International Tax Law

First Colombia-US Tax Treaty is Almost Ready | International Tax Lawyer

The first Colombia-US Tax Treaty nears the final stage of negotiations. This announcement was made on September 28, 2016, in Bogota, Colombia, by Colombian Finance Minister Mauricio Cardenas and U.S. Treasury Secretary Jacob Lew (the details of the meeting were published on the Colombian president’s website).

Despite the fact that United States and Colombia already signed a tax information exchange agreement on March 30, 2001, the two countries still do not have an income tax treaty that would protect its citizens and business from the effect of double-taxation.

There are a lot of expectations that the first Colombia-US Tax Treaty will benefit individuals and business in both countries. “La negociación de un tratado de doble tributación entre Colombia y Estados Unidos está cerca del fin, esperemos avanzar para lograr algo que los empresarios colombianos y los empresarios norteamericanos desean, al igual que muchos colombianos que dividen sus actividades entre los dos países”, said Mr. Cárdenas.

It is also possible that, upon ratification of the first Colombia-US Tax Treaty the Colombians who live in the United States and have businesses in Colombia will finally be able to benefit from the long-term capital gains tax rates that apply to qualified foreign dividends.

Of course, there is a still a long way to go for the first Colombia-US Tax Treaty. Even after the negotiations are successfully concluded and finalized, the first Colombia-US Tax Treaty will need to be signed and ratified by both countries before it enters into force. While it is reasonable to expect a relatively fast ratification in Colombia, the United States is a completely different story. Treaties can languish in the United States Senate for years before they are even considered.

Furthermore, Mr. Cárdenas and Mr. Lew may not have sufficient time to conclude the current negotiations. Before they may be done, a new president may be elected in the United States and he may take a different to negotiating with Colombia. If this happens, the conclusion of the negotiations and the ratification of the first Colombia-US Tax Treaty may be postponed even further into the future.

Sherayzen Law Office will continue to observe the situation surrounding the first Colombia-US Tax Treaty.

France Asks Switzerland for Names of UBS Accountholders

This is an international tax lawyer news update: on September 26, 2016, Swiss tax officials confirmed that France asked Switzerland to provide the names of the holders of more than 45,000 UBS bank accounts. The request covers years 2006-2008.

Le Parisien newspaper, which first published extracts from the French request that the combined balance in the affected accounts exceeded CHF 11 billion (around $ 11.4 billion.). Le Parisien, which did not disclose how it gained access to the letter, also said the French authorities were able to identify the holders of 4,782 accounts.

The French request came to light after, on September 12th 2016, the Swiss Supreme Court over-ruled the lower court’s rejection of a similar request from the Netherlands for financial details of Dutch residents with accounts at UBS. Despite the Netherlands’ success, doubts still remain about the viability of the French request due to the fact that article 28 of the France-Switzerland tax treaty of 1967, as modified in 2010, provides that accounts that were closed before 2010 are not covered by the agreement and, therefore, should not be subject to information exchange.

4th Quarter 2016 Underpayment and Overpayment Interest Rates

September 19, 2016/0 Comments/in International Tax Lawyers Rochester Minnesota, Legal Notes /by Manager

On September 14, 2016, the IRS announced that the 4th Quarter 2016 underpayment and overpayment interest rates will remain the same. This means that, the 4th quarter 2016 IRS underpayment and overpayment interest rates will be as follows:

four (4) percent for overpayments (two (3) percent in the case of a corporation);
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code (IRC), the interest rates are determined on a quarterly basis; for taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The IRS underpayment rates are especially important for US taxpayers who participate in the OVDP or a voluntary disclosure under the Streamlined Domestic Offshore Procedures. This is the case because the IRS underpayment rates are used to calculate the interest charged on any tax due as well as PFIC interest (default Section 1291 PFICs) on any excess distributions.

The IRS interest rates remained at 3% for from the 4th quarter of 2011 through the first quarter of 2016. However, in the second quarter of 2016, the IRS raised the interest rates from 3% to 4% following the increase of the federal short-term rate. The recent 4th Quarter 2016 IRS rates remain the same as in the second and third quarters of 2016. However, the situation may change in the 1st quarter of 2017 if the Federal Reserve raises its rates either in September or December of 2016.

Ignorance of the Law and Reasonable Cause Exception

September 18, 2016/0 Comments/in International Tax Attorney, Legal Notes /by Manager

Ignorance of the Law forms part of a much broader Reasonable Cause Exception which is almost a universal defense against the imposition of IRS civil penalties. Ignorance of the Law is often utilized as a defense against the US international tax information return penalties, including penalties envisioned under FBAR, Form 8938, Form 5471, Form 8865, et cetera. In this article, I would like provide a general description for the Ignorance of the Law defense.

It is important to remember that the application of the Ignorance of the Law defense depends on the specific circumstances of your case and nothing in this article should be interpreted as a legal advice. Rather, you need the help of an experienced tax attorney to determine whether the Ignorance of Law defense applies to your case.

Ignorance of the Law Defense Legal Test

Ignorance of the Law may provide the basis for an effective reasonable cause defense in situations where a taxpayer does no know about his obligations to comply with a tax requirement in question and/or pay taxes. However, the ignorance by itself is not sufficient to establish a reasonable cause; other circumstances must be reviewed in order to determine whether all or the requirements of this defense’s legal test are satisfied.

The legal test for the Ignorance of the Law defense requires that three requirements are satisfied in order the for taxpayer’s conduct to satisfy the reasonable cause exception:

1). The taxpayer was not aware of the tax requirement in question;

2). The taxpayer could not reasonably be expected to know of the requirement; and

3). The taxpayer’s conduct satisfied the “ordinary business care and prudence” standard.

Oftentimes, the second and the third requirement are blended into the same analysis. This is why I now turn to the examination of the ordinary business care and prudence standard for the purposes of the Ignorance of the Law defense.

Ignorance of the Law and Ordinary Business Care and Prudence Standard

Ordinary Business Care and Prudence Standard is a requirement present in all reasonable cause defenses. With respect to the Ignorance of the Law defense, the ordinary business care and prudence standard requires that a taxpayer acts in good faith, reasonably and attempts to determine his tax obligations. This means all of the relevant circumstances must be reviewed before the determination is made whether the taxpayer’s conduct satisfied the ordinary business care and prudence standard.

The precise circumstances that need to be considered depend on the particular facts of a case. Some of the common factors include: the taxpayer’s education, his tax advisors (including what information the taxpayer supplied to his tax advisors, whether he has been previously subject the tax at issue, whether he has filed the tax forms in question before, whether he has been penalized before with respect to the issue at hand, whether there any changes to the tax forms or tax law (which the taxpayer could not reasonably be expected to know), the level of complexity of the issue in question, et cetera.

Contact Sherayzen Law Office for Professional Help with Your Ignorance of the Law Reasonable Cause Defense

If you were penalized by the IRS with respect to a tax requirement and you did not know about this requirement, contact Sherayzen Law Office for professional and experienced legal help. We have helped taxpayers around the world to successfully reduce and even entirely eliminate penalties based on the reasonable cause defense that often stemmed from our clients’ ignorance of relevant tax requirements. We can also help You!

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US–Hungary Totalization Agreement Enters Into Force

September 7, 2016/0 Comments/in International Tax Attorney, Legal Notes /by Manager

On September 1, 2016, the US–Hungary Totalization Agreement entered into force. In this article, I will briefly discuss the main benefits of this Agreement to US and Hungarian nations.

US–Hungary Totalization Agreement: What is a Totalization Agreement?

The Totalization Agreements are authorized by Section 233 of the Social Security Act for the purpose of eliminating the burden of dual social security taxes. In essence, these are social security agreements between two countries that protect the benefit rights of workers who have working careers in both countries and prevent such workers and their employers from paying social security taxes on the same earnings in both countries.

Usually, such a situation arises where a worker from country A works in Country B, but he is covered under the social security systems in both countries. In such cases, without a totalization agreement, the worker has to pay social security taxes to both countries A and B on the same earnings.

US–Hungary Totalization Agreement Background

The US–Hungary Totalization Agreement was signed by the United States and Hungary on February 3, 2015 and entered into force on September 1, 2016. This means that Hungary now joined 25 other countries – Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, South Korea, Spain, Sweden, Switzerland and the United Kingdom – that have similar Totalization Agreements with the United States.

US–Hungary Totalization Agreement: Key Provisions

There are three key provisions of the US–Hungary Totalization Agreement which are relevant to Hungarian and US workers. First, protection of workers’ benefits and prevention of dual taxation. US workers who work in Hungary and are already covered under Hungarian social security system should be exempt from US social security payments, including health insurance (under FICA and SECA only), retirement insurance, survivors and disability insurance contributions. However, US–Hungary Totalization Agreement does not apply to the Medicare; US employees must still make sure that they have adequate medical insurance coverage. Similarly, Hungarian workers who work in the United States and are already covered by the US social security system should be exempt from Hungarian social security taxes.

The second key provision of the US–Hungary Totalization Agreement provides for a Certificate of Coverage. The Certificate can be used by an employee to remain covered under his home country’s social security system for up to 60 months. Additional extensions are possible upon approval by the host country.

Finally, under the US–Hungary Totalization Agreement, workers may qualify for partial US benefits or partial Hungarian benefits based on combined (or “totalized”) work credits from both countries. This means that, where there is insufficient number of periods (or credits in the United States) to claim social security benefits, the periods of contributions in one country can be added to the period of contributions in another country to qualify to these benefits.

Contact Sherayzen Law Office for US Tax Issues Concerning Hungarian Assets and Income

If you have foreign accounts and other assets in Hungary and/or income from these Hungarian assets, contact Sherayzen Law Office for professional help. We have helped hundreds of clients throughout the world, including in Hungary, with their US tax issues and we can help you!