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Foreign financial institutions must report US accounts.

International exchange of offshore financial account information and tax records between governments has become the norm when it comes to international taxation. The United States initiated the trend of exchange of information by implemented the Foreign Account Tax Compliance Act (the “FATCA”) then, the OECD followed by introducing the Common Reporting Standard (CRS) for Automatic Exchange of Information (AEOI) in 2014. The main purpose of these programs is to combat tax evasion and improve financial transparency. FATCA was enacted on March 18, 2010, under the Hiring Incentives to Restore Employment (the “HIRE”) Act. It was a response to a series of scandals. The most famous is the 2009 Swiss banking scandal which concluded UBS agreeing to pay $780 million in penalties to the U.S. government.1  (The whistleblower a UBS private banker, received prison time, but received $104 million from the U.S. government for his role in exposing the scandal. FATCA requires most foreign financial institutions (FFIs) to register with the Internal Revenue Service (IRS) to obtain a Global Intermediary Identification Number (GIIN). Some FFIs are exempt from both registration and reporting requirements; for example, governmental entities, non-profit organizations, and small/local FFIs. Other FFIs are required to register, but they may be able…

OECD Action 13: Country-by-Country Reporting – is it working as intended?

The OECD initiative on base erosion and profit shifting (BEPS) is an ambitious effort to inhibit multinational corporations from avoiding taxes. One of the most important components of the initiative is OECD Action 13, which mandates country-by-country reporting by multinationals of important financial information about their subsidiaries in the countries in which they operate. The parent company is required to collect information like: The number of employees working in each country Where the subsidiary has its “permanent establishment” Revenues Profit before tax Tax paid Amount of capital is employed Value of tangible assets The information is then sent to the tax jurisdiction in which the parent company is headquartered. The intent was to have a record of the amount of tax paid by multinationals, because it was widely assumed the effective tax they were paying was lower than the statutory requirements. The thinking was that companies would not want to be seen as being tax avoiders and would change their behavior to pay taxes closer to what was required. This reporting requirement was initially met with trepidation, if not alarm. Country-by-country reporting (CbCR) has been substantially in place for two years now. Has it had the effect that was intended…

IRS Reminds Taxpayers with Tax Debt over $52,000 to Resolve Their Debt to Avoid Revocation of U.S. Passports

In the Issue IR-2019-141, the IRS indicated that they are required to notify the State Department on taxpayers with more than $52,000 in tax debt which could lead to denial or revocation of the taxpayer’s passport. Under the Fixing America’s Surface Transportation (FAST) Act, the IRS notifies the State Department of taxpayers with seriously delinquent tax debt. Any amount above $52,000 is treated as seriously delinquent tax debt. The FAST Act authorized the State Department to reject such taxpayer’s passport application or renewal application. The law can limit a taxpayer’s ability to travel outside the United States by revoking the passport. A taxpayer should receive the Notice CP508C when the IRS certifies or notifies a taxpayer to the State Department. There are different paths to resolve tax issues. The taxpayer can enter various programs that can bring relief for unpaid taxes. These options can reverse the adverse actions taken by the State Department which could hinder the taxpayer’s ability to travel or conduct business around the world. ABOUT THEVOZ ATTORNEYS, PLLC The THEVOZ Attorneys, PLLC is an international law firm that advises on domestic and international tax matters. The law firm has offices in the United States and Europe. As…

The United States Treasury Issues GILTI Final Regulations

The primary purpose of the Global Intangible Low Taxed Income regulation (GILTI) is to provide a disincentive for US-based multinational corporations to shift profits to relatively low-tax countries. GILTI creates a minimum tax increment on foreign taxes rates by US multinationals of between 10.5 percent and 13.125 percent. This effectively reduces the tax savings on every dollar shifted to low-tax jurisdictions. GILTI is intended to reduce the incentive to shift corporate profits out of the United States, particularly by using intellectual property (IP) as a tax-shifting vehicle. Some low-tax countries have marginal corporate tax rates that approach zero. GILTI creates a tax regime where corporations must pay between 10.5 percent and 13.125 percent, making profit shifting less attractive. On June 14, 2019, the Treasury Department issued section 951A Global Intangible Low Taxed Income (GILTI) final regulations and proposed regulations related to stock ownership and excluding foreign hightaxed income from GILTI. Final rules reject the hybrid approach and adopt the aggregate approach for determining a partner’s GILTI inclusion amount due to CFC stock owned by a domestic partnership. GILTI final regulations also contains modifications to the pro rata share rules, clarification of anti-abuse rules, foreign tax applicability to direct or indirect…

IRS Changes the Procedure to Obtain an EIN Starting May 13

IRS announced that starting May 13, 2019, only individuals with either Social Security Number (SSN) or individual taxpayer identification number (ITIN) may request a federal Employer Identification Number (EIN). (IR-2019-58). The new change will not allow entities to be listed as the “responsible party” and use their EIN to obtain other EINs.  EIN is a nine-digit number assigned to employers, sole proprietors, corporations, partnerships, estates, trusts, certain individuals, and other entities for tax filing and reporting. Form SS-4 is used to apply for an EIN.  The responsible party for an entity is normally the person who owns or controls the entity or the one who has the power to exercise control over the entity (Instructions for Form SS-4). For example, if the entity is a corporation, the responsible party may be the principal officer and if the entity is a partnership, the general partner may be the responsible party.  The new changes to obtaining EIN especially affects international entities who are applying for EIN to make an entity classification for U.S. tax purposes. Under the changes, a responsible party of an international entity that has no U.S. presence or U.S. officers, first would have to obtain TIN (File Form W-7)…

What is Happening in the International Tax realm?

Proposed Digital Service Tax (DST) and the Impact on the United States There could be a new tax that directly affects U.S. technology companies. The European Union has proposed to implement a tax on digital business activities conducted within the EU member states. Major countries like U.K., France, and Germany have shown support. But, recently Germany has shown less enthusiasm towards the new tax (where) countries like Sweden, Ireland, and Netherland oppose it. While EU countries debate on the tax, U.K. soon to leave the EU has decided to take matters on its own hand. November 2018, U.K. Treasury proposed DST that would go into effect in April 2020. Because U.K.’s proposed DST is closer to be brought in front of the parliament, we will look into implications of DST in the U.S. The government of UK believes that the current international tax framework has failed to keep up with changes in the digital age, thus need an international tax system fit for the digital age. UK will tax DST at 2%, of gross revenues of companies that generate their income from social media platforms, online-marketplace, and search engines. Such a company could be subjected to DST if it generates…

U.S. Tax News

GILTI Proposed Regulations Tax Cuts and Jobs Act 2017 introduced the section 951A Global Intangible Low-Income (GILTI) tax, which imposes a minimum tax on offshore earnings of controlled foreign corporations. The Treasury and IRS have published proposed regulations providing clarity on new Global Intangible Low-Tax Income. Proposed regulations provide definitions, calculation of GILTI, and US shareholder’s GILTI inclusions. However, we expect more clarifications from the Treasury because Proposed Regulations have not provided clarifications for all the unanswered GILTI issues. For example, Proposed Regulations do not include rules relating to foreign tax credits, electing Section 962, and Section 250 deduction. Base Erosion and Anti-Abuse Tax Proposed Regulations (BEAT) Another change to the U.S. international tax system under Tax Cuts and Jobs Act 2017 is the Base Erosion and Anti-Abuse Tax (BEAT). Under the new section 59A, there will be a tax equal to the base erosion minimum tax amount for certain taxpayers from the beginning of 2018. One of the parties this provision mainly affect are corporate taxpayers with gross receipts averaging more than $500 million over a three-year period who make deductible payments to foreign related parties. The proposed regulations issued by the IRS, provide details on which taxpayers can…

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