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Broadcom Re-domiciliation Approved | International Tax Lawyer & Attorney

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On January 29, 2018, Broadcom Board of Directors approved the plan for Broadcom re-domiciliation in the United States. This move was expected after Broadcom’s November of 2017 pledge to president Trump that the company would return to the United States.

Broadcom Re-domiciliation: A Story of Tax Inversion and Tax Remorse

The story of the Broadcom re-domiciliation began fairly recently in February of 2016. At that time, Broadcom did what was very popular during the Obama administration – tax inversion. California-based Broadcom allowed itself to be acquired by Singapore’s Avago Technologies Limited with the result of creation of a single Singapore entity.

The real motivation for the inversion was lowering the corporate taxes. At that time, during the political climate that existed in the United States, Broadcom thought that it was a good move.

Now, Broadcom believes that the tax inversion might not have been such a great thing to do in light of the new developments and certain consequences that it did not seem to have anticipated prior to tax inversion. First of all, Broadcom’s business in the US has continued to expand as it stepped-up its acquisition strategy. Already in 2017, barely a year and a half after tax inversion, Broadcom has stated that the benefits of this business strategy outweigh the potential additional taxes it might have to pay when it returns to the United States (especially after the tax reform – see below).

Second and closely related to the first reason, as a foreign company based in Singapore, Broadcom is under constant scrutiny of the Committee on Foreign Investment in the United States (“CFI”). CFI focuses on the review of transactions that may result in control of a US business by a foreign person and the impact of such control on US national security. This is an irritating and expensive factor that continuously hinders Broadcom’s acquisition strategy in the United States.

Third, Broadcom apparently did not anticipate that the tax reform be so radical and so beneficial to corporations. There is one issue in particular that makes Broadcom re-domiciliation in the United States so important. At the time of its tax inversion, Broadcom established a deferred tax liability on its balance sheet with respect to integration of the company’s intellectual property (“IP”). Under the old law, this deferred tax liability would have become payable at 35% tax rate in the United States.

Now, under the Tax Cuts and Jobs Act of 2017 (“TCJA”), this deferred liability will be recognized in fiscal year 2018 as deemed repatriated foreign earnings at a much lower tax rate. This means that Broadcom re-domiciliation in 2018 will save the company a huge amount in taxes; or, as the company itself put it: “a material reduction in the amount of other long-term liabilities on our balance sheet”.

Broadcom Re-domiciliation Approved Within One Month of TCJA

The tax motivation behind Broadcom re-domiciliation became especially evident in light of the fact that the Broadcom Board approved it within just one month of the passage of TCJA. Moreover, in its filings with SEC, Broadcom directly stated that, as a result of TCJA, the tax cost of being a US-based multinational company has decreased substantially.

Sherayzen Law Office will continue to observe the impact of the recent tax reform on the behavior of US companies that went through tax inversion.

The IRS Large Business and International Division Organizational Structure

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Almost two years ago, the IRS Large Business and International Division announced long-term changes in its structure as well as its approach to tax enforcement. In the fall of 2015, the IRS completed the first phase of the structural changes in the Division – re-organization of its administrative structure. This structure exists intact today and we fully expect for it to last for a long while. Let’s discuss this current administrative structure of the IRS Large Business and International Division.

IRS Large Business and International Division: Areas of Responsibility

The IRS Large Business and International Division forms a huge part of the IRS. First, it is responsible for the tax compliance enforcement (US domestic and US international) with respect to all corporations, subchapter S corporations, and partnerships with assets greater than $10 million. Most of these businesses employ a large number of employees and their business affairs involve complex accounting principals and tax laws. Second, the Division deals with individual international tax compliance, including offshore voluntary disclosures.

Current Organization of the IRS Large Business and International Division

The IRS Large Business and International Division is currently organized into Support Areas (a smaller part of the Division) and Practice Areas.

The Support areas concentrate on supporting the Practice Areas through data analysis and integrated feedback loop (which is a highly important feature that was incorporated into the Division’s reorganization plan in 2015). The Support areas include Headquarters, Program and Business Solutions (including Technology and Program Solutions and Resource Solutions), Compliance Integration (including Data solutions and the highly-important Compliance Planning and Analytics) and Assistant Deputy Commissioner – International.

The second part of the IRS Large Business and International Division is divided into five Practice Areas and four Compliance Practice Areas. The Practice Areas include: (1) Cross Border Activities, (2) Enterprise Activity, (3) Pass-Through Entities, (4) Treaty and Transfer Pricing Operations and (5) Withholding and International Individual Compliance. US international tax compliance concerns are especially important in areas 1, 4 and 5.

The Compliance Practice Areas basically represent a geographical division of the United States into four tax enforcement areas: Central (which consists of North Central and South Central Fields), Eastern (which consists of Great Lakes and Southeast Fields), Northeastern (which includes North-Atlantic and Mid-Atlantic Fields) and, finally, Western (which includes West and Southwest Fields).

The IRS Large Business and International Division Reorganization Now Entered Into the Second Phase

Since January 31, 2017, the IRS Large Business and International Division reorganization commenced the second phase with the enaction of the first thirteen issue-based IRS Compliance Campaigns. These campaigns represent a new approach to tax enforcement that is believed to fit best the new administrative structure of the division. In the near future, Sherayzen Law Office will update its website with articles dedicated to this important new development.

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!

US Continental Shelf Definition of the United States | US Tax Attorney

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The US continental shelf presents a unique problem to the tax definition of the United States. It is governed by a special tax provision that sets it apart from any other tax definition. If fact, the US continental shelf is only considered to be part of the United States with respect to specific taxpayers who are engaged in a particular activity on or over the continental shelf. In this article, I will explore certain features of the US continental shelf definition of the United States that distinguishes it from any other tax provision in the Internal Revenue Code (IRC).

Definition of the US Continental Shelf

For the purposes of the US income tax, the IRC § 638(1) states that the United States “when used in a geographical sense includes the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the United States and over which the United States has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources.” The opening clause of IRC § 638 specifically states that this definition of the United States applies only to the activities “with respect to mines, oil and gas wells, and other natural deposits.”

Analysis of the Definition of the US Continental Shelf

Two aspects need to be noted with respect to the definition above. First, the reference to international tax law means that the US government considers 200 miles of land underneath the ocean as its territory (the so-called “Exclusive Economic Zone” or “EEZ”). An interesting assumption that underlies IRC § 638 is that the continental shelf and the EEZ are the same.

Second, I want to emphasize that this is the definition that is tied to land only, not the water above the land – even more precisely, to certain activities on the ocean’s floor rather than in the water. This is a highly important aspect of IRC § 638, because it produces interesting results.

On the one hand, anyone (including foreign vessels and foreign contractors) drilling or exploring oil in the US continental shelf is considered to be engaged in a trade or business in the United States, which subjects these individuals and companies to US income tax. This also means that US tax withholding needs to be done with respect to foreign contractors. Moreover, even personal property (located over the US continental shelf) of a taxpayer engaged in the drilling or the exploration of the US continental shelf would most likely be classified as US personal property within the meaning of IRC § 956.

On the other hand, fishing in a boat in the same zone will not be considered as an activity within the United States, because it is not linked to mines, oil and gas wells, and other natural deposits.

This means that the application of the US Continental Shelf’s definition of the United States depends on the activity of the taxpayer, not just his location.

US Continental Shelf Rules and Foreign Countries

There is one more interesting aspect of the US continental shelf definition of the United States: its application to foreign countries. The first part of IRC § 638(2) states that the same definition of the continental shelf will also apply to foreign countries – i.e. the seabed and subsoil adjacent to the foreign country or possession and over which the country has EEZ rights.

At the end, however, IRC § 638(2) contains an interesting limitation: “ but this paragraph shall apply in the case of a foreign country only if it exercises, directly or indirectly, taxing jurisdiction with respect to such exploration or exploitation.” In other words, if a foreign country exercises its taxing jurisdiction over the continental shelf, then it is considered to be part of a foreign country. Otherwise, it will be considered as “international waters” (since it is also outside of the US continental shelf).

Contact Sherayzen Law Office for Professional Help with US Tax Issues

The definition of the United States in the context of the US continental shelf is just one of many examples of the enormous complexity of US tax laws. While even US citizens with domestic assets only have to struggle with these issues, the complexity of US tax laws is multiplied numerous times when one deals with a foreign individual/company or even US taxpayers with foreign assets. It is just too easy to get yourself into trouble.

This is why you need the help of the professional international tax law firm of Sherayzen Law Office. Our firm specializes in helping US and foreign taxpayers with their annual tax compliance, tax planning and dealing with past US tax noncompliance.

Contact Sherayzen Law Office Today to Schedule Your Confidential Consultation!