Cancellation of CFC Loans to US Shareholders – Should the Service Get a Second Bite at the Apple?

4599538The Service generally has three years after a return is filed to assess any tax due for that year.1 There are a number of exceptions to this general rule, such as where a taxpayer files a false return or omits more than 25 percent of its gross income from the return. There are no exceptions, however, that would allow the Service to keep the statute of limitations open indefinitely with respect to an amount actually received in the current year, but constructively received in a prior year with respect to which the statute of limitations is now expired. Notwithstanding the lack of any statutory support, the Service has attempted within the cross-border setting to take two proverbial bites of the apple in such cases.

Section 956 and Constructive Dividends, in General

In general, U.S. shareholders of foreign corporations, like U.S. shareholders of domestic corporations, are taxable on the earnings and profits (E&P) of such corporations only when that E&P is distributed in the form of a dividend. If the corporation is classified as a “controlled foreign corporation” or “CFC,” however, any U.S. shareholders owning 10 percent or more of the voting power of the CFC (“U.S. Shareholders”) are taxable annually on their pro rata shares of (1) the CFC’s “Subpart F income” and (2) the CFC’s earnings invested in U.S. property (“Section 956 inclusions”). Continue Reading

International Tax Breakfast Series: International Tax Planning for Artists, Entertainers & Athletes

SpeakerPlease join us for the next installment of our International Tax Breakfast Series, International Tax Planning for Artists, Entertainers & Athletes, which will be held at our offices next Wednesday, June 1st, from 8:30 a.m. to 10:00 a.m.

Do you have clients who are artists, athletes, or entertainers? Would you like to add value to your clients by helping them achieve the most efficient tax strategies? Clients in the entertainment industry have specific tax and corporate needs. On June 1st, Bilzin Sumberg Tax Partners Summer Ayers LePree and Jeffrey L. Rubinger together with Corporate Partner Jose Sariego will be discussing nuances of tax and corporate planning for entertainment clients, including inbound and outbound tax planning for both foreign and United States artists, entertainers, and athletes, creative structuring ideas to minimize taxes, and relevant corporate topics such as entity formation and maintenance.

Jeff and Summer have extensive experience advising clients both domestic and foreign on how to maximize tax planning opportunities. In addition, Jose has spent more than 13 years working with some of the largest media companies in the world, and has served as head of Business and Legal Affairs for two major television networks. As head of Business Affairs for HBO Latin America and Telemundo Network, Jose has handled negotiations involving internationally renowned stars, as well as numerous international content development, acquisition, production and distribution deals.

Please R.S.V.P. to reserve your spot.

We hope to see you there!

Proposed Section 385 Regulations May Dramatically Impact Portfolio Debt Planning

On April 4, 2016, the IRS and Treasury issued proposed regulations under Section 385 (the “Proposed Regulations“).1 The Proposed Regulations, which were thought to have been a response to post-inversion earnings stripping transactions, have been heavily criticized as being overbroad and potentially impacting many ordinary business transactions, both in the domestic and international settings.

Under the Proposed Regulations, the IRS would have the ability to:

  1. Recharacterize certain related-party debt instruments as equity for federal tax purposes;
  2. Treat certain related-party debt instruments as part equity and part debt for federal tax purposes;
  3. Automatically treat certain related-party debt instruments as equity if extensive documentation requirements are not contemporaneously satisfied (although a taxpayer is prohibited from affirmatively using this rule to their advantage).

Continue Reading

Inbound and Outbound U.S. Tax Planning for Bona Fide Residents of Puerto Rico

Puerto-Rico_shutterstock_183234536Since Puerto Rico enacted the “Individual Investors Act” (Act 22) and the “Export Services Act” (Act 20) in 2012, much press has been devoted to the number of high-net worth U.S. taxpayers (including citizens and green card holders) who have relocated to Puerto Rico and become “bona fide residents” of such U.S. possession. The primary tax benefits available to such persons that have received the most attention are (i) the 100-percent exclusion of Puerto Rican-source interest and dividends from both U.S. and Puerto Rican income tax; and (ii) the 100 percent exclusion of worldwide capital gains, to the extent such gains accrue after the person becomes a resident of Puerto Rico, from both U.S. and Puerto Rican income tax. In addition, Puerto Rico corporations providing “export services” to non-Puerto Rican persons are only subject to a 4 percent corporate income tax in Puerto Rico. It should be noted that these benefits are available to bona fide residents of Puerto Rico even though they remain U.S. taxpayers and therefore are not subject to the expatriation rules.

What has not received as much attention, however, and possibly just as significant as the benefits described above, are the provisions of the U.S. Internal Revenue Code and relevant Treasury Regulations that specifically do not apply to bona fide residents of Puerto Rico who own shares of corporations organized in Puerto Rico. For example, bona fide residents of Puerto Rico may be exempt from the U.S. controlled foreign corporation (CFC) rules, and the passive foreign investment company (PFIC) rules with respect to their ownership of Puerto Rican corporations. Furthermore, as a result of the “check the box” rules and proper planning, these exemptions may be extended to income derived in foreign jurisdictions other than Puerto Rico (including U.S.-source treaty benefitted income), without that income being subject to tax in the United States or Puerto Rico. Continue Reading

Happy Holidays To Our Readers!

As we reflect on 2015, we are especially thankful for all of the connections that we have made this year. We are thankful for our clients, our colleagues, our friends, and all of our readers. Thus, for our holiday video we wanted to focus on the power of relationships because our relationships are the foundation for who we are as a firm. When we come together with our partners we have seen incredible things happen, and it is because of all of you that we are proud to be judged by the company we keep.

Holiday Card Email Final


Change in the UK Treatment of Dual-Resident Companies May Affect U.S. Tax Planning

Uk TaxOn November 30, 2015, the UK tax authorities at HM Revenue and Customs (HMRC) reached an agreement with Jersey about the interpretation of the company residence tie-breaker provision of the Jersey-UK income tax treaty.  After reviewing other income tax treaties that contain similar provisions, HMRC will now take the view that the tie-breaker clause will be utilized to determine where a company will be treated as a resident for tax purposes pursuant to the affected income tax treaties.

This represents a significant departure from HMRC’s previous view and could have important implications for many U.S. taxpayers.  Under HMRC’s prior interpretation, a dual-resident company (e.g., a company resident in the UK by virtue of its place of incorporation but resident in the other jurisdiction by virtue of its management and control) was not treated as a resident of either jurisdiction for purposes of the treaty and therefore was not eligible for treaty benefits Continue Reading

Tax Planning for Chinese Investment in U.S. Real Estate

Chinese Investment U.S. Real EstateAccording to recent estimates, Chinese investors represented the largest group of foreign investors in U.S. real estate in the second quarter of 2015 with $1.9 billion in acquisitions. In the last 12 months, Chinese investors acquired $5.9 billion in commercial U.S. real estate, and Asia was second overall to Europe for foreign investment in U.S. real estate during this period.

Chinese investors have been focused largely on acquiring office, hotel, and condominium properties, and more recently, industrial and retail properties. Wealthy Chinese investors already represent the largest group of foreign purchasers of single family homes and condominiums accounting for 16% of the overall foreign investors of these types of properties last year. Continue Reading

China Business Series Breakfast Seminar

Chinese FlagBilzin Sumberg Tax Partner Jeffrey Rubinger will speak this week at an MBAF China Business Series Breakfast Seminar in Miami where attendees will learn about current trends and initiatives in the China and U.S. markets.

Guests will also hear from Ralph Chow, Regional Director (Americas), Hong Kong Trade Development Council and Hernando Gomez, Business Valuation Director, MBAF. Topics include the belt and road initiative (growth of China, demand from China, strengths of Hong Kong), Chinese outbound investments, and structuring for Chinese investment in U.S. real estate.

The China Business Series Breakfast Seminar will be held at the Hilton Miami Downtown on Thursday, October 15 at 8:00am.

Please click here to register.

Tax Planning for Investments into Brazil

Tax Planning for Investments Into Brazil Join us on Wednesday, October 14th at 12:00pm EST for an in-depth joint presentation by tax attorneys Jeffrey Rubinger of Bilzin Sumberg and Fernando Martins of WFaria Advogados on the cross-border tax considerations for  companies doing business in Brazil.

During the first part of the discussion, Jeffrey Rubinger will cover some of the basic U.S. tax planning considerations including the various entity formation options and the tax consequences associated with those structures.

In the second half of the presentation, Fernando Martins will cover the main aspects of M&A deals conducted in Brazil, the due diligence procedures and the most common tax and labor findings. He will also discuss  typical acquisition structures and the funding and capital repatriation strategies available.

Click here to register.

Foreign Goodwill No Longer Exempt from Gain Recognition on Outbound Transfers

Money_iStock_000046683046_LargeOn September 14, 2015, the IRS released proposed regulations (the “Proposed Regulations”) that would significantly alter the treatment of outbound transfers of foreign goodwill and going concern value by a U.S. person to a foreign corporation. Under the Proposed Regulations, an outbound transfer of these types of assets will no longer be exempt from gain recognition under Section 367. As discussed below, this change will eliminate an important planning opportunity currently available in many outbound transfers. Once finalized, the Proposed Regulations would apply retroactively to transfers occurring on or after September 14, 2015.

Section 367, in General

Generally, Section 367(a) triggers gain recognition in outbound transfers of appreciated property by U.S. persons to foreign corporations in what would otherwise be a non-taxable transaction (e.g., under Sections 351 or 361). An important exception to this rule exists for transfers of property to a foreign corporation for use in an active trade or business outside of the United States (the “ATOB exception”). Continue Reading