Property ownership in continental Europe is often fraught with some unique issues upon death. Most countries including Italy, Spain and France impose “forced heir-ship” rules. Accordingly, a portion of the property must pass to the children of the decedent at the time of death; spouse of the decedent can not be made the sole beneficiary of the Estate. As a result spouse cannot sell the property at his or her own will and must obtain consent from the children prior to selling. This causes many issues for the U.S. decedents and their beneficiaries in terms of Estate tax.
Effective from August, 2015, the EU have decided to change these rules. The new EU rules envisage that the citizens of the U.S. can make a choice in their will that the U.S. law would apply to foreign property in an EU state. This would enable them to bequeath the whole property to their surviving spouse if they so wish, so it can only pass to the children on the second death. This should be a welcome news as until now the Estate plans had to have some complex provisions to counter the present EU law.
The new law becomes applicable for deaths occurring on or after August 17, 2015. Can you wait to die until then?
International legal and independent professionals consulting in India often have issues receiving funds from their clients in India. India has stringent exchange control regulations contained in the Act called Foreign Exchange Management Act – FEMA. Accordingly all foreign remittances must go through certain procedures. Additionally, Income Tax Department asks for “Tax Residency Certificate” (TRC) from the US service provider so that the treaty benefits can be allowed. If TRC is not produced, the payer must withhold tax from the income remitted to US service provider. This is true regardless of where the services were provided.
Until recently, it was mandatory that TRC issued by foreign tax authority must contain all items required by the government of India in order to exempt any tax withholding requirements. As many of us are aware, Internal Revenue Service issues the US tax residency certificate in Form 6166 which cannot contain additional information as required by government of India. Due to this, in many cases, the Indian income tax department rejected the TRC issued by IRS and that resulted in withholding tax in India.
However, after a few representations, the government of India and the tax department agreed to accept the US residency certificate in its present Form 6166.
Accordingly the following documents are required to successfully receive payments form Indian companies without any withholding:
- Form 10F
- Permanent Account Number (PAN or tax ID number)for India
- US Form 6166 for the relevant tax year
- Signed letter on US law firm’s letterhead stating that the law firm does not have a permanent establishment (PE) in India under the US – India tax treaty article.
Since the tax year in India runs from April 1 to March 31st, it is possible that some clients in India may request that the firm provide TRC issued by IRS in 2015 for payments processed in January through March 2015. Therefore US law firms may want to begin the process of collecting relevant data and partner signatures in advance, so as to file Form 8802 in a timely manner. This will expedite the process to receive TRC from IRS soon. Note that currently IRS charges a $85 user fee and processes the TRC within 45 days.
Please contact us to receive our assistance on both sides of the border.
Internal Revenue Service today issued Notice 2014-21 providing answers to 16 FAQ’s while dealing with Virtual Currency such as Bitcoins. These FAQ’s explains how the transactions using Bitcoins are treated for Federal tax purposes. In general, Bitcoins are treated as property for U.S. tax purposes and general tax rules for property transactions apply in these cases.
The Notice further states that:
Among other things, this means that:
- Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
- Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
- The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
- A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
In Osvaldo Rodriguez et ux V. Commissioner, the fifth circuit recently upheld the decision in a transaction involving inclusion of IRC 956 income with respect to the taxpayers’ Controlled Foreign Corporation (CFC) in Mexico.
Osvaldo and Ana Rodriguez, husband and wife, were citizens of Mexico and permanent residents of the U.S. They were the sole shareholders of Editora Paso del Norte, S.A. de C.V. (Editora). Editora had been incorporated in 1976 under Mexican law, and in 2001 it had established operations in the U.S. as a branch under the name Editora Paso del Norte, S.A. de C.V., Inc.—a controlled foreign corporation (CFC). On their amended 2003 and original 2004 U.S. federal income tax returns, the taxpayers included in gross income $1,585,527 and $1,478,202, respectively, for amounts of Editora’s earnings invested in U.S. property and taxable directly under IRC 951(a)(1)(B) and IRC 956.
Taxpayers treated the IRC 951 inclusions as qualified dividend income subject to preferential qualified dividend rates. IRS determined that the Code Sec. 951 inclusions were taxable at ordinary income rates.
The fifth circuit upheld the decision and ruled that the amounts included in the Rodriguez’s gross income under IRC 951(a)(1)(B) and IRC 956 with respect to their CFC’s investments in U.S. property were not qualified dividend income under IRC 1(h)(11).
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.
IRS recently released the draft Form 8621 to reflect changes made by FATCA effective March 18, 2010.
The new Part I of the Form suggests that the IRS generally intends to require annual filing of Form 8621—
- Without regard to whether an election under the PFIC rules is being made in that year, or whether the PFIC rules would alter otherwise generally applicable U.S. income tax rules for the year under section 1291, and
- Without regard to whether an income inclusion would be required under section 1293 or section 1296 for that tax year.
The information in this new Part I would require the taxpayers to provide IRS with information also generally required on new Form 8938 (Statement of Specified Foreign Investment Assets), and would enable the IRS to waive reporting on Form 8938 of foreign assets reported on Form 8621 without sacrificing the ability of the IRS to obtain desired information.
The IRS did not release draft instructions. Guidance is still awaited on issues such as whether it will retain current exceptions from filing of Form 8621 by tax-exempt U.S. entities that would not be subject to U.S. taxation under subchapter F on actual dividends from a PFIC.
To remind our readers, generally any investment by a US person in a foreign mutual fund is considered a PFIC and subject to be reported on Form 8621.
IRS yesterday released a draft version of Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, to accommodate the FATCA provisions of the Code’s Chapter 4. Instructions to the draft, which would expand the form from two to eight pages, haven’t been released yet.
Generally effective for payments made after Dec. 31, 2012, the HIRE Act established rules for withholdable payments to foreign financial institutions (FFIs) and for withholdable payments to other foreign entities by adding new Chapter 4 to the Code (Code Sec. 1471 through Code Sec. 1474). The rules provide for withholding taxes to enforce new reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S.-owned foreign entities.
Under Code Sec. 1471(a), a withholding agent must withhold 30% of any withholdable payment to an FFI that does not meet the requirements of Code Sec. 1471(b). A withholdable payment is, subject to certain exceptions:
- Any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income (FDAP income), if such payment is from sources within the US; and
- Any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the US (Code Sec. 1473(1))
An FFI satisfies Code Sec. 1471(b), if it either enters into an agreement (an FFI agreement) with IRS to perform certain obligations or meets requirements prescribed by IRS to be deemed to comply with Code Sec. 1471(b).