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2017 Tax Reform Seminar | U.S. International Tax Lawyer & Attorney

On April 19, 2018, Mr. Eugene Sherayzen, an international tax lawyer, co-presented with an attorney from KPMG at a seminar entitled “The 2017 U.S. Tax Reform: Seeking Economic Growth through Tax Policy in Politically Risky Times” (the “2017 Tax Reform Seminar”). This seminar formed part of the 2018 International Business Law Institute organized by the International Business Law Section of the Minnesota State Bar Association.

The 2017 Tax Reform Seminar discussed, in a general manner, the main changes made by the 2017 Tax Cuts and Jobs Act to the U.S. international tax law. Mr. Sherayzen’s part of the presentation focused on two areas: the Subpart F rules and the FDII regime.

Mr. Sherayzen provided a broad overview of the Subpart F rules, the types of income subject to these rules and the main exceptions to the Subpart F regime. He emphasized that the tax reform did not repeal the Subpart F rules, but augmented them with the GILTI regime (the discussion of GILTI was done by the KPMG attorney during the same 2017 Tax Reform Seminar).

Then, Mr. Sherayzen turned to the second part of his presentation during the 2017 Tax Reform Seminar – the Foreign Derived Intangible Income or FDII. After reviewing the history of several tax regimes prior to the FDII, the tax attorney concluded that the nature of the current FDII regime is one of subsidy. In essence, FDII allows a US corporation to reduce its corporate income by 37.5% of the qualified “foreign derived” income (after the year 2025, the percentage will go down to 21.875%). Mr. Sherayzen explained that, in certain cases, there is an additional limitation on the FDII deduction.

Qualifying income includes: sales to a foreign person for foreign use, dispositions of property to foreign persons for foreign use, leases and licenses to foreign persons for foreign use and services provided to a foreign person. There are also a number exceptions to qualifying income.

Mr. Sherayzen concluded his presentation at the 2017 Tax Reform Seminar with a discussion of the reaction that FDII produced in other countries. In general this reaction was not favorable; China and the EU even threatened to sue the United States over what they believed to be an illegal subsidy to US corporations.

FACC Seminar (French-American Chamber of Commerce Seminar) | News

On October 19, 2017, Mr. Eugene Sherayzen, an owner of Sherayzen Law Office and a highly experienced international tax attorney, conducted a seminar titled “Introduction to U.S. International Tax Compliance for U.S. Owners of Foreign Businesses” at the French-American Chamber of Commerce in Minneapolis, Minnesota (the “FACC Seminar”). The audience of the FACC Seminar consisted of business lawyers and business owners.

The FACC Seminar commenced with the breakdown of the title of the seminar into various parts. Mr. Sherayzen first analyzed the tax definition of “owner” and contrasted it with the legal definition of owner. Then, he identified who is considered to be a “U.S. owner” under the U.S. international tax law.

During the second part of the FACC Seminar, Mr. Sherayzen discussed the definition of “foreign” (i.e. foreign business) and the definition of the concept of “business”, contrasting it with a foreign trust. At this point, the tax attorney also acquainted the attendees with the differences between the common-law and the civil-law definitions of partnership.

Then, the focus of the FACC Seminar shifted to the discussion of the U.S. international tax requirements. The tax attorney stated that he would discuss four major categories of U.S. international tax requirements: (1) U.S. tax reporting requirements related to ownership of a foreign business; (2) U.S. owner’s tax reporting requirements related to assets owned by a foreign business; (3) U.S. tax reporting requirements related to transactions between a foreign business and its U.S. owners; and (4) income recognition as a result of anti-deferral regimes.

Mr. Sherayzen first discussed the U.S. tax reporting requirement related to the ownership of a foreign business. In particular, he covered Forms 5471, 8865 and 8858. The tax attorney also introduced the catch-all Form 8938. In this context, he also explained the second category of U.S. international tax requirements concerning the assets owned by a foreign business.

The next part of the FACC Seminar was devoted to the U.S. tax reporting requirements concerning transactions between a foreign business and its U.S. owners. Mr. Sherayzen explained in detail Form 926 and Schedule O of Form 8865, including the noncompliance penalties associated with these forms. The tax attorney also quickly reviewed Form 8886 for participating in transactions related to tax shelters. The discussion of the complex penalty system of Form 8886 surprised the audience.

The last part of the FACC Seminar was devoted to the income tax recognition and other U.S. tax reporting requirements that arise by the operation of anti-deferral regimes. Both, the Subpart F and the PFIC regimes were covered by the tax attorney.

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

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!

October 15 2018 Deadline for FBARs and Tax Returns | US Tax Law Firm

With just a week left before October 15 2018 deadline, it is important for US taxpayers to remember what they need to file with respect to their income tax obligations and information returns. I will concentrate today on four main requirements for US tax residents.

1. October 15 2018 Deadline for Federal Tax Returns and Most State Tax Returns

US taxpayers need to file their extended 2017 federal tax returns and most state tax returns by October 15, 2018. Some states (like Virginia) have a later filing deadline. In other words, US taxpayers need to disclose their worldwide income to the IRS by October 15 2018 deadline. The worldwide income includes all US-source income, foreign interest income, foreign dividend income, foreign trust distributions, PFIC income, et cetera.

2. October 15 2018 Deadline for Forms 5471, 8858, 8865, 8938 and Other International Information Returns Filed with US Tax Returns

In addition to their worldwide income, US taxpayers also may need to file numerous international information returns with their US tax returns. The primary three categories of these returns are: (a) returns concerning foreign business ownership (Forms 5471, 8858 and 8865); (b) PFIC Forms 8621 – this is really a hybrid form (i.e. it requires a mix of income tax and information reporting); and (c) Form 8938 concerning Specified Foreign Financial Assets. Other information returns may need to be filed by this deadline; I am only listing the most common ones.

3. October 15 2018 Deadline for FBARs

As a result of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, the due date of FinCEN Form 114, The Report of Foreign Bank and Financial Accounts (also known as “FBAR”) was adjusted (starting tax year 2016) to the tax return deadline. Similarly to tax returns, the deadline for FBAR filing can also be extended to October 15; in fact, under the current law, the FBAR extension is automatic. Hence, October 15 2018 deadline applies to all 2017 FBARs which have not been filed by April 15, 2018.

The importance of filing this form cannot be overstated. The FBAR penalties are truly draconian even if they are mitigated by the IRS rules. Moreover, an intentional failure to file the form by October 15 2018 may have severe repercussions to your offshore voluntary disclosure options.

4. October 15 2018 Deadline for Foreign Trust Beneficiaries and Grantors

October 15 2018 deadline is also very important to US beneficiaries and US grantors (including deemed owners) of a foreign trust – the extended Form 3520 is due on this date. Similarly to FBAR, while Form 3520 is not filed with your US tax return, it follows the same deadlines as your income tax return.

Unlike FBARs, however, Form 3520 does not receive an automatic extension independent of whether you extended your tax return. Rather, its April 15 deadline can only be extended if your US income tax return was also extended.

Sherayzen Law Office warns US taxpayers that a failure to file 2017 Form 3520 by October 15 2018 deadline may result in the imposition of high IRS penalties.

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

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.