Our last blog was a precursor to the latest IR 2011-81 issued yesterday by IRS. It says:
IRS officials today announced they are taking additional steps in their continuing efforts to improve the agency’s international operations.
First, the IRS Advance Pricing Agreement (APA) Program, concerned exclusively with reaching pre-filing agreements with taxpayers on transfer pricing, will shift from the office of IRS Chief Counsel to an office under the Transfer Pricing Director in the Large Business &International division’s international operation. In addition, the IRS Mutual Agreement Program (MAP), concerned primarily with the bilateral resolution of transfer pricing disputes with U.S. treaty partners, will shift to the same office.
The resulting “Advance Pricing and Mutual Agreement program” will be under the direction of a single executive and the IRS will increase staffing available to the two program areas. The combined office will allow the IRS to reduce the time needed to complete advance pricing agreements and to resolve transfer pricing disputes with its treaty partners. The Office of Chief Counsel will remain a vital partner in the analysis and resolution of legal issues.
Second, to facilitate IRS coordination with treaty partners in an increasingly global environment, the IRS will adjust its competent authority and international coordination functions under an Assistant Deputy Commissioner (International) who will:
- coordinate international activities across all IRS operating divisions,
- oversee the IRS Exchange of Information program and IRS participation in the Joint International Tax Shelter Information Centre (JITSIC),
- manage the activities of the IRS Tax Attaches in the agency’s foreign posts of duty,
- coordinate IRS participation at the Organisation for Economic Cooperation and Development (OECD) and other non-governmental organizations,
- support the Department of the Treasury in its negotiations of tax treaties and tax information exchange agreements, and
- pursue competent authority agreements with treaty partners on issues other than transfer pricing.
“Improving how we manage transfer pricing compliance and continuing to develop our capacity to coordinate effectively with our treaty partners is ever more critical to our job,” said IRS Commissioner Doug Shulman. “These latest changes move forward to fulfilling one of my top priorities — meeting the challenge of tax administration in a global economy.”
PWC’s WNTS insight reports:
“Collaboration among revenue authorities around the globe is increasing. In addition to traditional information exchange under tax treaties and agreements, many countries now engage in other collaborative activities, including bilateral advance pricing agreements, Competent Authority agreements, and multilateral tax information exchange programs (e.g., the Joint International Tax Shelter Information Centre (JITSIC)). Countries also have been engaging in simultaneous tax audits, in which two or more countries examine a taxpayer simultaneously, each in its own territory, when there is a common or related interest and a view to exchange the information they obtain.
This collaboration has continued to evolve into more sophisticated methods and strategies. One emerging audit trend is the pursuit of so-called joint audits, in which an individual or business is subject to a coordinated audit using a single audit team comprised of representatives from two or more jurisdictions.
This new approach stands in contrast to the more typical situation in which the same taxpayer is subject to separate audits by two or more countries with respect to the same transaction or items of income or deduction. Joint audits are the next step to even greater cooperation between taxing authorities — a new era of coordinated action.”
IRS Tax Tip 2011-08 lists tax evasion due to hiding of income offshore as the top tax scam. We would like to remind all US citizens and permanent residents that their worldwide income is subject to tax in US. Heavy penalties can be enforced if the income is not reported to IRS. Due to increased cooperation between all countries, don’t take your chances by not declaring worldwide income. There are also stringent requirements to report your controlled foreign entities, foreign trusts, foreign inheritance or gifts and not to forget foreign financial accounts. It is still not too late to take advantage of the IRS offshore voluntary disclosure initiative that expires August 31, 2011. Here is an excerpt from the tax tip:
“Hiding Income Offshore: The IRS aggressively pursues taxpayers involved in abusive offshore transactions and the promoters who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding
income in offshore banks and brokerage accounts, or by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
In February, the IRS announced a second voluntary disclosure initiative to bring offshore money back into the U.S. tax system. The new voluntary disclosure initiative will be available through Aug. 31, 2011.”
Under the Canadian Income Tax Act, employers are required to withhold income tax at source from Canadian-source compensation paid to non-resident employees related to services rendered in Canada. The amount of withholding is determined in accordance with Section 102 of the Income Tax Regulations. Income tax treaty between Canada and the country of residence of the nonresident employee providing services in Canada may offer relief from paying tax in Canada. The Canadian employer, however, may only be relieved of the tax withholding obligation when a formal waiver is obtained from the Canada Revenue Agency (CRA).
CRA has provide Form that should be used for an employee who is a resident of United States and is expected to earn a maximum of CAN$10,000. If the non-resident employee is a resident of country other than U.S. and if Canada has entered into a tax treaty with such country, the compensation limit has been set at CAN$5,000. The employee must apply for Social Insurance Number or Income Tax Number in order to claim the waiver; the employer must provide T4 to such employee. There may also be issues relating to social security taxes for the U.S. employees; however, they can be mitigated by taking advantage of the Totalization agreement.
This can be a good news for U.S. employees travelling infrequently and earning income in Canada.