On February 13, 2018, the Treasury Department and the Internal Revenue Service issued Rev. Proc. 2018-17, which provides modifications to the procedures for changing the accounting period of foreign corporations owned by U.S. shareholders that are subject to the transition tax under the Tax Cuts and Jobs Act. Rev. Proc. 2018-17 basically disallows the accounting period change if such change could result in the avoidance, reduction, or delay of the transition tax. (more…)
International Tax Articles
NextIRS to End Offshore Voluntary Disclosure Program in September
The IRS announced it will begin to ramp down its Offshore Voluntary Disclosure Program (OVDP) and close it on Sept. 28, 2018. This gives taxpayers with undisclosed foreign financial accounts time to still use the program.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.” The current OVDP began in 2014 and is a modified version of the OVDP launched in 2012, which followed similar voluntary programs offered in 2011 and 2009. The programs have enabled U.S. taxpayers to voluntarily resolve past noncompliance related to failure to report foreign financial assets and file foreign information returns. (more…)
New Law Includes Loophole That Lets Taxpayers Reduce Tax on Repatriated Income
A loophole in the Tax Cuts and Jobs Act (TCJA) could allow multinational corporations like Apple to avoid paying billions of dollars in taxes on profits stashed overseas.
The TCJA imposes a transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated. But the law contains a loophole that allows taxpayers to convert income that would otherwise be taxed at 15.5% (cash holdings) into income that is taxed at 8% (more illiquid investments).
And multinationals could have leeway to shift foreign earnings into the 8% tax bracket. (more…)
EU Commission Wants Tech Companies to Pay Fair Share of Taxes
Digital companies in the European Union (EU) pay less than half the amount of tax that other companies pay, the European Commission said in a report. The EU needs a modern tax framework to seize digital opportunities, while also ensuring fair taxation, the report added.
Within the EU, international businesses typically pay a 10.1% tax rate while traditional companies pay 23.3%, due largely to the difficulty of taxing digital assets, which are typically Internet-based. This is particularly important given that more than half of the world’s top 20 companies are technology-based. The Commission stated that the best solution to address this distortion would be on a global level, but in the absence of sufficient progress, the EU should move ahead alone. (more…)
Taxpayer Loses Court Challenge to U.S.-Canada Tax Treaty
A U.S. District Court held that it isn’t unconstitutional under a provision of the United States–Canada tax treaty for Canada to offset Canadian tax refunds against unpaid U.S. tax liabilities.
The U.S. District Court for the District of Columbia stated that “the arm of the U.S. tax man is long, but in this case it needed extend only over our northern border to find” the taxpayer. The court dismissed the expat’s case, finding that he’d failed on his claims for relief under the Eighth Amendment and both the Due Process and Equal Protection Clauses of the Fifth Amendment. (more…)
Commercial Pilot Fails Tests for Foreign Earned Income Exclusion
The U.S. Tax Court has held that a commercial airline pilot stationed in South Korea failed both the “tax home” and the “bona fide residence” tests that determine whether a taxpayer qualifies for the foreign earned income exclusion.
The pilot flew airplanes for Korean Air Lines (KAL) in 2011 and 2012. KAL considered him to be stationed in Incheon, Korea, which meant that Incheon was the airport he most frequently operated from. (more…)
Definition of ‘Willful’ Is Unclear in FBAR Case in District Court
The U.S. District Court for the Eastern District of Pennsylvania denied summary judgment to both the IRS and a taxpayer with regard to his Swiss bank account. In the case, the IRS slapped the maximum penalty on the taxpayer for willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR).
The Court concluded that whether the taxpayer willfully failed to submit an accurate FBAR was an inherently factual question and that genuine disputes existed as to what the taxpayer knew about his reporting requirements and when he knew it.
OECD Moves to Limit Treaty Shopping
The Organization for Economic Co-operation and Development (OECD) released the key document that forms the basis of the peer review of the base erosion and profit shifting (BEPS) minimum standard on preventing inappropriate treaty shopping.
Returned Tax Payments Were Refunds for Purposes of Foreign Tax Credit
The Tax Court ruled that certain payments received by a U.S. citizen working abroad from a foreign taxing authority were in fact refunds under the Internal Revenue Code.
Facts of the case
A U.S. citizen worked for the London office of Goldman Sachs and received employee compensation from which United Kingdom income tax was withheld. The taxpayer filed both U.S. and UK income tax returns for each year at issue. On a timely filed U.S. return for each year, she claimed a foreign tax credit in an amount equivalent to the UK tax withheld by her employer.