Is new excise tax imposed by Puerto Rico (PR) a creditable foreign tax?

In October 2009, Puerto Rico enacted a new PR excise tax on certain personal property produced in PR and services performed in PR. The tax is effective for transactions occurring after December 31, 2010.

IRC Code Section 901 allows a credit against US federal income tax for any income tax paid or accrued during the tax year to a foreign country or US possession. Foreign tax is creditable only if it has a character of income tax in US sense. PR excise tax is clearly not the income tax. However, under Code Section 903, a tax paid in lieu of income tax qualifies for a credit in US if the foreign tax is imposed in substitution and not in addition to a generally imposed income tax.

PR excise tax has some novel features and IRS needs time to evaluate. Until IRS resolves the issue of creditability of PR taxes, IRS announced in Notice 2011-29 that it will not challenge a position that the PR tax is a creditable foreign tax under Code Section 903. 

It is pertinent to note here that IRS is still evaluating creditability of Mexican “Flat Tax” which was imposed in January 2008, however, such tax remains creditable at this time under the similar grounds.

No passport issuance for citizens with delinquent taxes?

This may happen soon as suggested by Government Accountability office (GAO).

GAO noted that federal law currently prohibits the IRS from divulging taxpayer information, including unpaid federal taxes, to the State Department, unless the taxpayer consents. In contrast, federal law permits certain restrictions on the issuance of passports to individuals, such as individuals owing child support debts over $2,500 or with outstanding felony warrants.

The 224,000 tax delinquents who received the passports represented about 1 percent of the 16 million individuals who received passports in 2008. However, the estimated amount of unpaid federal taxes is probably understated because it excludes individuals who have not filed tax returns or underreported income.

The report can be found on http://www.gao.gov/new.items/d11272.pdf

After UBS, is India bank crack down next?

WSJ reports:

“The Justice Department is expected to file a lawsuit Thursday that seeks to force HSBC India to reveal the names of U.S. customers with secret accounts, according to a person familiar with the matter.

The department is expected to file the legal action in a San Francisco federal court, this person said.

The move opens up a new front in the U.S. crackdown on tax evasion and comes days before the April deadline for taxpayers to file individual returns.

To date, U.S. efforts against offshore tax evasion have focused heavily on Swiss bank accounts.

UBS AG admitted in February 2009 to conspiring to defraud the U.S. government of billions in taxes by helping wealthy Americans hide assets. The bank paid $780 million in a deal to avoid prosecution and eventually released the names of more than 4,000 U.S. clients.

In February 2011, the Internal Revenue Service announced a second leniency program that offers reduced penalties to tax scofflaws that voluntarily report their offshore accounts. The agency offered the first program in 2009 in the wake of the U.S. case against UBS.

The Justice Department sent signals this year that London-based HSBC Holdings PLC’s India operations were in its sights. Prosecutors indicted a New Jersey businessman In January on charges that he conspired to evade taxes by hiding offshore bank accounts in India maintained by HSBC.”

The January indictment didn’t identify the bank by name, saying only that the institution “was one of the largest international banks in the world and was headquartered in England.” A person familiar with the case said the bank was HSBC.

IRS gets $1.1 billion in transfer pricing case

U.K. based AstraZeneca plc announced that it will pay the Internal Revenue Service $1.1 billion to settle all transfer pricing issues for 2000-10, according to a March 28 statement released by the company.

Tax authorities in the U.S. and the U.K. agreed on an advance pricing agreement regarding transfers between AstraZeneca’s international subsidiaries for the period from 2002 through 2014, the company said. AstraZeneca also agreed with U.S. tax authorities on a related valuation matter stemming from the integration of its U.S. businesses after the merger that created the company in 1999.