721.8 kB - Poledna | Boss | Kurer

More documents

Recommendations

Info

Exceptions Aimed At Foreign PayeesMost states permit a deduction for interest expensesor intangible expenses paid to a related foreignperson, but generally only if one or more of thefollowing requirements are met: (1) the recipient'sincome is subject to tax in a foreign country, (2)the recipient resides in a foreign country that hasan income tax treaty with the United States, (3) thetransaction is at arm's length, or (4) the transactionhas a business purpose other than tax avoidance.The specific requirements for the foreign payee exceptionvary from state to state, as illustrated by thefollowing examples:Georgia. The recipient is domiciled in a foreigncountry that has a comprehensive income taxtreaty with the United States, the expenses arearm's-length amounts, and the transaction has avalid business purpose. 36Illinois. The recipient's income is subject to incometax in a foreign country. 37Indiana. The recipient's income is subject toincome tax in a foreign country that is the recipient'scommercial domicile, the terms arecomparable to an arm's-length transaction, andthe principal purpose of the transaction is not taxavoidance. 38Massachusetts. In the case of interest expenses, therecipient's interest income is subject to income taxin a foreign country at a rate that is with withinthree percentage points of the state's statutory taxrate, the transaction reflects an arm's-length rateof interest and terms, and the principal purposeof the transaction is not tax avoidance. 39New York. The recipient's income is subject toincome tax in a foreign country that has a comprehensiveincome tax treaty with the UnitedStates, and is taxed at a rate at least equal to thetax rate imposed by the state. 40Virginia. In the case of intangible expenses, therecipient s income is subject to income tax in aforeign country that has a comprehensive incometax treaty with the United States. 41Many states that provide an exception for foreignpayees often require that the payee reside in a foreigncountry that has entered into a "comprehensiveincome tax treaty" with the United States. Table4 provides a listing of such countries, as defined byCode Sec. 1(h) . Many states also require that therelated party transaction giving rise to the interestexpenses or intangible expenses have a businesspurpose other than tax avoidance or that the principalpurpose of the transaction is not tax avoidance.Some states provide statutory definitions of a validbusiness purpose. For example, New York defines a"valid business purpose" as "one or more businesspurposes, other than the avoidance or reductionof taxation, which alone or in combination constitutethe primary motivation for some businessactivity or transaction, which activity or transactionchanges in a meaningful way, apart from taxeffects, the economic position of the taxpayer." 4246
Table 4. Comprehensive Income Tax Treaties with the United StatesThat Include Exchange of Information ProvisionAustralia Germany Luxembourg South AfricaAustria Greece Malta SpainBangladesh Hungary Mexico Sri LankaBulgaria Iceland Morocco SwedenBarbados India Netherlands SwitzerlandBelgium Indonesia New Zealand ThailandCanada Ireland Norway Trinidad and TobagoChina Israel Pakistan TunisiaCyprus Italy Philippines TurkeyCzech Republic Jamaica Poland UkraineDenmark Japan Portugal United KingdomEgypt Kazakhstan Romania VenezuelaEstonia Korea Russian FederationFinland Latvia Slovak RepublicFrance Lithuania SloveniaSource: IRS Notice 2011-64 (Aug. 18, 2011), which provides a listing of comprehensive income tax treatiesthat meet the requirements for a preferential tax rate on qualified dividends under Code Sec. 1(h) .Other ExceptionsAnother common exception to the automatic addbackrequirement applies if the related payee s correspondingincome is subject to tax in a U.S. state. Aswith the exception for payments to related foreignpersons, the specific requirements vary from state tostate, but generally include one or more of the followingfactors: (1) the recipient's income is subjectto state tax at some minimum tax rate, (2) the transactionis at arm's length, and/or (3) the transactionhas a business purpose other than tax avoidance.A third common exception to the automatic addbackrequirement is the conduit payment exception,under which a state permits a deduction for relatedparty interest expenses or intangible expenses if inthe same tax year the related payee pays the amountto an unrelated person and tax avoidance was not aprincipal purpose of the related party payment. Insuch situations, the related payee serves as a conduitfor the taxpayer s payment of interest or intangibleexpenses to an unrelated third party. An example ofa conduit payment arrangement is centralized cashmanagement, where the excess cash generated bysome operating affiliates is used to pay the expensesof other operating affiliates.Many states also provide a catch-all relief provision,under which the addback of related party expensesis not required if the taxpayer can establish that theadjustment produces an "unreasonable result." 43Finally, as summarized in Table 3, states provide47
Page 1 and 2: GLOBAL TAX WEEKLYa closer lookISSUE
Page 3 and 4: GLOBAL TAX WEEKLYa closer lookISSUE
Page 5 and 6: FEATURED ARTICLESISSUE 30 | JUNE 6,
Page 7 and 8: taxation treaties concluded by Swit
Page 13 and 14: UK, its offshore dependencies, and
Page 15 and 16: financing and all forms of financia
Page 17 and 18: Th e Government pointed out in part
Page 19 and 20: Talks are now underway. The TIEA wi
Page 21 and 22: through which they can clamber in o
Page 23 and 24: fi nally, and most egregiously, the
Page 25 and 26: office space, or own tangible asset
Page 27 and 28: extended for 2 years in December 20
Page 29 and 30: Financial transactions ( e.g. inter
Page 31 and 32: OECD Section E - Redraft On Safe Ha
Page 33 and 34: suggests that the following items m
Page 37 and 38: State Interest And IntangibleExpens
Page 39 and 40: States generally define "intangible
Page 41 and 42: Code Sec. 1563(controlledgroup)Stat
Page 43 and 44: ConnecticutGeorgiaIllinoisIndianaRe
Page 45: Rhode IslandTennesseeVirginiaWest V
Page 49 and 50: include federal interest income, st
Page 51 and 52: Recurring IssuesRestructuring of th
Page 53 and 54: M&A. Nick has extensive experience
Page 55 and 56: and consumers." As Germany and Chin
Page 57 and 58: on many levels. The panel found tha
Page 59 and 60: equirements placed on the states, i
Page 61 and 62: NEWS ROUND-UP: COUNTRY FOCUS - ITAL
Page 63 and 64: NEWS ROUND-UP: REAL ESTATE AND PROP
Page 65 and 66: ates - such that, in 2014, the 4 pe
Page 67 and 68: NEWS ROUND-UP: FTTISSUE 30 | JUNE 6
Page 69 and 70: NEWS ROUND-UP: ENVIRONMENTAL TAXESI
Page 71 and 72: Finally, the Federal Council veheme
Page 73 and 74: Singapore Plugs Benefits For SMEsOf
Page 75 and 76: TAX TREATY ROUND-UPISSUE 30 | JUNE
Page 77 and 78: CONFERENCE CALENDARISSUE 30 | JUNE
Page 79 and 80: Key speakers: John Capasso (Alvarez
Page 81 and 82: Key speakers: TBA6/27/2013 - 6/27/2
Page 83 and 84: 6/14/2013 - 6/14/2013http://www.con
Page 85 and 86: THE CYPRUS BAIL-OUT ANDFOREIGN CLIE
Page 87 and 88: Chair: Jonathan Levy (Partner, Reyn
Page 89 and 90: IN THE COURTSISSUE 30 | JUNE 6, 201
Page 91 and 92: on including the profit from the do
Page 93 and 94: deduct VAT as a result of incomplet
Page 95 and 96: where the taxpayer had somehow offs
Page 97 and 98:
een paid in the destination State.
Page 99 and 100:
that Spain has gone its own way fir
show all

721.8 kB - Poledna | Boss | Kurer

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?