Source: http://www.elmorehupp.com/aggregator/sources/2?page=18
Timestamp: 2018-01-19 07:03:28
Document Index: 46148574

Matched Legal Cases: ['§1', '§ 213', 'UKSC ', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 171', '§ 3', '§ 3', '§ 171']

Wed, 11/04/2015 - 12:00am
Organisation for Economic Co-Operation and Development (“OECD”) Issues Final Report On Action Item 12: Mandatory Disclosure Rules
Summary This alert is one installment in a series of alerts on the release of the OECD/G20 Base Erosion and Profit Shifting Project (“the BEPS Project”).
On October 5, 2015, the OECD released the final report (the “Report”) of the BEPS Project. This alert discusses Action Item 12: Mandatory Disclosure Rules.
Background and Details In an effort to address Base Erosion and Profit Shifting (“BEPS”) issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. Action Item 12 of the BEPS Project gives tax authorities the ability to obtain early information on potentially aggressive or abusive tax planning strategies and their users. The key goal of Action Item 12 is to “react rapidly to close down opportunities for tax avoidance.”
The BEPS Project recognizes that one of the key challenges faced by tax authorities is lack of timely, comprehensive and relevant information on potentially aggressive or abusive tax planning strategies. A mandatory disclosure regime provides tax administrations with the tools to obtain information much earlier than through the submission of tax returns and tax audits. Early identification of changes in taxpayer behavior and the development of tax avoidance strategies, means that tax authorities will be able to respond and counter these threats by making timely and informed decisions on legislation, policy and regulation.
The key outputs identified by the Report of Action Item 12 are:
Recommendations for the modular design of mandatory disclosure rules;
A focus on international tax strategies and consideration of a wide definition of tax benefit to capture relevant transactions;
Designing and putting in place enhanced models of information sharing for international tax strategies.
The OECD recognizes in the report that existing strategies implemented by countries such as the United States, the United Kingdom and Canada have reported a great deal of success. Action Item 12 therefore draws on the experience of these existing strategies, and sets out recommendations for designing an effective disclosure regime to counter the BEPS concerns of each country. The Report proposes a modular approach to give tax authorities the flexibility to choose hallmarks and thresholds for disclosure which can be molded to fit around the specific needs of the tax system. This will allow for maximum consistency between the OECD countries while being sensitive to the concerns of the domestic jurisdiction, as well as the costs for tax administrations and business.
Along with the concern for domestic strategies, Action Item 12 aims to provide a way to target cross-border strategies which involves multiple parties deriving tax benefits in different jurisdictions. It has been noted that existing strategies have received fewer disclosures in relation to international strategies, partly related to the way international strategies are structured, and can therefore operate below the relevant thresholds for disclosure. In response to this, the Report recommends that countries develop specific hallmarks to target cross-border BEPS outcomes that cause them concern, rather than target the mechanisms that are used to achieve them. In addition to this, taxpayers who enter intra-group transactions should be obliged to make inquiries to ascertain if the transaction has been specifically identified as reportable under the mandatory disclosure regime adopted by the home jurisdiction.
The Report also discusses the potential of the mandatory disclosure rules to act as deterrent and hence decrease the rate of BEPS in participating countries. Taxpayers who are considering entering into tax planning strategies will need to think carefully if they know that the strategy will need to be reported to the tax authorities and that they may also be subject to penalties if they fail to comply with their disclosure obligations. The market may also see a decrease in promoters offering such strategies given that the tax authority will be aware much earlier that the strategy has been developed and therefore the opportunity to implement the strategy itself could be short lived.
With each jurisdiction drawing their focus towards collecting comprehensive and relevant information in relation to domestic and international tax strategies, there is potential for participating tax authorities to co-operate and share this information. By increasing collaboration and transparency on an international level, the proposals set out above aim to contribute to the fundamental goals of the BEPS Project.
BDO Insights Mandatory disclosure rules will not be a new challenge for multinational companies as it is likely that they will have come across existing rules such as those implemented in the United States, the United Kingdom and Canada. Companies will however need to be aware that as more countries decide to adopt mandatory disclosure rules, intra-group transactions which were previously not reportable may now become exposed under the jurisdictions that have chosen to adopt the rules as set out in Action Item 12.
Nondeductible Lobbying Expenditures An expenditure is nondeductible under Treas. Reg. §1.162-29 if it seeks to influence legislation.
Deductible Government Affairs Expenditures Expenditures for activities that do not seek to influence legislation, on the other hand, may be deductible.
Next Steps If your company pays or incurs expenses related to lobbying, it may be understating its deductions and overpaying its taxes.
Fri, 10/30/2015 - 12:00am
Summary This alert is one installment in a series of alerts on the release of the OECD/G20 Base Erosion and Profit Shifting Project (the BEPS Project).
On October 5, 2015, the OECD released the final report (the “Report”) of the BEPS Project. This alert discusses the final report with respect to Action Items 8-10: Aligning Transfer Pricing Outcomes with Value Creation.
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. Action Items 8-10 of the BEPS Project specifically addresses the alignment of transfer pricing outcomes with value creation.
BDO Insights Actions 8-10 will require multinational enterprises to place more emphasis on the actual conduct of the respective parties involved when determining the pricing of an intercompany transaction. The alignment of transfer pricing outcomes with value creation is expected to result in a greater reliance on transfer pricing documentation to describe the relationship between value drivers and the functions, assets, and risks undertaken by the parties to an intercompany transaction. The implementation of these action items may result in disagreements among various jurisdictions.
Summary This tax alert is one installment in a series of alerts on the release of the OECD/G20 Base Erosion and Profit Shifting Project (the BEPS Project).
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. Action Item 1 specifically addresses the digital economy which, to a large extent is the genesis of the BEPS Project. In particular, the rise of “stateless income,” which prompted many countries to join in the OECD-led effort, is perceived to be directly related to the digital economy. It is no accident that the report on Action Item 1 is about taxing the digital economy.
BDO Insights The BEPS Project’s critical path is clearly focused on the problem of stateless income and the general approach is to use each of the action items in this effort rather than propose a set of ring-fenced rules within the parameters of Action Item 1. Accordingly, it is incumbent on participants in the digital economy to consider carefully each action item of the BEPS project, as well as the interaction of all the action items. The encompassing view that the digital economy is the economy has far reaching implications that guide tax developments for years to come.
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. Action Item 13 of the BEPS Project contains recommendations for transfer pricing documentation, which relies on a three-tiered approach and a revised template for country-by-country (“CbC”) reporting.
Under the first tier of the approach, multinational enterprises (“MNEs”) are advised to supply tax administrations with high-level information about their global business operations and existing transfer pricing policies in a “master file.” This file is intended to be available to each relevant tax administration upon request.
The second tier prescribes an additional “local file,” which contains detailed, transactional transfer pricing documentation specific to each country. The file should include information such as the identification of material related party transactions, specific transaction amounts, and any economic analyses of the transfer pricing transactions.
Finally, the third tier requires large MNEs that have consolidated annual revenues equal to or in excess of €750 million (approximately $841 million), to use a CbC template to report the amount of revenue, profit before income tax, and income tax paid and accrued. MNEs are further required to disclose specific information including; number of employees, value of capital, retained earnings, tangible assets, the identification of each entity within a group operating in a particular tax jurisdiction, and information about the business activities each entity is engaged in.
The three sets of documentation (master file, local file, and country-by-country template) will help MNEs articulate a consistent transfer pricing position as well as provide tax administrations with a holistic approach to assess transfer pricing risks and proceed with audit inquiries. The OECD and participating countries believe the consolidated information and new reporting provisions will encourage transparency and reduce BEPS activities.
BDO Insights Action Item 13 intends to bring forth a new level of transparency for MNEs and will require an increased amount of information reporting by MNEs in connection with transfer pricing arrangements. MNEs should begin preparations to meet the implementation targets set by the OECD by assessing their internal data gathering and retrieval processes, analyzing resources, and developing internal procedures around the new reporting requirements.
Summary This tax alert is one installment in a series of alerts on the release of the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting Project (the BEPS Project).
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. The OECD recognizes that the global economy is rapidly evolving and the need to adapt to this evolution. The report on Action Item 15 provides for the development of a multilateral instrument designed to provide an innovative approach to international tax matters. The goal of the report on Action Item 15 is to “streamline the implementation of the tax treaty-related BEPS measures.”
BDO Insights Multinational companies will need to carefully monitor the progress of the multilateral instrument and the impact it will have on existing provisions of current bilateral tax treaties.
Mon, 10/26/2015 - 12:00am
Summary On September 30, 2015, North Carolina Governor Pat McCrory signed into law H.B. 117, 2015-2016 Session (“H.B. 117”), which expands the Job Development Investment Grant (“JDIG”) Program and makes several taxpayer-friendly changes to North Carolina’s sales and use tax law as it relates to datacenters, aviation, motor vehicles, and motorsports. H.B. 117, together with H.B. 97, 2015-2016 Session (enacted September 18, 2015) (“H.B. 97”), reflects North Carolina’s desire to create a more favorable tax environment for businesses operating in the state, especially with respect to those businesses wishing to expand or relocate to the State. See the BDO SALT Alert that discusses H.B. 97.
Details Expansion of Job Development Investment Grant Program
Organisation For Economic Co-Operation And Development (OECD) Issues Final Report on Action Item 4, Limiting Base Erosion Involving Interest Deductions and Other Financial Payments
On October 5, 2015, the OECD released the final report (the “Report”) of the BEPS Project. This alert discusses Action Item 4, Limiting Base Erosion Involving Interest Deductions and Other Financial Payments.
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. The OECD recognizes that cash is fungible and easily transferrable, thus permitting multinational companies to reduce taxable income through financing and interest deductions. Action Item 4 of the BEPS Project specifically addresses the risk of BEPS through interest deductions, and identifies three basic scenarios involving such risk. These scenarios include groups engaging in the following:
Placing higher levels of third party debt in high tax countries;
Using intragroup loans to generate interest deductions in excess of the groups’ actual third party interest expense; and
Using third party or intragroup financing to fund the creation of non-taxable income.
The Report provides several recommendations to prevent base erosion through interest expense deductions but does not provide a definitive set of rules to apply in all situations. Rather, it gives OECD countries great flexibility in determining their respective interest deduction restrictions. Consequently, certain advocates of the BEPS project have criticized the Report for not providing simple rules that work.
As stated in the Report, interest deduction restrictions should apply to all forms of payment for the time value of money, including finance costs of finance leases, notional interest on derivatives, guarantee fees, imputed interest on zero coupon bonds, and gains/losses on foreign currency borrowings. Notional interest deductions, where a company is entitled to a deemed interest deduction based on a company’s equity, is not treated as interest in the Report. The OECD does plan to separately address notional interest deductions regimes, such as those in Belgium and Cyprus.
The OECD’s recommended approach to limit interest deductions is based on a fixed ratio rule which is similar to Germany’s interest deduction limitation rules. Under the fixed ratio rule, a company’s net interest deduction (i.e., interest expense in excess of interest income) would be limited to a fixed ratio of the company’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”). For purposes of calculating EBITDA, dividends exempt from tax (e.g., dividends qualifying for participation exemption), untaxed branch profits (e.g., income derived through a permanent establishment that is exempt from home country tax), and capitalized interest would have to be subtracted from EBITDA. The Report suggests possible ratios between 10 and 30 percent.
Some multinational groups in certain industries may be highly leveraged and have large interest deductions for non-tax reasons. As such, the Report recommends the use of a group ratio rule in addition to the fixed ratio rule. The group ratio rule would permit a company that is limited by the fixed ratio rule an interest deduction up to the level of the net interest/EBITDA ratio of the company’s worldwide group. The ratio would compare net outside interest expense to the aggregate EBITDA of group members rather than the group’s consolidated EBITDA. The ratio derived would be applied to each member’s EBITDA to set a limit on each member’s interest expense deduction. Under the recommendations provided in the Report, the company would be entitled to deduct the greater amount determined from the fixed ratio rule and the group ratio rule.
There are some exceptions, such as (1) a de minimis exception which carves out entities that have a low level of net interest expense, (2) an exclusion for interest paid to third party lenders on loans used to fund public-interest projects (subject to certain conditions), and (3) the carry forward of disallowed interest expense and/or unused interest capacity (where an entity’s actual net interest deductions are below the maximum permitted) for use in future years where the entity’s actual net interest deductions are below the limitation.
Finally, the OECD recognizes in the Report that the role interest plays for banks and insurance companies is different compared to companies in other industries. While the Report states that banks and insurance companies should not be exempted from interest deduction restrictions, further work will need to be conducted and completed in 2016 to take into account the particular features of the banking and insurance industries.
BDO Insights The finalized Report is similar to the discussion draft and does not include any groundbreaking concepts. As most multinational companies have intragroup borrowings and interest payments, these companies will need to carefully monitor how the OECD countries adopt the recommendations detailed in the Report and evaluate their current financings and structures.
Organisation for Economic Co-Operation and Development (OECD) Issues Final Report on Action Item 3, Designing Effective Controlled Foreign Company (“CFC”) Rules
On October 5, 2015, the OECD released the final report (the “Report”) of the BEPS Project. This alert discusses Action Item 3, Designing Effective Controlled Foreign Company rules.
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. Action Item 3 of the BEPS Project specifically addresses the need for developing a global framework for CFC rules, which is consistent with the global business environment critical to counteracting BEPS. CFC rules generally provide an anti-deferral mechanism within a taxation system to trigger current taxation of an item of income as a means to prevent shifting income between jurisdictions.
The OECD recognizes in the Report that CFC provisions are an area where significant work has not previously been undertaken. Working toward better engagement on this issue, the OECD developed six building blocks upon which its recommendations can be utilized as a foundation for effective CFC rules. These six building blocks are:
The Report provides broad recommendations of proposed actions as well as examples from existing CFC regimes on each of these building blocks. Action Item 3 recommendations were designed around the principle of flexibility in allowing each country to implement CFC rules which would fit into its taxation system in a manner that best addresses the BEPS concerns of that jurisdiction.
Enacted in 1962, “Subpart F,” which commonly refers to Internal Revenue Code Section 951 through 965 and the regulations thereunder, addresses the US CFC provisions. The recommendations contained in Action Item 3 share numerous similarities (and some differences) with the US CFC rules.
Action Item 3 Quick Reference Guiding Comparing OECD Recommendations with US CFC Rules CFC Building Blocks OECD Recommendation US Tax Concept Definition of a CFC
Includes corporate entities, permanent establishments (“PE”), and certain transparent entities; addresses possibility for hybrid entity mismatch arrangements; applies legal and economic control tests with a view to more than 50-percent direct and indirect control. Includes foreign corporations with a more than 50-percent ownership, by US shareholders, threshold primarily based upon direct, indirect and constructive control. Not applicable to PEs and transparent entities. Exemptions and Thresholds Utilizes a subject-to-tax exemption at an effective rate of tax substantially similar to the parent company tax rate. Consideration could also be given to a “white list” of countries with advance approval of appropriately similar statutory tax rates to the parent jurisdiction. US CFC rules include numerous statutory exemptions including: de minimis income thresholds, same-country income exemptions, and a high-taxed income exemption. Temporary exceptions are also available for certain active financing income and certain income generated from an underlying active business in another CFC. Definition of
CFC Income Domestic legislation should take a risk-based approach to identify types of income with the greatest potential for BEPS. The CFC rules should include a definition of CFC income that reflects this BEPS risk from the parent jurisdiction perspective. Must capture “cash box” income and should include elements of a substance-based analysis. Suggestion for a potential to focus on excess profits analysis. CFC income defined through domestic law provisions focused on passive-type income. Subject to various exceptions, the following categories of CFC income are currently taxed to US shareholders as subpart F income, including but not limited to: “Foreign base company income,” which covers certain dividends interest, rents, royalties, gains and notional principal contract income; income from certain sales involving related parties; income from certain services performed outside the CFC’s country of incorporation, for or on behalf of related parties; and certain oil related income. Computation of Income Parent jurisdiction CFC rules should control the computation of CFC income. To the extent permitted, loss offset provisions can apply only on a CFC-by-CFC basis or CFCs in same country. US CFC rules provide mechanical guidance on computation of CFC income which includes allowance for deductions. The rules also provide certain rules relating to qualified deficits of a CFC and chain deficits of CFCs in same country relating to certain types of income. Attribution of Income A five-step process has been developed for the process of attribution of income tied to control and is calculated by reference to ownership percentage and period of ownership. Control and ownership percentage and period tests apply in determining amount of CFC income subject to current taxation.
Prevention and Elimination of Double Taxation CFC rules should not result in double taxation. Recommendations include application of a foreign tax credit against CFC income as well as potential for dividend and capital gain exemptions for previously taxed income. US international tax rules contain a complex foreign tax credit system to allow for relief from double taxation. US CFC income previously subject to taxation is exempt from secondary taxation.
BDO Insights It is worth noting that the final version of the Report supersedes the discussion draft issued in April 2015. Additional recommendations have been made in response to gaining consensus between jurisdictions with regards to a worldwide and territorial system of taxation. Significant concerns were raised after the release of the April discussion draft on the need to address situations where double taxation could result, as well as how to manage administrative complexity. Moreover, there were questions raised as to whether any global action was needed on CFC rules in light of the BEPS recommendations to be issued on the other action points. While the Report recognizes these comments, multinational companies must still address the practical problems that may arise in the administration of the granular details of each “building block.”
Summary On October 5, 2015, the OECD released its final reports for the BEPS Action Plan. This Alert discusses “BEPS Action 6: Prevent Treaty Abuse,” which addresses the inappropriate use of tax treaty benefits.
Background and Details In an effort to address BEPS issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. One of the most important BEPS concerns, treaty abuse and treaty shopping, is addressed by Action 6 of the BEPS Action Plan.
BDO Insights Multinational companies often rely on tax treaties to reduce their global tax burden. Given the approach in Action Plan 6, these companies must carefully evaluate their current legal and tax structures and the ability to claim treaty benefits with respect to countries that adopt these recommendations.
North Carolina Enacts Related Party Interest Addback, Phases in Single Sales Factor Apportionment, and Imposes Sales Tax on Repair, Maintenance, and Installation Services Download PDF Version
Summary On September 18, 2015, North Carolina Governor Pat McCrory signed into law H.B. 97, 2015-2016 Session (“H.B. 97”), which, for Corporation Income Tax purposes, includes a related party interest addback provision, implements the phase-in of single factor apportionment, imposes a market-based sourcing informational reporting requirement, and reduces the Corporation Income Tax rate to 4 percent. In addition, H.B. 97 modifies the Franchise Tax base and increases the minimum Franchise Tax to $200 and the maximum Franchise Tax on holding companies to $200,000. Lastly, H.B. 97 imposes sales and use tax on repair, maintenance, and installation services, and it makes changes to the Individual Income Tax standard deductions, itemized deductions, and tax rate.
Details Corporation Income Tax
Market-Based Sourcing Informational Reporting. While the new law does not modify the current sales sourcing provisions, a taxpayer that has more than $10 million in apportionable income must file an information return showing the calculation of the 2014 apportionment factor using market-based sourcing. See the following table for sales sourcing under this provision.
Receipt From... Source to North Carolina If... … Sale, rental, lease or license of real property … To the extent property located in North Carolina … Rental, lease or license of tangible personal property … To the extent property located in North Carolina … Sale of service … If delivered to a location in North Carolina … Rented, leased or licensed intangible property … To the extent property is used in North Carolina … Sale of intangible property - contract right, government license or similar intangible that authorizes the holder to conduct a business activity in a specific geographic area … The geographic area includes all or part of North Carolina … Sale of intangible property - sales contingent on productivity, use or disposition of the intangible property … Treat as rented, leased or licensed intangible property … Sale of intangible property - other … Exclude from numerator and denominator of sales factor … Exclude from numerator and denominator of sales factor
The information return is due at the same time as the 2015 Corporation Income Tax return. A $5,000 penalty applies for failure to timely file this return (subject to reduction or waiver at the discretion of the Department of Revenue).
Rate Reductions. Effective for taxable years beginning on or after January 1, 2016, North Carolina reduces its Corporation Income Tax Rate to 4 percent from 5 percent. The rate reduction is due to North Carolina meeting its state revenue target set by a 2013 law. If North Carolina meets the $29,975,000,000 revenue target in this new law for a fiscal year, the rate must be reduced to 3 percent for the taxable year that begins on the following January.
Tax Base Changes. For taxes due on or after January 1, 2017, the measure of the tax, which is currently based on capital stock, surplus and undivided profits, is instead based on net worth. Net worth for these purposes is a taxpayer’s total assets (determined without regard to the deduction for accumulated depreciation, depletion or amortization), less total liabilities, the difference of which is subject to the following adjustments:
A deduction for accumulated depreciation, depletion and amortization as determined for federal income tax purposes;
An addition for indebtedness owed to a parent, subsidiary or affiliate corporation, or a non-corporate entity of which a corporation or affiliated group of corporations owns, directly or indirectly, more than 50 percent of the capital interests (subject to a proportional deduction if the creditor corporation borrowed capital from a source other than a parent, subsidiary or affiliate corporation);
A deduction for indebtedness owed to it by a parent, subsidiary or affiliated corporation subject to the Franchise Tax to the extent it has been added by the debtor corporation; and
A deduction for the cost of treasury stock.
Also for taxes due on or after January 1, 2017, in addition to certain other deductions, North Carolina no longer allows the deduction from the investment in North Carolina tangible property measure of the tax for debts existing for North Carolina real estate.
Minimum and Maximum Tax Increases. For taxes due on or after January 1, 2017, the minimum tax increases from $35 to $200. In addition, the maximum tax that may be imposed on a holding company in the event the net worth measure of the tax applies (i.e., and not the appraised value of or investment in North Carolina tangible property measure) increases from $75,000 to $150,000.
Effective March 1, 2016, North Carolina expands the sales and use tax base to include the sales price or gross receipts derived from repair, maintenance, and installation services, unless purchased for resale. For these purposes, repair, maintenance, and installation services include services related to:
Keeping tangible personal property in working order;
Restoring tangible personal property to working order;
Troubleshooting the source of a problem for the purpose of determining what is needed to restore tangible property to working order; and
Installing tangible personal property (but not tangible personal property installed by a real property contractor pursuant to a real property contract).
Also effective March 1, 2016, North Carolina excludes from the application of sales tax: (i) a person that operates solely as a real property contractor; and (ii) a person whose only business activity is providing repair, maintenance, and installation services, and who does not derive the majority of its revenue from retailing tangible personal property, digital property, or services to consumers.
Effective for taxable years beginning on or after January 1, 2016, the individual income tax standard deduction amounts are increased slightly and, for purposes of calculating itemized deductions, North Carolina allows a deduction for medical and dental expenses equal to the deduction taken for federal income tax purposes under I.R.C. § 213. In addition, effective for taxable years beginning on or after January 1, 2015, the individual income tax rate is reduced to 5.499 percent from 5.75 percent.
The phase in of single sales factor apportionment and the 1 percent rate reduction under H.B. 97 reflects North Carolina’s desire to create a more favorable income tax environment for multistate corporations headquartered or with significant operations in the state.It would be unfortunate, however, if these same changes impede North Carolina from meeting the revenue goal which, if met, would further reduce the Corporation Income Tax rate.
Taxpayers that have not historically charged sales tax on repair, maintenance and installation services taxable under H.B. 97 should implement procedures to ensure the collection and remittance of sales and use tax on such services.
As drafted, the enactment of the Corporation Income Tax (except for the 4-percent rate, which, as noted, was enacted under a separate 2013 law), Franchise Tax and Individual Income Tax changes under H.B. 97 is pending the ratification of H.B. 117, 2015-2015 Regular Session and H.B. 943, 2015-2016 Regular Session prior to January 1, 2016.H.B. 117 and H.B. 943 were ratified on September 24, 2015, and September 30, 2015, respectively.Thus, putting aside any unforeseen circumstances, H.B. 97 should be enacted as planned.
BDO Indirect Tax News - October 2015
The latest edition of BDO International's Indirect Tax News covers current global developments in relation to indirect tax, including Australia’s “Goods and Services Tax” on tangible and intangible goods, the Court of Justice of the European Union (CJEU) judgment in support of the recovery of VAT on corporate finance deals and other holding company costs, and more.
How Tax Identity Theft Works A typical tax identity theft involves someone who uses another taxpayer’s identity and Social Security number to deceitfully file a tax return and receive a refund from the IRS. The victim is commonly apprised of the fraud only when he or she files a tax return and the IRS informs them that the return has been rejected because a tax return was already filed for the same year under that Social Security number. The refund is then delayed until the IRS can determine who the valid taxpayer is.
Steps to Take to Protect Yourself From Tax Identity Fraud There are a number of ways thieves can obtain your Social Security number to file a tax return: hacking business or person computers, calling an individual under the guise of an official or business requesting confidential information or even stealing personal statements from a mailbox or trashcan. While there is no way to completely protect yourself from tax-related identity theft, there are some steps you can take to minimize your risk:
What Actions to Take if Your Identity is Stolen If you are a victim of tax refund fraud, the IRS will contact you BY MAIL after it is verified that your return has been previously filed. They will provide identity confirmation via the Identity Certification Service (IDVerify) on IRS.gov or at a toll-free number provided. It is also advisable to prepare and submit an Identity Theft Affidavit on IRS Form 14039. In addition, make a report on the IRS Tax Fraud Hotline at 1-800-829-0433. Once your account has been resolved, the IRS will issue and mail to you an Identity Protection Personal Identification Number (IP PIN). This number will verify that you are legitimate when you file future tax returns and it will prevent the processing of fraudulent returns.
Date/Timing Effective date of new tax planning disclosure requirement delayed until Tax Authorities issue a Normative Instruction providing more details.
Affecting This requirement affects all Brazilian taxpayers that engage in certain transactions that result in some type of tax benefit (e.g., elimination, reduction, or deferral of taxes).
Background On July 22, 2015, the Brazilian government published Provisional Measure (“PM”) 685 which contains the rules with respect to the reporting of certain tax planning strategies. In general, Provisional Measures are valid as of the date of the publication but require review by the Brazilian Congress within 120 days. If no further regulation is issued after this period, they lose their effect.
Details PM 685 requires taxpayers to submit a report by September 30 of each year that will disclose all relevant information on every individual transaction that was concluded in the prior year and that resulted in some type of tax benefit specifically those transactions that:
How BDO Can Help All Brazilian taxpayers should carefully review the tax consequences of pending transactions and determine whether the transaction must be disclosed. BDO can review and consult with taxpayers to assist them to adequately decide and comply with this new requirement.
Summary On September 16, 2015, New Hampshire Governor Maggie Hassan signed into law Senate Bill 9, 2015 Session (“S.B. 9”) and, on the same day, the New Hampshire legislature overrode the Governor’s veto of H.B. 2, 2015 Session (“H.B. 2”), thus, making it law as well. Together, S.B. 9 and H.B. 2 reduce the Business Profits Tax and the Business Enterprise Tax rates, establish a tax amnesty which begins December 1, 2015, formalize New Hampshire’s voluntary disclosure program, make certain penalties mandatory, and authorize the Department of Revenue Administration (the “Department”) to participate in the Joint Audit Program of the Multistate Tax Commission (“MTC”).
Details Business Tax Rate Reductions
Her Majesty’s Revenue & Customs Issues Revenue and Customs Brief in Response to the United Kingdom’s Supreme Court Decision in the Anson Case
Summary On September 25, 2015, the United Kingdom tax authority, Her Majesty’s Revenue & Customs (“HMRC”), issued Revenue & Customs Brief 15 (“Brief 15”) in response to the United Kingdom Supreme Court’s (the “Court”) decision in the case of Anson (Appellant) v. Commissioners for Her Majesty’s Revenue & Customs (Respondent), [2015] UKSC 44. The case concerned the United Kingdom tax treatment of a specific Delaware limited liability company (“LLC”) of which Mr. Anson was a member. The Court found that the income of the LLC accrued to the members as it arose, and thus United States tax suffered on that income should be available for double tax relief in the United Kingdom.
The decision that the income accrued to the members of the LLC as it arose was contrary to HMRC’s long-standing practice of treating LLCs as opaque entities. It therefore led to uncertainty over how LLCs should be treated more generally for United Kingdom tax purposes going forward.
Brief 15 confirms that HMRC will not seek to challenge the tax treatment of existing LLCs and will consider claims for double tax relief from individuals in a similar position to Mr. Anson on a case-by-case basis.
Background and Details The United Kingdom tax treatment of LLCs has often caused uncertainty for United Kingdom taxpayers, in particular, whether they should be regarded as companies with issued ordinary share capital, which is important for U.K. corporate tax grouping purposes.
HMRC’s long standing view is that LLCs should be regarded as opaque entities where a Delaware LLC issues membership certificates, and other factors relating to the company (e.g. the terms of the LLC members agreement), suggest that the entity has share capital. The Court in the Anson case found that income arising in the LLC in question should be regarded as accruing directly to the members rather than belonging to the LLC itself. While this was good news for United Kingdom resident individuals wishing to claim double tax relief for the United States taxes suffered on LLC income also taxable in the United Kingdom, it introduced uncertainty over how LLCs within corporate groups should be treated. See the International Tax Alert - July 2015 for more details.
Texas Administrative Law Judge Grants Taxpayer’s Use of a Margins Tax Business Loss Carryforward Credit Claimed on a Late Filed Return Download PDF Version
Summary On July 17, 2015, a Texas Administrative Law Judge (“ALJ”) issued a decision in which the ALJ recommended a refund to a taxpayer (“Taxpayer”) with respect to a business loss carryforward credit preserved and elected in 2008 and claimed on a 2010 return.1 The Texas Comptroller of Public Accounts, Taxing Division had denied Taxpayer’s use of the credit because the 2010 return was filed late. It appears that the Comptroller may be notifying similarly situated taxpayers that they will also be issued refunds due to the ALJ’s decision.
For Franchise Tax returns due on or after January 1, 2008, Texas replaced the “old” Taxable Capital/Earned Surplus Tax, with the current Margins Tax. Texas allows a credit against the Margins Tax, which is based on unused business loss carryforwards a taxpayer generated under the Earned Surplus Tax.2 Under the statute, a taxpayer must provide written notification to the Comptroller of its intent to take the credit on its first return due after January 1, 2008 in order to claim the credit.3 A taxpayer may thereafter elect to claim the credit on any return due after January 1, 2008 and claim it for up to twenty (20) privilege periods, unless and until the taxpayer revokes the credit or the statute under which the credit is granted expires, whichever first occurs.4 Tex. Tax Code § 171.111(a) allows a taxpayer to make only one election to claim the credit.5 A Comptroller regulation, however, requires a taxpayer to make the election on each timely filed return due on or after January 1, 2008.6
Taxpayer, a telecommunications service provider that filed a Texas combined Franchise Tax return, filed a form 05-172 (Franchise Tax Preservation of Temporary Credit) on February 6, 2008 for each of six affiliates to notify the Comptroller of the intent of the affiliates to preserve and take the credit for unused business loss carryforwards. In addition, on May 9, 2008, Taxpayer timely filed an extension of time to file its 2008 return (i.e., its first return due after January 1, 2008), along with the requisite affiliate list, on which it blackened a circle on the form indicating that it would be claiming the credit on its 2008 return. Taxpayer claimed the credit on its timely filed 2008 return and, as a result, the Tax Division issued a check to refund an overpayment of tax it made with its extension request.
Taxpayer timely filed extensions of time to file its 2009 return, which was not at issue in this matter, and its 2010 return, and noted on each election its 2008 preservation and election to claim the credit. With respect to its 2010 return, the Tax Division granted Taxpayer an extension of time to file its return until August 16, 2010. Taxpayer did not request to extend the due date of its 2010 return to November 15, 2010. Thus, Taxpayer’s 2010 return, on which it claimed the credit, and which was filed on October 20, 2010, was filed late.
Based upon the language in the regulation, the Tax Division denied Taxpayer’s use of the credit claimed on its 2010 return because the return was not timely filed, and issued an assessment for unpaid tax, plus penalties and interest, due to the disallowance of the credit. In addition, the Tax Division issued a letter stating that Taxpayer could not carry over the credit to subsequent taxable years. Taxpayer paid the assessed amount under protest and filed a refund claim claiming that the credit taken on its 2010 return should be allowed.
The ALJ held that Taxpayer properly preserved the credit in 2008 and recommended that the credit Taxpayer claimed on its 2010 return credit should be granted. The ALJ reasoned that: (i) the unambiguous language of the statute limits a taxpayer to one election; (ii) Taxpayer met the preservation and election requirements under the statute when it filed the forms 05-172 for each of the six affiliates and the 2008 extension; and (iii) there is no provision in the statute that allows revocation of the credit if it is claimed on a late filed return.
The ALJ further reasoned that its interpretation of Tex. Tax Code § 171.111(a) is consistent with the Comptroller’s interpretation of the “old” version of Tex. Tax Code § 171.111(a), which granted a similar credit in relation to a 1991 change in the law resulting in the adoption of the Earned Surplus Tax. The language in the old version of Tex. Tax Code § 171.111(a) is nearly identical to the language in the current version, and, with respect to the old version, the Comptroller issued a Earned Surplus Tax regulation and a Taxability Memorandum in which taxpayers are specifically instructed that the election is a one-time election and not an annual election.7
The ALJ rejected the Tax Division’s argument that the language in Tex. Tax Code § 171.111(c), which merely allows the Comptroller to request that a taxpayer submit with its return information related to the amount of the credit, also allows the Comptroller to impose a requirement that a taxpayer make an annual election to take the credit.8 The ALJ reasoned that a plain reading of Tex. Tax Code § 171.111(c) merely authorizes the Comptroller to request information related to the amount of the credit and to construe Tex. Tax Code § 171.111(c) to allow the Comptroller to impose an annual election requirement would put it in “irreconcilable conflict” with a plain reading of Tex. Tax Code § 171.111(a).
Similarly Situated Taxpayers
Based upon correspondence BDO had received in relation to a client, it appears that the Comptroller may be notifying similarly situated taxpayers that it has reversed its policy that each taxable year’s return must be timely filed in order to claim the credit for that year and that it will automatically issue refunds with respect to taxable periods open under the four-year statute of limitations.
While it appears that the Comptroller may be reviewing its records for similarly situated taxpayers and automatically issuing refunds, rather than wait for correspondence from the Comptroller and risk the lapse of the statute of limitations with respect to a taxable year, taxpayers should consider conducting their own review and taking the appropriate action.
The decision may also serve as a reminder to taxpayers that a regulation may not impose requirements or limitations without statutory or other authorization.
1 Texas Comptroller of Public Accounts, Hearing No. 110,191 (July 17, 2015).
2 Tex. Tax Code § 171.111(a).
3 Tex. Tax Code § 171.111(a) (“On the first report originally due under this chapter on or after January 1, 2008, a taxable entity must notify the comptroller in writing of its intent to take a credit in an amount allowed by this section on the tax due on taxable margin.”)
4 Tex. Tax Code § 171.111(a) (“The taxable entity may thereafter elect to claim the credit for the current year and future year at or before the original due date of any report due after January 1, 2008, until the taxable entity revokes the election or this section expires, whichever is earlier. A taxable entity may claim the credit for not more than 20 consecutive privilege periods beginning with the first report originally due under this chapter on or after January 1, 2008.”).
5 Tex. Tax Code § 171.111(a) (“A taxable entity may make only one election under this section and the election may not be conveyed, assigned, or transferred to another entity.”).
6 34 Tex. Amin. Code § 3.594(e) (“The election to claim the credit shall be made on each report originally due on or after January 1, 2008 and before September 1, 2027. A taxable entity elects the credit by: properly taking the credit on a report filed on or before the original due date; or electing the credit on a timely filed extension request and properly taking the credit on the report filed on or before the extended due date of the report.”).
7 34 Tex. Admin. Code § 3.559(d)(1); Taxability Memorandum, STAR Accession No. 9109L113A09 (September 25, 1991).
8 Tex. Tax Code § 171.111(c) (“The comptroller may request that the taxable entity submit, with each annual report in which the taxable entity is eligible to take a credit, information relating to the amount determined under Subsection (b)(1). The taxable entity shall submit in the form and content the comptroller requires any information relating to the amount determined under Subsection (b)(1) or any other matter relevant to the computation of the credit for which the taxable entity is eligible.”).
Summary On July 1, 2015, Washington Governor Jay Inslee signed into law Senate Bill No. 6057, 64th Legislature, 3rd Special Session (Wa. 2015) (“S.B. 6057”). S.B. 6057 incorporates important changes that are intended to improve compliance with and the administration of Washington’s unclaimed property laws. Specifically, S.B. 6057 establishes an unclaimed property amnesty program, boosts the penalty provisions, clarifies the reporting requirements with respect to gift certificates, mandates electronic reporting and payment, and creates a refund and appeal process.
Details Unclaimed Property Amnesty Program
Type Amount … Failure to file, report, pay or deliver amounts or property when due … 10% of the amount unpaid and the value of property not delivered … Examination resulting in an assessment for amounts unpaid or property not delivered … 10% of the amount unpaid and the value of property not delivered … Late payment of amounts paid or property due under
an assessment … 5% of the amount unpaid and the value of property not delivered … Willful failure to file a report or to provide written notice to apparent owners … $100/day report is withheld or notice not sent, not to exceed $5,000 … Failure to file or pay electronically … 5% of the amount payable and value of property deliverable under the report
The September edition of BDO China's China Tax Newsletter features recent tax-related news and developments in China, including the following topics:
New Mode of Declaration Upon Tax Payment Obligation Put into Force by Shenzhen Local Tax Bureau
Continuous Implementation of Preferential Tax Policies for Small and Micro Enterprises
Clarification on Offset of Input VAT Before a Taxpayer Is Accredited or Registered as a General VAT Taxpayer