Archive for May 31, 2013

Ireland – An Ideal Location For Intellectual Property Trading Companies – Withholding Tax and Stamp Duty – Part 4

Apart from a highly skilled, English speaking workforce; membership of the E.U.; an excellent standard of living for employees seconded to Ireland; a large network of international routes and a successful track record of investment, research and development from United States corporations there are many advantages to setting up Intellectual Property Trading companies in Ireland.

The main focus of this article is the tax advantages which can be summarized under the following headings and viewed in Parts 1 through 4 on TaxConnections Worldwide Tax Blogs:

1.  Corporation Tax – Part 1
2.  Capital Allowances – Part 2
3.  Research & Development Relief – Part 3
4.  Withholding Tax – Part 4
5.  Stamp Duty and Summary – Part 4

4. WITHHOLDING TAX

In general, Irish resident companies must deduct 20% withholding tax on dividends and other profit distributions.

There are, however, a number of situations where shareholders can receive dividends free from withholding tax from an Irish resident company providing certain documentation is filed.  For example: Read More

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Foreign Earned Income Exclusion

The foreign earned income exclusion needs an acronym or a nickname or something, because that is a mouthful and I am not aware of any common shortcuts.  I guess I will try FEIE, but I admit that seems lame.

The FEIE is a spectacular way to pay less United States taxes if you are working in a foreign country.  A U.S. Citizen is required to file a return and report their worldwide income, even if you are spending the whole year teaching kids in Haiti, or working for a tech company in Germany, or playing hockey in Russia.  It doesn’t seem fair that you pay taxes to both the U.S. and the country where you are working, so there are two options available to reduce your U.S. tax liability.

The first option is the foreign tax credit; basically you get a credit for the taxes you paid to the foreign country on the income that is also being taxed by the U.S..  If the tax in Haiti is 10%, but the US tax is 25% then you end up paying the U.S. only 15%.  If the tax in Germany is 25% and the U.S. tax is 25% then you won’t pay any U.S. tax; it would all be offset by the credit.  Not a bad choice, but the FEIE is even better.

The FEIE allows you to exclude up to $95,100 of earned income from a foreign country (for 2012) if you meet the requirements.  That would mean if you make $80K in Haiti you would pay the Haitian tax, but you would be able to pay 0% to the U.S. because the income would be excluded – no need for the foreign tax credit.  Other than the requirement for it to be earned income, there is really only one big hurdle and there are two ways to clear it.  You can either qualify as the bona fide residence test or the physical presence test.  Bona fide residence means you have established a permanent residence in the foreign country.  The physical presence test is, you guessed it, a counting of the days you were physically in a foreign country.  Once you get to more than a year you can use the FEIE.

As with everything tax related, it’s much better to understand the tax consequences before you do something major like move to another country for a job.  There can be some huge tax savings by meeting the requirements for the FEIE.  It’s better to understand it before you head off for your foreign adventure.

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When Is A Casualty “Sudden, Unexpected, Or Unusual”

The Second Circuit’s recent remand of Alphonso, No. 11-2364-ag (2d Cir. 2/6/13), rev’g 136 T.C. 247 (2011) allows the Tax Court to consider perhaps the most controversial aspect of casualty loss deductions – the meaning of “sudden, unexpected, or unusual.”

Under Sec. 165(c), deductible personal losses (those not incurred in a trade or business or in a transaction entered into for profit) must arise from “fire, storm, shipwreck, or other casualty, or from theft.” The IRS and courts have generally restricted such other casualties to those like the named instances — identifiable events of a sudden, unexpected, or unusual nature or due to such causes (see, e.g., Matheson, 54 F.2d 537 (2d Cir. 1931)). Generally, courts have held that where the underlying cause of loss is progressive, such as rust and rot, gradual inundation or erosion, or insect infestation, resulting damage or destruction is not a casualty within the meaning of the statute, even when the damage or destruction becomes suddenly apparent. Thus, in Carlson, T.C. Memo. 1981-702, the Tax Court held that the collapse of a well did not qualify as a casualty loss because its cause was progressive deterioration of the supporting timber sidewalls.

In Alphonso, the Tax Court must make a factual determination whether the cause of a retaining wall’s collapse was sudden, unexpected, or unusual. Rev. Rul. 72 592 states that to be considered sudden, the event must be swift and precipitous, not gradual or progressive. An unexpected event is one that is ordinarily unanticipated, occurring Read More

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Will Government Help Small Businesses?

President Obama has been pushing for changes to the Internal Revenue Service Code that would limit the tax benefits of pass-through entities. Most small businesses are limited liability companies or S corporations and the profits and losses pass-through to the individual members or shareholders. These are merely preliminary proposals and most likely the House of Representatives will not let these proposals be pushed through Congress.

There is been a lot of recent talk about the lack of small business loans and it has been pointed out that the Small Business Administration is a good source for guaranteed business loans for the smallest of businesses. That is simply not true! Since 2005, the average size of the Small Business Administration loan under its loan guarantee program has gone from approximately $160,000 to approximately $342,000. In 2005, the government backed loans totaled almost 96,000. Last year, only 44,000 loans were guaranteed. Also, the smaller banks, that are many times the best choice for small business, seem to be getting out of the SBA loan guarantee programs in practice. Three large banks, including Wells Fargo, control over 20% of the market for SBA guaranteed loans.

The result is the bigger banks are making a larger percentage of loans in larger dollar amounts, but to less than half the number of businesses that they did in 2005. Read More

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Ireland – An Ideal Location For Intellectual Property Trading Companies – Research & Development Relief – Part 3

Apart from a highly skilled, English speaking workforce; membership of the E.U.; an excellent standard of living for employees seconded to Ireland; a large network of international routes and a successful track record of investment, research and development from United States corporations there are many advantages to setting up Intellectual Property Trading companies in Ireland.

The main focus of this article is the tax advantages which can be summarized under the following headings and viewed in Parts 1 through 4 on TaxConnections Worldwide Tax Blogs:

1.  Corporation Tax – Part 1
2.  Capital Allowances – Part 2
3.  Research & Development Relief – Part 3
4.  Withholding Tax – Part 4
5.  Stamp Duty and Summary – Part 4

3. RESEARCH & DEVELOPMENT RELIEF

Background

The 2012 Finance Act introduced a new tax relief which allowed a company to surrender a portion of its R&D tax credit to key employees engaged in research and development activities.

This relief reduced the employee’s Income Tax (but not Universal Social Charge) on relevant emoluments providing the employee’s effective income tax rate didn’t fall below 23% in any tax year.

To be eligible for this relief: Read More

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Ireland – An Ideal Location For Intellectual Property Trading Companies – Capital Allowances- Part 2

Apart from a highly skilled, English speaking workforce; membership of the E.U.; an excellent standard of living for employees seconded to Ireland; a large network of international routes and a successful track record of investment, research and development from United States corporations there are many advantages to setting up Intellectual Property Trading companies in Ireland. 

The main focus of this article is the tax advantages which can be summarized under the following headings and viewed in Parts 1 through 4 on TaxConnections Worldwide Tax Blogs:

1.  Corporation Tax – Part 1
2.  Capital Allowances – Part 2
3.  Research & Development Relief – Part 3
4.  Withholding Tax – Part 4
5.  Stamp Duty and Summary – Part 4

2. CAPITAL ALLOWANCES

Capital Allowances are available for capital expenditure on the creation, acquisition and/or licence to use certain “specified intangible assets” which includes:

1.  Copyrights
2.  Patents and registered designs
3.  Trademarks, brands, domain names and service marks Read More

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Ireland – An Ideal Location For Intellectual Property Trading Companies – Corporation Tax – Part 1

Apart from a highly skilled, English speaking workforce; membership of the E.U.; an excellent standard of living for employees seconded to Ireland; a large network of international routes and a successful track record of investment, research and development from United States corporations there are many advantages to setting up Intellectual Property Trading companies in Ireland. 

The main focus of this article is the tax advantages which can be summarized under the following headings and viewed in Parts 1 through 4 on TaxConnections Worldwide Tax Blogs:

1.  Corporation Tax – Part 1
2.  Capital Allowances – Part 2
3.  Research & Development Relief – Part 3
4.  Withholding Tax – Part 4
5.  Stamp Duty and Summary – Part 4

1. CORPORATION TAX

Ireland has one of the lowest corporation tax rates on trading income in the world.  The standard rate is 12½% on trading profits.

A 25% rate is charged on non-trading and foreign source income.  It is the rate applied to “passive income.”

To be eligible for the 12½% Corporation Tax rate the following criteria must apply: Read More

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Energy Credits

Additions and structural improvements (such as adding a garage or room, taking out interior walls, putting in new floors) are not a deductible expenditure and must be added to the cost of your house. However, some residential expenditures may qualify for the non-business residential energy credit on your federal income tax return and a deduction or credit on your state income tax return.

To claim the energy credit on your federal tax form use form 5695. These rules are for tax year 2012. They may qualify in 2013 any unused 2012 credits may be carried over to 2013, but you need to check the tax law or ask your tax return preparer when your 2013 return is prepared.

Qualifying Expenditures

A. 30% of the cost (which includes labor for on site preparation and installation), of water heating property, small wind energy property, geothermal heat pumps, solar water and house heating items (including solar panels as part of a roof). Amounts attributable to hot tubs and swimming pools do not qualify.

B. Other items and amounts: Read More

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2013 Finance Act – Part 10 – Irish Tax System

This is the final post in a ten-part Worldwide Tax Blog Series.  Due to the amount of changes it is not possible to detail each individual provision so I decided to focus on a cross section of amendments to give a general overview.  The legislative provisions I have selected will have an affect on most if not all Irish individuals whether resident and domiciled or resident and non-domiciled; employed or unemployed; retired or still working; self employed or PAYE workers; corporate structures or individuals, etc.

Finance Act 2013 contains the legislative provisions for a number of changes to the Irish tax system under all the main tax heads including Income Tax, Corporation Tax, Capital Gains Tax, Excise, Value Added Tax, Stamp Duty and Capital Acquisitions Tax.

Universal Social Charge – Part 1

The Remittance Basis for Income Tax – Part 2

The Remittance Basis for Capital Gains Tax – Part 3

Taxation of Certain Social Welfare Benefits – Part 4

Mortgage Interest Relief – Part 5

Donations To Approved Bodies – Part 6

Farm Restructuring Relief – Part 7

FATCA – The US Foreign Account Tax Compliance Act – Part 8

Close Company Surcharge – Part 9

Stamp Duty – Part 10

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10. STAMP DUTY

Finance Act 2013 introduced anti-avoidance measures to target “resting in contract” and other structures used in relation to certain land transactions.

The main points are as follows: Read More

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2013 Finance Act – Part 9 – Irish Tax System

This is a ten-part Worldwide Tax Blog Series on a cross section of amendments in the Irish Tax System and a general overview:

Universal Social Charge – Part 1

The Remittance Basis for Income Tax – Part 2

The Remittance Basis for Capital Gains Tax – Part 3

Taxation of Certain Social Welfare Benefits – Part 4

Mortgage Interest Relief – Part 5

Donations To Approved Bodies – Part 6

Farm Restructuring Relief – Part 7

FATCA – The US Foreign Account Tax Compliance Act – Part 8

Close Company Surcharge – Part 9

Stamp Duty – Part 10

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9. CLOSE COMPANY SURCHARGE

Finance Act 2013 increases the de minimis amount of undistributed investment and rental income from €635 to €2,000 which may be retained by a Close Company without giving rise to a surcharge.

A similar amendment is being made to increase the de minimis amount in respect of the surcharge on undistributed trading or professional income of certain service companies.

The aim of these changes is to improve cash flow of close companies by increasing the amount a company can retain for working capital purposes without incurring a surcharge.  Although it’s difficult to imagine how undistributed income of €2,000 could possibly make that much of a difference.

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IRS Scandal – TIGTA Audit Finds No High-Level Political Shenanigans

All the media and Congressional speculation regarding possible involvement by the current administration in the recent IRS scandal has been significantly alleviated by the May 14, 2013 report issued by the Treasury Inspector General for Tax Administration (TIGTA). Their report concluded that inappropriate criteria were used to identify tax-exempt applications for review due to ineffective management and lack of training of lower-level IRS staff members in the Exempt Organization office.

Here is how it began. During the 2012 election cycle, some members of Congress raised concerns to the IRS about selective enforcement and the duty to treat similarly situated organizations consistently. In addition, several organizations applying for I.R.C. § 501(c)(4) tax-exempt status made allegations that the IRS 1) targeted specific groups applying for tax-exempt status, 2) delayed the processing of targeted groups’ applications for tax-exempt status, and 3) requested unnecessary information from targeted organizations. As a result of the concerns expressed by Congress, TIGTA was asked to investigate the IRS handling of these issues.

Organizations, such as charities, seeking Federal tax exemption are required to file an application with the Internal Revenue Service (IRS). Other organizations, such as social welfare organizations, may file an application but are not required to do so. The IRS’s Exempt Organizations (EO) function, Rulings and Agreements office, which is headquartered in Washington, D.C., is responsible for processing applications for tax exemption. Within the Rulings and Agreements office, the Determinations Unit in Cincinnati, Ohio, is responsible for reviewing applications as they are received to determine whether the organization qualifies for tax-exempt status. Read More

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2013 Finance Act – Part 8 – Irish Tax System

This is a ten-part Worldwide Tax Blog Series on a cross section of amendments in the Irish Tax System and a general overview:

Universal Social Charge – Part 1

The Remittance Basis for Income Tax – Part 2

The Remittance Basis for Capital Gains Tax – Part 3

Taxation of Certain Social Welfare Benefits – Part 4

Mortgage Interest Relief – Part 5

Donations To Approved Bodies – Part 6

Farm Restructuring Relief – Part 7

FATCA – The US Foreign Account Tax Compliance Act – Part 8

Close Company Surcharge – Part 9

Stamp Duty – Part 10

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8. FATCA – US FOREIGN ACCOUNT TAX COMPLIANCE ACT

The US Foreign Account Tax Compliance Act 2010 comes into effect in 2014.

The aim of this legislation is to ensure that US citizens pay US tax on income arising from overseas investments.

The Finance Act 2013 introduced legislation which allows for the Irish Revenue Commissioners to make regulations for the purpose of implementing this Ireland US agreement. 

The regulations will require that certain financial institutions register and provide a Read More

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