us policy for inward/outward investment

US Policy for Inward and Outbound Investment

Q&A

Presented ByRobert J. Kiggins

www.istructuring.com

Question: When will the US Adopt International Tax Reform?


Answer: I See No US Tax Reform Until After 2016 Elections

– Dems And Republicans Gridlock In US Congress

– Neither Party Can Afford To Alienate Well Heeled Campaign Donors• (US$5BBN Cost estimated for US Presidential

Election alone) • Super PAC’s essentially allow for Unlimited

Special Interest Campaign Donations


So the Fight is On2015 to 2016


But 2017??You never know.


Question: What does Donald Trump have to say about US tax reform?


Donald Trump SpeaksAll of America will say “I win” when I am elected!


Answer: Trump Would:1. Cut the US Corporate Rate to 15%2. Allow US Companies to Repatriate on a One Time Only Basis

At 10%3. After that no More Deferrals on US company income earned

overseas –4. But Trump would Keep the Foreign Tax Credit

One Small ProblemHe’s Not Electable


Question: Are There Any Areas Of Tax Reform That Could Go Forward in The US Before 2016?


Answer: “Perhaps”. 2 Areas that Don’t Immediately Need US Congress

1. US Model Income Tax Treaty2. Country By Country Reporting – Not until

2017 though

TO AMPLIFY:


US MODEL INCOME TAX TREATY PROPOSALS

Five basic areas are covered by the Proposals: Feller -

1. Limiting benefits from “special tax regimes” offering certain taxpayers preferential rates of taxation (e.g. below 15%) with regard to mobile income such as interest and royalties.

2. Reduction of benefits from a corporate inversion by imposing full U.S. withholding (currently at a rate of 30%) on earnings stripping type payments such as dividends, interest, and royalties made by certain companies that have engaged in inversions.

3. Prevention of use of permanent establishment concepts to achieve non-taxation or artificially low taxation.4. Adoption of a broad “derivative benefits” test to permit companies to qualify for treaty benefits that

previously could not – essentially no longer restricted to NAFTA (North America Free Trade Agreement) or EU members

5. A provision for subsequent changes in law of a treaty partner which would deny treaty benefits if the highest marginal rate of tax of the treaty partner falls below 15%.

Conclusion: It can be expected that the model provisions in some form would become part of the basis for negotiating future tax treaties.

This is an admin action – not Congress

BUT , actual DTT Treaties will require 2/3 US Senate Approval.


COUNTRY BY COUNTRY REPORTING (BEPS ACTION 13)

– US Treasury plans to implement this part of BEPS in 2017 in lock step with the BEPS timetable.

– The IRS takes the position that it currently has the legislative authority to implement the CbC reporting requirements under Sections 6001 and 6038(a) of the Internal Revenue Code

– The IRS intends to share the country-by-country reports with other countries’ tax administrations under U.S. bilateral tax treaties and tax information exchange agreements.

– But there is some thinking that the IRS— aware of the compliance difficulties created by implementation of FATCA—may take a cautious approach when issuing the new rules.


Question: Can You Tell Us About Inversions?


You Turn Something Upside Down That’s American

35% tax rate


Like a US Company

35% tax rate


Question: What is the Viability of Inversions as a strategy for US companies?


Answer: Inversions are Still Going Strong• Driven by high US corporate tax rate (35%) on all worldwide income• Pfizer as of early this month in talks to combine with Allergan, the Ireland-

based pharmaceutical company.• Pfizer CEO Ian Read (Scottish born) said:

– “The employees of Pfizer want to have a robust successful company in the future. Their jobs and their careers depend upon it ... To be successful in the future, we need to have a competitive tax rate. So that is why it's an important issue for us.”

• Ireland provides one of the most attractive havens for tax-inverted deals, given the country's low corporate tax rate of 12.5%. (Going down to 6.25% under the new “knowledge development box”?)

– This could double the amount of money saved on taxes, given Pfizer's current effective tax rate is 25%.

• This would allow Pfizer a better option for cash already held overseas instead of repatriation.


The Reason: Gridlock in the US Congress• Neither Democrats nor Republicans like inversions, but they disagree on

what to do about them– Republicans call them the inevitable consequence of a flawed tax system, and

say the only solution is a full revamp of the tax code, including lowering the corporate rate and limiting taxes on foreign profits.

– Although some Democrats agree on the broad outlines of a corporate-tax revision — Obama’s 2016 budget calls for lowering domestic and foreign rates — the parties disagree on so many other things that there’s little chance that a big tax bill will pass Congress any time soon.

• In the meantime, tightened rules have made the deals less attractive, but the Obama administration has warned that only legislation could stop them completely.

• One proposal from Congressional Democrats would prevent $19.5 billion from escaping the U.S. tax system over the next decade.

Proposals like this are unlikely to clear a divided Congress.


Question: What Amount of USA company profits are being held offshore?


Answer: – USD 2.1 Trillion!!– Repatriation would cost them USD 620

Billion in US Tax– Apple alone holds USD 181.1 Billion

Offshore– Repatriation Would Cost Apple USD 59.2

Billion in US Taxes


Question: Can You Tell Us About The Double Irish with A Dutch Sandwich?


1

2

345

6

7

SURE. IT’S EASY


1

2

345

6

7

Well Maybe Not that Easy


Question: What are the latest developments with the Double Irish with a Dutch?


• Ireland has killed the tax haven leg• But is lowering rates to 6.25% on

its knowledge development box• BEPS Action 3 “modified hybrid

mismatch” (See Figure 2.1 in Action 3) would also kill this if adopted by the US


Question: You’ve talked lot about Outbound. What about Inbound?

E.G. Can I just file my W-8BEN or W-8BENE to claim US Treaty Benefits with Whatever I need to Say to Qualify?


NO. BIG BROTHER IS WATCHING!!


W-8BEN is the Form used for Individuals claiming benefits of a Tax Treaty with the USA

W-8BENE is the Form used for Entities claiming benefits of a Tax Treaty with the USA

Each is also now used (in many cases) to show that the person making the filing who holds money in an offshore account is not a US person


• WHY WOULD YOU WANT TO DO THIS (Claim to be a Resident of Country X) – Treaties between the X’s of the world and the US can reduce w/h down from 30% to 15%-10%-5%-even 0%– BUT LOB Provisions in US Tax Treaties to Prevent Treaty Shopping – A sufficient % of UBOs must have a real nexus (e.g. tax residence or business

activity) with the treaty country or a real nexus with a jurisdiction in essence having local tax rates no higher than the treaty country– Or under FATCA the US will seek back taxes that you did not pay from foreign accounts– Or if you are a FFI or the like – you will be withheld on at 30% – Nominees and shells don’t work

• YOUR W-8BEN WILL BE SCRUTINIZED

• Data will be cross checked – OFAC, AML, passports, reports, credit reports, marketing reports

• Red Flags

– The permanent residence address is not in the treaty country

– Payer (withholding agent), notified of a new permanent residence address that is not in the treaty country.

– The mailing address is not in the treaty country .

– The account holder has standing instructions for the withholding agent to pay amounts from its account to an address outside, or an account maintained outside, the treaty country

– Critical parts of the treaty claim are missing in the treaty sections of Forms W-8BEN (Individual) or W8BEN-E (entity), such as a missing TIN (U.S. or foreign)where one is required for the type of treaty claim.

90 days to cure but full w/h (30%) will be required if payment is made in the meantime


• Advice – Don’t do the W-8BEN or even more so the W-8BEN-E on your own.

• These are very complex especially the W-8BEN-E.

• Very EZ to make technical mistakes • Cultural factor – The W-8’s are written

in American. Check the box in American is “tick” the box in English


Robert J. KigginsCulhane Meadows, PLLC

90 Park AvenueNew York, NY 10017

[email protected]


mailto:[email protected]

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