EU Tax Harmonization Initiative Stalled by Ireland and Hungary | Tax News

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The EU Tax Harmonization initiative faced a joint opposition of Ireland and Hungary in early January of 2018. Both countries are vehemently opposed to any effort that would “tie their hands” in terms of their corporate tax policies.

The EU Tax Harmonization Initiative

Tax Harmonization is basically a policy that aims to adjust the tax systems of various jurisdictions in order to achieve one tax goal. The adjustment usually implies equalization of tax treatment.

In the past, the EU tax harmonization efforts were mostly limited to Value-Added Tax (“VAT”) and certain parent-subsidiary taxation issues. Since at least 2016, however, the EU Tax Harmonization policy seeks to regulate corporate income taxes among its members in order to limit intra-EU tax competition.

In 2016, the European Commission released two proposed directives addressing the issues of a common corporate tax base and a common consolidated corporate tax base. Neither directive establishes a minimum corporate tax rate. Neither directive passed the internal EU opposition.

Irish and Hungarian Opposition to the EU Tax Harmonization of Corporate Taxation

Today, the EU internal opposition to the EU tax harmonization initiatives consists of Ireland and Hungary. Both Hungary and Ireland have very low (by EU standards) corporate tax rates. The Irish corporate tax rate is 12.5% and the Hungarian corporate tax rate is only 9% (the EU average corporate tax rate is about 22%).

In early January of 2018, the Hungarian Prime Minister Viktor Orbán and Irish Prime Minister Leo Varadkar both stated that their countries have the right to set their corporate tax policies and that this area should not be subject to the EU tax harmonization efforts. “Taxation is an important component of competition. We would not like to see any regulation in the EU, which would bind Hungary’s hands in terms of tax policy, be it corporate tax, or any other tax,” Mr. Orbán said. He further added that “we do not consider tax harmonization a desired direction.”

Both countries view the aforementioned proposed 2016 European Commission directives as a threat, because harmonizing of the tax base could lead to corporate income tax rate harmonization.

Impact of Brexit on the EU Tax Harmonization Initiatives

The United Kingdom used to be in the same opposition camp as Ireland and Hungary. Given the size of its economy and its political influence, the United Kingdom was an almost insurmountable barrier to the proponents of greater EU unity (mainly France and Germany). In essence, the UK was enough of a counterweight to keep the balance of power within the European Union from tilting in favor of the EU unity proponents.

Everything has changed with Brexit. The exit of the United Kingdom from the EU automatically led to the shift of the balance of power in favor of Germany. Brexit also means that Ireland and Hungary are now alone in their resistance against the Franco-German efforts to achieve greater EU unity. The political pressure of these outliers is now enormous.

In fact, it appears that, rather than suspending the unanimity requirement by invoking the so-called “passerelle clauses” (which would be a highly controversial step), the proponents of the EU Tax Harmonization initiative will simply wait until this political pressure forces Ireland and Hungary to modify their positions on this issue.

2018 Tax Filing Season | International Tax Lawyer News

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On January 4, 2018, the IRS announced that the 2018 tax filing season for the tax year 2017 will commence on January 29, 2018. This date was chosen by the IRS to make sure its software incorporates the full impact of the Tax Cuts and Jobs Act of 2017 on the 2017 tax returns.

2018 Tax Filing Season: EITC and ACTC Refunds

Despite the fact that the 2018 tax filing season will begin on January 29, the IRS warned that taxpayers who will claim Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) will not receive their refunds until at least February 27, 2018.

2018 Tax Filing Season: Processing of Paper Tax Returns

Also, it is important to note that the processing of paper returns will begin only in mid-February, because the system updates will continue until that time. The IRS, however, will begin accepting both, electronic and paper tax returns, on January 29, 2018.

This is very important for taxpayers who file US international information returns, such as Forms 926, 5471, 8621, 8865, 8938, et cetera. A lot of these returns are voluminous and cannot be e-filed due to tax software limitations; hence, they must be filed on paper.

2018 Tax Filing Season: Deadline on April 17, 2018

The filing deadline to submit 2017 tax returns will be on Tuesday, April 17, 2018. Usually, the deadline would be on April 15, but, in 2018, April 15 falls on a Sunday and April 16 is a legal holiday in the District of Columbia (Emancipation Day). Under the tax law, legal holidays in the District of Columbia affect the filing deadline for federal tax returns; hence, the filing deadline moved by one more day to April 17, 2018.

US taxpayers who have to file international information returns should keep in mind that there are two categories of such returns: information reports which are filed with their 2017 tax returns and the information reports which are filed (or e-filed) separately from the 2017 tax returns. Forms 926, 5471, 8621, 8865, 8938 and other similar information returns must be filed with the original US tax returns.

On he other hand, FBARs (FinCEN Form 114) and Form 3520 should be filed separately from the taxpayers’ tax returns. The deadline for this category of returns, however, is the same as the deadline for the 2017 tax returns – April 17, 2018 (unless an extension is filed).

Contact Sherayzen Law Office for Help with Your US International Tax Compliance During this 2018 Tax Filing Season

If you have foreign income and/or foreign assets, or if you received a foreign gift or inheritance, you should contact Sherayzen Law Office for professional help in determining your US tax compliance obligations and the preparation of the required US international information returns.

Contact Us Today to Schedule Your Confidential Consultation!

Streamlined Audit Interview | Streamlined Audit Tax Lawyers

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In an earlier article, I described the main features of an IRS audit of a voluntary disclosure made pursuant to the Streamlined Domestic Submission Procedures (“Streamlined Submission Audit”). Today, I would like to discuss a very specific feature of this process – Streamlined Audit Interview.

Streamlined Audit Interview: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a special offshore voluntary disclosure program initiated by the IRS in 2014. SDOP allows US taxpayers to remedy their past tax noncompliance concerning the reporting of foreign assets and foreign income while paying a highly reduced 5% Miscellaneous Offshore Penalty. The reason for such a lenient treatment is that the taxpayers must certify that their prior noncompliance with US international tax laws was non-willful.

Streamlined Audit Interview: General Description

Virtually every IRS field audit will involve an attempt to interview the audited taxpayer(s). The concept of a Streamlined Audit Interview describes a situation where an audited taxpayer is interviewed specifically in the context of a Streamlined Submission Audit.

Streamlined Audit Interview: Main Differences from Regular IRS Audit Interview

In many ways, a regular IRS audit interview is similar to a Streamlined Audit Interview. In fact, procedurally, there are very few differences: both audits involve the same type of scheduling procedures, same interview format and, with respect to audited tax returns, very similar questions.

The main difference between a regular IRS audit interview and the Streamlined Audit Interview lies in the fact that the latter will involve the examination of the audited taxpayer’s non-willfulness with respect to prior tax noncompliance – i.e. whether the taxpayer carried his burden of proof to participate in SDOP in the first place. In other words, the difference between the two types of audits is in the substantive legal issues to be discussed.

There are also differences in the potential stakes. A failure for the taxpayer to substantiate his original non-willfulness arguments may lead the IRS to impose heavy penalties and even refer the case to the US Department of Justice’s Tax Division for criminal prosecution.

Finally, a Streamlined Audit Interview is likely to involve a much broader spectrum of issues than just amended tax returns. For example, there could be questions concerning FBARs, sources of foreign account balances, US assets purchased with undisclosed foreign funds, et cetera.

Streamlined Audit Interview: Extensive Preparation Is Necessary

A taxpayer should prepare for a Streamlined Audit Interview. It should be remembered that this interview may happen two or even almost three years from the time when the SDOP voluntary disclosure package was originally submitted. Hence, it is important to refresh the memory of the taxpayer so that he would be able to respond to the IRS questions (instead of constantly saying “I have no recollection”, thereby creating an impression as if he had to hide something).

The taxpayer should also be prepared on how to properly answer a question. Again, the idea is to avoid unnecessary suspicions and an impression that he has something to hide. This why the taxpayer’s answers should be firm and clear in order to eliminate any doubt of their meaning.

In every case, there are going to be weak or negative facts. The temptation to avoid a discussion of negative facts is huge, but it should be resisted. The taxpayer should be prepared to speak of them boldly, explain these facts and show how they fit into his overall non-willfulness arguments.

A taxpayer should never be trained into lying to the IRS or obfuscating the facts. Never, under any circumstances, should an attorney allow his client to commit a perjury, especially in the context of a voluntary disclosure based on the taxpayer’s non-willfulness. The outcome of this unethical strategy is likely to be disastrous (the IRS is likely to find out the truth in any case) and may result in criminal charges filed against the client, even if his original tax noncompliance was non-willful.

Being honest is of utmost importance in a Streamlined Audit Interview. This, however, does not preclude an attorney from employing certain strategies as described above to prevent unnecessary complications by the failure of a taxpayer to express himself clearly or creating a temptation on the part of the IRS to go on a “fishing expedition”.

Contact Sherayzen Law Office for Professional Help With an Audit of Your Streamlined Submission and a Streamlined Audit Interview

If your Streamlined Submission is being audited by the IRS, contact Sherayzen Law Office as soon as possible for professional help. Sherayzen Law Office is a highly experienced international tax law firm that specializes in all stages of offshore voluntary disclosures, including IRS audits of a Streamlined Submission and federal court representation.

We can help You! Contact Us Today to Schedule Your Confidential Consultation!

Belarus-Spain Tax Treaty Approved | FATCA Lawyer News

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On December 19, 2017, the Belarusian Council of the Republic, which is the upper chamber of the Belarusian parliament, approved a law on the ratification of the pending Belarus-Spain Tax Treaty. The Belarus-Spain Tax Treaty will cover both income and capital gain taxes and is meant to prevent the double taxation of the same income in both countries. This development comes after both countries signed the Belarus-Spain Tax Treaty in Madrid, Spain, on June 14, 2017.

The exact text of the treaty is not yet known. There are reasons to believe, however, that it includes an article on the automatic exchange of tax-related information in compliance with the OECD standard. The exchange of information under the Belarus-Spain Tax Treaty is reported to be quite extensive.

The Belarus-Spain Tax Treaty will enter into force within three months after all of the ratification procedures are completed. Once in force and effective, the Belarus-Spain Tax Treaty will replace the agreement signed between the former Soviet Union and Spain on March 1, 1985.

The Belarus-Spain Tax Treaty is just the latest example of the recent rise in the number of tax treaties signed between various countries. It appears that the web of treaties between various countries is growing increasingly wider and diverse as a result of the global preference for bilateral negotiations over the multilateral ones.

Similarly, as a result of FATCA and CRS, there has been an explosion of the agreements concerning automatic exchange of certain tax-related information, including those related to foreign accounts and beneficial ownership of foreign corporations. Again, the general trend toward bilateral negotiations, led by FATCA implementation treaties (which are bilateral treaties between the United States and other countries), can be clearly observed from these developments.

This trend toward bilateral negotiations reflects the underlying complex historical processes of moving to an increasingly multipolar world. This, of course, offers little consolation to US taxpayers as well as taxpayers of other countries who are increasingly caught between the ever demanding tax compliance requirements of various countries. The recent Belarus-Spain Tax Treaty will make but a modest contribution to this burden; yet, it is definitely part of this trend.

Sherayzen Law Office will continue to observe and analyze these trends and developments, including the progress of the new Belarus-Spain Tax Treaty.

Streamlined Submission Audit | SDOP Audit Tax Lawyer

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An increasing number of submissions under the Streamlined Domestic Offshore Procedures are subject to an IRS audit (hereinafter “Streamlined Submission Audit”). In this article, I will explain what a Streamlined Submission Audit is and what a taxpayer should expect during the Audit.

Streamlined Submission Audit: Background Information on Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is a voluntary disclosure option offered by the IRS since June of 2014 to noncompliant US taxpayers to settle their past tax noncompliance concerning foreign assets and foreign income at a reduced penalty rate. In order to participate in SDOP, a taxpayer must meet three main eligibility requirements – US tax residency, non-willfulness of prior noncompliance and absence of IRS examination.

SDOP is likely to be the most convenient and the least expensive voluntary disclosure option for taxpayers whose prior tax noncompliance was non-willful. SDOP is very popular; in fact, it has quickly surpassed the traditional IRS Offshore Voluntary Disclosure Program (“OVDP”) in the number of participants with over 18,000 submissions just in 2016.

The Origin of the Streamlined Submission Audit

Streamlined Submission Audit originates within the very nature of SDOP. Unlike OVDP, SDOP voluntary disclosures are not immediately subject to a comprehensive IRS review of tax return items (although, there is a review process which may lead to a Streamlined Submission Audit, but it is not as comprehensive as that of the OVDP prior to the Audit). Hence, the IRS reserved the right to audit any SDOP submission at any point within three years after the submission of the original SDOP voluntary disclosure package.

Streamlined Submission Audit: Process

The exact process of a Streamlined Submission Audit varies from case to case, but all of such audits have a similar format: initial letter with request for a meeting, meeting with an interview, review of submitted documents and (very likely) additional requests for information, interview of other involved individuals (such as a tax preparer) and, finally, the results of an audit are provided by the IRS to taxpayer(s) and/or the representative indicated on Form 2848.

A Streamlined Submission Audit commences in a way very similar to a regular IRS audit: a letter is sent to taxpayers and (if there is a Form 2848 on file) to their representative. The letter explains that the IRS decided to examine certain tax returns (usually all three years of amended tax returns) and asks for submission of all documentation and work papers that were used to prepare the amended returns. Additionally, the letter requests that the taxpayers’ representative (or taxpayers if not represented) contact the IRS agent in charge of the audit to schedule the initial meeting.

During the initial meeting, the IRS agent will review (at least to make sure he or she has what is needed) the documents supplied. In larger cases, the IRS will need a lot more time to later examine all of the submitted documents and see if additional documents are needed. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.

Also, during an initial meeting, there is going to be an interview of the taxpayer(s). I will discuss the interview separately in a different article.

Once the review of the initial package of documents is concluded, it is very likely that the IRS agent will have questions and additional document requests. The questions may be answered by the taxpayers’ attorney during a separate meeting with the agent; smaller questions may be settled over the phone.

If additional documentation is needed, an IRS agent will send out an additional request to taxpayers and/or their attorney. The answer will most likely need to be provided in writing.

Once the IRS completes its interview of other involved parties and reviews all evidence, it will make its decision and submit the results of the audit to the taxpayers and their tax attorney in writing. The taxpayers’ attorney will need to build a strategy with respect to the taxpayers’ response to the audit results depending on whether the taxpayers agree or disagree with the results of the audit.

Differences Between Streamlined Submission Audit and Regular IRS Audit

At first, it may seem that there are no big differences between a regular IRS audit and a Streamlined Submission Audit. While procedurally this may be correct, substantively it is not.

The greatest difference between the two types of IRS audits is the subject-matter involved. While a regular IRS audit will concentrate on the tax returns only, a Streamlined Submission Audit will involve everything: amended tax returns, FBARs, other information returns and, most importantly, Non-Willfulness Certification. In other words, a Streamlined Submission Audit will focus not only on whether the tax forms are correct, but also on whether the taxpayer was actually non-willful with respect to his prior tax noncompliance.

This difference in the subject-matter examination will carry over to other aspects of a Streamlined Submission Audit: the taxpayers’ interview will focus on their non-willfulness arguments, third-party interviews of original tax preparers become a regular feature (this is very different from a regular IRS audit when tax preparers may never be interviewed), and the final IRS results must necessarily make a decision on whether to challenge the taxpayers’ non-willfulness arguments.

Failure by a taxpayer to sustain his non-willfulness arguments may result in a disaster during a Streamlined Submission Audit with a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.

This is why it is so important for a taxpayer subject to a Streamlined Submission Audit to retain the services of an experienced international tax lawyer to handle the audit professionally.

Contact Sherayzen Law Office for Professional Help With A Streamlined Submission Audit

If your submission under the Streamlined Domestic Offshore Procedures is being audited by the IRS, contact Sherayzen Law Office as soon as possible. Our international tax law firm is highly experienced in offshore voluntary disclosures (including OVDP (now closed), SDOP, SFOP, “noisy disclosures”, “quiet disclosures”, et cetera) and the IRS audits of a voluntary disclosure.
In fact, we have handled voluntary disclosure cases at every stage of the process of a Streamlined Submission Audit described above. We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!