July 15, 2010 – Swiss court allows UBS account holder’s information to be disclosed to U.S.

IRS had announced that it settled its dispute over John Doe summons subsequent to entering in agreement with Swiss government. On July 15, 2010, Switzerland’s Federal Administrative Court rejected a UBS account holder’s complaint that sought to prevent the release of her client information to the U.S. tax authorities. The verdict may not be appealed. The ruling, made public on July 19, 2010, found that the taxpayer’s account satisfied the requirements to be turned over under the Switzerland-U.S. agreement signed in August 2009 where the Swiss authorities agreed to hand over the account information on 4,450 persons with undisclosed accounts at UBS. The court also noted that the Switzerland-U.S. agreement was binding as it was ratified by Swiss parliament on June 17, 2010. The ruling is significant insofar as it signals the likely end-game for UBS account holders with undisclosed accounts who had sought to prevent their account information from being delivered to the IRS.

Nonresident aliens’ employment in U.S. subject to employment tax withholding

In a recent Chief Counsel Advice, IRS concluded that remuneration for services performed by nonresident alien (NRA) employees on structures permanently or temporarily attached to the U.S. “Outer Continental Shelf” (OCS) or on vessels or other devices engaged in activities related to exploration/exploitation of natural resources on the OCS was subject to income tax withholding as well as FICA, and FUTA. These services were performed within the U.S.

Under S. 871(b), an NRA engaged in a trade or business in the U.S. during the tax year is subject to U.S. federal income tax on income that is effectively connected with the conduct of a trade or business. S. 864(b) provides that a trade or business within the U.S. includes performance of personal services. However, a trade or business within the U.S. doesn’t include the performance of personal services for a foreign person not engaged in a trade or business within the U.S. by a NRA temporarily present in the U.S. for less than 90 days during the tax year that doesn’t exceed $3,000 (the business visitor exception). (Reg. § 1.864-2(b))

CCA found that NRA employees who perform personal services on structures attached to the OCS or on associated vessels were subject to U.S. income tax on their compensation that was effectively connected with a U.S. trade or business, unless the income was exempt from tax under an applicable income tax treaty. The CCA concluded that the NRA employees generally wouldn’t qualify for the business visitor exception because the employer company was engaged in a U.S. trade or business because of its exploration activities on the OCS.

Invest in India via Mauritius to save capital gains? Be ready for tougher times ahead!

Taxpayers who claim exemption from tax on capital gains by furnishing a residency certificate of Mauritius should watch out. Now, income-tax (IT) authorities can ask for evidence from Mauritius government to examine the authenticity of a taxpayer who claims exemption on capital gains tax provided under the Indo-Mauritius Double Taxation Avoidance Agreement( DTAA). This is a departure from the practice of furnishing a tax residency certificate from Mauritius for claiming exemption from capital gains tax. According to an Income-Tax Appellate Tribunal (ITAT) Delhi order on March 26, more documents are needed from the Mauritius government to support the claim of the taxpayer that it is a Mauritius resident. The ITAT order was released last week. If the order is not rejected by the high court, it will have a bearing on similar cases reports epaper.timesofindia.com.