IRS tightening grip – issues proposed regs on information reporting by U.S. passport applicants

IRS has issued proposed regs that set out rules on information reporting by passport applicants under Code Sec. 6039E.

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))


How much Taxpayer information is currently being exchanged by US?

PALO ALTO—U.S. participation in exchange of information agreements does not mean that the Internal Revenue Service automatically releases taxpayer information to any nation that requests it, Douglas O’Donnell, IRS assistant deputy commissioner (International), said on Jan. 20.
“Every country that’s on the receiving end of a specific request is paying very close attention to the narrative of the story that is being told by the requesting jurisdiction,” he told attendees at the 2012 Pacific Rim Tax Institute. That way, he said, countries“know whether they have met the standard to request the information.”
Since the Group of 20 launched its global initiative in 2009 to safeguard the international financial system through improved transparency, more than 700 additional EOI agreements have been signed and 81 nations—including the United States—have undergone peer reviews, O’Donnell said.

Courtesy –

India SC judgement gives $4 billion relief in Vodafone case

In a hitorical judgemnet which was eagerly awaited by many foreign investors, Supreme Court of India ordered the Income tax department to refund $4 billion along with 4% interest to Vodafone. Here is what “The Economic Times” reported about the implications of the judgement in an excellent manner:

“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.”

Withholding for Non Resident Aliens has changed for 2012

Per Publication 15, IRS has revised the amount that must be added to a nonresident alien employee’s wages to compute withholding, effective with wages paid beginning Jan. 1, 2012. The withholding calculations for nonresident alien employees are different than for other employees, because nonresident alien employees are not entitled to the standard deduction that is built into the withholding tables. Notice 2005-76, 2005-2 CB 947, requires employers to add an amount to wages before determining withholding under the wage bracket or percentage methods in order to offset the standard deduction built into the withholding tables. The addback amount varies by pay period (i.e., weekly, biweekly, monthly, etc.). The addback amounts for the 2012 tax year are as follows:

  • 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)

Indonesia tax – who is resident? Tax office provides clarification

The Tax Office issued Regulation PER-43/PJ/2011 dated 28 December 2011 which provides clarification on the determination of tax residency, as described below.


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.


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.

Breaking news – 3rd Offshore Voluntary Disclosure Program Reopens

The Internal Revenue Service today reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

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 In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.