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.

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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

Use of Estonia in U.S. International Tax Planning

Estonia International TaxAccording to recent estimates, Estonia, which is situated halfway between Stockholm and St. Petersburg, currently has more than 350 start-up technology companies – one for every 3,700 citizens – and the government expects this number to reach 1,000 by the year 2020. This makes Estonia the number one start-up technology country in Europe and one of the top in the world. The most recognizable technology company with Estonian roots is Skype, which was acquired by Microsoft in 2011 for $8.5 billion.

There are a number of reasons why a country as small as Estonia is producing this many technology companies, including a stable economic environment (i.e., Estonia’s economic freedom is regarded as one of the highest in the world and the best in the Central and Eastern European (CEE) region); the population of Estonia has the highest average level of education in the CEE region; and the country is supported by a tech-savvy government (an example of this is Estonia’s “e-residency” program, which allows non-residents to establish local businesses and bank accounts, and operate them remotely after only a single visit to Estonia). Continue Reading

Commission Payments to IC-DISC Recharacterized as Non-Deductible Dividends

Payments to IC-DISC Recharacterized as Non-Deductible DividendsIn Summa Holdings, Inc. v. Commissioner, T.C. Memo 2015-119, the Tax Court recharacterized an exporter’s deductible commission payments made to an IC-DISC as non-deductible dividend payments to the exporter’s shareholders followed by contributions by those shareholders to certain Roth IRAs. The Tax Court mentioned that there was “no nontax business purpose or economic purpose for establishing” the DISC (and certain related entities). This comment is surprising because the Tax Court has consistently held that “[a] DISC may be no more than a shell corporation, which performs no functions other than to receive commissions on foreign sales….” A DISC thus requires no nontax business purpose, and almost by definition (a definition crafted by Congress and acknowledged by Treasury) exists only for tax reasons. In any event, based on the holding in this case, it is questionable whether ownership of a DISC by any person that is not subject to full U.S. taxation (for example, a foreign entity that is not engaged in U.S. trade or business and is resident in a treaty country) remains viable. Continue Reading

AAA-CPA 2015 Annual Meeting & Education Conference

American Association of Attorney-Certified Public Accountants' Annual Meeting and Education Conference

On Wednesday, July 1, I will be a co-panelist at the American Association of Attorney-Certified Public Accountants’ Annual Meeting and Education Conference held at the Hilton Branson Convention Center in Branson, Missouri. Topics discussed at the conference will include the US Expatriation Tax Regime, Integrated Estate Planning and the 2015 Federal Tax Update.

My presentation, entitled “Exit Stage Left: A Primer on the US Expatriation Tax Regime,” will begin at 8:30 am. This section will cover how tax rules apply to expatriates under Sections 877A and 2801 and provide useful information to assist in advising clients.

To register for this event, click here.

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