Inbound and Outbound U.S. Tax Planning – What’s Left After the MLI?

The Multilateral Instrument

0613_GlobalImageOn June 7, 2017, the formal signing ceremony of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “Multilateral Instrument” or “MLI”) took place.  Sixty-eight jurisdictions have signed the MLI, with another nine jurisdictions signing a letter indicating their intent to sign the MLI.[1]

The MLI is one of the outcomes of the OECD/G20 Project to tackle Base Erosion and Profit Shifting (the “BEPS Project”). Specifically, Action 15 of the BEPS Project focused on the development of an MLI to enable countries to efficiently modify their bilateral tax treaties to implement certain BEPS measures.  What could otherwise take decades to accomplish (i.e., separately renegotiating 3,000 bilateral income tax treaties to accommodate BEPS), the MLI does with a single multilateral instrument.

Although the United States has not signed the MLI, the MLI nevertheless may dramatically impact many inbound structures utilized by foreign investors in the United States, as well as many outbound structures used by U.S.-based multinationals.  For example, the possible inclusion of an anti-triangular provision from the MLI in a particular treaty could prevent treaty benefits from being available (and thus result in increased withholding tax) where payments are made to a third-country permanent establishment (PE) and that PE is not subject to a sufficient rate of tax.  Many existing structures also could be adversely affected by the inclusion of certain new elimination of double taxation provisions contained in the MLI.  Under these provisions, an exemption may be denied in the home country for income that “may be taxed” in the treaty partner country, with a credit being provided instead for the tax paid on such income in the other country (which may often be zero or a de minimis amount). Continue Reading

International Tax Breakfast Series: The Do’s and Don’ts of Domesticating Trusts to the U.S.

InternationalTaxBreakfastSeriesJoin us May 18th for another edition of Bilzin Sumberg’s International Tax Breakfast Series. The event will feature a discussion on domesticating trusts to the U.S. with Tax and Private Wealth Services attorneys Hal J. Webb and Jennifer J. Wioncek.

The U.S. is now preferred as the situs for the administration of many trusts. Hal and Jennifer will review the technical and practical planning issues that may be faced when considering the change of situs of foreign offshore trusts and civil law foundations to the U.S., and how the right approach to domestication of a foreign situs trust or foundation can minimize U.S. tax consequences. Continue Reading

Creating Non-Taxed “Previously Taxed Income”: The Ultimate Pre-Immigration Strategy

Tax Blog PictureAccording to recent statistics, immigrants and their U.S.-born children now number approximately 84.3 million people, or 27% of the overall U.S. population.   The countries from which the largest numbers of these individuals originate include India, China, Mexico, and Canada.  Many of those moving to the United States are wealthy business owners who will continue to own interests in, and receive distributions from, non-U.S. businesses after they become U.S. taxpayers.

Many times U.S. tax advisors that engage in pre-immigration planning for such individuals and their respective companies recommend strategies such as “check-the-box” planning to obtain a basis “step-up” in the shares or assets of the underlying non-U.S. companies, acceleration of income recognition, and deferral of loss recognition prior to U.S. residency beginning.  One potential strategy that may provide substantial tax benefits is the use of a U.S. partnership to create a “previously taxed income” account prior to the time that a non-U.S. owner of a foreign business becomes a U.S. tax resident. Continue Reading

International Tax Breakfast Series: How the Recent Colombian Tax Changes Impact U.S. – Colombia Tax Planning

0201_InternationalTaxBreakfast_ColombiaJoin us on February 7th for a new installment of Bilzin Sumberg’s International Tax Breakfast Series. The discussion will cover the recent Colombian tax changes and how they affect U.S.-Colombia Tax Planning.

Colombian tax lawyer Camilo Cortes will provide an overview of the changes, which include Controlled Foreign Corporation (CFC) legislation and the introduction of withholding tax on dividends. Bilzin Sumberg attorneys Jeffrey L. Rubinger and Jennifer J. Wioncek will further discuss how these changes could impact U.S. inbound and outbound planning strategies.

Jeff has extensive experience in advising domestic and international clients on how to maximize tax and estate planning, and Jennifer advises high net worth individuals and family offices in domestic and international trust and estate planning matters.

The breakfast event will be held at the Bilzin Sumberg offices on Tuesday, February 7th, from 8:30 a.m. to 10 a.m.

Please click here to register and reserve your spot.

Minimizing Tax on Gain from the Sale of Stock of Latin American CFCs

South AmericaThe United States currently has only two income tax treaties in effect with Latin American jurisdictions: Mexico and Venezuela. As a result, most individual taxpayers who recognize gain from the sale of stock of a controlled foreign corporation (CFC)1 located in Latin America (other than in Mexico or Venezuela) assume that such gain will be subject to U.S. federal tax at the “non-qualified dividend” rate of 43.4 percent. Because the corporate income tax rates are so high in most Latin American countries, however, this typically will not be the case. An important limitation is provided on the amount of tax that an individual U.S. shareholder will pay when it sells stock of a CFC. This limitation is based on the amount of corporate income tax that the CFC pays in its home country, as well as a hypothetical corporate income tax that would apply if the CFC were a domestic corporation. As illustrated below, with careful analysis, this limitation can provide an individual U.S. shareholder with significant tax savings if the shareholder recognizes gain on the sale of stock of a CFC located in a high-tax jurisdiction. Continue Reading

International Tax Breakfast Series: Recharacterizing Debt as Equity

Conference_ shutterstock_169062704The next installment of our International Tax Breakfast Series looks at an area of tax law where the exact application of a proposed rule remains uncertain. Please join us for “Recharacterizing Debt as Equity: How the Proposed Section 385 Regulations Will Impact Traditional Cross-Border Income and Estate Tax Planning.” The breakfast event will be held at the Bilzin Sumberg offices on Wednesday, November 9, from 8:30 a.m. to 10 a.m.

Bilzin Sumberg Tax Partners Summer Ayers LePree, Jeffrey L. Rubinger, Hal J. Webb, and Jennifer J. Wioncek will discuss the controversial proposal, which has been criticized for being overbroad with a potential harmful effect on ordinary domestic and international business transactions. Under the new Section 385, the IRS would be able to recharacterize certain debt instruments as equity for federal tax purposes.

Summer and Jeff have extensive experience at advising domestic and international clients on how to maximize tax-planning opportunities. Hal’s practice focuses on advising high net worth private clients in international tax and estate planning. Jennifer advises high net worth individuals and family offices in domestic and international trust and estate planning matters.

Please click here to RSVP and reserve your spot.

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


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