“When [taxpayers] come in and tell us about their offshore account in one bank in one country, they may tell us about another account in another bank in another country and about the bankers they used,” said Rebecca Sparkman, Acting Executive Director  Investigations and Enforcement Operations Division of the IRS at the American Bar Association Section of Taxation meeting in San Diego. “As you can imagine we start looking at all that intelligence and it points the way for the next criminal investigation.”

Although her comments had undertones of the recent indictment of Wegelin & Co., Switzerland’s oldest private bank, she declined to speak directly on any specific matter. The bank has been charged with aiding tax offenders move their undisclosed accounts  from UBS.

“We want to assure you that we are reviewing all the information that comes in from your clients to match up [and provide direction on] where we should look next,” she said.

She cautioned practitioners to be fully truthful when bringing their clients into compliance.

“Please be fully, fully truthful,” she told the audience. “Because there may be those folks that are tempted to only disclose that account in that one bank that they think we know about in that one country because they think we don’t know about [an account] somewhere else. But guess what? They come in, they come through the whole program, we get their name on a list for some other bank, some other country, all bets are off! Now they are facing criminal investigation because they were not fully truthful.”

Sparkman stressed that the time to come forward with all offshore account information is at the time a voluntary disclosure is made, not subsequently.

“When you walk in the door, that is the time to be fully truthful,” she said. “Don’t be hiding anything else.”

Source: RIA

Treasury sees this as a key step “toward addressing legal impediments” faced by financial institutions in complying with proposed FATCA regulations that were published on Feb. 8. “The statement does not contemplate an exemption from FATCA for any jurisdiction, but instead offers a framework for information sharing pursuant to existing bilateral income tax treaties and allows FFIs [Foreign Financial Institutions] to report the necessary information to their respective governments rather than to the IRS,” Treasury said. The countries that joined in the statement were France, Germany, Italy, Spain and the United Kingdom. In the joint statement, the U.S. acknowledged that the policy objective of FATCA centers on enhanced reporting rather than collecting withheld tax.

The U.S. also affirmed its willingness to reciprocate in the collection and exchange of information on accounts held in U.S. financial institutions by residents of the five European countries. In addition, the joint statement cited the need to keep compliance costs as low as possible and the desirability of achieving common reporting and due diligence standards. Based on these considerations, the countries “have agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange and based on existing bilateral tax treaties,” the joint statement said. The document also offers a possible framework for an intergovernmental approach that provides a valuable insight into Treasury’s thinking on the subject.

Code Sec. 901 permits taxpayers to claim a credit for income, war profits, and excess profits taxes paid or accrued during the tax year to any foreign country or to any U.S. possession. In 2006, IRS issued proposed regs that would retain the general principle that tax is considered paid by the person who has legal liability under foreign law for the tax. However, they would further clarify application of the legal liability rule in situations where foreign law imposes tax on the income of one person but requires another person to remit the tax. The regs also provide detailed guidance on how to treat taxes paid on the combined income of two or more persons.

Code Sec. 909, which addresses concerns about the inappropriate separation of foreign income taxes and related income, was added by the Education, Jobs and Medicaid Assistance Act, effective for foreign income taxes paid or accrued in tax years beginning on or before Dec. 31, 2010.

Under Code Sec. 909, there is a foreign tax credit splitting event if a foreign income tax is paid or accrued by a taxpayer and the related income is, or will be, taken into account by a covered person with respect to such taxpayer. In such a case, the tax is suspended until the tax year in which the related income is taken into account by the payor of the tax.

IRS Publication 463 states that “You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You cannot deduct the travel expenses for your family.”

It further states that “You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:

• The meeting is directly related to your trade or business, and
• It is as reasonable to hold the meeting outside the North American area as in it.”

The North American area per IRS includes American Samoa, Antigua and Barbados, Aruba, Bahamas, Bermuda, Costa Rica, Canada, Dominican Republic, Honduras, Jamaica, Mexico, Puerto Rico and US Virgin Island to list only a few. The North American area also includes U.S. islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia.

Panama is included in the list now.

Any individual who applies for a U.S. passport, or the renewal of a passport, or applies for the privilege of becoming a permanent U.S. resident  (green card application) must include with that application a statement containing certain items of tax information. (Code Sec. 6039E(a)) The information that must be included by both passport and immigrant applicants includes the applicant’s taxpayer identification number (TIN), if he has one. (Code Sec. 6039E(b)(1))

The 1992 proposed regs provided guidance for both passport and permanent resident applicants to comply with information reporting rules under Code Sec. 6039E, and indicated the responsibilities of specified federal agencies to provide certain information to IRS. Proposed regulations issued January 25th, replaces the 1992 regulations.

The new proposed regs under Code Sec. 6039E would require an individual applying for a U.S. passport, other than an individual who applies for an official passport, diplomatic passport or passport for use on other official U.S. government business, to provide certain information with his passport application. (Prop Reg § 301.6039E-1(a))

The passport applicant would have to provide:

(1) the applicant’s full name and, if applicable, previous name;

(2) address of regular or principal place of residence within the country of residence and, if different, mailing address;

(3) taxpayer identifying number (TIN); and

(4) date of birth. (Prop Reg § 301.6039E-1(b)(1))

The required information would have to be submitted with the passport application, regardless of where the applicant resides at the time it is submitted. (Prop Reg § 301.6039E-1(b)(2))

IRS could impose a $500 penalty amount on any passport applicant who failed to provide the required information. (Prop Reg § 301.6039E-1(c))

Courtesy - thetaxtimes.blogspot.com

“Federal courts of many countries have been relying on Indian cases. The landmark judgement in case of Azadi Bachao Andolan, which reaffirmed the validity of India-Mauritius tax treaty, is a pleasure to read even today. So, what does this judgement mean for each of the stakeholders in the Indian economy?

FOR VODAFONE: This is the end of a long drawn legal battle for Vodafone and its battery of lawyers. The SC has asked the revenue to return the tax collected along with interest of 4% p.a. and vacating the bank guarantee. There must be a feeling of justice delayed but not denied in the Vodafone camp.

FOR OTHER LITIGANTS: Encouraged by the success in the preliminary round of litigation, the revenue has raised tax claim in several other cases where shares of overseas companies have been sold. This judgement is now law of the land. The revenue may not be able to collect tax on transfer of offshore holding companies with similar fact pattern. These companies will be spared of agony and legal costs. However, the SC has left a window open for the revenue to ‘look through’ the structures in case of sham.

FOR FDI INVESTORS: They can heave a sigh of relief. The SC has upheld the separate entity principle and recognised the need for holding structures. By enunciating the ‘look at’ principle this judgement asks that the revenue should look at the entire transaction to ascertain its true legal nature. Further, the onus has been placed on the revenue to identify a scheme and its dominant purpose. So, if an investor exits at the holding company level, it cannot be taxed in India on the basis that the underlying investment is in India. It is time to focus on building value in the business and not lose sleep over taxes.

FOR MAURITIUS INVESTORS: While the treaty was not the issue before the SC, The judgement sets to rest the controversy about Azadi Bachao Andolan case. In the absence of Limitation of Benefit provisions, treaty must be respected and the tax residency certificate can not be ignored unless the treaty is abused for fraudulent purpose of tax evasion.

This means that till the time treaty is amended, the capital gains tax exemption will be available to the Mauritius sellers. A word of caution for those who interpose treaty jurisdiction as an afterthought, just before the exit. In such a case, it might be viewed as a pre-ordained transaction and the revenue may challenge the treaty claim. Need for substance and razor sharp documentation cannot be undermined.

FOR PRIVATE EQUITY INVESTORS: Assurance of treaty benefits will bring in a lot more certainty. The options for exit will increase as now the buyers may be willing to buy offshore holding companies. The pressure from the buyers who were insisting on withholding tax or obtaining a nil withholding certificate will reduce. The big booster will be the reading down of Section 195 which provides for tax withholding on payments made to non-residents.

The judgement says that where the contract is executed outside India and the payment is made outside India by one non-resident to another, withholding tax burden cannot be imposed. While this is the view of Justice Radhakrishnan, in the absence of dissent note from the Chief Justice, this might be the verdict of SC.

FOR M&A ASPIRANTS: This would mean one less hurdle to cross before closing a transaction. Tax has been a deal breaker in several M&A deals. Negotiations around tax indemnities and escrows will reduce. Rule of law and clarity and certainty in tax policy will make India a worthy destination for new investors.

FOR REVENUE: While the verdict might have come as a huge disappointment, the tax administrators and their counsels have become a lot more sharper and agile. They almost had everyone convinced that Indian law was wide enough to bring indirect transfers in the tax net. Now all the focus will be on the upcoming finance bill and how the source rules can be rewritten and taxing jurisdiction can be established.

FOR GOVERNMENT: Certainty in law in dealing with cross border investment issues is critical in attracting foreign investment. In words of Justice Radhakrishnan, this case is an eye opener of where we lack in our regulatory laws and what measures need to be taken without sacrificing national interest.

We may see a renewed attempt to renegotiate the treaties and to bring in general anti avoidance rule or substance over form rule in the current statute.

FOR JUDICIARY: This is a huge leap of faith. The judiciary’s ability to interpret law without being swayed by the stakes involved will help India regain investor confidence.

FOR PROFESSIONALS: The anxiety of foreign investors and aggressive stance of revenue had led many professionals to be circumspect of advising on tax planning. Most chose to err on the side of caution and the level of confidence in expressing an opinion was on a sliding scale. This judgement should be helpful in future once general anti avoidance rule is introduced.”

• Weekly Payroll: $41.35
• Biweekly Payroll: $82.69
• Semimonthly Payroll: $89.58
• Monthly Payroll: $179.17
• Quarterly Payroll: $537.50
• Semiannual Payroll: $1,075.00
• Annual Payroll: $2,150.00
• Daily or Miscellaneous Payroll: $8.27

Employers should add the above amounts to the wages that the nonresident alien employee earns during the payroll period before computing withholding. Employers must also consider the number of withholding allowances that the nonresident alien employee claimed before computing withholding (generally limited to one allowance). The addback does not apply to wages earned by nonresident alien students from India and business apprentices from India. (RIA)

Individuals

An individual is treated as being a tax resident of Indonesia if he meets any of the following:

• The person resides or is domiciled in Indonesia. This means that the person has a place of residence in Indonesia that is used as a permanent dwelling place, where  he carries on his “ordinary course of life” or his “place of habitual abode”. Ordinary course of life refers to the carrying on of daily work, private, social or community activities in Indonesia. The place of habitual abode refers to a place that is used for the person’s usual activities or hobbies, whether routine or infrequent.
• The person is present in Indonesia for more than 183 days in a 12-month period. The stay can be continuous or broken up, and part-days are to be counted as 1 full day.
• The person stays and intends to reside in Indonesia. The intention can be evidenced by a work visa, a limited stay permit card (KITAS) or a contract of employment/ business/ other activities that are performed in Indonesia for more than 183 days. The leasing of a place of residence or the relocation of his family to Indonesia would also indicate this intention.

If the conditions above are met, the individual will be treated as being resident in Indonesia. An Indonesian citizen who is resident abroad will be treated as an Indonesian tax resident unless he has valid official documentation proving that he is tax resident abroad, such as a green card, identity card, student card or other verifications by the Indonesian foreign embassies.

Companies

A company is treated as being a tax resident of Indonesia if the following conditions are met:

• It is incorporated in Indonesia;
• Its head office, centre of administration or finance is in Indonesia;
• Its management resides in Indonesia; or
• Board meetings at which strategic decisions are made are held in Indonesia.

A foreign company that is not established or domiciled in Indonesia but conducts business activities in Indonesia will be treated as being resident in Indonesia only where strategic decisions of the company are made in Indonesia.

The Regulation also provides that the “place of effective management” rule in Indonesia’s tax treaties refers to the place where significant management and commercial decisions are made, or where the management makes decisions for the well-being of the company.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations. This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.