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SLO’s 2017 Seminar on Business Lawyers’ International Tax Mistakes

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On February 23, 2017, Mr. Eugene Sherayzen, an international tax lawyer and owner of Sherayzen Law Office (“SLO”), conducted a seminar titled “Top 5 International Tax Mistakes Made by Business Lawyers”. The seminar was sponsored by the Corporate Counsel Section and International Business Law Section of the Minnesota State Bar Association.

Mr. Sherayzen commenced the seminar by asking a question about why business lawyers should be concerned with making international tax mistakes. After identifying the main answers, the tax attorney stated that he would focus on the strategic mistakes, rather than any specific U.S. international tax requirements.

Mr. Sherayzen first discussed the Business Purity Trap, a situation where business lawyers view a business transaction as something exclusively within the business law domain and with no relation whatsoever to U.S. tax law. The tax attorney stated that all business transactions have tax consequences, even if the effect is not immediate and there is no actual income tax impact.

Then, Mr. Sherayzen discussed the Tax Dabble Trap. This trap describes a situation where a business lawyer attempts to provide an advice on an international tax issue. The tax attorney explained why business lawyers often fall into this trap and the potentially disastrous consequences this trap may have for the business lawyers’ clients.

The Tax Law Uniformity Trap was the third trap discussed by the tax attorney. One of the most common international tax mistakes that business lawyers (and also many accountants) make is to believe that U.S. domestic tax law and U.S. international tax law are similar. Mr. Sherayzen also pointed out that there is a variation on this trap with respect to foreign owners of U.S. entities.

The discussion of the fourth trap, the Tax Professional Equality Trap, turned out be very fruitful. Mr. Sherayzen drew a sharp distinction between the role played by a general accountant versus the role of an international tax attorney. He also specifically focused on the potentially disastrous consequences the reliance on a domestic accountant may have in the context of offshore voluntary disclosures.

Finally, Mr. Sherayzen discussed the Foreign Exceptionalism Trap. This trap deals with a false belief that certain foreign transactions that occur completely outside of the United States have no tax consequences for the U.S. clients involved in these transactions. Mr. Sherayzen also pointed out that danger of relying solely on foreign accountants and lawyers in this context.

He concluded the seminar with a short examination of another “bonus” tax trap called the Linguistic Uniformity Trap. The description of all tax traps was accompanied by real-life examples from Mr. Sherayzen’s international tax law practice.

Contact Sherayzen Law Office for Professional U.S. International Tax Advice to Avoid Costly International Tax Mistakes

If you are a business lawyer who deals with international business transactions or transactions involving tax residents of a foreign country, please contact Sherayzen Law Office to avoid costly international tax mistakes. Our law firm has worked with many business lawyers, helping them to properly structure international business transactions in a way that avoids making international tax mistakes. Remember, it is much easier and cheaper to avoid making international tax mistakes than fixing them later.

Contact Us Today to Schedule Your Confidential Consultation!

2018 Egyptian Tax Amnesty | International Tax Lawyer & Attorney

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Egyptian Law 174 of 2018 announced the 2018 Egyptian Tax Amnesty program that commenced on August 15, 2018. Egypt is no stranger to tax amnesties; in fact, the very first documented tax amnesty program in the world is believed to be the one announced by Ptolemy V Epiphanes in 197 B.C.

The 2018 Egyptian Tax Amnesty program is a continuation of the worldwide trend to fight tax noncompliance with amnesty programs. If they are structured well (such as the US OVDP) and combined with effective tax administration, these amnesty programs can be highly effective, generating large revenue streams for national governments. There are, however, numerous examples of failed amnesty programs (like the ones in Pakistan) due to either poor structuring or other factors. Let’s acquaint ourselves with the 2018 Egyptian Tax Amnesty program.

2018 Egyptian Tax Amnesty: Term

The 2018 Egyptian Tax Amnesty program will last a total 180 days starting August 15, 2018.

2018 Egyptian Tax Amnesty: Taxes and Penalties Covered

The 2018 Egyptian Tax Amnesty program will cover stamp duty, personal income tax, corporate income tax, general sales tax, and VAT liabilities that matured before August 15, 2018.

The interest and penalties on the outstanding tax liabilities related to the listed taxes will be reduced according to a fairly rigid schedule which benefits most taxpayers who go through the program within 90 days after the Program opens on August 15, 2018. These taxpayers can expect a whopping 90% reduction in penalties and interest!

If a taxpayer misses the 90-day deadline, but settles his outstanding tax debts within 45 days after the deadline, he will be entitled to a waiver of 70% of the tax debt and interest.

If a taxpayer misses both, the 90-day deadline and the 45-day deadline, but settles his outstanding tax debts within 45 days after the 70%-waiver deadline (i.e. 135 days after August 15, 2018), he can still benefit from a 50% reduction in tax penalties and interest.

US Tax Amnesty & 2018 Egyptian Tax Amnesty

US taxpayers who participate in the Egyptian Tax Amnesty should also consider pursuing a voluntary disclosure option in the United States with respect to their unreported Egyptian income and Egyptian assets. There is a risk that the information disclosed in the Egyptian Tax Amnesty may be turned over to the IRS, which may lead to an IRS investigation of undisclosed Egyptian assets and income for US tax purposes.

While the IRS Offshore Voluntary Disclosure Program closes on September 28, 2018, there is still a little time left to utilize this option. Additionally, US taxpayers should consider other relevant voluntary disclosure options, such as Streamlined Offshore Compliance Procedures.

Contact Sherayzen Law Office for Professional Help With Offshore Voluntary Disclosure of Egyptian Assets in the United States

If you have undisclosed Egyptian assets and/or Egyptian income, you should contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers around the world to successfully settle their US tax noncompliance, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

NPB Neue Privat Bank Signs Non-Prosecution Agreement | OVDP Lawyer

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On July 18, 2018, the US Department of Justice (the “DOJ”) announced that it signed a Non-Prosecution Agreement with NPB Neue Privat Bank AG (“NPB”). Let’s explore in more detail the history of this case and its resolution.

Background Information: 2001 QI Agreement between NPB and the IRS

NPB is a Swiss private bank based in Zurich. In 2001, NPB entered into a Qualified Intermediary Agreement (“QI Agreement”) with the IRS, which had extensive requirements for US tax withholding and US information reporting. Among these requirements was the obligation for NPB to ask its new and existing US clients to complete IRS Forms W-9 if they engaged in US securities transactions. In such cases, NPB was required to report the relevant transactions on IRS Form 1099.

Based on the QI Agreement, NPB arrived at a paradoxical conclusion that became prevalent among Swiss banks in the early 2000s. It believed that, as long as the bank complied with its QI Agreement, it could continue to accept and service US taxpayers even if NPB knew or had reason to believe that these taxpayers engaged in tax evasion. In other words, the bank could service such clients as long as they were not trading US-based securities or the investment accounts were nominally structured in the name of a foreign-based entity. It does not appear that an opinion of a legal counsel was secured in support for this belief.

Background Information 2009: NPB Accepts Noncompliant US Taxpayers

Prior to 2009, NPB had relatively few US clients; in fact, at the close of 2008, all of the NPB accounts owned by its US clients held approximately 8 million Swiss francs in assets.

The situation changed dramatically in 2009. As a result of the UBS case and other signs of increased IRS activity with respect to undisclosed foreign accounts, major Swiss banks started closing accounts owned by US taxpayers, creating a flood of potential clients for NPB. In early 2009, certain external-asset managers asked the bank to give refuge to these taxpayers and their money. The managers told the bank that they asked their US clients to become tax compliant, but some of them still had not done so.

On March 9, 2009, the NPB’s board of directors unanimously voted to allow US taxpayers to open accounts with the bank, even for those clients who fled other Swiss banks. As a result, by the end of 2009, NPB accumulated close to 450 million Swiss francs in accounts owned or beneficially owned by US taxpayers. The DOJ estimated that only 69% of these assets were reported to the US government at that time.

It appears that the bank’s executives had hoped that their US clients would eventually come into full compliance with US tax laws, but no written or formal policy to encourage or mandate such compliance was ever created.

Years 2010-2012: NPB Stops Accepting US Clients and Implements Some Procedures to Encourage US Tax Compliance

In August of 2010, as a result of the fact that US tax enforcement made the environment for Swiss banks which accepted noncompliant US taxpayers more and more dangerous, NPB decided not to open any new accounts for US clients who were noncompliant with US tax laws.

This decision (which was not reduced to writing) did not stop the bank from continuing to service its already existing noncompliant US taxpayers. Moreover there were at least 89 US-related accounts, both declared and undeclared, held in the name of offshore structures, such as trusts or corporations. These offshore structures were domiciled in countries such as Panama, Liechtenstein, the British Virgin Islands, Hong Kong, and Belize. All of these structures, however, were set up before the clients were accepted by the bank.

Starting August of 2010, NPB finally started to require new US clients to provide Forms W-9. The existing clients were required to submit Form W-9 only starting in the summer of 2011. The bank started to require evidence of tax compliance from its external asset managers only in August of 2011.

Swiss Bank Program: NPB is a Category 1 Bank

On August 29, 2013, the DOJ announced the Swiss Bank Program, but it declared NPB as a Category 1 bank ineligible to participate in the Program. By that time, the DOJ already started its investigation of the bank and its activities with respect to noncompliant US taxpayers.

Non-Prosecution Agreement with the DOJ

NPB cooperated throughout the DOJ investigation. In fact, the bank turned over the identities of US account holders and beneficial owners of more than 88% of the US-held assets.

The parties finally reached the agreement on July 18, 2018, when they signed the Non-Prosecution Agreement. Under the Agreement, the DOJ promised not to prosecute NPB. In return, the bank agreed to pay a penalty of $5 million. The bank further agreed to cooperate in any related criminal or civil proceedings as well as demonstrate that it implemented the necessary procedure to stop misconduct involving undeclared US-related accounts.

Contact Sherayzen Law Office for Help With the Voluntary Disclosure of Your Foreign Accounts

The NPB-DOJ Non-Prosecution Agreement demonstrates the continued IRS focus on US international tax enforcement. The IRS has devoted considerable resources to this area and all noncompliant US taxpayers around the world are at a significant risk of discovery, not just taxpayers with undisclosed Swiss bank accounts.

If you have undisclosed foreign accounts, contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options. Time is of the essence: the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) will close on September 28, 2018.

Contact Us Today to Schedule Your Confidential Consultation!

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!