Cross-border personal tax services for executives

Transcription

1 Cross-border personal tax services for executives Are you under attack? October 2013

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a clientserving member of Ernst & Young Global Limited in the US. This presentation is 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP or its professionals. Page 2

3 Presenter Marnix van Rij Ernst & Young Belastingadviseurs LLP Page 3

4 Under attack Page 4

5 The current tax landscape : from a financial crisis to a government debt crisis Increased attention on paying a fair share : focus on tax evasion by multinational corporations (MNCs) Organisation for Economic Co-operation and Development s (OECD) Base Erosion and Profit Shifting (BEPS) action plan At the same time, the concrete actions of tax authorities have focused primarily on individuals Page 5

6 The current tax landscape High-net-worth individuals (HNWI) as source for increased revenues: HNWIs pay a relative large proportion of the income tax that governments collect Political statement: income equalization Complex financial affairs (international/business connected/trusts) Aggressive tax planning/tax avoidance/tax evasion Page 6

7 Trends in HNWI taxation Raise tax rates and broaden tax base Page 7

8 Trends in HNWI taxation Increase of (automatic) exchange of information by tax authorities Jurisdictions committed to improving transparency and establishing effective exchange of information in tax matters: Andorra Cook Islands Malta San Marino Anguilla Cyprus Marshall Islands Malta Seychelles Antiqua and Barbuda Dominica Mauritius St. Lucia Aruba Gibraltar Monaco St. Kitts and Nevis Bahamas Grenada Montserrat St. Vincent and the Grenadines Bahrain Guernsey Nauru Turks and Caicos Islands Bermuda Isle of Man Netherlands Antilles US Virgin Islands Belize Jersey Niue Vanuatu British Virgin Islands Liberia Panama Cayman Islands Liechtenstein Samoa Source: OECD Page 8

9 Trends in HNWI taxation Development of the number of tax audits 35% 30% US individual income tax return examination coverage 25% 20% 15% 10% Average $500k $1m $1.1m $5m $5.1m $10m > $10m 5% 0% Source: IRS Data Book Page 9

10 Trends in HNWI taxation Page 10

11 What to do Conduct a tax compliance and risk assessment for your current worldwide tax situation Develop and assess your tax philosophy to ensure that the tax positions taken are consistent with their level of risk tolerance Stay abreast of potential tax legislative and policy changes and maintain flexibility to adjust to changing tax environment Page 11

12 What to do Evaluate your overall global tax position both from personal and business perspective so that your global tax obligations are minimized and situations that might give rise to double taxation are avoided Develop a team of advisors with competence and breadth of capabilities to match your personal, business and investment planning and tax compliance needs Page 12

13 The Rackspace experience Page 13

14 Introduction Kris Blue Director, Mobility Compliance 17 years in global mobility 13 years in Big Four 4 years corporate Page 14

15 Overview of Rackspace IT and web hosting provider with global HQ in San Antonio, TX Publicly traded as of Aug. 8, 2008 (NYSE) 5,400+ employees globally Offices located in US, UK, Netherlands, Switzerland, Hong Kong, Australia Expansion into two additional, significant countries planned for Q4 2013/early Q Approximately 50 international assignees Page 15

16 Setting the stage: global mobility program and policy Compensation philosophy: Mid-range base pay Large bonuses Generous commissions Heavy on equity Streamlined relocation and assignment benefits No true tax equalization for international assignees Relocation and assignment related payments are tax equalized Assignee responsible for home and host country tax on base, commissions, bonus and equity Company provided home/host tax prep services in year of departure, repatriation only * Page 16

17 Setting the stage: global mobility program and policy Assignee make up Permanent transfers Traditional assignees Approx % are individual contributors (permanent transfers) Remainder are mission critical, senior executives (traditional assignees) Problem children from an expat tax perspective Individual contributors employed by RAX prior to Aug. 8, 2008 Executives none of whom stay in one place Page 17

18 Income elements to consider RAX income Bonus payments Equity awards Equity as a result of acquisition Non-RAX income Real estate Stock portfolios Income (loss) from outside business(es) Spouse business Angel investors Start-ups Page 18

19 What works Compliance mindset Right people in right roles Awareness, communication, partnering At appropriate levels Across functions Tax planning for new jurisdictions Close partnering with tax vendor Page

20 What works Fanatical Support Supported in house Tax pre-orientation Financial advisory services Withholding sanity checks Supported via EY Executive tax orientations Executive tax return preparation Additional tax planning services on case-by-case basis Tax return preparation for two years following repatriation/deployment to next assignment Subsidy for two more years, if needed Page 2

21 What we can do better More focus on strategic planning Initiative for 2014: Take advantage of UK planning strategies Earlier involvement of tax team in cross border transfer planning Business traveler compliance International Domestic (US in particular) Better education of/communication with senior leadership team Simpler, more consistent tax policy relative to global assignments Page 2

22 Case study Page 2

23 Case study EY advises: Owners of family businesses and other private companies, as well as, single and multifamily offices Owners and managers of private equity firms and hedge funds C-suite and senior corporate executives Page 2

24 Case study Facts and circumstances: Jan and his wife, Ada, are Dutch nationals. Jan and Ada were married under Dutch law in Jan and Ada have two children who are minors. In December 2003, the family moved from the Netherlands to the US (California). Jan works as a CFO for a US multinational. Jan is tax equalized to the Netherlands up and until December Page 2

25 Case study Jan and Ada s wealth is compiled as follows: Primary home in California (value: $5m, mortgage: $4m) Second home in the Netherlands (value $3m, mortgage: $1m) 100% of the shares of a (French) Société civile immobilière (SCI) (value: $15m, purchase price: $3m) Vested equity grant (value: $8m) of his US employer Cash (value: $5m) Jan and Ada intend to transfer shares of the SCI to their children by way of gift Jan would like to make cash donations to charitable institutions in the Netherlands Page 2

26 Case study Income tax: Tax equalization Shares in SCI Ordinary income Capital gains Wealth tax Charitable donations Page 2

27 Case study Estate/gift tax which country is entitled to levy tax? US Netherlands France Situs Yes No Yes Residency Yes Yes Yes (both deceased/donor and beneficiary/donee) Nationality Yes Yes No Page 2

28 Case study Gift tax which country is entitled to levy tax? US Netherlands France Situs Shares in SCI Residency Shares in SCI Charitable donations Nationality Shares in SCI Charitable donations Page 28

29 Case study Estate tax: International private law: Applicable matrimonial property law Applicable inheritance law: Will Trust documents Page 29

30 Case study Estate tax which jurisdiction is entitled to levy tax? US Netherlands France Situs US home Equity grant Shares in SCI Residency Worldwide estate Nationality Worldwide estate Page 30

31 Thank you Page 31