Yearly Archives: 2016

On July 25, 2016 we posted Tax Havens Coming Clean and Becoming Transparent, where we discussed that the Inland Revenue Authority of Singapore has issued an e-Tax Guide on the territory's general anti-avoidance rule in Section 33 of the Income Tax Act.

The guide, issued on July 11, 2016, explains the three tests to determine whether the GAAR should apply. It includes examples on actionable avoidance arrangements, namely: the circular flow or round-tripping of funds; the creation of more than one entity for the sole purpose of obtaining a tax advantage; changes to the form of business entity for the sole purpose of obtaining a tax advantage; and the attribution of income that is not aligned with economic reality.

Now Singapore has signed agreements with both the UK and Australia to automatically exchange financial account information under the OECD Common Reporting Standard (CRS). Exchanges with both jurisdictions will start in September 2018, though the supporting customer due diligence obligations will start earlier.  

The US and Singapore governments have issued a joint statement affirming closer cooperation on bilateral tax issues. Both countries are discussing a tax information exchange agreement (TIEA) for the automatic exchange of tax information (AEOI), and an intergovernmental agreement (IGA) 'that provides for reciprocal automatic exchange of information with respect to certain financial accounts under the Foreign Account Tax Compliance Act (FATCA).  The two countries are to complete negotiations and sign the agreements by the end of 2017.

 

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A US appellate court has ruled that an account with an offshore internet gaming site is not a financial account for purposes of the FBAR (foreign bank account reporting) penalty (USv Hom, No. 14-16214 DC).

Overturning an earlier district court ruling, the Ninth Circuit cancelled USD40,000 of penalties imposed on Hom for failing to file an FBAR for his online poker accounts in the UK, because there was no evidence that the funds maintained with either poker site served any purpose other than to play poker.

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The U.S. Department of the Treasury revealed on September 15, 2016 that it is drafting rules to curb US Multinationals from obtaining US foreign tax credits as a result of foreign government's audits resulting in foreign tax adjustments for US Multinationals.

In Notice 2016-52, 2016-40 IRB, the IRS has announced that it intends to issue regs under Code Sec. 909 to address the separation of related income from foreign income taxes paid by a “section 902 corporation” pursuant to a foreign-initiated adjustment. The regs will identify two new “splitter arrangements,” one of which involves a change to ownership structure made in anticipation of the foreign-initiated adjustment, and the other of which involves making an extraordinary distribution before paying the adjustment so as to generate substantial amounts of foreign taxes deemed paid without a corresponding U.S. income inclusion.

On September 12, 2016, we posted US Probe Resulted In EU Apple Tax Assessment, where we discussed that the European Commission’s probe into Apple, which resulted in an order for the tech giant to pay up to €13 billion ($14.5 billion) in back taxes to Ireland, was prompted by a U.S. Senate investigation, European Union Competition Commissioner Margrethe Vestager said on Friday.
The commission ordered Ireland to collect a staggering $14.5 billion in back taxes from Apple, and the Treasury said on September 15, 2016 that it now wants to prevent companies from taking steps to separate their foreign income tax for prior taxable years from the income the tax relates to.

The Treasury notice took direct aim at the European Union’s push to have its member states collect more taxes from U.S. companies’ overseas units, Treasury officials said they’re writing new rules that would restrict how corporations can use credits on their foreign tax payments to reduce their U.S. tax bills. The official notice puts corporate tax planners on notice that officials will challenge any strategies that violate their intended rules.

“Such foreign-initiated adjustments may arise under European Union state aid law, to the extent EU state aid payments result in creditable foreign taxes,” the department said.

Corporations may also make extraordinary distributions, so that undistributed earnings can be used to inflate the amount of foreign taxes paid, without repatriating the earnings and including them in U.S. taxable income, the Treasury said.

On order to prevent so-called splitter arrangements, or the separation of creditable foreign taxes from the underlying related income, the IRS is considering deferring the right to claim credits until the related income is included in U.S. taxable income.

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