Completing Form 8833 Treaty-Based Return Position Disclosure: Claiming Income Tax Treaty Benefits

Transcription

1 Completing Form 8833 Treaty-Based Return Position Disclosure: Claiming Income Tax Treaty Benefits WEDNESDAY, NOVEMBER 7, 2018, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours. To earn credit you must: Participate in the program on your own computer connection (no sharing) if you need to register additional people, please call customer service at ext.1 (or ext. 1). Strafford accepts American Express, Visa, MasterCard, Discover. Listen on-line via your computer speakers. Respond to five prompts during the program plus a single verification code. To earn full credit, you must remain connected for the entire program. FOR LIVE PROGRAM ONLY WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations: -Call Strafford Customer Service x1 (or x1) For Assistance During the Live Program: -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.

2 Tips for Optimal Quality FOR LIVE PROGRAM ONLY Sound Quality When listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, please immediately so we can address the problem.

3 Completing Form 8833 Treaty-Based Return Position Disclosure NOVEMBER 7, 2018 Jack Brister, TEP, Partner International Wealth Tax Advisors, New York Kimberlee S. Phelan, CPA, MBA, Tax Partner WithumSmith+Brown, Princeton, N.J.

4 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

5 5 Completing Form 8833, Treaty-Based Return Position Disclosure: Claiming Income Tax Treaty Benefits Kimberlee S. Phelan, CPA, MBA, CGMA Partner, International Service Practice Leader WithumSmith+Brown, PC

6 <Company Introduction Name> 6

7 U.S. INCOME TAX TREATIES - INTRODUCTION Residents (not necessarily citizens) of foreign countries are taxed at reduced rates, or are exempt from U.S. taxes, on certain items of U.S.- source income Reciprocity: U.S. citizens/residents are also afforded reductions/exemptions Reduced rates/exemptions vary by country and by income type Individual state of the U.S. do not necessarily follow federal treaties 7

8 U.S. INCOME TAX TREATY COUNTRIES 8 Armenia Australia Austria Azerbaijan Bangladesh Barbados Belarus Belgium Bulgaria Canada China Cyprus Czech Republic Denmark Egypt Estonia Finland France Georgia Germany Greece Hungary Iceland India Indonesia Ireland Israel Italy Jamaica Japan Kazakhstan Korea Kyrgyzstan Latvia Lithuania Luxembourg Malta Mexico Moldova Morocco Netherlands New Zealand Norway Pakistan Philippines Poland Portugal Romania Russia Slovak Republic Slovenia South Africa Spain Sri Lanka Sweden Switzerland Tajikistan Thailand Trinidad Tunisia Turkmenistan Ukraine Union of Soviet Socialist Republics (USSR) United Kingdom United States Model Uzbekistan Venezuela

9 IRC SECTION (a) In general, each taxpayer who, with respect to any tax imposed by this title, takes the position that a treaty of the United States overrules (or otherwise modifies) an internal revenue law of the United States shall disclose (in such a manner as the Secretary may prescribe) such position (1) On the return of tax for such tax (or any statement to such return), or (2) if no return is required to be filed, in such form as the Secretary may prescribe. (b) Waiver Authority. The Secretary may waive the requirements of subsection (a) with respect to classes of cases for which the Secretary determines that the waiver will not impede the assessment and collection of tax.

10 TREASURY REGULATION SECTION Treaty-Based Return Positions (a) Reporting Rule (1) General Rule (i) (ii) effects (or potentially effects) a reduction in tax If no return, same timeline as calendar year taxpayer (2) Application (i) Adoption of return position (A) Tax Liability reported in current year, versus (B) Tax liability if Treaty did not exist (ii) Treaty alters scope (iii) Position UNLESS conclusion that no reporting required has a substantial probability of success (3) EXAMPLES 10

11 TREASURY REGULATION SECTION Example 1: X, a Country A corporation, claims the benefit of a provision of the income tax treaty between the United States and Country A that modifies a provision of the Code. The position does not result in a change of X s U.S. tax liability for the current tax year but does give rise to, or increases, a net operating loss which may be carried back (or forward) such that X s tax liability in the carryback (or forward) year may be affected by the position taken by X in the current year. X must disclose this treaty-based return position with its tax return for the current year. 11

12 TREASURY REGULATION SECTION Example 2: Z, a domestic corporation, is engaged in a trade or business is Country B. Country B imposes a tax on the income from certain of Z s petroleum activities at a rate significantly greater than the rate applicable to income from other activities. Z claims a foreign tax credit for this tax on its tax return. The tax imposed on Z is specifically listed as a creditable tax in the income tax treaty between the United States and County B; however, there is no specific authority that such tax would otherwise be a creditable tax for U.S. purposes under Sections 901 or 903 of the Code. Therefore, in the absence of the treaty, the creditability of this petroleum tax would lack a substantial probability of successful defense if challenged, and Z must disclose this treaty-based return position. 12

13 TREASURY REGULATION SECTION Treaty-Based Return Positions (b) Reporting Specifically Required (1) Nondiscrimination precludes application of the Code (2) FIRPTA reduced or modified (3) Branch profits tax; tax on excess interest (4) FDAP exemptions or reductions NOT reported on Form 1042S (5) ECI not from a PE and not subject to tax on a net basis (6) Source of Income (7) Grant of a Foreign Tax Credit (8) Residency (post 12/15/1997) 13

14 TREASURY REGULATION SECTION Treaty-Based Return Positions (c) Reporting Requirement Waived Generally FDAP and other income if proper withholding/reporting on Form 1042-S or less than $10,000 (d) Information to be Reported (3) In General (i) Permanent Establishment (ii) Single Item of Income (type) (iii) Foreign-Source Effectively Connected Income 14

15 Completing Form 8833 Treaty-Based Return Position Disclosure: Claiming Income Tax Treaty Benefits Strafford Publications Presented by: Jack R. Brister

16 Tax Treaties Three Primary Types of Tax Treaties Income Tax 50 treaties in force Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea (South Korea), Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan, Venezuela Gift and Estate Tax 17 treaties in force Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, United Kingdom 16

17 Tax Treaties Three Primary Types of Tax Treaties Social Security Tax 28 treaties in force Italy, Germany, Switzerland, Belgium, Norway, Canada, United Kingdom, Sweden, Spain, France, Portugal, Netherlands, Austria, Finland, Ireland, Luxembourg, Greece, South Korea, Chile, Australia, Japan, Denmark, Czech Republic, Poland, Slovak Republic, Hungary, and Brazil NOTE: AN INCOME TAX TREATY EXISTS BETWEEN THE U.S. AND BRAZIL BUT IT IS NOT IN FORCE. MANY PRACTITIONERS BELIEF THIS TREATY IS IN FORCE BUT IT DID NOT GET FINAL SIGN OFF BY THE SENATE FINANCE COMMITTEE. 17

18 Tax Treaties FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) NOTE: FATCA INTERGOVERNMENTAL AGREEMENTS MODEL 1 AND MODEL 2 BY DEFINITION ARE TREATIES. ARTICLE 2 OF THE VIENNA CONVENTION ON THE LAWS OF TREATIES, PROVIDES A TREATY IS AN INTERNATIONAL AGREEMENT (IN ONE OR MORE INSTRUMENTS, WHATEVER CALLED) CONCLUDED BETWEEN STATES GOVERNED BY INTERNATIONAL LAW. TODAY WE WILL FOCUS OUR TIME ON INCOME TAX AND GIFT AND ESTATE TAX TREATIES. 18

19 Tax Treaties TODAY S PRESENTATION WILL FOCUS ON: THE GIFT AND ESTATE TAX; AND INCOME TAX TREATIES 19

20 Estate and Gift Tax Treaty Treaty Benefits There is no model treaty but each treaty generally provides benefits to persons who meet a standing or situs requirement Standing Requirements Must satisfy two requirements Foreign or domestic taxes are covered by the treaty Each treaty expressly describes the applicable U.S. federal, estate, gift and generation skipping taxes and corresponding foreign taxes The person wishing to make a treaty claim must a member of persons covered by the treaty Resident of one of the contracting States Domicile Requirements Ability to claim benefits is generally based on domicile or habitual abode / residency in one of the contracting States The definition of habitual abode is generally a two factor test The existence of a residence; and The use of such residence is on more than a temporary basis (see each treaty for what constitutes more than temporary 20

21 Estate and Gift Tax Treaty General definitions As with income tax treaties each estate, gift and generation skipping tax treaty provide definitions that will apply throughout the treaty Situs Taxation is generally based on the situs of the decedent s assets For example Real property Business property of a Permanent Establishment Relief from double taxation Articulates who has primary taxing authority; and What relief must be provided by the other contracting State Note: Primary authority for taxing rights is determined on domicile and situs of assets 21

22 Estate and Gift Tax Treaty General definitions As with income tax treaties each estate, gift and generation skipping tax treaty provide definitions that will apply throughout the treaty Situs Taxation is generally based on the situs of the decedent s assets For example Real property Business property of a Permanent Establishment Relief from double taxation Articulates who has primary taxing authority; and What relief must be provided by the other contracting State Credits and Refunds Generally claim for credits and / or refunds must be made within a certain time period, 6 years for U.S. U.K., U.S. Germany and U.S. Sweden treaties Note: Primary authority for taxing rights is determined on domicile and situs of assets 22

23 Estate and Gift Tax Treaty Note: Primary authority for taxing rights is determined on domicile and situs of assets 23

24 Income Tax Treaties 24

25 Income Tax Treaties 25

26 Income Tax Treaties 26

27 Income Tax Treaty Articles Model Treaty The U.S. Treasury released the new MODEL INCOME TAX TREATY ( U.S. MODEL ) to incorporate certain policy considerations of Base Erosion and Profits Shifting (BEPS) initiative of the Organization for Economic Cooperation and Development (OCED) This is the U.S Treasuries starting point for negotiations with its treaty partners Treaty Articles Article 1 General Scope Primarily states that the treaty applies to residents of the contracting states Deductions under local law are allowed If the internal law (i.e., Code) provides better results a person may use the tax code to determine their liability The treaty may not restrict benefits provided under another agreement between the U.S. and the partner State Treaty applies to transparent structures but if local law treats entity as not transparent then income and deductions are treated as that of the entity and not the stakeholder. 27

28 Income Tax Treaty Articles Treaty Articles Article 2 Taxes Covered Primarily specifies the taxes applicable to the treaty with the exception of any thing covered under Articles 24 (Non-discrimination) and 26 (Exchange of Information) which may be broader Article 3 General Definitions Provides definitions and rules of interpretation applicable to the treaty Article 4 Resident Sets forth the rules for determining if a person is a resident. As a general matter only residents of the Contracting States may claim treaty benefits. Article 5 Permanent Establishment What constitutes doing business in a contracting state Applicable to Article 7 Also allows for reduced tax on dividends, interest and royalties (Articles 10, 11 and 12) so long as they are not associated with a PE Article 6 Income From Real Property Basically states that income is tax in the jurisdiction where the property is located Includes agriculture and forestry income 28 Defines real property

29 Income Tax Treaty Articles Treaty Articles Article 6 Income From Real Property Basically states that income is tax in the jurisdiction where the property is located Includes agriculture and forestry income Defines real property Article 7 Business Profits Contracting State may tax the profits of an entity situated in their jurisdiction Article 8 Shipping and Air Transport International shipping and aircraft profits are taxable by the Contracting where the entity is situated U.S. tax provides that international shipping and aircraft income is not subject to tax by the U.S. where the other jurisdiction provides similar exemption A tax return is required to be filed Article 9 Associated Enterprises Provides for adjustments where related entities are not engaging in transactions at arm s length 29

30 Income Tax Treaty Articles Treaty Articles Article 10 Dividends Provides for rules of taxation and reduced tax on dividends from entities situated in the Contracting State Article 11 Interest Generally grants state of residence taxing authority Article 12 Royalties Provides rules of taxation of royalties arising in one Contracting State and paid to a beneficial owner resident in the other Contracting State Article 13 Gains Primarily assigns taxing authority to state of residence or state of source Real property taxed where located Gains of an interest in a PE or its property is taxed where PE is located Gains from shipping and aircraft enterprises is taxed where the entity is resident Other gains are taxed based on residence Article 14 Income from Employment Employment income is generally apportioned based on where it is earned 30

31 Income Tax Treaty Articles Treaty Articles Article 15 Directors Fees Generally taxable in the jurisdiction where the entity is resident Article 16 Entertainers and Sportsmen Taxation of entertainers and sportsmen only whether self-employed or an employee and supersedes Articles 7 (Business Profits) and 14 (Income from employment) Others involved such as producers, directors, etc. are governed by Articles 7 and 14 Article 17 Pensions, Social Security, Annuities, Alimony, and Child Support Generally taxable in the jurisdiction of residence Social security is taxable in the jurisdiction where payment is derived Annuities are taxable in the jurisdiction where beneficial owner is resident Article 18 Pension Funds Generally taxable by resident jurisdiction when a distribution is received and not before 31

32 Income Tax Treaty Articles Treaty Articles Article 19 Government Service Compensation is taxable in the jurisdiction for whom services are being rendered for, except if the services are performed in the other State and the person is a resident except in the case to solely render services for home jurisdiction Government pensions are taxed by the source State Article 20 Students and Trainees Rules for host country taxation of visiting students and business trainees If certain tests are met the visitor will be exempt from taxation in the host country with respect to certain income Article 21 Other Income Generally assigns taxing authority to the resident state of the beneficial owner of the income Article 22 Limitation on Benefits Intended to prevent treaty shopping Sets forth objective tests If a resident of a Contracting State satisfies one of the tests they are entitled to the benefits of the treaty 32

33 Income Treaty Articles Treaty Articles Article 23 Relief from Double Taxation U.S. has internal foreign credit Provides treaty partner will also provide credit / exemption or combination Article 24 Non-discrimination Article 25 Mutual Agreement Procedure Provides authority for cooperation to resolve disputes of double taxation Article 26 Exchange of Information and Administrative Assistance Procedures for the exchange of information Article 27 Members of Diplomatic Missions and Consular Posts Treaty has no affect on privileges of members of diplomatic missions or consular posts 33

34 Income Treaty Articles Treaty Articles Article 28 Subsequent Changes in Law Contracting States agree to consult with the other contracting State if tax rates fall below certain thresholds as a result of internal tax law changes with a view to amend the treaty to restore appropriate allocation of taxing rights Article 29 Entry Into Force Agreement that ratification of treaty is to follow local procedures and each party to the agreement will notify the other when such procedures have been satisfied Article 30 Termination Procedures of terminating the agreement NOTE: BE SURE TO READ THE TREATY EXPLANATIONS AS THEY CAN ALSO PROVIDE EXCELLENT INSIGHT 34

35 IRC v. Treaty Treaty Overriding the Code (IRC) Examples Estate taxation of U.S. stock Taxation of pensions and annuities Doing business in the U.S. Residency Personal Services Interest and Dividends Estate taxation of U.S. Stock Pursuant to IRC 2104(a) U.S. corporate stock is deemed to be property situated within the U.S. and subject to U.S. estate tax Pursuant to some of the U.S. gift and estate tax treaties Article 8 (Other Property Not Mentioned) Property not mentioned is generally taxable in the State where domiciled / resident Property specifically mentioned; ships and aircraft, business property, and real property; U.S. Stock is not mentioned, hence exempt from U.S. estate tax A treaty could supersede the Code for estate tax where a NRA owns U.S. stock 35

36 IRC v. Treaty Treaty Overriding the Code (IRC) Income Taxation of Pensions and Annuities IRC 871(a)(1)(A) states U.S. annuities are deemed to be U.S. source income subject to 30% tax regardless of residency Pursuant to the model income tax treaties Pensions and annuities are generally taxable where resident Hence, a treaty would supersede the Code in a situation where a U.S. pension or annuity is payable to U.S. person residing in a foreign country to which we have an income tax treaty Doing Business in the U.S. IRC 864(c)(4)(B) broadly states what constitutes doing business in the U.S. Has an office or other place of business within the U.S. Article 5 (Permanent Establishment) of the model income tax treaties has more restrictive definition (i.e., greater detail) of what activities constitutes doing business With a treaty it may be possible to exempt income from U.S. taxation of a NRA business 36

37 Limitation of Benefits Limitation of Treaty Benefits Intention Avoid treaty shopping by using a third-party company that has no business substance Company has no legitimate business purpose except to facilitate tax minimization Individual persons are a resident of one of the contracting States Must meet certain residency or corporate entity tests Corporate structures Publicly traded entity test Active trade or business test for privately held companies Publicly traded test Traded on a recognized stock market Active trade or business test (common elements) Active trade or business does not include investment activities The business activities conducted must constitute a real business (i.e., have substantial income) 37

38 Limitation of Benefits Limitation of Treaty Benefits Must meet certain residency or corporate entity tests Active trade or business test (continued) Definition of substantial income varies between treaties Some require the determination to rely strictly on facts and circumstances while other are more restrictive in their definition For example: Luxembourg requires the value of the assets, gross income and payroll be at least 7.5% of the preceding year of the U.S. entity Pension Funds and Tax-exempt organizations More than 50% of beneficiaries, members, or participants (individuals) must be a resident of a Contracting State Individuals Natural persons treated as residents per local law 38

39

40 40 <Company Treaty Name> Articles: Residency Personal Services Income Interest/Dividends/Royalties Pensions/Social Security

41 TREATY: RESIDENCY REQUIREMENT The term resident of a State means any person who, under the laws of that State, is liable for tax to that State by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority of the State 41

42 U.S. RESIDENCY Resident Aliens Green Card Test Judicial Order of Exclusion or Deportation Resident Status Abandoned Substantial Presence Test 31 days in current year 183 days during three-year period Excluded days: Days in transit - Exempt Individuals Crew Members - Foreign Government-Related Medical Condition - Household Staff Teachers/Trainees/Students - Professional Athletes Closer Connection to a Foreign Country 42

43 DUAL RESIDENCY 43 Treaty Benefits Tie Breaker Rules Permanent Home Center of Vital Interests Habitual Abode National/Citizen Competent Authority

44 PERSONAL SERVICES INCOME 44 Remuneration received by a resident of a State (first State) from employment exercised in the other State is taxable only in the first State if: (1) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the tax year concerned ( days of physical presence method ); (2) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and (3) the remuneration is not borne by a permanent establishment which the employer has in the other State.

45 PERSONAL SERVICES INCOME Directors Fees may taxed in source state Professors/Teachers/Researchers Pay is generally exempt for 2 to 3 years Temporarily visit to teach or do research Students/Apprentices Scholarships & Grants vs. Training Exempt from taxation under certain conditions Watch for continuation of salary situations Wages/Pensions paid by a Foreign Government Nonresident Alien Exempt from Taxation NGOs may also be applicable 45

46 PERSONAL SERVICES INCOME Entertainers & Athletes Income received by a resident of a State as an entertainer (e.g., a theater, motion picture, radio, television artiste, or musician), or as a sportsman, from his personal activities which are exercised in the other State (source State) can be taxed in the source State if the amount of the gross receipts received by the entertainer or sportsman, including expenses reimbursed to him or borne on his behalf, from these activities does not exceed $20,000 (or its equivalent in a foreign currency) for the tax year of the payment. If the gross receipts exceed $20,000, the full amount, not just the excess, can be taxed by the source State. 46

47 INTEREST 47 Interest arising in a State and beneficially owned by a resident of the other State can be taxed only in that other State Generally, Portfolio Interest Exceptions: Interest based upon Sales, Income, Profits, Cash Flow Contingent Interest Excess Inclusion of Residual Interest in a REMIC

48 DIVIDENDS 48 Dividends paid by a resident of a State ( source State ) to a resident of the other State can be taxed in the other State and may also be taxed by the source State under its domestic laws. However, the tax imposed by the source State on dividends beneficially owned by a resident of the other State cannot exceed 5% of the gross amount of the dividends if the beneficial owner is a company that owns directly at least 10% of the voting stock of the company paying the dividends; or 15% of the gross amount of the dividends in all other cases

49 DIVIDENDS ZERO RATED Dividends paid by a company that is a resident of one State (the source state) may not be taxed by the source State if the beneficial owner is a resident of the other State and is: (1) a company that has owned, directly or indirectly through one or more residents of either State, shares constituting 80% or more of the voting power of the company paying the dividends for a 12- month period ending on the date on which entitlement to the dividends is determined, and: (a) meets the publicly-traded company test or the subsidiary of publiclytraded company test, (b) meets the ownership and base erosion tests and the active trade or business test (c) is entitled to benefits for dividends under the derivative benefits test, or (d) was granted benefits under discretion of the competent authority (2) a pension fund that is a resident of the other State, if the dividends are not derived from the carrying on of a business, directly or indirectly, by the pension fund. 49

50 ROYALTIES 50 Royalties arising in a State and beneficially owned by a resident of the other State can be taxed only in that other State. Thus, the State of residence generally holds the exclusive right to tax royalties beneficially owned by its residents. The beneficial owner is not defined in the Treaty, but generally refers to the person to which the income is attributable under the source State's laws. Thus if royalty income arising in one State is received by a nominee resident in the other State on behalf of a person that is not a resident of the other State, the royalty is not entitled to Treaty benefits.

51 PENSIONS Pensions and other similar remuneration, including both periodic and single sum payments, beneficially owned by a resident of a State (resident State), is taxable only by the resident State. Income earned by a pension fund can be taxed to an individual who is a resident of one of the States and a member or beneficiary of, or participant in, the pension fund that is a resident of the other State only when and, to the extent that, it is paid to, or for the benefit of, that individual from the pension fund (and not transferred to another pension fund in that other State). 51

52 SOCIAL SECURITY A State retains the exclusive taxing authority over payments it makes under its social security or similar legislation to a resident of the other State or to a citizen of the U.S. The phrase similar legislation refers to U.S. tier 1 Railroad Retirement benefits. The reference to U.S. citizens insures that a social security payment by the other State to a U.S. citizen who is not resident in the U.S. will not be taxable by the U.S. The social security provision is not subject to the saving clause. 52

53 Impact of TCJA Tax Cuts and Jobs Act (TCJA) Impact Savings clause Savings clause (Article 1(a)) allows treaty partners to tax its residents and citizens under domestic law as if the treaty did not exist The Savings clause does not override the Nondiscrimination clause (Article 24) Nondiscrimination clause Blocks the U.S. from imposing higher taxes on entities in a treaty partner s jurisdiction than would be imposed on domestic entities (i.e., CFCs) Payments by a U.S. company to a NRA company are deductible as if paid to a domestic entity Conflicts IRC 7852(d) states there is no preferential treatment of the Code or the Treaty Court rulings have ruled, from a practical standpoint, there must be a winner, resulting in the last-in-time rule which gives preference to the most recent provision (treaty or Code) 53

54 Impact of TCJA Tax Cuts and Jobs Act (TCJA) Impact Global Intangible Low-Taxed Income (GILTI) tax IRC 951A Provides for a minimum tax on CFC shareholders Shareholders net CFC income divided by shareholders net deemed intangible income return C corporations, not individuals, may deduct up to 50% of GILTI amount Individuals are allowed a FTC (limited to 80% of tax paid) Some argue tax violates Article 7 (Business Profits) Others say there is no conflict because it only affects the U.S. related party Recent discussions have focused on the 80% FTC limitation as a violation with treaties providing 100% FTC Foreign-Derived Intangible Income (FDII) deduction IRC 250 Treaty partners argue FDII is inconsistent with BEPS therefore providing benefits to income from IP assets that are not directly connected with the business activity 54

55 Impact of TCJA Tax Cuts and Jobs Act (TCJA) Impact BEAT IRC 59A, Tax on Base Erosion Payments Some argue it is in violation of the nondiscrimination clause because it treats foreign related party transactions differently than domestic related party transactions Others say does not violate treaty article because it affects U.S. parties on both sides of the transactions Possible treaty changes and renegotiations Congress has generally harmonizes the Code and Treaties by either revising law or treaties Congress has not ratified or updated any tax treaties for more than a decade Waiting for phase 2 of TCJA 55

56 Impact of TCJA Tax Cuts and Jobs Act (TCJA) Impact Possible treaty changes and renegotiations (continued) If Congress does not act by revising either the law or Treaties there are 3 possible remedies for resolving conflicts (continued) U.S. courts rule which will like lean towards TCJA based the last-in-time rule U.S. could agree to give up some taxing authority in exchange for agreements stabilizing tax based on residence or destination Treaty partners could terminate the agreements or provide local law overriding the treaty similar to the U.S. under IRC 7852(d) Overriding could be difficult for some countries because their law is directly associated with the treaty (China, Netherlands, France, Italy, Japan, Spain and Switzerland 56

57 Professional Profile Jack R. Brister, TEP Jack has more than 25 years of experience. He specializes in U.S. tax planning and compliance for non-u.s. families with international wealth and asset protection structures which include non-u.s. trusts, estates and civil law foundations that have a U.S. connection; and non-u.s. companies wanting to do business in the U.S. Jack also specializes in non-u.s. persons investing in U.S. real property, and other U.S. assets, pre-immigration planning, U.S. expatriation matters, U.S. persons in receipt of gifts and inheritances from non-u.s. persons, non-u.s. account and asset reporting, offshore voluntary disclosures, FATCA registration and compliance (W- 8BEN-E and Form 8966) and executives working and living abroad. Jack has been widely published, in addition to speaking at numerous international engagements. Jack has also been named a Citywealth Top 100 U.S. Wealth Advisor. jbrister@iwtas.com 57

58

59 59 Completing <Company Name> the Forms: Form 8833 Form 8802/6166 Forms W-8 Forms 1042/1042-S

60 FORM 8833 Identifying Information Check Boxes Disclosing As Required by Section 6114 Dual-Resident disclosing As Required by Reg (b)- 7 Treaty Country/Article IRC Provision(s) overruled or modified Payor Provisions of the Limitation on Benefits Article Specifically Required pursuant to (b)? Explanation 60

61 FORM

62 FORM 8802 / 6166 FEE! $85 per Application (Electronic Payment) Identifying Information Address during calendar year for which certification is requested Mail to Address Appointee Applicant is... Check Boxes Return Filed Year for which Certification is Requested Penalties of Perjury Statement may be required Tax period on which certification is based Purpose Country Selection 62

63 FORM 8802 PAGE 1 63

64 FORM 8802 PAGE 2 64

65 FORM 8802 PAGE 3 65

66 FORMS W-8 W-8BEN Individual Beneficial Owner (ITIN/SSN may be required) W-8BEN-E Entity Beneficial Owner (EIN may be required) Chapter 3 and Chapter 4 Status W-8ECI Effectively Connected Income (files a US tax return) W-8EXP Exempt from Withholding W-8IMY Intermediary; Copies of appropriate withholding certificates 66

67 FORM W-8BEN 67

68 FORM W-8BEN-E, PAGE 1 68

69 FORM W-8BEN-E, PAGE 2 69

70 FORM Withholding Agent/Recipient Identifying Information Recipient s date of birth GIIN Primary/Intermediary/Payer Chapter 3 / 4 Status & Exemption Code Income Code Net Income Federal Tax withheld Withheld/Paid by other agents 70

71 FORM 1042-S 71

72 ANY QUESTIONS? 72