Tag Archive for Tax Blog

Canadian Corporations Can Repatriate Profits of Offshore Subsidiaries Tax-Free

Many Canadian corporations form a foreign subsidiary (“Forco”) in zero or low-tax jurisdictions in order to reduce their tax liabilities.

This is a strategy that can work as long as the following four elements are present:

1) Forco is not resident in Canada, having regard to common law concepts of corporate residency (“mind and management”).

2) The income of Forco is considered to be income from an “active business”, as opposed to “foreign accrual property income” (“FAPI”).

3) Forco’s business is not carried on in Canada, and Read More

Written by | Posted in Corporate

IRS Reporting Requirements For Gifts From A Foreign Person

Certain events, such as when a U.S. taxpayer receives a gift from a foreign person, trigger an international tax filing requirement. This event triggers the requirement to file form 3520. In general, the Form 3520 is merely an informational return, as foreign gifts typically do not result in tax consequences for the taxpayer. However, there are some significant penalties for failing to file a Form 3520 in connection with a foreign gift (1).

What is a Foreign Gift?

A foreign gift is money or other property received by a U.S. taxpayer from a foreign person. To be considered a foreign gift, the recipient must elect to treat the property or money as a gift or bequest, and exclude the amount from gross income. Note, however, that amounts paid for qualified tuition or medical payments made on behalf of a U.S. person are not Read More

Written by | Posted in Gift Tax • International

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 2 – 2.5.4)

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

2.5 ADEQUATE REASONS
2.5.4 Conclusion

These judgments, read in conjunction with the views expressed by Hoexter, emphasizes Read More

Written by | Posted in Africa • Audit

U.S. Taxation of Entities, Associations, and Partnerships: What’s Your “Situs” Roger?

In the U.S. tax system, there is no characteristic of associations or entities (partnerships, corporations, and trusts) that corresponds exactly to the “nationality” or “residence” of individuals. For most organizations, however, there is a place – or at least a distinct legal environment – that establishes their existence and identity. This place, sometimes referred to as an entity’s “situs”, bears heavily on its taxation.

Corporations

The situs of a corporation is inextricably tied to the country of its incorporation. To that end, two simple words define the tax treatment of a corporation: “domestic” and “foreign.” A “domestic” entity (including a partnership or a corporation) is one “organized in the United States under the laws of the United States or of any State.” § 7701(a)(4). Colloquially, Read More

Written by | Posted in Corporate • Estate Planning Tax • Partnership

Due Process And Regulation of Commerce – Offshore Financial Centers Cross Border Taxation

Introduction

International transactions pose particularly difficult legal risks because the international legal system is basically in its infancy. Foremost on the immediate horizon are the risks associated with electronic commerce and taxation implications when melded with the notion of jurisdiction, specifically the aspect of due process requisite to jurisdiction and the application of the commerce clause.

In order to appreciate cross-border electronic commerce legal risk associated with authority to tax, an underlying foundation of jurisdiction in general in an international context is required. This writing will approach these legal risks with two basic themes Read More

Written by | Posted in International • Tax Policy

S Corporations And Partnerships – The Importance of Basis

Basis is very important when determining gain or loss for certain transactions. It is also one of the limiting factors in determining how much loss can be deducted by partnership and S Corp shareholders.

What is basis?

For tax purposes, basis is the amount invested in a property adjusted for certain items.

Basis is usually equal to the cost, or the amount paid in cash, debt obligations, other property or services.

Basis in property is increased by capital items such as capital improvement and assessments for local improvement. Items that constitute a return of capital (e.g. Read More

Written by | Posted in Corporate • Income Tax • Partnership • Small Business

Modified Treasury Regulations Serve As A Paradigm Shift For The Research & Experimentation Tax Credit

TaxConnections Picture - U.S.Treasury

On June 2, 2014, The Department of Treasury announced that modified treasury regulations (e.g., TD 9666) will enable companies to claim the Research and Experimentation Tax Credit (hereinafter “RTC”) utilizing the Alternative Simplified Credit (hereinafter “ASC”) methodology on amended tax returns. This represents a true paradigm shift from the previously issued set of treasury regulations which only allowed companies to take the RTC utilizing the ASC on originally filed tax returns.

This paradigm shift was made possible through the bipartisan support on both sides of the aisles in Congress including, but not limited to, Coons (D-DE), Cornyn (R-TX),Grassley (R-IA), Hatch (R-UT) Klobuchar (D-MN) Roberts (R-KS), Schumer (D-NY) and Wyden (D-OR), Brady (R-TX), Camp (R-MI), Gerlach (R-PA), Jenkins (R-KS), Read More

Written by | Posted in R&D Credit Services • Tax Policy • Treasury Regulations

Can A Canadian “Permanent Traveller” (“PT”) Be A Non-Resident?

The question of whether or not a person is “resident in Canada” (which includes a person who is “ordinarily resident”) is undoubtedly the most pivotal issue under the Income Tax Act[1].

If the answer is “yes”, the person will generally be subject to Canadian tax on all worldwide income[2]; if the answer is “no”, then only certain, generally Canadian, sources, will be subject to Canadian tax[3].

The determination of residency for Canadian tax purposes is largely based on old UK tax cases that have been adopted and embraced by Canadian courts. By far, the leading Canadian decision in this area is that of the Supreme Court of Canada in Thomson v. Read More

Written by | Posted in TaxConnections

Cathay Pacific – Long Arm of IRS Withholding Tax on US Pilots’ Wages

Starting in June, we understand that Cathay Pacific Airlines will commence withholding 30 percent of its American pilots’ salary every month. The withholding will be for US taxes and will be passed on to the US Internal Revenue Service (IRS). In addition, Cathay will remit the pilots’ personal information to the IRS so that the proper records will be maintained and tax credit given to the taxpayer-pilot. It has been reported that the move will affect about 18% of the cockpit crew.

Tax professionals in Hong Kong have queried the legal grounds for Cathay’s decision and are understandably befuddled. Some have wondered if the decision is due to the “Foreign Account Tax Compliance Act”, known as FATCA. Read More

Written by | Posted in FATCA • International • IRS

Should I Stay or Should I Go? – Part 12

Answers to the Most Frequently Asked Questions Regarding OVDP

As a tax attorney specializing in the Offshore Voluntary Disclosure Program (OVDP), nary a day goes by that I don’t get a call from a person inquiring about the OVDP. The questions asked are relatively the same. After a while, I began to make a list of the most frequently asked questions. Below are my answers to them: (continued)

XVI. If I enter OVDP, will my voluntary disclosure be subject to an examination?

Normally, no examination will be conducted once the taxpayer enters the offshore voluntary disclosure program. However, the IRS reserves the right to conduct an examination. The normal process is for the voluntary disclosure to be assigned to an examiner who will certify its’ accuracy and completeness. The certification process is less Read More

Written by | Posted in FBAR • OVDP

Tangible Assets Used In Converting Corn To Fuel Grade Ethanol Are Properly Included In Asset Class 49.5

A certain important person in my reality – my wife – is becoming increasingly interested in the business end of biomass refineries. You go girl. Funny but this interest also happens to correlate with a new file I am developing involving a farmer who owns an ethanol plant so hopefully we will be taking another journey together. What I am quickly learning is that valuation in this particular file really is all about the asset list, depreciation schedule, useful life, salvage value and the significance of having the assets properly categorized (to clean up the tax returns). It is a mess. From my warped perspective there is no better way to understand the business end of a refinery then to start with assets. So honey feel welcome to contribute to your heart’s content…

In conducting research I came across IRS Revenue Ruling 2014-17 stating tangible Read More

Written by | Posted in Federal

Special Election For U.S. Expats In Canada With S Corporations Can Avoid Double Tax

Often, U.S. citizens who move to Canada are shareholders of U.S. S Corporations. This can potentially create double tax problems.

Under Canadian tax law, the S Corporation is just like any other foreign corporation. Dividends received are generally fully taxable. In addition, if the S Corporation is a “controlled foreign affiliate”, the shareholder can be taxable on his or her share of underlying investment income and capital gains under Canada’s “foreign accrual property income” (“FAPI”) rules.

Double taxation can arise because of the fact that Canada will generally only grant limited foreign tax credit relief for the U.S. taxes paid by the shareholder on the S Corporation Read More

Written by | Posted in Corporate • Expatriate • Individual
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