BEPS and Planet Mars

NASA recently announced that your name can be put on the planet Mars. This is incredibly great news for the people with good fortunes who are thrilled by the opportunity to gain their foothold in the universe and enhance their fame. However, in another space mission, scientists are attempting to find out if any life exists in other planets.

Think about it. If they indeed were able to find the life on Mars and if the inhabitants there happen to be much more advanced than the humans on earth, they are likely to have a tax law that can tax such inbound activities. Beware and think before you make that tempting decision. 

Putting your name on a planet may have its other side. If “cross planet” law applies and absence a tax treaty (we are not aware about any as of today), just by putting your name can create economic “nexus” and a Permanent Establishment in Mars. If BEPS – Base Erosion and Profit Shifting – laws are much more advanced than our planet earth, you may receive a tax bill from Martian tax authority as soon as your name appears there.

Not enough information is available at this stage if IRS has signed any information exchange pact under FATCA with Mars or whether the tax agencies around the globe are secretly using the “trick” to disclose your name to Martian government!

It will certainly be to your advantage to consult a “cross planet” tax advisor who can keep you out of any trouble. Watch out and do not fall in the trap – think before you leap!!

Changes are in offing for property contributed to U.S. partnership with foreign partners

There is a general rule that no gain or loss is recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. However, there may be some opportunities for U.S. persons contributing property to U.S. partnership with foreign partners. The partnership can be either U.S. or foreign. Congress realized that due to the loophole, taxpayers might use a partnership to shift gain to a foreign person.

IRC 721(c) granted the authority to the Secretary to override the non-recognition of gain when a U.S. person transfers the property to such partnership. When the gain is recognized, it would be includible in the gross income of person/s other than U.S. person. In addition, the new Code Section 367(d) enacted in 1997 Act authorized the Secretary to issue regulations in case of transfer of intellectual property to partnerships in certain circumstances.

However, no such regulations have been issued so far. Realizing that partnership could be structured to specifically take advantage of the loophole and thereby using profit shifting and base erosion tactics, in Notice 2015-54, IRS has announced that it plans to issue regulations under both IRC 721(c) and 367(d). The valuation must also meet IRC 482 arms length standards.

According to the Notice, Form 8865, Schedule O or its instructions will change for tax years beginning in 2015 to require supplemental information for certain contributions to Section 721(c) Partnerships.

For detailed information, please see IRS Notice 2015-54.