What Are Three Essential Tax Laws Foreign Owners of U.S. Real Estate Need to Know?

What Are Three Essential Tax Laws Foreign Owners of U.S. Real Estate Need to Know?

by | Jul 15, 2022 | Real Estate, 2022, Taxes

What Are Three Essential Tax Laws Foreign Owners of U.S. Real Estate Need to Know?

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

What Do Foreign Owners of U.S. Real Estate Need to Know?

 

Real estate is a popular investment choice for non-U.S. investors, but foreign investors need to take careful considerations when looking to invest. These considerations include income, business structure and the property value, to name a few. With no one-size-fits-all, investors need proper planning and advice to avoid possible tax and penalty complications. 

 What is the U.S. Estate Tax Exemption?

While U.S. citizens and persons who are deemed to be domiciled can enjoy an estate tax exemption in 2022 of $12,060,000, that figure does not apply to nonresident aliens. The exemption amount for a nonresident alien decedent is actually only $60,000, and any amount that exceeds that figure is subject to estate tax that ranges anywhere from 26% – 40% . The estate tax exemption applies to all assets, not just real estate. Real estate property falls under the blanket estate tax exemption if the property is an asset in a decedent’s estate.

 What Taxes are Nonresident Aliens Responsible For?

If a business entity or revocable trust holds U.S. properties they may be required to file annual federal and possibly state tax returns. 

  • Lessors of U.S. property or recipients of rental income of that property must file a Form 1040-NR U.S. Nonresident Income Tax Return for the income.
  • State and city taxes may also be levied.
  • Reports may also need to be filed with the Financial Crimes Enforcement NEtwork (FinCEN) or the IRS, including the FBAR and Form 5472.

Failure to file may result in fines, and if not resolved, the property can be seized or sold at auction, and nonresident aliens with a federal tax lien can have their information shared with the Department of Homeland Security. 

Can Visits to the U.S. Impact Taxes?

Visits exceeding 183 days in a given year or over a three-year period (see below example) can impact residency status for tax purposes, which would subject an individual to tax on worldwide income and foreign financial assets and accounts as well as additional filings for any interest in a foreign business and bank accounts. The United States calculates this by using the substantial presence test.

 For example:

Year

# of Days in US

Calculation

Current

85

85 x 1 = 85 days

Prior

100

100 x ⅓ = 33 days

Two Years Prior

120

120 x ⅙ = 20

Total Days in the US 

138

 

The above individual would not qualify as a resident under the substantial presence test.

 To avoid the substantial presence test, individuals should limit visits to less than 120 days of presence each calendar year. There are also other ways to avoid being considered a U.S. resident for tax purposes, including job roles (certain visas), professional athletes temporarily competing in a charitable event, or if time was spent stateside due to a medical condition occurring while visiting the U.S. Additionally there are exemptions for closer connections. Individuals that do meet the exemption should file IRS Form 8843.

 As foreign individuals look to invest, it is helpful to know the intricacies of the U.S. and foreign tax system. Foreign investors holding real estate properties or other assets in the U.S. are encouraged to seek the advice of a tax consulting and accounting firm that specializes in the intricacies of U.S. tax reporting as it applies to international investors and trust holders.

 

TIGTA Highlights the IRS’ FATCA Enforcement Woes

TIGTA Highlights the IRS’ FATCA Enforcement Woes

by | Jul 13, 2022 | Compliance, 2022, International, Taxes, U.S.

TIGTA Highlights the IRS’ FATCA Enforcement Woes

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

TIGTA Highlights the IRS’ FATCA Enforcement Woes

 

 In the first 12 years of the U.S. Foreign Account Tax Compliance Act, the IRS has spent nearly $600 million on enforcement but has only managed to collect $14 million in penalties in return. This poor performance indicates that the agency strongly needs to revise its enforcement strategy according to a recent audit report by the Treasury Inspector General for Tax Administration.

Initially, the IRS had big compliance plans for FATCA and published a sprawling compliance roadmap addressing several aspects of FATCA. But years of budget constraints and other personnel resource issues led the IRS to shrink those plans to two compliance campaigns, which are handled by the IRS’ Large Business & International division.

The first campaign, Campaign 896, focuses on offshore private banking and U.S. taxpayers who have either underreported or failed to report their foreign assets on Form 8938. According to the IRS, over 330,000 taxpayers with foreign accounts exceeding $50,000 failed to file the form between 2016 and 2019. This means the government could collect at least $3.3 billion in penalties from the group, if each taxpayer pays the minimum FATCA penalty, which is $10,000.

The second campaign, Campaign 975, focuses on the accuracy of taxpayers’ FATCA filings, but the IRS has only been able to review one tax year — 2016 — leaving the agency far behind its goals.

All of this means that the IRS has a lot of work to do in monitoring FATCA and ensuring taxpayers are complying with the law. In an audit report published April 7, the Treasury Inspector General for Tax Administration described some of the IRS’ progress and setbacks with FATCA compliance. TIGTA conducted the audit to evaluate how the IRS has been using the information it gathers under FATCA to improve taxpayer compliance.

The most important takeaway is that the IRS is planning to increase its audits and reviews of U.S. foreign account holders, meaning that taxpayers with such accounts should prepare for increased scrutiny. If they have any unreported accounts, they should also evaluate voluntary disclosure and other options to potentially minimize any penalties from the government.

THE ABCs of FATCA

The U.S. government created FATCA to ensure transparency of U.S. taxpayers’ offshore financial accounts and combat tax evasion. Under the law, taxpayers with a certain threshold of foreign financial assets. must file Form 8938, Statement of Specified Foreign Financial Assets. The thresholds, which start at $50,000 and top out at $600,000, depend on the taxpayer’s marital status and whether they live in the U.S. or abroad. Foreign financial institutions also have reporting obligations. Those with U.S. taxpayer assets are required to share information about those clients’ financial accounts with the IRS. Institutions that fail to do soare subject to a 30 percent withholding rate on their U.S. source payments.

Updating Procedures and Tightening the Reins

The IRS has spent a lot of money on FATCA compliance — over $573 million dollars — yet it has only collected a small fraction of that amount — $14 million — in FATCA penalties. In light of this lackluster performance, TIGTA made six recommendations to the IRS, some of which the IRS said it has already implemented, and others it is currently working on.

The first TIGTA recommendation is that the LB&I (Large Business and International) Division needs to tighten its surveillance of taxpayers who underreport their foreign assets and step up its compliance activity for that group, including levying penalty assessments and conducting examinations on taxpayers who consistently underreport. The IRS said it has already implemented that recommendation. For a list of currently published LB&I campaigns click here.

The second recommendation is that the IRS should establish procedures for identifying taxpayers who fail to file Form 8938 and particularly focus on examinations or penalty assessments for that group. The IRS said it already has a filter that identifies potential non-filers. Importantly for taxpayers, the IRS revealed that it is currently conducting civil and criminal examinations on non-filing taxpayers and is considering penalties in examinations, when they are appropriate.

The third recommendation is that the LB&I Division needs to ensure that foreign financial institutions are also complying with FATCA, and should think about expanding the scope of Campaign 975 to address taxpayers and foreign financial institutions alike. The IRS said it agreed and that Campaign 975 is doing just that. According to the IRS, the agency has already reviewed about 4,000 foreign financial institutions and flagged potential noncompliance by 34 institutions. Although this is a good development, the seemingly small level of noncompliance suggests that the IRS should not devote extensive resources to this, and might be better served by focusing more heavily on individual taxpayers.

But TIGTA and the IRS disagreed over the auditor’s fourth suggestion. The IRS requires foreign financial institutions to include taxpayers’ taxpayer identification numbers on their FATCA report (Form 8966), but between 2017 and 2019 the IRS exempted some institutions, allowing more time to comply with the requirement. TIGTA believes the IRS should now issue a notice to foreign countries that their financial institutions must collect and provide the taxpayer identification numbers of U.S. individuals owning a foreign bank account.

The IRS believes this is not necessary because it issued a notice about this in 2017 (Article 2, Model 1A Reciprocal IGA; Notice 2017-46). TIGTA pushed back on this and wrote that the IRS should not assume that foreign financial institutions are aware of the 2017 notice and know what to do. They pointed out that less than half of the Form 8966s filed between tax years 2016 and 2019 had a valid TIN. The majority had an invalid TIN or completely lacked one. If the IRS does implement TIGTA’s recommendation, this could bring greater transparency to the agency’s investigations and compliance campaigns.

The fifth recommendation is that the IRS should establish goals, milestones, and timelines for FATCA campaigns in order to determine whether the campaigns are effective in meeting their objectives and affecting tax compliance. The IRS agreed with this and pledged to refine their metrics with respect to goals, milestones, and timelines.

Lastly, TIGTA recommended that the IRS should create an information sharing program that would allow the agency’s Small Business/Self-Employed division to access FATCA data and use it for examinations and collection actions. The IRS said it has implemented that recommendation.

A Tighter Leash for FATCA Compliance

The fact that the IRS already has implemented some of TIGTA’s recommendations demonstrates the agency’s seriousness about FATCA and ensuring that taxpayers and foreign financial institutions comply with the law. TIGTA’s report shows that the IRS’ FATCA issues are two-fold: first, the agency needs additional resources to oversee FATCA, but it also needs to better allocate the resources it does have. Considering that the Biden administration recently increased the IRS’ budget, a tighter leash for FATCA laggards and new FATCA-related compliance campaigns could be right around the corner.

 

Democratic bill would mandate new IRS free tax-filing program

Democratic bill would mandate new IRS free tax-filing program

by | Jul 13, 2022 | 2022

Us settlors trust

Sen. Elizabeth Warren is leading fellow Democrats in renewing a push for the IRS to create its own free tax-filing services and move away from its current private partnership, whose services only a slim portion of taxpayers use.

Warren, D-Mass., put forward a bill that would mandate the IRS create its own free, online program for preparing and filing tax returns and expand taxpayers’ access to their own tax-related data held by the agency. California Democrats Brad Sherman and Katie Porter led introduction of a House version of the measure.

The legislation would direct the IRS to create software that would allow any taxpayer to prepare and file their individual income tax return beginning in tax year 2023. The agency would also have to allow taxpayers with fairly straightforward returns — those who don’t take any above-the-line deductions, itemize their deductions or receive income as a sole proprietor of business, for instance — to elect that Treasury prepares their tax return beginning in the 2023 tax year.

The IRS would have to create a program for taxpayers to securely download third-party-provided return information and IRS-held data related to their individual tax bills.

The bill would require a program by March 1, 2023, allowing taxpayers who don’t have to file tax returns to claim refundable tax credits. The provision aims to expand a sign-up tool for the child tax credit to nonfilers who can access other tax benefits like the earned income tax credit, which is open to low-income workers.

The measure would also bar the Treasury secretary from entering into any new agreements that would restrict the federal government’s right to provide services or software for preparing and filing taxes.

A fact sheet from the bill’s sponsors points to problems with the IRS Free File program, which currently aims to offer free tax preparation to 70 percent of taxpayers by partnering with private tax preparing firms. The lawmakers argued that program is underused, often confuses taxpayers into paying for services and fails to adequately protect taxpayer data. In the last two years, major online tax platforms H&R Block and Intuit’s TurboTax withdrew from the program.

Only 2.8 percent of all individual tax returns filed in fiscal 2021 were submitted through the Free File program, according to IRS data.

The bill picked up co-sponsors since its last introduction in 2019 and now has 22 Democratic senators signed on.

Warren has sought to tie the issue to Democrats’ push for a budget reconciliation bill. Senate Majority Leader Charles E. Schumer, D-N.Y., and Sen. Joe Manchin III, D-W.Va., are in talks in the hopes of agreeing to a package broadly including pieces to lower prescription drug costs, incentivize clean energy production and increase taxes on the wealthy and corporations.

The latest Senate version of the legislation included about $80 billion over a decade for the IRS largely intended to boost its ability to go after uncollected taxes and raise federal revenue in the process. It also included $15 million for the IRS to study the feasibility of creating a free, direct online tax return system.

When Treasury Secretary Janet L. Yellen appeared before the Finance Committee in June, Warren pressed her for a commitment the IRS will go farther and build its own free filing system if Congress delivers the $80 billion cash infusion.

Yellen pointed to more pressing priorities like working through a massive backlog of tax returns, but agreed the IRS would take up the issue when it’s “adequately resourced.”

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This news is brought to you by IWTA. Founded in 2015 and located on Avenue of the Americas, in the heart of New York City, International Wealth Tax Advisors provides highly personalized, secure and private global tax, GILTI, FATCA, Foreign Trusts consulting and accounting to many IWTAS.COM clients worldwide, including: Singapore, China, Mexico, Ecuador, Peru, Brazil, Argentina, Saudi Arabia, Pakistan, Afghanistan, South Africa, United Kingdom, France, Spain, Switzerland, Australia and New Zealand.

Premier League Shakes Up as Over 300 Footballers Probed for Tax Avoidance

Premier League Shakes Up as Over 300 Footballers Probed for Tax Avoidance

by | Jul 11, 2022 | 2022

Global tax and accounting

global tax and accounting

My Football Facts ⇒ Articles

By Martin Graham | 11th Jul 2022

According to recent reports, the HMRC are warming up to cracking down on over 300 Premier League stars, 31 clubs, and 91 agents for tax avoidance.

The HMRC are said to be motivated to take action in recent times based on the tactics clubs are deploying in recent times to evade tax.

As it is seen to be customary, endorsement royalties linked to image rights are expected to be paid to the firm the player is set up with, where the firm will end up being taxed.

 However, it has become public knowledge that Premier League clubs especially are now paying all directly to the player to avoid taxation.

The Sun further reports that there seem to be some inconsistencies related to the commission clubs are paying to agents, which are mandatory to be taxed.

Newcastle are reported to be at the forefront of this issue as they are currently arm-wrestling themselves out of the £5 million tax demand relating to transfers.

A partner at the accountancy group UHY Hacker Young, Elliot Boss told The Sun, “The Football Compliance Project linking up with HMRC’s elite fraud unit means the tax authority is very concerned about the significant amounts of unpaid tax in the sport, “

“HMRC sees football as an industry where millions of pounds in tax can very easily go unpaid. It is determined not to let that happen.”

HMRC Taxation Avoidance Reports Last Year

As of last year, it was reported that about 93 players, nine clubs and 23 were in the thick of things as regards being investigated for tax avoidance – Which gives perspective on how worrisome this year’s figure is.

In an exclusive with the Sun last year, Buss pointed out that:

“HMRC sees the football industry as an area where there is a great deal of unpaid tax owed by high earners. HMRC has identified £55.6m in unpaid tax from the football industry.

“Targeting agents’ fees is a signal they think this is an area where too much tax is underpaid… it is understandable the likes of Marcus Rashford or Harry Kane would utilize a company to sell their ‘image’. But players with near to no brand recognition use image rights to avoid paying tax.”

Martin Graham is an MFF sports writer

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This news is brought to you by IWTA. Founded in 2015 and located on Avenue of the Americas, in the heart of New York City, International Wealth Tax Advisors provides highly personalized, secure and private global tax, GILTI, FATCA, Foreign Trusts consulting and accounting to many IWTAS.COM clients worldwide, including: Singapore, China, Mexico, Ecuador, Peru, Brazil, Argentina, Saudi Arabia, Pakistan, Afghanistan, South Africa, United Kingdom, France, Spain, Switzerland, Australia and New Zealand.

The Cost of Non-Compliance With IRS Form 926

The Cost of Non-Compliance With IRS Form 926

by | Jul 8, 2022 | Compliance, 2022, International, Taxes, U.S.

The Cost of Non-Compliance With IRS Form 926

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

The Cost of Non-Compliance With IRS Form 926

 

The 16th amendment of the U.S. Constitution empowers Congress to collect taxes from U.S. persons from whatever source, with no limitations on the collections of taxes or worldwide income. All United States tax laws and regulations apply to every U.S. Person whether he/she is working in the United States or in a foreign country and entities formed under U.S. law. The IRS takes this opportunity increasingly seriously, and taxpayers need to do the same.

IRS Form 926 is the form U.S. citizens and entities including estates and trusts must file to report certain exchanges or transfers of property to a foreign corporation. This would include transfers of cash over $100,000 to a foreign corporation, or situations in which the transfer of cash resulted in owning more than 10% of the foreign corporation’s stock.  This reporting requirement applies to outbound transfers of both tangible and intangible property. 

The primary purpose of Form 926 is to ensure that taxable gain is recognized and tax is paid. The reason for the complexity is the attempt of U.S. tax law to formalize distinction between legitimate business operations outside the U.S. and transactions considered to avoid tax.  

It is also designed to equalize the taxation between transactions within the U.S. and outside the U.S.  In that way there are no significant advantages to transactions and operations outside the U.S..

Form 926 must be complete, accurate, and filed with the taxpayer’s income tax return by the due date of the return (including extensions). 

Penalties are Severe and Limitless

In an attempt to prevent taxpayers from hiding assets offshore or earning unreported income overseas, the IRS has recently begun increasingly aggressive enforcement of cross-border corporate reorganizations, divisions, and liquidations.

 The rules surrounding Form 926 are extremely complex, therefore, correct filing of the form requires a high level of scrutiny. There are literally dozens of stipulations and technical details that must be followed. 

The failure to file, fully meet the filing requirements, or misrepresentation of assets can result in the levying of substantial penalties. For example, the statute of limitations doesn’t end until three years after the date Form 926 is filed.  However, if the form was never filed to begin with, the statute of limitations clock hasn’t started yet. This means the IRS could assess a penalty at any time, even 20 years after the missed mandatory deadline. 

Returns that are filed but that are not substantially complete and accurate are considered “un-filed” and may result in penalty assessments. Criminal penalties may apply to U.S. and foreign taxpayers who willfully fail to file a return (IRC 7203) or file a false or fraudulent return (IRC 7206 and IRC 7207).

Certain international information returns are also considered un-filed if the taxpayer does not provide required information when requested by the IRS, and penalties may be assessed even if the required return has been submitted.

 If a taxpayer under-reports on Form 926 and that leads to a tax underpayment, they can  receive a 40% penalty. Sometimes a tax penalty may be avoided if the filer can show that the misrepresentation was due to reasonable cause and they acted in good faith – but don’t count on it. 

IRS: Ignorance of the Requirements is No Excuse

The IRS maintains that taxpayers who conduct business or transactions offshore or in foreign countries have a responsibility to exercise ordinary business care and prudence in determining their filing obligations and other requirements. The IRS’s position is that lack of information or misinformation is not grounds for dismissal of taxes and penalties; therefore, it’s incumbent on the individual taxpayer or entity to learn and comply with the rules related to Form 926. Engaging the services of a qualified tax consultant-CPA and law firm specializing in international tax and business transactions will ensure compliance is met.

For more information on U.S. tax rules as they apply to U.S. taxpayers that are foreign investors or hold foreign assets, refer to the following articles on the International Wealth Tax Advisors website:

Foreign Asset and FBAR Reporting

 

Foreign Trusts, Estates and Gift Tax

 

Foreign Assets and Foreign Trusts

 

IWTA Answers to Foreign Trust FAQs

 

IRS Voluntary Disclosure

 

GILTI Tax and Controlled Foreign Corporations

 

FATCA Filing: What U.S. Citizens Need to Know

Crypto trading volume drops in India as additional taxes hit investors

Crypto trading volume drops in India as additional taxes hit investors

by | Jul 5, 2022 | 2022

Us gaap revenue recognition

GettyImages 1210131347

India’s government on July 1 implemented a 1% tax deducted at the source (TDS) on every cryptocurrency trade over 10,000 Indian rupees, or about $127. The law has only been in place a few days, but there’s already been a chilling effect on Indian digital asset marketplaces.

The levy is an addition to the 30% tax on all crypto-based incomes that began on April 1, which is double India’s 15% capital gains tax on short-term gains for traditional equities and shares.

The increasing taxation could serve as a further roadblock for citizens looking to trade crypto as the potential for financial gains dwindles.

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This news is brought to you by IWTA. Founded in 2015 and located on Avenue of the Americas, in the heart of New York City, International Wealth Tax Advisors provides highly personalized, secure and private global tax, GILTI, FATCA, Foreign Trusts consulting and accounting to many IWTAS.COM clients worldwide, including: Singapore, China, Mexico, Ecuador, Peru, Brazil, Argentina, Saudi Arabia, Pakistan, Afghanistan, South Africa, United Kingdom, France, Spain, Switzerland, Australia and New Zealand.

Conservatives, NDP call on CRA Commissioner to explain allegations of wrongdoing at global tax division

Conservatives, NDP call on CRA Commissioner to explain allegations of wrongdoing at global tax division

by | Jul 3, 2022 | 2022

Us totalization agreements

The Conservative Party and the NDP are calling on Canada Revenue Agency Commissioner Bob Hamilton to testify before a Parliamentary committee after a massive disclosure of sensitive internal documents revealed numerous allegations of wrongdoing at a CRA division responsible for ensuring multinational companies pay appropriate levels of Canadian tax.

The government documents, which were submitted in a federal court case late last year, reveal the names of several whistleblowers who have made a wide range of allegations from within the agency, as well as the names of senior CRA officials who were subject to internal complaints. The documents also include a 2021 report by an outside team of psychological consultants that found half of the staff in the division said they had been victims of bullying, harassment or intimidation.

The documents suggest that at least some of the tension in the division was owing to a disagreement over the agency’s handling of a specific multimillion-dollar tax agreement reached with a multinational company. The identity of the company in question is repeatedly redacted in the documents.

Some division staff disagreed with the tax agreement because they saw it as a “sweetheart” deal for the company and opposed the way it was approved, the records show. Staff who felt the division was under inappropriate pressure to approve the agreement filed internal complaints.

The documents relate to turmoil inside the CRA’s Competent Authority Services Division, which is part of the agency’s international and large business directorate. The CASD works with international companies that operate in Canada to determine their Canadian tax obligations.

The now-former head of the division, Donna O’Connor, breached hiring rules and failed to set an appropriate leadership tone, according to the findings in a December, 2019, report produced by the CRA’s internal affairs and fraud control division and filed as part of the court case. The CRA report says Ms. O’Connor told a CRA investigator that her “division was corrupt,” but did not elaborate. Ms. O’Connor also said she was trying to clean up bad practices, according to the report.

Staff in Canada Revenue Agency unit complain of bullying and harassment, report finds

During a Monday meeting of the House of Commons Finance committee, Conservative MP Dan Albas provided notice of a motion calling on Mr. Hamilton to appear and explain the issues raised in the documents. The committee could vote on the matter as soon as Tuesday.

Mr. Albas told The Globe and Mail after the meeting that the Liberal government frequently boasts it is working hard on the world stage to ensure large companies pay their fair share of tax. But he noted the documents suggest some within the CRA disagree with how such files are handled.

“That’s one of the reasons why I’d like to have the commissioner come before committee, so that he can lay out his case as to what is occurring at CRA under his watch,” Mr. Albas said.

NDP finance critic Daniel Blaikie said he will support the Conservative motion calling for Mr. Hamilton to appear. He noted the CRA has long been accused by critics of doing a poor job of enforcing tax rules for wealthy people and large corporations.

“And so when you couple that with these stories about a broken culture that even people within the CRA are calling corrupt, it is very concerning,” he said.

Liberal and Bloc Québécois MPs did not say Monday whether they would vote for the motion, which would require the support of a majority of MPs on the committee for it to go ahead.

CRA spokesperson Etienne Biram said in a statement Monday that the allegations related to the specific tax deal were reviewed by the CRA’s internal fraud division and a third party expert in tax law.

“While complaints in the Federal Court documents claim a ‘sweetheart deal’ was struck in 2019, the investigation determined that the terms of the [agreement] were in fact favourable to the CRA and did not provide any form of preferential treatment,” Mr. Biram said in an e-mail. He also said allegations that the deal was granted with no analysis and that employees were forced from their positions were all deemed to be unfounded.

Mr. Biram said the CRA takes allegations of misconduct seriously, but he added that it is difficult for the agency to respond to allegations that are before the Federal Court. He also noted that the Federal Court case is about two other allegations that are not related to the tax deal.

The Federal Court case began in September, 2021, when two CRA employees asked the court to review a decision by Public Sector Integrity Commissioner Joe Friday to stop investigating their allegations of wrongdoing at the CRA. The commissioner explained in letters to the employees that he felt his office did not need to investigate because the agency was already dealing with the matter.

Documents related to the commissioner’s investigation, which began in 2020, were submitted to the court, making them publicly available.

The commissioner’s office told The Globe last week that it was approached on April 12 by the Attorney-General, on behalf of the CRA, and made aware that some of the documents contain sensitive information. On April 19, the commissioner’s office wrote to the Federal Court, saying it intended to replace its court filings with new versions of the documents that will redact “irrelevant” third-party information, including the names of people who made allegations and the names of those against whom the allegations were made.

The Conservative Party asked Privacy Commissioner Daniel Therrien to launch an investigation into the release of “sensitive whistle-blower information” after the website Blacklock’s Reporter wrote about the case last month.

The court documents show the Integrity Commissioner’s office investigated a wide range of allegations put forward by the two CRA employees and determined that some warranted further review and others did not.

In a July 21, 2020 letter from Mr. Friday to one of the employees, the commissioner said he would be investigating some but not all of the allegations. Mr. Friday agreed to investigate concerns over travel expenses in the division and the possibility that it had a “toxic” work environment.

But Mr. Friday’s letter said he would not be investigating an allegation related to the specific tax deal, in part because his office is not authorized to review information that is subject to solicitor-client privilege.

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This news is brought to you by IWTA. Founded in 2015 and located on Avenue of the Americas, in the heart of New York City, International Wealth Tax Advisors provides highly personalized, secure and private global tax, GILTI, FATCA, Foreign Trusts consulting and accounting to many IWTAS.COM clients worldwide, including: Singapore, China, Mexico, Ecuador, Peru, Brazil, Argentina, Saudi Arabia, Pakistan, Afghanistan, South Africa, United Kingdom, France, Spain, Switzerland, Australia and New Zealand.

Yellen Looks to Get Global Tax Deal Back on Track…

by | Jul 2, 2022 | 2022

Foreign asset reporting

WARSAW — Treasury Secretary Janet L. Yellen arrived in Europe this week to join U.S. allies in confronting multiple threats to the world economy: Russia’s war in Ukraine, soaring inflation and food shortages.

But one of Ms. Yellen’s first orders of business during a stop in Poland will be trying to get the global tax deal that she brokered last year back on track after months of fledgling deliberations about how to enact it. The two-pronged pact among more than 130 countries that was reached last October aimed to eliminate corporate tax havens by enacting a 15 percent global minimum tax. It would also shift taxing rights among countries so that corporations pay taxes based on where their goods and services are sold rather than where their headquarters are.

Turning the agreement into a reality is proving to be a steep challenge.

The European Union has already delayed its timeline for putting the tax changes in place by a year and progress has been halted over objections by Poland, which last month vetoed a plan to enact the new tax rate by the end of next year. Despite initially signing on to the deal, Poland has voiced reservations, including whether the minimum tax will actually prevent big tech companies from seeking out lower-tax jurisdictions. Polish officials have also expressed concern that the two parts of the tax agreement are moving ahead at different paces, as well as trepidation about the impact that raising its tax rate will have on its economy at a time when the country is absorbing waves of Ukrainian refugees.

In meetings in Warsaw on Monday, Ms. Yellen pressed top Polish officials to let the process move ahead, making clear that the tax deal continues to be a priority of the United States. She is meeting with Poland’s prime minister, Mateusz Morawiecki, and the finance minister, Magdalena Rzeczkowska.

According to the Treasury Department, Ms Yellen told Mr. Morawiecki that international tax reform and the global minimum tax would raise crucial revenues to benefit the citizens of both Poland and the United States.

The meetings come at the beginning of a weeklong trip that also includes stops in Brussels and Bonn, Germany, which is hosting the Group of 7 finance ministers’ summit. Ms. Yellen will be focusing on coordinating sanctions against Russia with European allies and addressing growing concerns about how disruptions to energy and food supplies could affect the global economy.

The tax agreement has been one of Ms. Yellen’s top priories as Treasury secretary. Gaining Poland’s support is critical because the European Union requires consensus among its member states to enact the tax changes.

“I think the reality of turning a political commitment into binding domestic legislation is a lot more complex,” said Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “The E.U. has moved and gotten over most of the objections, but they still have Poland and it’s not clear whether they’re going to be able to get the last vote.”

With President Emmanuel Macron of France heading the European Union’s rotating presidency until June, his administration was eager to get a deal implemented. But at a meeting of European finance ministers in early April, Poland became the sole holdout, saying there were no ironclad guarantees that big multinational companies wouldn’t still be able to take advantage of low-tax jurisdictions if the two parts of the agreement did not move ahead in tandem, undercutting the global effort to avoid a race to the bottom when it comes to corporate taxation.

Poland’s stance was sharply criticized by European officials, particularly France, whose finance minister, Bruno Le Maire, suggested that Warsaw was instead holding up a final accord in retaliation for a Europe-wide political dispute. Poland has threatened to veto measures requiring unanimous E.U. votes because of an earlier decision by Brussels to block pandemic recovery funds for Poland.

The European Union had refused to disburse billions in aid to Poland since late last year, citing separate concerns over Warsaw’s interference with the independence of its judicial system. Last week, on the eve of Ms. Yellen’s visit to Poland, the European Commission came up with an 11th-hour deal unlocking 36 billion euros in pandemic recovery funds for Poland, which pledged to meet certain milestones such as judiciary and economic reforms, in return for the money.

Negotiators from around the world have been working for months to resolve technical details of the agreement, such as what kinds of income would be subject to the new taxes and how the deal would be enforced. Failure to finalize the agreement would likely mean the further proliferation of the digital services taxes that European countries have imposed on American technology giants, much to the dismay of those firms and the Biden administration, which has threatened to impose tariffs on nations that adopt their own levies.

“It’s fluid, it’s moving, it’s a moving target,” Pascal Saint-Amans, the director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, said of the negotiations at the D.C. Bar’s annual tax conference this month. “There is an extremely ambitious timeline.”

Countries like Ireland, with a historically low corporate tax rate, have been wary of increasing their rates if others do not follow suit, so it has been important to ensure that there is a common understanding of the new tax rules to avoid opening the door to new loopholes.

“The idea of having multiple countries put the same rules in place is a new concept in tax,” said Barbara Angus, the global tax policy leader at Ernst & Young and a former chief tax counsel on the House Ways and Means Committee. She added that it was important to have a multilateral forum so countries could agree on how to interpret and apply the levies.

Yet, while Ms. Yellen is pushing foreign nations to adopt the tax agreement, it remains unclear whether the United States will be able to pass its own legislation to come into compliance.

An earlier effort by House Democrats to adopt a tax plan that would satisfy terms of the agreement fell apart in the Senate, where Democrats continue to disagree over the scope and cost of a tax and spending bill that President Biden has proposed.

Republicans in Congress have made clear that they are unlikely to support any agreement that the Biden administration has brokered and called on the Treasury Department to consult with them before trying to move ahead.

“As it is, there’s very little chance of a global minimum tax agreement — there is already resistance to approval at the E.U., which should be the easiest part of these discussions, and it will only get harder going forward,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “Meanwhile, here in the U.S., there’s little political support for an agreement that makes the U.S. less competitive and takes a big bite out of our tax base.”

Ms. Yellen is expected to convey to her counterparts this week that the agreement is still a priority for the Biden administration and that she hopes that the United States can make the tax changes needed to comply with the agreement in a small spending package later this year, according to a person familiar with the negotiations.

The post Yellen Looks to Get Global Tax Deal Back on Track During Europe Trip appeared first on New York Times.

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This news is brought to you by IWTA. Founded in 2015 and located on Avenue of the Americas, in the heart of New York City, International Wealth Tax Advisors provides highly personalized, secure and private global tax, GILTI, FATCA, Foreign Trusts consulting and accounting to many IWTAS.COM clients worldwide, including: Singapore, China, Mexico, Ecuador, Peru, Brazil, Argentina, Saudi Arabia, Pakistan, Afghanistan, South Africa, United Kingdom, France, Spain, Switzerland, Australia and New Zealand.

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

by | May 18, 2022 | 2022, International, Taxes, U.S.

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Updated: May 18, 2022

We continue to monitor the U.S.-Russia tax treaty withdrawal along with economic and  trade sanctions. It’s a constantly developing situation that profoundly affects global business and cross-border tax collection. Following is an update to IWTA founder Jack Brister’s  article published in JD Supra on March 18, 2022.

New Developments

 The Biden administration is poised to fully block Russia’s ability to pay U.S. bondholders. A temporary exemption deadline that gave Moscow leeway to pay coupons in dollars expires on May 25, 2022. The move could bring Moscow closer to the brink of default, Treasury sources told Bloomberg.

Tax Treaty Revocation in Action

The U.S. government had already been putting pressure on Russia. On April 5th the Treasury Department told multiple news outlets that it had suspended its tax information exchanges with Russia. That decision essentially blocks Russian authorities from obtaining tax information from the U.S. that would help their domestic collections, which could be a strong economic blow to the country.

Frozen: How the Revocation of the U.S. – Russia Tax Treaty Puts Global Trade on Thin Ice

Originally published on March 18, 2022 on JDSupra.

Permanent Normal Trade Relations (PNTR), commonly known as a nation’s most favored (MFN) status has been used in trade treaties for years. Using the MFN clause requires that a country that provides a trade concession to one trading partner must extend the same treatment to all of its partners. Used by the World Trade Organization the loss of this status can expose a country to discriminatory import tariffs.

Through the MFN status, the 164 members in the World Trade Organization treat each other equally, benefitting from highest import quotas, lowest tariffs and fewest trade barriers for goods and services. Members are allowed to impose whatever trade measures they wish on non- members, within reason. In addition, Biden announced that the G7 was seeking to ban Russia’s borrowing from the IMF and the World Bank. By revoking Russia’s MFN status, the United States and its allies send a strong signal that they no longer consider Russia an economic partner.

But the losses will go farther than Russia. The resulting tariffs will also raise costs for Americans and trading partners that may rely on affected Russian products. The United States is somewhat reliant on commodities exported from Russia, including fertilizers and base metals and the specific import restrictions will determine the impact of the sanctions.

What Are the Tax Implications of a Revoked U.S. – Russia Tax Treaty?

In tax treaties, the MFN clause promotes non-discrimination and parity for treaty partner countries. The main purpose of a tax treaty is to ensure proper tax treatment of monies earned by citizens, expats and residents of each other’s country. At present, the tax treaty between the United States and Russia is still in place, however, the US Senate Foreign Relations Committee has proposed a review of the US-Russia tax treaty.

Without the treaty, Russian investors with U.S.-sourced dividends would not only face a 30% withholding tax rate, they would also lose preferential treatment. The impact could be as great for American businesses in Russia as it is for Russian businesses. However, the ability to have offshore holdings in haven jurisdictions as well as the option of using cryptocurrencies for transactions, revocation of the tax treaty may not be as effective as it looks on paper..

 

Proposed tax changes aimed at penalizing the Russian government and Russians subject to sanctions who own U.S. assets is also in play. The plan, by Senate Finance Committee Chairman Ron Wyden (D., Ore.), would look to remove foreign-tax credits and certain deductions for U.S. companies earning income in Russia and Belarus.

 

We advise clients with business and investment ties to Russia to keep in touch as we continue to monitor the breaking developments in this unprecedented time of turmoil.

 

 

International Tax in 2022: The Year of Disclosure and Investment

International Tax in 2022: The Year of Disclosure and Investment

by | Jan 19, 2022 | 2022, Covid-19, International, Taxes, U.S.

International Tax in 2022: The Year of Disclosure and Investment

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

International Tax in 2022:

The Year of Disclosure and Investment

For taxing authorities around the world, monitoring taxpayer disclosures and transparency will be a top line item in 2022, meaning taxpayers — especially high-net-worth individuals and corporate entities — should expect more scrutiny into their affairs. Governments are in a unique position as they navigate multiple demands and pressures. On one hand, the revenue demands of the COVID-19 economic recovery require creative strategizing, and lawmakers around the world are eyeing tax as a main driver. Increased public scrutiny on high-net-worth individuals due to data leaks like the Panama Papers and Pandora Papers is also placing more pressure on lawmakers to hold tax evaders to account. Throw in long simmering concerns about tax fraud, international money laundering and corruption, and it is apparent that taxing authorities will be focusing on how they can obtain more taxpayer information. At the same time, countries are also competing for foreign investment as part of their pandemic recovery strategy, and tax incentives for foreign investors will be a key area to watch in 2022.

New Rules: The U.S. Corporate Transparency Act

In the United States, Democratic and Republican lawmakers alike are concerned that the country’s millions of anonymous shell companies are enabling corruption, tax fraud, and money laundering. Those concerns drove Congress in January 2021 to enact a wide-sweeping beneficial ownership reporting law, the Corporate Transparency Act, which is one of the largest transparency-related laws in recent memory. The CTA was included in the National Defense Authorization Act for Fiscal Year 2021. In 2022, Treasury’s Financial Crimes Enforcement Network (FinCEN) will release three sets of implementing rules for the CTA that will impact millions of U.S. corporations, limited liability companies, and similar entities. Over the next few months, taxpayers will need to keep abreast of the rules as they are released by FinCEN and potentially participate in FinCEN’s regulatory notice and comment process as the office attempts to address several open issues within the law.

The CTA requires domestic and foreign “reporting companies” to send to FinCEN the names, addresses, dates of birth, and driver’s licenses or other identification numbers of their beneficial owners who have substantial control. But what is a reporting company? Or a beneficial owner? What does substantial control mean for purposes of the CTA? The first tranche of proposed FinCEN rules, which were published December 8, 2021, to provide some guidance.

The CTA applies to corporations, LLCs, and “other similar entities” and although the law doesn’t define “other similar entities” the December 8 proposed rules offer some insight.

A foreign reporting company is any entity formed under foreign law that is registered to do business within the United States. A domestic reporting company is any entity created by the filing of a document with a secretary of state or filed with a similar office within a U.S. jurisdiction, like a state.

In the proposed regulations, FinCEN wrote that the proposed definition of domestic reporting company “would likely include limited liability partnerships, limited liability companies, business trusts (aka statutory trusts or Massachusetts trusts) and most limited partnerships, in addition to corporations and limited liability companies,” because they typically are created by a filing with a secretary of state or similar office.

That definition will capture a lot of entities – there are about 30 million in the U.S. according to FinCEN’s estimation. Another 3 million are created annually. FinCEN said it does not plan to include any other legal forms other than corporations and LLCs within the definition, noting that U.S. state and tribal laws differ on whether other types of trusts and business forms like general partnerships are created by a filing.

There also are several exemptions, as the CTA exempts 23 different kinds of entities under 31 U.S.C. 5336(a)(11)(B)(i)-(xxiii). For example, FinCEN’s proposed regulations clarify that under the large company exemption, any domestic company or foreign entity that is registered to do business in the U.S. is exempt from the CTA’s reporting requirements if it meets the following hallmarks: (1) Over 20 full-time U.S.-based employees; (2) more than $5 million in gross receipts or sales from sources inside the U.S., as reflected on a U.S. federal income tax or information return; and (3) operates a physical office in the U.S.

The next question is, who is a beneficial owner with substantial control? The CTA defines a beneficial owner as “any individual who meets at least one of two criteria: (1) exercising substantial control over the reporting company; or (2) owning or controlling at least 25 percent of the ownership interest of the reporting company.” Under the CTA, substantial control is defined as: (1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company; and (3) direction, determination, or decision of, or substantial influence over, important matters of a reporting company.

Beyond that, the proposed regulations say that determining an ownership interest is a facts and circumstances inquiry that evaluates criteria such as: (1) equity in the reporting company and other types of interests, like capital or profit interests (including partnership interests), or convertible instruments; (2) warrants or rights; or (3) other options or privileges to acquire equity, capital, or other interests in a reporting company.

The stakes – and potential penalties – are high. Taxpayers that willfully fail to share beneficial ownership information with FinCEN face civil penalties of up to $500 per day. Criminal penalties can hit $10,000 per violation. Based on this, and the broad sweeping nature of the CTA, taxpayers who meet the criteria for domestic or foreign reporting companies or want to know if they are exempt, will want to explore their options with an experienced international tax professional.

High Net Worth Individuals: Wealth Tax VS Enforcement

Globally, wealth taxation has commanded quite a bit of attention as governments strategize ways to raise revenue in light of the COVID-19 pandemic. Some countries have been more active than others. For example, Singaporean lawmakers are considering a graduated net wealth tax between 0.5 and 2 percent imposed on individual net worth exceeding SGD 10 million (about $7.4 million). Norway’s Parliament at the end of 2021 passed a bill to increase the country’s wealth tax base rate from 0.85 percent to 0.95 percent. Taxpayers whose assets exceed NOK 20 million will be assessed at a 1.1 percent rate. 

Meanwhile, in the U.S. and much of Europe, wealth taxes have failed to gain much traction. What has proven popular is an increased focus on tax enforcement. President Joe Biden placed tax enforcement as a cornerstone of his Build Back Better economic strategy, and he wants to increase the IRS’ funding by $80 billion. For over a decade significant budget cuts have eroded IRS enforcement capabilities and cost the government billions of dollars in uncollected taxes. The IRS funding plan, which is part of Biden’s now- stalled Build Back Better social spending bill, would give the IRS $80 billion over 10 years to ramp up its enforcement and investigative work, particularly on audits of corporations and wealthy taxpayers. See our recent article on Build Back Better.

In the United Kingdom, HM Revenue & Customs has increased its investigations into criminal and tax offenders, and that work has recovered over £1 billion over the past five years. HMRC plans to continue that work in 2022, and specifically plans to rely more heavily on its powers to freeze and recover unexplained assets. Judging by the department’s prior activity, that could be quite a bit of activity: between 2020 and 2021, HMRC issued 151 account freezing orders, covering over £26 million in assets.

In 2021, Spain decided to investigate high net worth individuals who move their tax domicile abroad to determine whether or not they are doing so fraudulently, and that activity will continue in 2022. The same is true in China. In late 2021, China’s State Tax Administration announced that it would launch investigations into high net worth individuals suspected of engaging in tax evasion. Developments like these suggest that high net worth individuals should prepare for increased scrutiny into their tax affairs and engage the help of a professional to prepare for potential inquiries.

For how this ties-in to the new treatment of GILTI tax rules, see our related articles, The Biden Administration is Homing in on GILTI.

Global Tax Incentives for Investors

On the other hand, governments are keen to attract foreign investors with various tax credits and incentives, and individuals taking stock of these opportunities have a wide menu to peruse.

For example, Canada recently enacted an investment tax credit for capital invested in carbon capture, utilization, and storage projects, which can be claimed starting in 2022. Malaysia’s National Economic Recovery Plan contains a host of tax incentives for foreign businesses, including reduced corporate tax rates for companies that want to create a principal hub in Malaysia. China decided to offer an important tax exemption to foreign investors investing in China’s mainland bond market. Effective November 7, 2021 through December 31, 2025, foreign institutional investors are exempted from paying corporate income tax and value-added tax on bond interest gains generated by investments in the Chinese mainland bond market, according to the country’s Ministry of Finance and State Administration of Taxation. Poland’s Ministry of Finance is also assessing the country’s suite of tax incentives and whether they need an overhaul, in order to attract more investors to Poland. Accordingly, the Ministry has commissioned a study and results should be released in the next few months.

Prepare Now

In summary, foreign and domestic business entities, high net worth individuals and cross-border taxpayers will have to navigate an increasingly sophisticated terrain in the coming year and should be prepared to defend their current tax activity or take advantage of new taxing incentives as they appear. Legislative uncertainty only adds to the urgency. Given the breadth and depth of these new and anticipated changes, taxpayers are strongly advised to enlist the help of an experienced international tax practitioner to develop a game plan, mitigate loss, and stay ahead of global tax changes.