Withholding rate on Foreign partner’s ECI clarified

IRS recently clarified the withholding rate for the effectively connected income (ECI) allocated to foreign partners. As readers may be aware. IRC 1446 withholding rate was increased from 35% to 39.6% effective 2013. However, there was a confusion if the new rate on ECI would apply if teh partnership’s tax year was a fiscal year beginning in 2012.

IRS Ann. 2013-30, 2013-21IRB clarifies that since partnerships with fiscal years beginning in 2012 are required to file a 2012 Form 8804 (Annual Return for Partnership Withholding Tax),  2012 tax rates continue to apply. However, IRS announcement further states that a foreign partner will still be liable for tax on their share of the partnership’s income based on the tax rates in effect when included in income.

Bitcoins – biting the tax authorities worldwide?

Bitcoins are a peer-to-peer virtual currency created by a complex process called “mining.” There  are currently around 11 million Bitcoins in existence, and Bitcoin mining will end  once a finite number (21 million) of  Bitcoins have been created. Bitcoin has been making headlines as of late. It initially caught attention for its increase in value and also when it recently declined. Earlier this month, the cumulative value of the currency had been reported as high as  $1.5 billion, but it has since fallen to lower levels.

Bitcoin has been the recent subject of FinCEN guidance (2013-G001). It is to be seen if IRS and other tax authorities worldwide will follow suit in issuing guidance. Although it appears that any Bitcoins earned will be considered income, enforcement by tax authorities is perceived to be a nightmare.

Applying general principles, people who provide services or sell goods in exchange for Bitcoins would have income under Code Sec. 61, and those who exchange their Bitcoins for cash would realize gains to the extent of any appreciation (short or long-term). The capital gain treatment of Bitcoins generally follows the logic of those who argue that Bitcoin behaves more like a commodity than a currency, pointing to its volatility and the fact that people could be converting traditional currency into Bitcoin with an intent to make a profit rather than to spend it. There are a few less clear areas, including the tax implications of “mining” a Bitcoin and the effect of dealing with it on an international basis. IRS next? If Bitcoin continues its current momentum, IRS may, like FinCEN, be forced to address the issue. However, given the traceability and anonymity inherent in Bitcoin transactions, and the extreme fluctuations in value, cracking down on Bitcoin could prove difficult. Although the value of Bitcoins has recently plummeted, and some media outlets assert that the Bitcoin “bubble” has burst, the actual financial imprint of Bitcoin remains to be seen. However, it is also argued that, regardless of whether Bitcoin itself ultimately survives, it has established a model which will no doubt shape future transactions.

The information is from checkpoint news.


Taiwan agrees to FATCA with United States

Taiwan’s Financial Supervisory Commission (FSC) and the Ministry of Finance (MoF), jointly announced their intent to pursue an intergovernmental agreement to facilitate the implementation of the Foreign Account Tax Compliance Act (FATCA) – RIA News.

Taiwan has created an interagency task force, including the FSC, the MoF, the Ministry of Justice and the Ministry of Economic Affairs to study compliance options under FATCA. Previous consultations between the U.S. Treasury and Taiwan were focused on reducing compliance costs associated with FATCA. In addition, efforts have been dedicated to assisting local financial institutions to comply with all the domestic legal requirements and to protecting the depositors as well as the investors.

“The Taiwan authorities are supportive of the underlying goals of FATCA, and are interested in exploring a framework for mutual cooperation to facilitate the implementation of FATCA,” the statement said.
“Both sides affirm their willingness to continue their consultations and actively seek to finalize the signing of an agreement.