Tax Law Archives | Page 13 of 56

09Jan 2023 by Anthony Diosdi

Cross Border Conduit Financing and the Intricate Rules Governing These Transactions

Tax Law

By Anthony Diosdi It has been more than 30 years since Congress enacted Section 7701(1) of the Internal Revenue Code and the Department of Treasury (“Treasury”). These provisions authorize the Internal Revenue Service (“IRS”) to recharacterize any multiple-party financing transaction as a transaction directly between two or more parties if it is determined that reclassification is necessary to prevent the avoidance of U.S. tax. The regulations under Section 7701(1) on May 3, 1991, financing arrangements will be deemed a “conduit financing arrangement” that is subject to recharacterization. See Treas. Reg. Sections 1.871-1(b)(7), 1.881-3, 1.881-4, 1.1441-3(j), 1.441-7(d), 1.6038A-3(b)(5), and 1.7701(1)-1. Under these regulations, a conduit financing arrangement exists where an intermediate entity in a financing arrangement is a conduit. A “financing arrangement” consists of:“A series of transactions by which one person…

09Jan 2023 by Anthony Diosdi

An Overview of the Rules Governing Hybrid Arrangements

Tax Law

By Anthony Diosdi The Tax Cuts and Jobs Act introduced two new Internal Revenue Code provisions targeting “hybrid arrangements.” The new Internal Revenue Code provisions include Section 245A(e), which denies a dividend received deduction under Section 245A with respect to hybrid dividends, and Section 267A, which denies certain interest or royalty deductions from hybrid transactions or hybrid entities. A hybrid arrangement generally seeks to exploit the differences in the tax treatment of a transaction or entity under the laws of two or more countries to secure double deductions, double exclusion from tax, or other tax benefits. The Tax Cuts and Jobs Act amendments to the Internal Revenue Code was a direct response to Action 2 of the Organization for Economic Co-operation and Development (“OECD”) Base Erosion and Profit Shifting (“BEPS”)…

09Jan 2023 by Anthony Diosdi

A Brief Overview of the Form W-9 and W-8 for Purposes of Withholding

Tax Law

By Anthony DiosdiThe United States taxes the gross amount of a foreign person’s U.S.-nonbusiness income at a flat rate of 30 percent. Any person having control, receipt, custody, disposal, or payment of an item of U.S. source income to a foreign person may have an obligation to withhold U.S. tax. A person who fails to withhold is liable for the uncollected tax. Consequently, anyone making payments to foreign persons or entities must ensure that the appropriate amount of tax is withheld and paid to the U.S. government. An individual withholding taxes must deposit the funds with a Federal Reserve bank or an authorized financial institution using a federal tax deposit coupon or by electronic transfer. The individual must also file Form 1042, Annual Withholding Tax Return for U.S. Source Income…

03Jan 2023 by Anthony Diosdi

An Overview of the FIRPTA Withholding Rules and Planning Ideas to Avoid FIRPTA Withholding

Tax Law

By Anthony Diosdi U.S. real estate has become a popular investment with foreigners. However, few foreign investors fail to consider the U.S. tax implications of holding U.S. real property. There are significant income, gift and estate tax consequences that may result when U.S. real property is sold or transferred. This article discusses the withholding requirements of the Foreign Investment in Real Property Tax Act of 1980 (or “FIRPTA”) and how the FIRPTA withholdings may be reduced or eliminated. Under FIRPTA, gains or losses realized by foreign corporations or nonresident alien individuals from any sale, exchange, or other dispositions of a U.S. real property interest are taxed in the same manner as income effectively connected with the conduct of a U.S. trade or business. This means that gains from dispositions of…

03Jan 2023 by Anthony Diosdi

Cross-Border Financing and the Importance of the Registration Rules

Tax Law

By Anthony Diosdi Foreign investors often invest in the United States through financing. Foreign investors often utilize the portfolio interest exception to avoid the 30-percent flat tax on interest income. Planning for the portfolio interest exception is relatively simple, even if the investor is not from a treaty country. From the U.S. perspective, a foreign investor typically utilizes an offshore holding company in virtually all cases (except in cases where the foreign investor’s home country has meaningful restrictions on such holdings) and the foreign investor utilizes a “portfolio debt instrument to reduce or eliminate the 30-percent tax on interest income. By way of background, in 1984, Congress repealed the 30 percent withholding tax imposed by Internal Revenue Code Section 871 and 881 with respect to certain interest paid on…

15Dec 2022 by Anthony Diosdi

The Corporate Anti-Inversion or Expatriation Rules Explained in a Nut-Shell

Tax Law

By Anthony Diosdi For some time, corporate inversion transactions have been the focus of Congress and has generated a vigorous political debate. This is in part because of concern by some members of Congress that the tax savings arising from inversion transactions were causing U.S. multinational corporate groups to shift business operations, manufacturing plants, and jobs abroad, with a resulting adverse effect on U.S. job opportunities and the overall U.S. economy. In today’s rapidly growing and changing economy, the practice of “inverting” is no longer restricted to large multinational corporations. Smaller companies also are also involved in so-called “corporate inversion” or “corporate expatriation” transactions. This article will discuss the “nuts and bolts” of the corporate anti-inversion rules. Transactions Involving at Least 80 Percent Identity of Stock OwnershipThe anti-inversion rules are…

15Dec 2022 by Anthony Diosdi

Foreign Contractors- To Withhold or Not to Withhold in a Digital Age

Tax Law

By Anthony Diosdi In today’s global environment, many U.S. businesses hire foreign contractors for a variety of reasons. The very act of a U.S. business of paying a foreign contractor may result in withholding and compliance requirements. This article discusses a U.S. businesses potential obligation to withhold U.S. taxes to a foreign contractor.Introduction to the FDAP RulesUnited States source income that is effectively connected with a U.S. trade or business will be taxable to foreign persons at the usual individual or corporate rates. Appropriate deductions and credits apply in the determination of U.S. federal tax liabilities. On the other hand, United States source income received by foreign persons that is not effectively connected with a U.S. trade or business will be subject to a flat tax of 30 percent on…

07Dec 2022 by Anthony Diosdi

The Cross-Border Taxation of Cloud Transactions and Digital Downloads

Tax Law

By Anthony Diosdi U.S. Taxation of the Digital Economy- a Broad OverviewNew technology and new transactions often raise difficult issues of tax policy and administration in part because existing rules were developed to deal with other situations. The dramatic expansion in electronic commerce facilitated by the use of the Internet and other technology is subjecting existing tax principles to new pressures. One area of concern is the application of source rules to electronic commerce transactions. Suppose, for example, that a corporation delivers software or a digital product to a customer on the Internet. The customer can download the product and use it commercially. Depending upon the nature of the transaction and the property interests involved, the income to the corporation might appropriately be characterized as a royalty for the use…

07Dec 2022 by Anthony Diosdi

Cross-Border Corporation Divisions or Demergers under Section 355

Tax Law

By Anthony Diosdi There are many good business reasons that a corporate group may decide to enter a corporate division transaction to separate one or more trades or businesses from another distinct trade or business. The three types of corporate divisions are commonly known as spinoffs, split-offs, and split-ups. Such corporate divisions are also referred to as demergers or Type D reorganizations. To illustrate the elements of these transactions, assume that Alexis and Bob each own 50 percent of the stock of Diverse Corporation (“D”), which for many years has operated a winery and a cattle ranch as separate divisions. For reasons to be elaborated below, the shareholders wish to divide the business into two separate corporations on a tax-free basis. From a tax perspective, the possibilities are:Spin-off, Assume that…

07Dec 2022 by Anthony Diosdi

Has the IRS Been Illegally Assessing 5472 and 5471 Penalties all this Time? What to do If the IRS Unlawfully Assessed Such a Penalty Against You

Tax Law

By Anthony DiosdiInternal Revenue Code Section 6038 requires certain persons to provide the Internal Revenue Service or IRS with information regarding foreign corporations. This information is typically provided on Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The Form 5471 is attached to a U.S. tax return. The penalty for failure to file, or for delinquent, incomplete or materially incorrect filing is a reduction of foreign tax credits by ten percent and a penalty of $10,000. An additional $10,000 continuation penalty may be assessed for each 30 day period that noncompliance continues up to $60,000 per return, per year. Similarly, Internal Revenue Code Section 6038A requires 25 percent foreign-owned domestic corporations and limited liability companies to report specified information as an attachment to a corporate…