Posted tagged ‘international tax’

When Bygones Aren’t Bygones: Exploring Tax Solutions for U.S. Persons with Undeclared Canadian Retirement Plans and Accounts

February 24, 2012

By Hale Sheppard

Many Canadians migrate south each year and become U.S. residents or citizens.  Along with the cold weather, they may also leave behind local retirement account, such as a Canadian registered retirement savings plan (“RRSP”) or a Canadian registered retirement income fund (“RRIF”).  Preserving this Canadian nest egg is generally a good thing.  Indeed, it is hard to find fault with financial planning for the golden years.  This egg could turn a little rotten, though, if the person fails to appreciate the relevant U.S. tax obligations.  Unfortunately, due to the disparate treatment of these Canadian retirement plans by the IRS and the Canadian Revenue Agency, coupled with the obscurity of various international tax requirements, many of our neighbors from the north lack the necessary appreciation.  In other words, they are under the common, yet mistaken, belief that bygones are bygones, at least when it comes to their retirement plans back home.  The potential consequences of this unawareness or misunderstanding include back taxes, penalties, and interest of such magnitude that many new arrivals may curse their decision to relocate to the land of the free and the home of the brave.

The good news is that it is not too late to avert the problem.  The bad news is that trying to resolve the situation in an improper manner could trigger even greater troubles.  The attached article, called “When Bygones Aren’t Bygones:  Exploring Tax Solutions for U.S. Persons with Undeclared Canadian Retirement Plans and Accounts,” follows the evolving tax treatment of Canadian RRSPs and RRIFs, identifies the relevant U.S. tax requirements and the penalties for non-compliance, illustrates the problem by describing a typical scenario, and explores two major solutions, focusing on the pros and cons of each.  The article was published in the International Tax Journal.

Silence Is Golden: Can Treasury Offer Guidance About The Tax Consequences Of A Euro Breakup?

January 23, 2012

By Jonathan Prokup

In this morning’s Tax Notes (subscription required), Jeremiah Coder addresses a topic that we at the Tax Blawg have discussed a couple of times over the past two years: the tax consequences of a potential breakup of the euro.  For our prior coverage, see here and here.  As the currency lurches towards and away from a potential dissolution (in part or in whole), the tax fallout of such an event lurks in the background.

The Tax Notes article generally covers the major tax issue (e.g., currency gain/loss recognition) associated with a potential breakup of the euro.  As the article seemed to suggest, though, the uncertainty about how Treasury would respond to a breakup is probably just as great as the uncertainty about whether the currency itself will survive, at least with its current composition. (more…)

Tax Foundation: Rethinking U.S. Taxation of Overseas Operations

December 1, 2011

By Jonathan Prokup

Our in-house and private-practice corporate readers will likely enjoy one of the Tax Foundation’s newest reports: Rethinking U.S. Taxation of Overseas Operations. As the abstract describes:

The United States produces a third of the world’s wealth but contains less than 5 percent of the world’s population. This disparity pushes many U.S. businesses and entrepreneurs to embrace globalization to improve productiv­ity and expand market reach. Large and small businesses alike are increasingly using the tools of faster information, cheaper transporta­tion, and overseas workforces that blur the traditional notions of taxes and services based on geographic lines.

The U.S. government can effectively pro­mote this dynamism and growth with a tax system that taxes profits earned in the United States but leaves taxation on activity occurring in other countries to those other countries. Instead of pursuing this economic concept of neutrality, however, the U.S. government seeks to tax the profits of U.S. corporations wherever in the world they are earned. This worldwide tax system differs from most other countries, where only activity within the country’s borders is taxed (territoriality).

U.S. corporations operating overseas there­fore face a unique combination of burdens not borne by their international competitors: taxes owed to the United States, taxes owed to the country where the operating activity takes place, and a complex tax system that attempts to reduce the resultant economic harm but involves an array of credits and definitions (primarily the Internal Revenue Code’s Sub­part F).

Many of the report’s “key findings” won’t come as news to our corporate readership.  For example, one of the findings is that “Under Subpart F, ‘active’ income can be deferred from U.S. tax until repatriated home, while ‘passive’ income (royalties, interest, dividends) is generally subject to immediate U.S. taxation.”

Nevertheless, the report makes a number of interesting criticisms of the Subpart F regime – e.g., that the regime is based on an outdated model of corporate operations. The solution, according to the report, is to move to a territorial tax system, an idea that has drawn recent support from the House Ways and Means Committee as well as GOP presidential candidates. As the report acknowledges, however, ““[F]rom a tax collection standpoint, it could be said that a worldwide tax system is better than a territorial taxation system as a tax revenue source.” (citation omitted)  Given the federal government’s yawning budget deficits, the interests of the “tax collection standpoint” may well prove paramount.

The complete report is available here.

International Tax Changes Take Flight

August 11, 2010

The House of Representatives passed, and the President signed into law, H.R. 1586, the “FAA Air Transportation Modernization and Safety Improvement Act,” which curiously became the chosen vehicle for Congress and the Administration to provide assistance to states with budget shortfalls while paying for that assistance with changes in a number of international tax provisions.  Text of the final bill is available here; pdf is here.  See here for our prior summary of the relevant international tax provisions.

Although the changes are largely similar to what was proposed in earlier legislation, it appears that Congress eliminated a number of earlier proposals from the final bill, including the limitation on distributions in leveraged spin-offs and the repeal of the “boot dividend” rule.  Of particular note, Congress eliminated the new sourcing rule that would have treated guarantee fees as U.S.-source income. Earlier this year, the Tax Court held that guarantee fees paid by a U.S. company to its Mexican parent were properly treated as non-U.S. source income and therefore not subject to U.S. withholding taxes.  Container Corp. v. Comm’r, 134 T.C. No. 5 (2010).  Our prior discussion of the Tax Court opinion is here, with additional commentary here.  It remains to be seen whether the removal of this provision reflects a permanent abandonment of the proposal or whether it will reappear in one of the several other legislative vehicles floating through Congress.

Certain Uncertainty: Congress Juggles Tax Proposals

August 4, 2010

By Jonathan Prokup

Although death and taxes might, according to Benjamin Franklin, be the only certainties in this world, Congress is surely striving to add another – that is, the certainty of uncertainty.  Congress, it seems, is committed to keeping taxpayers in as much doubt as possible for as long as possible about the status of a variety of important provisions that will affect both substantive tax liabilities and compliance obligations.

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IRS Teaming Up on Wealthy Taxpayers

June 28, 2010

As a follow up to my colleague George Connelly’s earlier post concerning the IRS’s recently announced “Global High Wealth” Industry Group, I offer some further thoughts on what the IRS is attempting to do with this new group focusing on wealthy individuals.  The IRS recently announced that the group has issued its first batch of audit letters and the audits of wealthy individuals will soon commence.

The IRS has created the group in the LMSB division, which generally handles audits of the largest corporations under a “team” audit concept.  A team audit means that the IRS assigns several agents to the case, including, where appropriate, specialists in areas like international taxes, financial products, and employment taxes, as well as engineers and economists.

The IRS is concerned with very wealthy individuals who own multiple entities using complicated structures to avoid U.S. federal income taxes.  The individuals may be operating foreign businesses or may have foreign investments through foreign trusts, partnerships, or corporations.

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What’s The Big Deal About Foreign Bank Accounts?

June 7, 2010

By George W. Connelly

Anyone paying attention to the media for the last month or so must be aware of the battle the IRS has waged with UBS in order to obtain information about owners of heretofore “secret” accounts in Switzerland.  This is part of an IRS effort to track down tax delinquents who are using overseas accounts to hide their income and assets.  A settlement was recently announced whereby the Swiss agreed to reveal a relatively small (in the grand scheme of things) number of the accounts—4,450 versus the 52,000 that the IRS originally alleged—in order to resolve the dispute.  At this point, the IRS has its eyes on other foreign institutions and one can be sure that this is not going to be the end of the IRS’ efforts.

(more…)


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