).
Nationally, mining increased 28.6 percent and was the leading contributor to growth for the nation and in the three fastest-growing states of North Dakota, Wyoming and Texas in the second quarter (table 2). Mining contributed to growth in 49 states led by increases in oil and natural gas production.
By contrast, agriculture, forestry, fishing, and hunting decreased 10.6 percent and subtracted from growth in 25 states, including every state in the Plains region, which experienced high levels of crop production in 2016. This industry was the leading contributor to the decreases in real GDP in Iowa and South Dakota–the only two states to decrease in the second quarter.
In addition to mining; professional, scientific, and technical services; health care and social assistance; retail trade; and information services were the leading contributors to U.S. economic growth in the second quarter.
- Professional, scientific, and technical services increased 5.1 percent nationally–the seventeenth consecutive quarter of growth. This industry contributed to growth in every state and the District of Columbia. It includes activities such as legal, accounting, engineering, and computer services.
- Health care and social assistance increased 4.7 percent nationally. This industry contributed to growth in 49 states and the District of Columbia.
- Retail trade increased 5.6 percent, rebounding from a decrease in the first quarter, and contributed to growth in 49 states and the District of Columbia.
- Information services increased 7.0 percent in the second quarter and contributed to growth in 46 states and the District of Columbia.
Update of Gross Domestic Product by State
In addition to the new 2017:Q2 statistics presented in this news release, BEA also revised quarterly GDP by state statistics for 2014:Q1 to 2017:Q1 and annual statistics for 2014 to 2016. Updates were made to incorporate source data that are more complete, including the September 2017 annual update to the State Personal Income Accounts, and to align the states with revised national estimates that were released with the November 2nd annual update to the Industry Economic Accounts and the July 2017 annual update to the National Income and Product Accounts.
It is widely agreed upon that the market for traditional long-term care insurance (LTCI) is all but dead—the number of clients who purchase LTCI has continued to decline rapidly in recent years and several major LTCI carriers have simply pulled out of the dying market.
Unfortunately, as most clients realize, the need for long-term care is as robust as ever, meaning that advisors will continue to be called upon to suggest methods for funding the rising cost of long-term care. This enduring need for funding care, however, has sparked a relatively new line of hybrid products designed to fill the gap left by traditional LTCI—and combining LTCI with life insurance or an annuity is a solution that may appeal to many clients who still need long-term care coverage.
Interested in wealth management? Check it out here
Friday, November 24, 2017
While the Republican tax reform framework clearly calls for a complete repeal of both the estate tax and the generation-skipping transfer (GST) tax, the lack of details offered by the plan has created a confusing planning environment for clients—especially high net worth clients.
Read the analysis by William Byrnes and Robert Bloink of how to react - ThinkAdvisor.
Thursday, November 23, 2017
The long-awaited Republican tax bill—named the Tax Cuts and Jobs Act (the Act)—has been unveiled, and while negotiations over the legislation’s contents with the Senate are set to continue over the coming weeks, the extremely detailed bill provides some key takeaways that taxpayers can consider in the meantime.
The Act does contain a few twists—especially with respect to popular itemized deductions and small-business taxation. This article explores the Act’s provisions and how they differ from the original framework to provide insight for clients as they prepare for the final legislation that the negotiation process will generate.
The Senate Finance Committee has posted its 515 pages of new Internal Revenue Code language for a vote within 10 days. Relevant text passages for base erosion and profit shifting are excerpted below. Download Senate Version Tax Cuts and Jobs Act
SEC. 951A. GLOBAL INTANGIBLE LOW-TAXED INCOME INCLUDED IN GROSS INCOME OF UNITED STATES SHAREHOLDERS.
Description of Text by Senate Finance Committee
Under the proposal, a U.S. shareholder of any CFC must include in gross income for a taxable year its global intangible low-taxed income (“GILTI”) in a manner generally similar to inclusions of subpart F income. GILTI means, with respect to any U.S. shareholder for the shareholder’s taxable year, the excess (if any) of the shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return. The shareholder’s net deemed tangible income return is an amount equal to 10 percent of the aggregate of the shareholder’s pro rata share of the qualified business asset investment (“QBAI”) of each CFC with respect to which it is a U.S. shareholder.
(a) IN GENERAL.—Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income such shareholder’s global intangible low-taxed income for such taxable year.
(b) GLOBAL INTANGIBLE LOW-TAXED INCOME.
(1) IN GENERAL. The term ‘global intangible low-taxed income’ means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of -
(A) such shareholder’s net CFC tested income for such taxable year, over
(B) such shareholder’s net deemed tangible income return for such taxable year.
(2) NET DEEMED TANGIBLE INCOME RETURN.
The term ‘net deemed tangible income return’ means, with respect to any United States shareholder for any taxable year, an amount equal to 10 percent of the aggregate of such shareholder’s pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
(c) NET CFC TESTED INCOME.
(1) IN GENERAL.—The term ‘net CFC tested income’ means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—
(A) the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder or such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over
(B) the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
(d) QUALIFIED BUSINESS ASSET INVESTMENT.—
(1) IN GENERAL.—The term ‘qualified business asset investment’ means, with respect to any corporation for any taxable year of such controlled foreign corporation, the average of the aggregate of
the corporation’s adjusted bases as of the close of each quarter of such taxable year in specified tangible property —
(A) used in a trade or business of the corporation, and‘
(B) of a type with respect to which a deduction is allowable under section 167.
(2) SPECIFIED TANGIBLE PROPERTY.—
(A) IN GENERAL.—The term ‘specified tangible property’ means, except as provided in subparagraph (B), any tangible property used in the production of tested income.
(B) DUAL USE PROPERTY. In the case of property used both in the production of tested income and income which is not tested income, such property shall be treated as specified tangible property in the same proportion that the gross income described in subsection (c)(1)(A) produced with respect to such property bears to the total gross income produced with respect to such property.
SEC. 250. FOREIGN-DERIVED INTANGIBLE INCOME AND GLOBAL INTANGIBLE LOW-TAXED INCOME.
Senate Finance Committee Explanation of Text
In the case of a domestic corporation for its taxable year, the proposal allows a deduction equal to 37.5 percent of the lesser of (1) the sum of its foreign-derived intangible income plus the amount of GILTI that is included in its gross income, or (2) its taxable income, determined without regard to this proposal. The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the corporation’s deemed intangible income as its foreign-derived deduction eligible income bears to its deduction eligible income.
(a) ALLOWANCE OF DEDUCTION.
(1) IN GENERAL.—In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—
(A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus
(B) 50 percent of the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year.
(b) FOREIGN-DERIVED INTANGIBLE INCOME.
(1) IN GENERAL.—The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the deemed intangible income of such corporation as—
(A) the foreign-derived deduction eligible income of such corporation, bears to
(B) the deduction eligible income of such corporation.
(2) DEEMED INTANGIBLE INCOME.
(A) IN GENERAL.The term ‘deemed intangible income’ means the excess (if any) of—
(i) the deduction eligible income of the domestic corporation, over
(ii) the deemed tangible income return of the corporation.
(B) DEEMED TANGIBLE INCOME RETURN. The term ‘deemed tangible income return’ means, with respect to any corporation, an amount equal to 10 percent of the corporation’s qualified business asset investment (as defined in section 951A(d), determined by substituting ‘deduction eligible income’ for ‘tested income’ in paragraph (2) thereof).
(C) SPECIAL RULES WITH RESPECT TO RELATED PARTY TRANSACTIONS.
(i) SALES TO RELATED PARTIES.—If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless such property is sold by the related party to another person who is an unrelated party who is not a United States person and the taxpayer establishes the satisfaction of the Secretary that such property is for a foreign use.
SEC. 14222. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY TRANSFERS.
(a) DEFINITION OF INTANGIBLE ASSET. Section 936(h)(3)(B) is amended—
(vi) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment); or
(vii) any other item the value or potential value of which is not attributable to tangible property or the services of any individual.
(b) CLARIFICATION OF ALLOWABLE VALUATION METHODS.
(i) the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or
(ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers.
SEC. 59A. TAX ON BASE EROSION PAYMENTS OF TAXPAYERS WITH SUBSTANTIAL GROSS RECEIPTS.
Senate Finance Committee Explanation of Text for Tax on Base Erosion Payments
Under the proposal, an applicable taxpayer is required to pay a tax equal to the base erosion minimum tax amount for the taxable year. The base erosion minimum tax amount means, with respect to an applicable taxpayer for any taxable year, the excess of 10-percent of the modified taxable income of the taxpayer for the taxable year over an amount equal to the regular tax liability (defined in section 26(b)) of the taxpayer for the taxable year reduced (but not below zero) by the excess (if any) of credits allowed under Chapter 1 over the credit allowed under section 38 (general business credits) for the taxable year allocable to the research credit under section 41(a).
Modified taxable income means the taxable income of the taxpayer computed under Chapter 1 for the taxable year, determined without regard to any base erosion tax benefit with respect to any base erosion payment, or the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year.
A base erosion payment generally means any amount paid or accrued by a taxpayer to a foreign person that is a related party of the taxpayer and with respect to which a deduction is allowable, including any amount paid or accrued by the taxpayer to the related party in connection with the acquisition by the taxpayer from the related party of property of a character subject to the allowance of depreciation (or amortization in lieu of depreciation). A base erosion payment also includes any amount that constitutes reductions in gross receipts of the taxpayer that is paid to or accrued by the taxpayer with respect to: (1) a surrogate foreign corporation which is a related party of the taxpayer, and (2) a foreign person that is a member of the same expanded affiliated group as the surrogate foreign corporation. A surrogate foreign corporation has the meaning given in section 7874(a)(2), but does not include a foreign corporation treated as a domestic corporation under section 7874(b).
A base erosion tax benefit means any deduction allowed with respect to a base erosion payment for the taxable year. Any base erosion tax benefit attributable to any base erosion payment on which tax is imposed by sections 871 or 881 and with respect to which tax has been deducted and withheld under sections 1441 or 1442, is not taken into account in computing modified taxable income as defined above. If the rate of tax required to be deducted and withheld under sections 1441 or 1442 with respect to any base erosion payment is reduced, the above exclusion only applies in proportion to such reduction.
(a) IMPOSITION OF TAX.—There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle.
(b) BASE EROSION MINIMUM TAX AMOUNT.
(1) IN GENERAL.—Except as provided in paragraph (2), the term ‘base erosion minimum tax amount’ means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of—
(A) an amount equal to 10 percent of the modified taxable income of such taxpayer for the taxable year, over
(B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of—
(i) the credits allowed under this chapter against such regular tax liability, over
(ii) the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a).
(2) MODIFICATIONS FOR TAXABLE YEARS BEGINNING AFTER 2025.
In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied—
(A) by substituting ‘12.5 percent’ for ’10 percent’ in subparagraph (A) thereof.
(d) BASE EROSION PAYMENT.
(1) IN GENERAL.—The term ‘base erosion payment’ means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter.
(2) PURCHASE OF DEPRECIABLE PROPERTY. Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with
the acquisition by the taxpayer from such person of property of a character subject to the allowance of depreciation (or amortization in lieu of depreciation).
(3) CERTAIN PAYMENTS TO EXPATRIATED ENTITIES.
(A) IN GENERAL Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer.
(1) IN GENERAL.—The term ‘applicable taxpayer’ means, with respect to any taxable year, a taxpayer—
(A) which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation,
(B) the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and
(C) the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 4 percent or higher.
Wednesday, November 22, 2017
Former Procurement Officer at Federally Funded Nuclear Research and Development Facility Indicted on Charges of Wire Fraud, Major Fraud and Money Laundering
A federal grand jury sitting in the District of New Mexico returned an 11-count indictment against a former procurement officer employed at Sandia National Laboratories (SNL), a nuclear research and development facility of the U.S. Department of Energy (DOE), for orchestrating a scheme to obtain a $2.3 million contract through fraudulent means. Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division made the announcement.
Carla Sena, 55, of Albuquerque, New Mexico was charged with three counts of wire fraud, one count of major fraud against the United States and seven counts of money laundering.
According to the indictment, SNL was managed and operated by Sandia Corporation (“Sandia”) during the relevant time period. In late 2010, Sena was assigned by Sandia to manage the bidding process for the award of a contract for moving services at SNL. In anticipation thereof, Sena created New Mexico Express Movers LLC (“Movers LLC”), prepared a bid on Movers LLC’s behalf, and submitted the bid to Sandia under someone else’s name to conceal her involvement. Sena made several material and fraudulent misrepresentations in Movers LLC’s bid that would have resulted in disqualification, but she used her position at SNL to ensure that these misrepresentations went undetected. Sena also used her position to access other bidders’ documents and information that she in turn leveraged to ensure award of the contract to Movers LLC. As a direct result of Sena’s scheme to defraud, Movers LLC received approximately $2.3 million in DOE funds. The indictment further alleges that, between December 2011 and April 2015, Sena transferred via negotiated checks at least $643,000 of these fraudulently obtained proceeds to legitimate businesses owned by her father with the intent to conceal her subsequent use of the proceeds for personal gain.
The indictment is the result of an ongoing investigation by the DOE Office of Inspector General and is being prosecuted by Trial Attorneys Victor R. Salgado and Rebecca Moses of the Criminal Division’s Public Integrity Section.
Tuesday, November 21, 2017
What are the implications for partnerships and partnership taxation under the Republican proposals for tax reform?
Charles Lincoln, Esq. (LL.M. International Tax) authors this article analyzing from an international tax law perspective, what might be the effects of the new proposed partnership rules in the US? Charles Lincoln may be contacted at firstname.lastname@example.org.
Partnerships are a complex combination of sole proprietorship rules, corporate rules, and financial accounting rules—the tax consequences are outlined primarily in Subchapter K of the US Internal Revenue Code. Partnerships often involve individuals and individuals with corporations acting as partners engaging in business. However, when comparing the US approach to partnerships, there can be differences—especially in the concept of opaque and flow entity through taxation. Opaque is when the profits are taxed at the corporate entity level and flow through is when the profits are taxed at the individual level.
In the United States, there is an option to “check the box” whereby one can qualify for flow through status—and this has been a rule since the 1990s. In other countries, there can be different approaches and modes of analysis to determine whether an entity is flow through or opaque. It is important to consider how the US system as it stands currently relates to other countries—and how the proposed changes could alter these inter-national relations.
Partnership Loans in Action:
Practically speaking, there can be vast differences of tax consequences between the opaque approach and the flow through approach. When dealing with a loan from a partner to the partnership in the flow through approach, the loan is really a loan to the partner—thus the tax administrations disregard it at the partner level. Interest paid on that loan is really a distribution of the partnership income to the partner. This can lead to some sincerely tricky situations of whether the loan is an equity injection or not and whether the “interest” paid is really a dividend received. The divergence is hard to tell sometimes.
On the other hand, when dealing with the flow through approach, the partner giving a loan to the partnership could be treated as a loan from a third party to the partnership. In that case, the interest is income to the partner, the interest deduction is given to the partnership [i.e. passed through the appropriate partner(s)], and the question remains as with the opaque approach whether this is really “interest.”
One behavioral consideration in this relatively concrete example of the loan from a partner to the partnership is what the consequences are if the corporate income tax rates fall and what happens with large partnerships—such as accounting firms or law firms. If there are lower corporate income tax rates, then how are the dividends treated, and how are the profits reinvested.
Practical and Policy Considerations:
When tax rates—such as the cascading tax rates proposed in both the House and Senate tax proposals—come into existence, a prudent partnership would have to reorganize itself. In such a reorganization, the partnership would have to decide whether the loan is treated as a distribution of dividends or interest—in the opaque scenario—and whether the loan is treated as income straight to the partner or whether the interest may be deducted when paid from the partnership to the partner—in the flow through example.
As a matter of policy, changes in the corporate income tax, could lead to changes in the personal income tax—assuming a lobbying effort goes into place to follow through with lowering the individual rates. This is because if corporate taxes are changed, then the partner may not want to take out money from the partnership—because her income bracket could be at a higher rate than the corporate rate. Thus, there is an ebb and flow with these scenarios.
The Tax Reform Proposals Affecting Partnerships:
In the Senate Chairman’s Markup of the Tax Cut and Job Act proposal, there are rules regarding hybrid entities that would eliminate deductions for certain non-qualified party related amounts paid or accrued to hybrid entitles or in hybrid transactions. This is probably similar to the OECD suggestions in BEPS Action 2. This is likely going to be a problem for foreign companies financing into the United States. The House Ways & Means Proposal has not spoken on this yet.
Per interest expense limitations, the House has suggested that 30% of adjusted taxable income—in other words the EBITA (earnings before interest, taxes, and amortization) or regarding worldwide groups 110% of the allocation of net thread party interest expenses to the US corruption allocated on EBITA would be allowed for interest expense limitations.
Regarding interest expense limitations, the Senate suggested that the lesser of either 30% of the adjusted taxable income or the limitation based on the amount of debt that the US would hold if the US debt-to equity ratio were propionate to worldwide debt-to-equity ratio limitations. This seems to have roots in BEPS Action 4—especially for the debt-to-equity ratio limitation proposals.
Finally, considering controlled foreign corporation rules, most existing CFC rules in Subpart F of the IRC will be maintained with both the House and Senate proposals. However, there is another added layer of complexity.
The House suggests that a new CFC rule should allow for 50% of the aggregate profits of all CFCs, above a routine return on tangible assets, subject to a taxable income inclusion. It also includes a foreign tax credit allowed for 80% of foreign taxes actually paid by CFCs. The result of this is that US residual tax would lead to an effective tax rate on foreign earnings of CFCS would be too low.
This “residual” tax would lead to some more complexity. If you have a double Irish sandwich at a low tax rate—such as 5.5%--you may have to pay a residual tax. The question is how sustainable this new system would be given its complexity, especially when adding another complexity considering what would tax consequences would occur when you bring IP home under IRC §367. Jokingly such a level of complexity, could ultimately lead one to favor formulary apportionment.
On the Senate side of the CFC proposal, the Senate suggest that 100% of the aggregate profits of all CFCs, above a routine return on tangible assets, would be subject to a taxable income inclusion and foreign tax credits would be allowed for 80% of foreign taxes “actually” paid by the CFC. There is also a provision for a special income tax rate of 10% applied to the taxable income inclusion.
How is this Going to Affect Business?
The rates themselves are highly variable and subject to change. But, there likely will be tax rate changes—at a minimum if the tax reform goes through. When these changes occur, the most immediate change will likely be a restructuring of partnerships determining whether income should be allocated to the partners or remain in the partnership. This depends on whether the income bracket for the partners is higher or lower than the partnership.
Comparing the US Approach to Other Countries’ Approaches in the World:
So far, it’s important to note that partnerships from a business organizational stand point are organized under the commercial code of the specific state in the United States—this is often akin or identical to the Uniform Commercial Code’s format and guided by case law. But there is no federal commercial code. The confluence with tax law comes in at the federal level. So, the partnership is organized under the laws of a specific state—which do vary state to state—and then have federal tax implications when qualifying for pass through taxation.
This approach is different in different countries. For example, Canada has a similar system to the US where there is provincial rules governing partnership formation; Sweden must register with the federal level of government; France allows partnerships to be flow through if the organization fits within the commercial law list of allowed partnerships; in the UK and Australia, partnerships are governed by common law; in the Netherlands the partnership is allowed if inverted under corporate rules—so sort of a side step approach; in Germany the partnership can be a flow through entity only under commercial law; and in Japan the system technically allows for partnerships, but they are hardly present.
Basic Structure Comparisons:
Per the basic structure of partnerships, most countries have some different domestic rules for determining opaqueness and flow through entities. In The Netherlands characterizes income to be determined at the individual level. Each partner can elect different schedules. The UK system has a scheduler system applied at the partnership level. Each partner pays a share, but asset sales are deemed to be made at the individual level.
Comparatively, in the US, the rules in Subchapter K are complex. Elections made at the partnership level. Capital gains and losses are at the individual level. The basis adjustments to the partnership shares are at the individual level as well. The rules allow for the use of capital accounts to reflect economic reality. There is no negative basis allowed. Similarly, Canada is similar to the US, but has simpler rules. Canada applies GAAR instead of the complex US rules when doing a “special allocation.” Moreover, Canada allows for a negative basis.
Sweden is similar to the US but has strict loss rules. It limits the use of losses to income of the partnership. Sweden also employs a scheduler system for business income. Arguably this is a simpler approach.
In Australia, the character of the income is determined at the partnership level with flow through taxation to the individuals. However, gains and losses are determined at the partner level.
Returning to Germany—with the highest level of partnerships of any country other than the United States—all elections, deductions, etc. are determined at the partnership level. There are no special allocations and the partnership agreements control the allocations. Partners losses cannot exceed a partner’s net equity.
In France, all elections are done at the partnership level. There are no special allocations allowed and the partnership agreement controls. There is no annual basis adjustment to shares allowed in the commercial code.
Liabilities – Tax Costs and Loss Limits:
Regarding liability, (i.e. tax costs of the partnership interest) and the loss limitations, the question to ask is what happens at the entity level (the Partnership) with liabilities? And, then how does this treatment impact two things: (1) the Basis in the partnership shares held by the partners (can I invest $10 and get $100 in return through losses); and, (2) What further impact does this have on the ability of the partners to take losses?
As a unique side note, Donald Trump made a lot of money in losses in real estate—whereby he took advantage of the rules allowing for losses allowed only to liability holders.
In the US, partnerships are reflected in the partner’s basis. General partners—not the limited partners—are labile, because they are at risk up to their investment in the partnership. However, there is a special rule for non-recourse debt (in other words, debt not backed by collar) whereby losses are allowed only to liability holders.
In the Netherlands—similarly to the US—partnership debt is considered the debt of the partner. However, there are not extremely detailed and complex rules at the US has.
In the UK, one follows the partnership agreement. Losses flow through the limited partner’s losses limited to the limited partner’s investment. But there can’t exist simultaneously some partners with profit and some partners with losses. Interestingly, there is no basis analysis—meaning the partnership basis is irrelevant to the partner’s basis.
Australia follows the partnership agreement—and like the UK cannot have some partners with profit and some partners with losses at the same time. Diverging from the UK, because of hybrids Australia has introduced new rules to adjust basis by risk and limit losses.
Canada’s partnership liability does not impact cost basis of a partner in the partnership. Limited partner losses are limited to basis in the general partner—who can take losses in excess of basis. This scenario with the general partner causes negative basis. Thus, at liquidation the general partner will have a larger gain in the end.
France has no limitation on losses from pass through entities—from the partnership to the partner. Sometimes scheduler limitations exist where R/E losses can not exceed R/E gains. Moreover, losses at the partnership level only considered at liquidations.
Finally, Germany—with its high level of partnerships—does not permit for partnership liability to adjust cost basis of the partner in the partnership. Furthermore, liability does impact determination of the limited partner’s equity and losses taken.
Japan has been missing from this discussion of partnership liability and structure before, because although Japan does have provisions for partnerships, they are virtually not existent. Historically, and from a policy perspective, Sweden had a history of tax shelter wars where much fraud occurred—causing Sweden to get rid of these rules.
In the United States, we have a complex set of partnership rules emanating from Subchapter K of the Internal Revenue Code.
The new tax proposal could change how deductions for partnership are made, interest expense limitations with debt-to-equity ratios, and how new CFC rules may affect foreign earnings.
However, even once these changes occur, it is important to note how they will interact with other systems in the world.
Political and Policy Denouement:
Looking to the future, it seems that events such as the Panama Papers, Lux Leaks, and now the Paradise Papers can lead to political motivation from NGOs in other countries. If one picks up the tabloids in other countries—such as the New York Post’s analogous publication in Australia—one will see the news of the latest movie star and right next to it how a major corporation is avoiding taxes.
To a US audience, this can seem foreign, because our major news sources, much less tabloids, do not often deal with these issues. But they can lead to political pressures in other countries—especially Europe that far outnumbers the US in the OECD. Then these political pressures can lead to domestic policies that then arise in the European Union’s policies—such as the EU state aid investigation cases affecting many US corporations operating—and then to the OECD level.
Indeed, what can be a better political strategy than raising taxes on corporations—who don’t vote in your country—to raise taxes and re-allocate spending within the specific country.
When the changes percolate to the OECD level, then the OECD can make monumental changes, such as the BEPS project that affect countries internationally.
So, several years later, such changes at the OECD level become parts of US tax reform domestically—as seen with the debt-to-equity ratios, etc. This often originates with major news items, such as Lux Leaks or the Panama Papers—more closely scrutinized by foreign audiences. Thus, it is important to look at the leaks, where the political pressure goes from those leaks, and then how that pressure can percolate up to the OECD level and ultimately influence US domestic rules and Senate Finance Committee Proposals. It’s all connected.
 § 42:2.Comparison of Subchapter S and Subchapter K, 13 Tex. Prac., Texas Methods of Practice § 42:2 (3d ed.)
 OECD/G20 Base Erosion and Profit Shifting Project Limiting Base Erosion Involving Interest Deductions and Other Financial Payments: Action 2: 2015 Final Report (OECD, 2015) http://www.oecd.org/ctp/neutralising-the-effects-of-hybrid-mismatch-arrangements-action-2-2015-final-report-9789264241138-en.htm
 Tax Cuts and Jobs Act, H.R. 1 (115th Cong. 1st Sess. 2017).
 (H.R. 1) http://src.bna.com/t9z
 OECD/G20 Base Erosion and Profit Shifting Project Limiting Base Erosion Involving Interest Deductions and Other Financial Payments: Action 4: 2015 Final Report (OECD, 2015) http://www.oecd.org/tax/beps/limiting-base-erosion-involving-interest-deductions-and-other-financial-payments-action-4-2016-update-9789264268333-en.htm
 An example of how this Double Irish Sandwich operates is as follows: “S1 transfers its headquarters to Bermuda, which has no income tax, thus becoming a Bermuda resident. Because of their different tax laws, the United States views the subsidiary as Irish but Ireland views the subsidiary as nonresident. S1 then licenses the IP to a wholly owned Irish subsidiary, "S2," which is not recognized as a corporation by the United States but is recognized by Ireland. The United States allows certain entities to elect to be classified as a corporation, partnership, or disregarded entity by "checking the box" on IRS Form 8832. Partnerships and disregarded entities are not recognized for U.S. tax purposes, and their assets and income are instead attributed to their parent corporation. S2 collects the income from the IP in Ireland, where it experiences a low tax rate, and is able to deduct the royalties it pays to S1 under Irish tax laws. This transaction is not taxed by the United States, as under U.S. law it is viewed as a transfer within a single Irish corporation. Thus, the royalties are untaxed but are deductible, and the IP income is taxed at a low rate. U.S. taxes are avoided.”
ARTICLE: TECHNOLOGICAL INNOVATION, INTERNATIONAL COMPETITION, AND THE CHALLENGES OF INTERNATIONAL INCOME TAXATION, 113 Colum. L. Rev. 347, 399
 Incidentally, Germany has the highest level of flow through entities out of any country in the world after the US, because 1930s National Socialist policy promoted that Germans to be “responsible” for their own activities and not hide behind a corporate shield—a good Nazi formed a partnership:
“"It took the Reichsfinanzhof, then the supreme German court for tax law, another eleven years to establish, in 1933, that GmbH & Co. KGs were to be taxed like ordinary partnerships, i.e. transparently, and not like corporations. However, the GmbH & Co. KG was truly kick-started, inadvertently, only by Nazi economic policy. According to Nazi ideology, a good German businessman should be personally liable. Limited liability was regarded as cowardly and immoral. Therefore, the Nazi regime wanted to encourage the transformation of closely held corporations, in particular GmbHs, into general partnerships. [emphasis added by author] In order to implement this policy, corporations were subjected to unrelieved and prohibitive corporate income taxation. At the same time, corporations were given the opportunity to convert into partnerships without negative tax consequences. " Erik Röder, Combining Limited Liability and Transparent Taxation: Lessons from the Convergent Evolution of GmbH & Co. KG,S Corporation, LLC and Co., Working Paper Max Planck Institute (2017).
 However, this is not the whole story. “If a partnership has a substantial built-in loss, the § 743(b) adjustments are mandatory. Id. § 743(a), (d). The total § 743 adjustment is the difference between the transferee partner's basis in his partnership interest and his share of the adjusted basis of the partnership property.” Jeffrey M. Colon, The Great Etf Tax Swindle: The Taxation of in-Kind Redemptions, 122 Penn St. L. Rev. 1, 68 (2017).
Personal income grew in 2016 in 2,285 counties, fell in 795, and was unchanged in 33, according to estimates released today by the U.S. Bureau of Economic Analysis. On average, personal income rose 2.5 percent in 2016 in the metropolitan portion of the United States and rose 1.0 percent in the nonmetropolitan portion. Personal income growth in 2016 ranged from -40.8 percent in Kenedy County, Texas to 27.1 percent in Tillman County, Oklahoma.
Personal income is the income received by, or on behalf of, all persons from all sources: from participation as laborers in production, from owning a home or unincorporated business, from the ownership of financial assets, and from government and business in the form of transfer receipts. It includes income from domestic sources as well as from the rest of the world.
Personal income is the income that is available to persons for consumption expenditures, taxes, interest payments, transfer payments to governments and the rest of the world, or for saving. Personal income for 2016 ranged from $4.4 million in Loving County, Texas to $563.9 billion in Los Angeles County, California.
Per capita personal income–personal income divided by population–is a useful metric for making comparisons of the level of personal income across counties. Table 1 presents estimates of per capita personal income by state and county. In 2016, it ranged from $16,267 in Wheeler County, Georgia to $199,635 in Teton County, Wyoming.
The county personal income estimates released today continue the successively more detailed series of data releases from the Bureau of Economic Analysis (BEA) depicting the geographic distribution of the nation’s personal income for 2016. National estimates of personal income for 2016 were released in January 2017, followed by preliminary state personal income estimates in March. The county personal income estimates also incorporate the results of the annual updates of the national income and product accounts (NIPAs) and state personal income accounts, which were released in July and September 2017, respectively. The personal income estimates released today provide the first glimpse of personal income for 2016 in counties and metropolitan statistical areas. The geographic picture will be completed with the release of real personal income for states and metropolitan areas in May 2018.
The Inclusive Framework (IF) welcomes Qatar and Saint Kitts and Nevis, bringing to 106 the total number of countries and jurisdictions participating on an equal footing in the BEPS Project. Members of the IF have the opportunity to work together with other OECD and G20 countries on implementing the BEPS package consistently and on developing further standards to address BEPS issues.
Monday, November 20, 2017
In the aftermath of the release of the “Paradise Papers”, 200 delegates from more than 90 delegations met in Yaoundé, Cameroon for the 10th meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes which now includes 147 countries and jurisdictions.
The Global Forum adopted the first report on the status of implementation of the AEOI Standarda few weeks after almost 50 countries started exchanges of information under the new standard on automatic exchange of information, with another 53 countries starting in September 2018. The principle of annual implementation reports and peer reviews were agreed at the meeting to ensure effective implementation and a level playing field.
The Global Forum published peer reviews of Curaçao, Denmark, India, Isle of Man, Italy and Jersey. The publications bring to a total of 16 the number of second round reviews of the Forum’s 147 member countries and jurisdictions based on its international standard of transparency and exchange of financial account information on request. The standard was reinforced last year to tackle tax evasion more effectively, particularly in areas covering the concept of beneficial ownership.
- Read the full news release
- Download the AEOI implementation report
- Access the peer reviews
- Find our more on the Global Forum
Sunday, November 19, 2017
His Excellency Khalid Bin Rashid Al-Mansouri, Ambassador of the State of Qatar to France, signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in the presence of the OECD Deputy Secretary-General Masamichi Kono. Qatar is the 115th jurisdiction to join the Convention.
The Convention provides all forms of administrative assistance in tax matters: exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection. It guarantees extensive safeguards for the protection of taxpayers' rights.
The Convention's impact grows with each new signatory; it also serves as the premier instrument for implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries, and which is being implemented by over 100 jurisdictions. In this respect, Qatar has today also signed the CRS Multilateral Competent Authority Agreement (CRS MCAA), re-confirming its commitment to implementing the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) in time to commence exchanges in 2018. Qatar is the 96th jurisdiction to sign the CRS MCAA.
The Convention can also be used to swiftly implement the transparency measures of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project such as the automatic exchange of Country-by-Country reports under Action 13 as well as the sharing of rulings under Action 5 of the BEPS Project. The Convention is also a powerful tool in the fight against illicit financial flows.
The Convention was developed jointly by the OECD and the Council of Europe in 1988 and amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, thus ensuring that countries around the world could benefit from the new more transparent environment.
The 115 jurisdictions participating in the Convention can be found at: www.oecd.org/tax/exchange-of-tax-information/Status_of_convention.pdf
Saturday, November 18, 2017
Friday, November 17, 2017
The CEO of one of the world’s largest independent financial services organizations has co-written an assertive open letter to the U.S. Treasury Secretary to demand the Trump administration scrap the Foreign Account Tax Compliance Act.
Nigel Green, together with Jim Jatras, his co-leader of the Campaign to Repeal FATCA, have sent the five-page letter to the Honorable Steve Mnuchin as, after a year in office, nothing has been done to abandon the “worst law most Americans have never heard of.” This despite promises in the election campaign that, should they win, the Republicans would “call for repeal” of FATCA.
Enacted in 2010 by a Democrat-controlled Congress and signed into law by Barack Obama, FATCA is virtually unknown to most Americans but has been wreaking havoc with the global financial system outside the U.S. Touted as a weapon against “fat cat” tax evaders stashing funds offshore, FATCA is instead an indiscriminate information dragnet requiring all non-U.S. financial institutions (banks, credit unions, insurance companies, investment and pension funds, etc.) in every country in the world to report data on all specified U.S. accounts to the IRS. If any country refuses to comply, FATCA provides for its financial sector to be hit with crippling penalties that will tank its economy.
The letter, dated November 14, states: “We are writing to you on the supposition that in a democratic country, elections should have consequences. When a political party stands before the electorate on declared principles and makes specific promises, those principles and promises should be reflected in how that party governs under its mandate from the voters.”
They are referring to the 2016 Republican Platform that read: “The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”
In the letter, Mr Green and Mr Jatras comment: “This Republican pledge to repeal FATCA rests on the deepest and most cherished American principles, not least a decent respect for the privacy of citizens who are not engaged in lawbreaking and are not even suspected of doing so. Even the IRS’s own Taxpayer Advocate Service has criticized FATCA’s ‘enforcement-oriented regime with respect to international taxpayers’ with its ‘operative assumption [that] appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise’.”
They add: “We are confident that legislative progress is being made and that FATCA will be repealed in the near future. We are writing to you now because of our disappointment that no positive action has yet been taken by the other part of the apparatus of government, in the Executive Branch. This includes the Department of the Treasury.”
Nigel Green and Jim Jatras launched the Campaign to Repeal FATCA, a Washington DC-based lobbying group, in February.
At the launch, Mr Green noted: “FATCA is an extraterritorial diktat that burdens other countries’ financial institutions and their clients, which violates other countries’ sovereignty, and which is detrimental to their consumers and taxpayers.
“It turns law-abiding, middle-class Americans living overseas, of whom there are approximately eight million, into financial pariahs.”
The letter to Secretary Mnuchin, in which it is requested that he personally takes “firm action”, concludes with a sharp assertion: “It’s well past time that the choice American voters made last year became a reality with respect to this critical issue.”
In summary, Jim Jatras affirms: “To put it bluntly, after the passage of a full year since Election Day 2016, by all indications the Obama Administration remains firmly in power as far as FATCA is concerned.”
The full text of the letter follows below and is available in PDF here:
Campaign to Repeal FATCA
November 14, 2017
The Honorable Steven Terner Mnuchin
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Dear Secretary Mnuchin:
The Campaign to Repeal FATCA (www.RepealFATCAcom) was launched earlier this year with one purpose: to get rid of the Foreign Account Tax Compliance Act. FATCA is a textbook example of a badly conceived, badly written, and badly enforced law that doesn’t achieve its stated purpose but does inflict an excess of harmful consequences on citizens, American taxpayers around the world, the global financial and investment sectors, and the principle of national sovereignty.
As Co-Leaders of the Campaign, we are writing to you on the supposition that in a democratic country elections should have consequences. When a political party stands before the electorate on declared principles and makes specific promises, those principles and promises should be reflected in how that party governs under its mandate from the voters.
The 2016 Republican Platform reads in part:
“The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”
This Republican pledge to repeal FATCA rests on the deepest and most cherished American principles, not least a decent respect for the privacy of citizens who are not engaged in lawbreaking and are not even suspected of doing so. Even the IRS’s own Taxpayer Advocate Service has criticized FATCA’s “enforcement-oriented regime with respect to international taxpayers” with its “operative assumption [that] appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise.”
FATCA’s privacy violations and compliance burdens fall disproportionately upon people of moderate means, few of whom are engaged in evasion or owe any tax at all. As examined at a hearing on April 26 of this year by the House Subcommittee on Government Oversight presided over by House Freedom Caucus Chairman Mark Meadows, FATCA has led to financial institutions around the world denying or withdrawing financial services from Americans, in turn leading to growing numbers of U.S citizenship renunciations. (Meanwhile the genuine “fat cats” supposedly targeted by FATCA can easily avoid it by hiding assets in real estate, bullion, fine art, gems, and other ruses.)
FATCA’s indiscriminate invasion of privacy would be unjustifiable even if it were an effective mechanism for detecting offshore tax evasion and recovering revenues due. But FATCA is a failure from that standpoint as well, as irrefutably demonstrated by Professor William Byrnes of Texas A&M University School of Law, who calculates that the actual net recovery attributable to FATCA is a mere $100-200 million per year – far less than the approximately $800 million it was scored upon enactment in 2010. Worse, projects Byrnes, the recovery trend is downward, and FATCA (excepting penalties for filing deficiencies, even where there is no tax liability) could soon cost more money than it brings in. This contrasts to the IRS’s standard of approximately seven dollars in tax recovery for every enforcement dollar spent. As a weapon to combat tax evasion, FATCA is a waste of money that could be more effectively spent on other programs.
In addition, FATCA imposes massive compliance costs on the entire global financial system – money that comes out of the pockets of customers, depositors, and shareholders. Even a small non-U.S. bank can expect to spend millions of dollars looking for American “indicia” among thousands of accounts. According to available data, bigger institutions spend much more. For example, according to the Wall Street Journal, Canada’s “Big Five” banks collectively had paid out $693.5 million in primary compliance by 2014. Bank of Nova Scotia alone had spent $100 million as of 2013. As cited by Professor Byrnes, BBVA (Banco Bilbao Vizcaya Argentaria, S.A.), Spain’s second-largest bank, estimates FATCA compliance costs to be at least €8 million for a local entity up to €800 million for a global one; similarly a cost estimate from the U.K. Revenue for British financial institutions is a one-off cost of approximately £900 million to £1,600 million, with an ongoing cost of £50 million to £90 million a year. Estimates of total global compliance spending rely on aggregating what is known about per-institution costs. One such projection assesses FATCA’s cumulative cost at between $58 billion and $170 billion. This is an order of magnitude greater than any recoveries from FATCA.
It is thus no mystery why big accounting, law, and software firms are thrilled with FATCA and are keen to insist that “FATCA is here to stay!” But corporate welfare for compliance vendors who are the real fat cats in this saga is no reason to keep a bad law.
Thus, there is overwhelming reason for the Republican Party – which is in unified control of the Executive Branch and of both houses of Congress – to keep its promise to the American people. To that end, our Campaign is working with the Congressional sponsors of FATCA repeal legislation in both chambers: Senator Rand Paul (S.869) and Representative Mark Meadows (H.R. 2054). The repeal movement has also gained the support of numerous taxpayer groups, including Americans for Tax Reform, the National Taxpayers Union, the Center for Freedom and Prosperity, American Commitment, the Taxpayers Protection Alliance, the Competitive Enterprise Institute, R Street Institute, The Market Institute, the Center for Individual Freedom, Frontiers of Freedom, 60 Plus Association, FreedomWorks, the Sovereign Society Freedom Alliance, the Institute for Liberty, The National Tax Limitation Committee, Citizen Outreach, Campaign for Liberty, Jeffersonian Project, The Institute for Policy Innovation, Americans for Limited Government, the National Center for Policy Analysis, the Small Business and Entrepreneurship Council, and others. In addition, the Credit Unions of North America and the World Council of Credit Unions have also called for repealing FATCA.
We are confident that legislative progress is being made and that FATCA will be repealed in the near future. We are writing to you now because of our disappointment that no positive action has yet been taken by the other part of the apparatus of government, in the Executive Branch. This includes the Department of the Treasury.
Our concerns in this area relate mainly to the so-called “intergovernmental agreements” (IGAs). The IGAs are a product of the Treasury Department’s realization soon after FATCA’s enactment that it was unenforceable in light of other countries’ privacy laws and that the only way to implement this ill-advised and badly crafted mandate on hundreds of thousands of non-U.S. firms – over which American law has no jurisdiction – would be to induce foreign governments to enforce FATCA against their own citizens and institutions. Worse, as an incentive for foreign governments to sign the IGAs, the Geithner and Lew Treasury Department promised, in the name of the United States, to provide “reciprocal” information from U.S. institutions – a promise which, if kept, would impose immense FATCA-like compliance costs on American domestic financial firms.
Neither such reporting nor the IGAs themselves are authorized by FATCA or any other statute. The IGAs are not submitted as treaties to the U.S. Senate for that body’s advice and consent, though the non-U.S. party is required to ratify the IGA under “its necessary internal procedures for entry into force.” Imposing such one-sided agreements on America’s trading partners under threat of sanctions amounts to a gross violation of international comity and the very concept of national sovereignty. No wonder the Organisation for Economic Co-operation and Development, which for years has sought to extinguish personal financial privacy and create a worldwide financial data fishbowl, has praised the IGAs as a “catalyst” to that end.
It should be clear from the foregoing that the IGAs are a textbook example of the prior administration’s disdain for the rule of law in favor of Executive overreach. As former House Speaker John Boehner put it in another context, President Barack Obama demonstrated an unprecedented circumvention of Congressional authority “through executive action, changing and creating his own laws, and excusing himself from enforcing statutes he is sworn to uphold – at times even boasting about his willingness to do it, as if daring the American people to stop him.” This characterization fits the IGAs to a T.
Secretary Mnuchin, the IGAs are purely inventions of the Treasury Department under your two immediate predecessors and can be revoked by you under the same authority. We are aware of at least two Congressional letters sent to you taking issue with the IGAs and urging specific steps by your Department to nullify the IGAs and alleviate their harmful impact. One letter, from Senator Paul and Congressman Meadows, was sent on April 3, 2017, and was also addressed to OMB Director Mick Mulvaney. The other, from Congressman Bill Posey, a member of the Financial Services Committee, was sent on September 29.
Despite these urgings, nothing has been done to reverse your predecessors’ highhanded and legally dubious actions related to FATCA. Quite to the contrary, under the Trump Administration the Department has pressed ahead with signing additional IGAs. For example, an IGA was signed with Ukraine in February of this year – after President Trump took office – and with Kazakhstan in September. Making “progress” towards a FATCA agreement with Singapore (a euphemism for pressuring that country) was part of President Trump’s briefing points for Prime Minister Lee Hsien Loong’s White House visit in October.
To put it bluntly, after the passage of a full year since Election Day 2016, by all indications the Obama Administration remains firmly in power as far as FATCA and the IGAs are concerned. While from outside the Treasury Department we are not in a position to tell which individuals are responsible for this state of affairs, we suggest with all due respect that it is your responsibility to inform the career officials who work for you than an election took place last year and to direct them to cease their efforts to carry out your predecessors’ legally deficient directives with respect to FATCA. At a minimum this should include (from the April 3 letter to you from Senator Paul and Representative Meadows) your taking action to –
“Instruct the Treasury Department’s Office of International Affairs and other elements of the Department that may be involved to cease all efforts to negotiate, sign, and implement IGAs. Continued signings of new IGAs – most recently with Ukraine in February 2017 – send a false signal that the new administration is committed to this destructive law as matter of policy.
“Announce that the IGAs are under legal review of their authority and that if they are found to be legally infirm – as I [sic] believe they will be – they may be declared invalid ab initiowith immediate effect or terminated upon expiry of the one-year’s notice specified.
“Under the broad authority FATCA grants the Treasury Secretary, deem all impacted foreign institutions compliant on a temporary basis pending outcome of the legal review of the IGAs. The IRS should also be instructed to suspend enforcement of provisions impacting individual taxpayers; and, on an urgent basis to help decrease the spiking increasing [sic] in U.S. citizenship renunciations, suspend imposition of penalties for FATCA filing errors by individuals.”
We thank you for your prompt attention to this matter and your anticipated implementation of the measures above.
We now turn our attention to a distinct but related topic. The same passage in the Republican Platform pertaining to FATCA also calls for “a change to residency-based taxation for U.S. citizens overseas.” As is not necessary to detail here, the United States is the only major country that taxes its citizens worldwide on the basis of citizenship, not residence. This creates a host of problems and inequities for the up to ten million Americans resident abroad. While adoption of a residency-based taxation (RBT) system is not a specific task of our Campaign, we strongly endorse the concept and hope it will be enacted as part of tax reform legislation pending on Capitol Hill.
As far as we are aware, RBT is not yet included in either the House or Senate tax bill. We also note that there are several approaches as to how RBT could be adopted. However, we draw your attention to the fact that suggestions have been made that adoption of RBT – were it to occur – would eliminate the need for repealing FATCA.
In our opinion, nothing could be further from the truth. While adoption of RBT could in some minor way assuage the administrative pain inflicted on Americans abroad, the fundamental flaws of FATCA would remain. As far as FATCA goes, RBT’s positive impact would be comparable to an aspirin’s on cancer. (This is not meant to minimize RBT’s benefits on matters unrelated to FATCA.)
Even under an RBT system, the larger toxic features of FATCA would remain. Keep in mind that FATCA is purely a financial reporting mandate that has no direct relationship to taxes or to what assets get taxed. FATCA demands data on assets whether they are subject to taxation or not. In principle, FATCA and the IGAs could stay in place just as they are even if RBT is adopted. At best, the entire structure of FATCA’s indiscriminate violation of personal privacy would remain unaffected except, in principle, applied only to U.S. residents as opposed to all citizens. The IGAs would presumably stay in place as well, with their ongoing damage to the principle of state sovereignty. The massive compliance costs imposed on financial institutions globally would remain, as would the gravy train for the relevant vendors.
Perhaps worst of all, by enacting RBT but leaving FATCA on the books, the Trump Administration would be wrongly declaring the FATCA problem solved. This would allow the dead hand of the past administration to reach into the future without limit: more IGAs, perhaps in due course the imposition of reciprocity on domestic American financial firms, and in the foreseeable future a global FATCA – or “GATCA.” This is the antithesis of what the GOP Platform promised.
The media carry numerous accounts of how the Trump Administration’s policies are being undermined by career bureaucrats and, in some cases, even holdovers from the Obama era. To the extent that that is the case at the Treasury Department and the root of the concerns we have expressed in this letter, we ask that you take prompt and firm action to rectify matters. We are already almost a year into what was supposed to be a sharp break from the failed policies of the past with as yet no Executive progress on FATCA. It’s well past time that the choice American voters made last year became a reality with respect to this critical issue.
Thanking you in advance for your attention and consideration, we remain –
Nigel J. Green
The Honorable Rand Paul
The Honorable Mark Meadows
The Honorable Bill Posey
The Honorable Mick Mulvaney
Mr. Grover Norquist, Americans for Tax Reform
Mr. Pete Sepp, National Taxpayers Union
Mr. Brian Garst, Center for Freedom and Prosperity
Two former executives at a Dutch oil and gas services company (the “Oil Services Company”), Anthony “Tony” Mace and Robert Zubiate, pleaded guilty this week to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) for their roles in a scheme to bribe foreign government officials in Brazil, Angola and Equatorial Guinea.
Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Abe Martinez of the Southern District of Texas and Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations’ (ICE-HSI) Houston Field Office made the announcement.
Mace, 65, of the United Kingdom, was the Oil Services Company’s CEO from 2008 to 2011, and a former board member of one of its wholly-owned Houston subsidiaries. Zubiate, 66, of California, was a former Texas and California-based sales and marketing executive at the same subsidiary.
U.S. District Judge David Hittner of the Southern District of Texas accepted Mace’s guilty plea on Nov. 9 and Zubiate’s guilty plea on Nov. 6. Sentencing for Mace is scheduled for Feb. 2, 2018, and Zubiate for Jan. 31, 2018.
As part of his guilty plea, Mace admitted that prior to becoming CEO, other employees of the Oil Services Company entered into an agreement to pay bribes to foreign officials including at Brazil’s state-controlled oil company, Petróleo Brasileiro S.A. (Petrobras), Angola’s state-owned oil company, Sociedade Nacional de Combustíveis de Angola, E.P. (Sonangol) and Equatorial Guinea’s state-owned oil company, Petroléos de Guinea Ecuatorial (GEPetrol). Mace further admitted that he joined the conspiracy by authorizing payments in furtherance of the bribery scheme and deliberately avoided learning that those payments were bribes.
Mace admitted that he maintained a spreadsheet reflecting payments to five individuals and that even though he was aware there was a high risk those individuals were Equatorial Guinean officials or persons receiving money on behalf or at the direction of those officials, he nevertheless authorized Oil Services Company to make over $16 million in payments to those individuals. Mace further admitted that he continued a practice that was instituted before he became CEO by splitting payments to Oil Services Company’s Brazilian intermediary, that is, paying a portion of the intermediary’s commission to an account in Brazil and another portion of the agent’s commission to accounts in Switzerland held in the name of shell companies. Mace admitted that he deliberately avoided learning that the ultimate recipients of the payments that he authorized to the shell companies were Petrobras officials.
As part of his plea, Zubiate’s admitted that between 1996 and 2012, he and his co-conspirators used a third-party sales agent to pay bribes to foreign officials at Petrobras in exchange for those officials’ assisting the Oil Services Company and its U.S. subsidiary with winning bids. Zubiate also admitted engaging in a kickback scheme with the bribe-paying sales agent for the Oil Services Company and its U.S. subsidiary.
ICE-HSI investigated the case. Trial Attorney Dennis R. Kihm and Assistant Chief Tarek Helou of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Suzanne Elmilady of the Southern District of Texas are prosecuting the case. The Criminal Division’s Office of International Affairs also provided substantial assistance in this matter.
The Department of Justice is grateful to Brazil’s Ministério Público Federal, the Netherlands’ Openbaar Ministerie and Switzerland’s Office of the Attorney General and Federal Office of Justice for providing substantial assistance in gathering evidence during this investigation.
Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly) is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. Special topic chapters will assist the compliance officer design and maintain effective risk management programs. Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide. – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod-us-ebook-01701-epub#sthash.Bts3dMm7.dpuf
- Juan Alberto Cerisola, former rector of the National University of Tucumán (UNT) between 2006 and 2009;
- Olga Cudmani, director general of University Buildings;
- Osvaldo Venturino, director of Investments and Contracting;
- Luis Fernando Sacca, sub-secretary of Administrative Policies and Management
Thursday, November 16, 2017
Paradise Papers: Angola's $5 Billion Sovereign Wealth Fund Appoints Friend of President's Son who had Swiss Criminal Conviction for Criminal Mismanagement
ICIJ uncovers from Appleby Paradise Papers leaked documents that Angola's Sovereign Wealth Fund pays its sole asset manager 2% - 2.5%, a friend of the son of the President. Not much of an asset manager though as years later 85% of the assets were yet invested yet fees were widdling down the corpus.
Its chairman, José Filomeno dos Santos, was appointed by his father, then president of Angola, José Eduardo dos Santos, who led the country from 1979 until this year. The younger Dos Santos’ appointment of Bastos [Jean-Claude Bastos de Morais], a personal friend, to manage the fund – which included billions of dollars set aside for investment in Africa and that would use companies in Mauritius – drew the attention of journalists.
Apparently, in 2011, before his appointment as the asset manager of the $5 billion Angola Sovereign fund, Jean-Claude Bastos de Morais was convicted together with his partner by a criminal court in Switzerland for "repeated qualified criminal mismanagement". Not exactly the best qualification for an appointment as sole asset manager of the $5 billion of assets of a Sovereign Fund.
International Tax Reform? Why Expatriate When Wealthy Americans Can Move to Virgin Islands and Not Pay Federal Capital Gains Tax?
Page 97 of the Senate Finance Committee Modified Mark published around midnight last night: Modification to source rules involving possessions
Description of Proposal
The proposal modifies the sourcing rule in section 937(b)(2) by modifying the U.S. income limitation to exclude only U.S. source (or effectively connected) income attributable to a U.S. office or fixed place of business. The proposal also modifies section 865(j)(3) by providing that capital gains income earned by a U.S. Virgin Islands resident shall be deemed to constitute U.S. Virgin Islands source income regardless of the tax rate imposed by the U.S. Virgin Islands government.
The U.S. Virgin Islands has an income tax system that “mirrors” the U.S. Code. The U.S. Virgin Islands may also impose certain local income taxes in addition to taxes imposed by the mirror Code. The Code provides rules for coordination of United States and U.S. Virgin Islands taxation. It permits the U.S. Virgin Islands to reduce or remit tax otherwise imposed by the mirror code if the tax is attributable to U.S. Virgin Islands source income or income effectively connected to the conduct of a trade or business in U.S. Virgin Islands. The U.S. Virgin Islands has exercised that authority to provide development incentives for certain types of businesses operating within its borders. Under such initiatives, companies can receive a 90 percent reduction in their tax liability on certain income.
Under the mirror Code, U.S. Virgin Islands citizens and residents are taxable on their worldwide income. A foreign tax credit is allowed for income taxes paid to the United States, foreign countries, and other possessions of the United States. In general, a bona fide resident of the U.S. Virgin Islands is required to file and pay tax only to the possession; compliance with that obligation satisfies any Federal income tax filing obligation. ...
In the case of an individual who is a U.S. citizen or alien residing in the United States or the U.S. Virgin Islands, only one tax is computed under the Code. If an individual is a bona fide resident of U.S. Virgin Islands for the entire taxable year, such tax is payable to the U.S. Virgin Islands and no U.S. tax is imposed. Otherwise, a citizen or resident of the United States who has income from sources within the U.S. Virgin Islands must determine the portion of income attributable to the U.S. Virgin Islands and the related tax payable to the U.S. Virgin Islands. The remaining portion is payable to the United States.
Concerns that U.S. citizens not resident in the U.S. Virgin Islands were improperly claiming residence in the U.S. Virgin Islands or forming entities in the U.S. Virgin Islands in order to recharacterize income earned in the United States as sourced in the U.S. Virgin Islands and claim the 90 percent economic development credit led to legislative changes in 2004. These changes provided a definition of bona fide residence in a possession and rules to determine source of income from possessions. They also impose a requirement that individuals report any change in residency status with respect to a possession during a taxable year.
The Dutch newspaper Trouw reports that the Netherlands Revenue Authority has been ordered by the Ministry of Finance to review all 4,000 advance pricing rulings / agreements ('APAs') between multinationals and the Revenue.
And what is the cause? Trouw reports that Proctor & Gamble obtained an advance ruling from the revenue with only one reviewing revenue officer signing off which is against the internal procedures of the revenue department. See YouTube video (in Dutch) describing the issue.
Read in English a synopsis of the Dutch articles.