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UK Tax Haven May Be the Result of Brexit | US International Tax Attorney

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In her January 17, 2017 speech, the British Prime Minister Theresa May confirmed that the United Kingdom (“UK”) will leave the European Union (“EU”) and seek a free trade deal with the EU. The Prime Minister also appears to have made the threat of creating a UK Tax Haven if the deal is not struck.

UK Tax Haven: UK is Leaving the EU

Since the ground-breaking referendum vote to leave the EU in June of 2016, many analysts have predicted that the UK will not leave and seek some sort of a partial participation in the EU.

On January 17, 2017, the Prime Minister’s response to these doubters was clear: “No, the United Kingdom is leaving the European Union.” She also stated: “We do not seek to hold on to bits of membership as we leave.”

She also outlined the procedural roadmap to how the UK will leave the EU. In particular, the Prime Minister stated that the government would bring the final withdrawal agreement to the Parliament for a vote before the Agreement comes into force. Furthermore, the UK government will repeal the European Communities Act. Surprisingly, the Prime Minister further said that the existing body of the EU law will be converted into British law.

UK Tax Haven: The Freedom to Set Competitive Tax Rates

The Prime Minister’s speech also contained something of great interest to international tax lawyers. She stated that, once the UK leaves the EU, it will “have the freedom to set the competitive tax rates and embrace the policies that would attract the world’s best companies and biggest investors to Britain.”

Not surprisingly, the reporters, the opposition and some foreign leaders had interpreted this statement as a threat of converting the UK into a major tax haven for the European companies. It appears that the UK government plans to materializes this threat of the UK tax haven only if the UK is excluded from the EU single economic market as a result of a punitive EU action.

This threat of creating a major UK tax haven echos a similar threat made by the Chancellor of the Exchequer Philip Hammond. In his interview with a German newspaper “Welt am Sonntag”, Mr. Hammond stated that, if the UK is excluded from the EU market, the government will try to contain the damage of such a move by switching away from the European model of taxation.

Is the UK Tax Haven Likely to Become a Reality?

So, is the UK Tax Haven a certainty at this point? Probably not. I view this threat more as a negotiation tool rather than the certainty of enacting a certain plan. The UK economy is one of the most important and complex economies in the world; it is very unlikely that the British government will be even able to pursue a course of action of turning the UK into a full tax haven.

On the other hand, it is obvious that the British government will take advantage of the situation and seek to improve the country’s competitiveness through enaction of certain tax strategies. There is a high likelihood that the corporate tax rate may be lowered to a level where it is better than in most other EU countries, but cannot yet be considered as that of a tax haven.

Furthermore, it is possible that the UK tax haven will materialize only with respect to certain classes of taxpayers from certain countries. For example, the United States can be readily considered as a tax shelter for foreign individuals. The UK may be tempted to adopt a similar approach.

Finally, it is important to remember that the UK is already an attractive country from tax perspective. Its corporate rate is not high (it can even be called relatively low), there is no dividend withholding tax, favorable rules for expats, wide treaty network, and so on. Furthermore, the UK did not enact certain beneficial ownership transparency rules that other European countries already have in place.

Most likely, the UK just wishes to keep its options open for now and there is not going to be a UK tax haven in a traditional sense of this word, despite its threats to do so. International tax lawyers, however, should closely follow the UK developments for any tax opportunities that may become available to their clients.

Audit Reconsideration | International Tax Lawyers Minnesota

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Audit Reconsideration is a very important IRS procedure that may provide a taxpayer with a “second chance” to challenge the results of an established IRS determination without going through the expensive process of tax litigation (assuming it is still available as an option). In this article, I will introduce and explore the concept of audit reconsideration for educational purposes.

Audit Reconsideration: General Purposes

Audit Reconsideration is procedure that allows a taxpayer to contest the results of a prior audit where additional tax was assessed and remains unpaid (or where a tax credit was reversed). This procedure is also utilized to challenge a Substitute for Return (SFR) determination.

When Can a Taxpayer Request Audit Reconsideration?

One of the most important reasons why audit reconsideration is considered to be such an important procedural tool is that it can be requested by a taxpayer at any time after an examination assessment is made (as long as the tax remains unpaid). In other words, Audit Reconsideration provides a taxpayer with the flexibility that is unmatched by any other appeal mechanism.

Reasons for Requesting Audit Reconsideration

Audit Reconsideration can be requested for any of the following five reasons:

1. Taxpayer failed to appear for the IRS audit;

2. Taxpayer moved and never received correspondence from the IRS (often, in a situation involving correspondence audits);

3. Taxpayer has additional information that was not presented during the audit;

4. Taxpayer simply disagrees with the final audit assessment (perhaps, because the IRS committed a computational or processing error in assessing the tax);

5. Taxpayer files an original delinquent return after an assessment was made due to a substitute return executed by the IRS.

Procedural Prerequisites for Requesting Audit Reconsideration

There are two important procedural prerequisites for making the request for audit reconsideration: (i) the taxpayer must have filed a tax return; and (ii) the assessment must remain unpaid or the Service must have reversed tax credits that the taxpayer disputes.

Circumstances When the IRS Will Not Consider a Request for Audit Reconsideration

There are certain circumstances when the IRS will not even consider a request for Audit Reconsideration:

(1) The taxpayer has already been granted an audit reconsideration request and did not provide any additional information with the current request that would change the audit results;

(2) The assessment was made as a result of a closing agreement under Code Section 7121 on IRS Form 906 (signed by a taxpayer pursuant to assessment within the IRS Offshore Voluntary Disclosure Program) or Form 866; same applies to assessments made under Form 870-AD;

(3) The assessment was made as a result of a compromise under Code Section 7122 – such agreements are almost always final and conclusive;

(4) The assessment was made as the result of final TEFRA administrative proceedings;

(5) A final decision with respect to the tax liability was made by the US Tax Court, US District Court or the US Court of Federal Claims.

How to Request Audit Reconsideration

There is not any special form that the IRS requires in order to request an audit reconsideration. Instead, any letter composed by the taxpayer or his representative will be deemed sufficient as long as the prerequisites listed above are satisfied and the request includes the following information:

(1) the request must identify which adjustments the taxpayer is disputing – the proposed changes must be made clear to the IRS;

(2) the request must provide additional information that was not considered during the original examination (only copies of the documents should be mailed to the IRS because originals will not be returned);

(3) a copy of the original Form 4549 should be included with the letter; and

(4) a daytime and evening telephone number and the best time for the IRS to reach the taxpayer.

The request letter with supporting documentation should be mailed to the correct address listed in the IRS Publication 3598 or the office that last corresponded with the taxpayer.

Contact Sherayzen Law Office for Professional Help With Your Request for Audit Reconsideration

If you disagree with the results of your personal or business income tax and/or FBAR audit, contact Sherayzen Law Office to explore your appeal options. Preserving and properly using your administrative IRS appeal options is extremely important given the expense involved in a tax court litigation. At Sherayzen Law Office, we have helped numerous clients with their IRS Appeals and Audit Reconsideration Requests and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Voluntary Compliance with US Tax Laws | International Tax Attorney Austin

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The IRS has repeatedly stated that the US tax system is a voluntary compliance system. Yet, what does “voluntary compliance” mean in this context? Does it mean that US taxpayers only need to comply with US tax laws whenever they wish to do it? Does it mean that any US taxpayer has a right to refuse to comply with US tax laws or file his tax returns whenever he feels like doing it?

A lot of people tried to take this position and failed. The IRS has always won on the issue that US taxpayers have an obligation to comply with US tax laws, whether they want to do it or not.

Then, what is so “voluntary” about our tax system? Let’s explore this question in more detail.

Voluntary Compliance with US Tax Laws is Obligatory

Let us start with the affirmative statement that the word “voluntary” does not refer to the actual obligation of US taxpayers to comply with US tax laws. In other words, the compliance with US tax laws is compulsory and any noncompliance with US tax laws is punishable to the extent permitted by the law. Intentional noncompliance may even result in incarceration of a noncompliant taxpayer.

The IRS Inability to Engage in Full Enforced Tax Compliance

Since the word “voluntary” does not apply to the actual obligation to comply with US tax laws, we must look at the assessment of US tax liability to understand what voluntary compliance means. In particular, our focus should be on what is known as “enforced tax compliance” – i.e. direct assessment of tax liability and the audit of tax returns.

Here, we encounter an obvious yet interesting fact: the IRS does not have the resources to audit every one of the hundreds of millions of US taxpayers (resident and non-resident, individual and business), especially on an annual basis. Similarly, the IRS also lacks the ability to audit every single tax return every year; in fact, it only audits about 3% of all tax returns per year.

This means that the IRS does not have the capacity to sustain a system of enforced tax compliance and the vast majority of US taxpayers operate outside of this system.

The Definition of Voluntary Compliance

This lack of the IRS ability to engage in 100% enforced tax compliance leads to the inevitable conclusion that it has to rely on US taxpayers to timely file their own tax returns, assess their own tax liability and pay this tax liability to the IRS. It is precisely in this sense that US tax compliance system is “voluntary”.

In other words, voluntary compliance means that US taxpayers do their own self-assessment of their US tax liability (hopefully, in accordance with the IRS guidance) instead of the IRS doing it for each of them. Underlying this voluntary compliance, however, is the threat that the IRS can audit the tax returns and impose noncompliance penalties.

Contact Sherayzen Law Office for Professional Help with Your Voluntary Compliance Concerning US International Tax Laws

The IRS focus on the enforced tax compliance regarding the US international tax obligations of US taxpayers has caused an unprecedented rise in the voluntary compliance in this area of law. Noncompliant US taxpayers are at a historically-high risk of detection by the IRS and may face draconian IRS penalties, including jail time.

This means that, if you have foreign assets and foreign income, you need the professional help of Sherayzen Law Office to bring your tax affairs into full compliance with US tax laws. Our firm is highly experienced in the area of US international tax compliance with hundreds of successful cases closed and millions of dollars saved in US taxes and potential penalties! We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Happy New Year 2017! | International Tax Attorney Minneapolis

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Sherayzen Law Office, PLLC wishes a very Happy New Year 2017 to all of our clients and readers of our blog! We wish you great health, happiness and prosperity in this New Year 2017! And, to stay in full compliance with US tax laws!

Twin Cities international tax lawyer

The New Year 2017 is going to be a complicated one when it comes to international tax compliance. Let us focus today on two primary updates.

The first notable novelty of the New Year 2017 is the shift in the FBAR deadline; from now on, the FBAR is going to be due on April 15. At this point, the IRS guidance is that this deadline is set for April 15 irrespective of whether it falls on a Saturday, Sunday or a holiday. Hence, it is important to remember that the 2016 FBAR will be due on April 15, 2017, even though US tax returns will be due on April 18, 2017. Please, look for additional articles on this issue in January of 2017.

Second, for the first time ever, FATCA Form 8938 will apply to domestic corporations, partnerships and trusts that hold specified foreign financial assets if the total value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year. The IRS has been threatening this expansion of the application of Form 8938 since 2011. Now, in the New Year 2017, US domestic entities will need to comply with these new requirements on their 2016 US tax returns. Sherayzen Law Office will be providing additional updates on this issue throughout this year’s tax season.

There are many New Year 2017 updates made to various forms by the IRS. Some of these updates are fairly specific to certain classes of taxpayers, whereas other updates are more general in nature. Our professional legal and tax team at Sherayzen Law Office closely follows these IRS updates and developments to make sure that we provide our clients with the highest quality of service.

As in prior years, if you are a client of Sherayzen Law Office in this New Year 2017, you can rest assured that your US tax compliance is in good hands and you have an intelligent advocate of your interests on your side.

Hence, enjoy the New Year 2017 celebrations and contact Sherayzen Law Office during this year’s tax season for the high-quality professional legal and tax help!

Latvian Micro-Enterprise Tax Law Update | International Tax Lawyer Cleveland

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On December 20, 2016, the Saeima (Latvian Parliament) approved new amendments to Latvian Micro-Enterprise tax law. While the modifications to the law represented a compromise solution, the overall tax rate went up.

History of Latvian Micro-Enterprise Tax Law

The Latvian Micro-Enterprise Tax Law first entered into force on September 1, 2010. It primary purpose was to establish a lower tax rate for very small businesses, which were defined as businesses with turnover not exceeded 100,000 euros per calendar year. If a business qualified as a small business, under the Latvian Micro-Enterprise Tax Law, it would pay only a 9% tax rate. This rate was included in everything – corporate income tax, social tax and personal income tax.

Changes to Latvian Micro-Enterprise Tax Law

The December 20 changes came after an intense dispute over the best approach to the small business tax. In fact, on November 23, 2016, the Saeima first approved amendments to the law that would lower the income tax to a mere 5%, but the small business owners would have been forced to withhold social insurance contributions from each employee.

In the end, the November 23 amendments were discarded. The December 20 version of the law simply increased the micro-enterprise tax rate to 15% and eliminated the November 23 social insurance contribution withholding requirement due to the fact that it would have been excessively burdensome for small businesses.

It is important to point out, however, that the new changes to the Latvian Micro-Enterprise Tax Law carved-out a limited one-year exception for businesses with a turnover of only 7,000 euros per year; these businesses will only pay a 12% tax rate. This reduced tax rate will only be in effect through December 31, 2017

Furthermore, the Saeima also repealed the November 23 amendment that would have terminated the Latvian Micro-Enterprise Tax Law on December 31, 2018. Instead, the Saeima asked the Latvian Cabinet of Ministers to submit the draft new tax law for small businesses.

Latvia Remains One of the Lowest Tax Jurisdictions in the European Union

Even with the recent changes to Latvian Micro-Enterprise Tax Law, Latvia remains a jurisdiction with one of the lowest tax burdens in the European Union. This fact is often not appreciated by the West European tax professionals, often due to their cultural prejudice against doing business in Eastern Europe. This omission in Latvia may be a serious mistake on their part, depending on the client’s situation.

Sherayzen Law Office follows the development of tax laws in Latvia and believes that there are situations where these laws can offer significant advantages to the firm’s clients for tax planning purposes.