Wednesday, February 22, 2012

The White House and the Treasury Department Unveils the President’s Framework for Business Tax Reform

Today the White House and the Department of Treasury issued a joint report on the President’s Framework for Business Tax Reform. The report is at http://www.treasury.gov/resource-center/tax-policy/Documents/The-Presidents-Framework-for-Business-Tax-Reform-02-22-2012.pdf.

This report outlines what the President believes should be five key elements of business tax reform: eliminate tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth; strengthen manufacturing and innovation; strengthen the international tax system to encourage domestic investment; simplify and cut taxes for small businesses; and restore fiscal responsibility.

According to the report, the President’s Framework would reduce the corporate tax rate from 35 percent to 28 percent, noting however that at least several considerations relating to the corporate tax base (such as reforming depreciation schedules and limiting deductibility of interest) would be necessary for implementing the reduction. The Framework would also effectively cut the top corporate tax rate on manufacturing income to 25 percent or an even lower rate by reforming the domestic production activities deduction, and would expand, simplify and make permanent the Research and Experimentation tax credit; allow small businesses to expense up to $1 million in investments; and double the amount of deductible start-up expenses from $5,000 to $10,000. On the other hand, some of the other notable proposals in the Framework include imposing minimum tax on overseas profits, taxing carried interest as ordinary income, and eliminating certain temporary business tax provisions that have been deficit-financed.

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Curtis Helps Omani Companies with Foreign Shareholdings Win Landmark Tax Judgment in Oman Supreme Court

Muscat, February 22, 2012 – Lawyers from Curtis, Mallet-Prevost, Colt & Mosle LLP helped two Oman-based clients of the firm win an important tax judgment handed down this week by Oman’s Supreme Court.

The Court decided in favour of the two Curtis clients, who were represented by James Harbridge and Kamilia Al Busaidy, that Omani companies who have shareholdings in companies outside Oman should not have to pay tax on dividends received between the inclusive period of 2002 through 2004, the years being considered in the matter.

“The issue was hugely important for our clients, one of which is a multi-national oil and gas entity and the other concentrating in the cement business,” said Mr. Harbridge, partner in the Curtis Muscat office. “The result highlights Curtis’ perseverance on our clients’ behalf.”

This decision overturned earlier decisions of the Omani Primary and Appeal Courts in 2010 that these overseas dividends were taxable, pursuant to a 2004 Supreme Court judgment. It is expected that the written Supreme Court judgment will make it clear that the ruling also applies to the tax years immediately prior and after: 2000, 2001 and 2005-2009 inclusive.

The favourable Supreme Court judgments therefore imply that tax payers who have received overseas dividends during the applicable years should not be taxed on this income, if they have already disputed the charges or if their assessments are yet to be completed. They are deemed to have accepted their tax liability if they have already paid tax in these respective years.

Following the judgment, dividends paid in the applicable years to any Omani company on shareholdings in foreign companies will no longer be viewed as taxable income.

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm providing a broad range or services to clients around the world. Curtis has 15 offices in the United States, the Middle East, Europe, Central Asia, and Latin America. The firm’s international orientation has been a hallmark of its practice for nearly two centuries. For more information about Curtis, please visit www.curtis.com or follow Curtis on Twitter (twitter.com/curtislawfirm) and Facebook.com/Curtis.Careers).

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Wednesday, February 8, 2012

Proposed FATCA Regulations Are Released Today

The long-anticipated proposed regulations on implementation of the Foreign Account Tax Compliance Act (FATCA) were issued today. The IRS news release is at http://www.irs.gov/newsroom/article/0,,id=254068,00.html, and the text of the proposed regulations is at http://www.irs.gov/pub/newsroom/reg-121647-10.pdf. A public hearing is scheduled for May 15, 2012; comments must be received by April 30, 2012.

FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To avoid withholding under FATCA, a participating FFI must enter into an agreement with the IRS to identify U.S. accounts, report certain information to the IRS regarding U.S. accounts, verify its compliance with its obligations pursuant to the agreement, and ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.

The proposed regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents. Registration of participating FFIs will take place through an online system which will become available by January 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

According to the IRS, the proposed regulations would implement FATCA in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives, and the rules are intended to allow time for resolving local law limitations to which some FFIs may be subject. The IRS also states that the Treasury Department and the IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. The United States, France, Germany, Italy, Spain, and the United Kingdom announced today the intent to develop framework for intergovermental approach to sharing information under FATCA. The joint statement is at http://www.treasury.gov/press-center/press-releases/Documents/020712%20Treasury%20IRS%20FATCA%20Joint%20Statement.pdf. Notably, Switzerland is not a party to the joint statement.

The proposed regulations generally would become effective on the date of being adopted as final regulations.

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Implementation of FATCA Guidance May Take Intergovernmental Approach, Remarked Acting Treasury Secretary

At the New York State Bar Association Tax Section’s Annual Meeting on January 24, 2012, Acting Assistant Treasury Secretary for Tax Policy Emily S. McMahon remarked on issues in the IRS implementing the Foreign Account Tax Compliance (“FATCA”). Generally, foreign institutions must enter into an agreement with the IRS to implement due diligence and reporting requirements, or suffer a 30% withholding tax on a broad range of payments.

Consistent with her prior remarks, Ms. McMahon hinted that the Treasury Department is “open to exploring an intergovernmental approach . . . that would address legal impediments to direct reporting” and that would be “mutually beneficial” to the United States and foreign governments. She also noted that the Treasury Department’s regulations will seek to minimize the administrative burden of FATCA and focus its application on circumstances that present a higher risk of tax evasion. For example, with respect to existing accounts, the regulations will permit substantial reliance on documentation previously collected during account opening procedures; for new accounts, the regulations will seek to align the review required for FATCA purposes with the procedures that financial institutions already follow to comply with anti-money laundering and “know-your-customer” rules.

In addition, the regulations will provide expanded categories of financial institutions that are “deemed compliant” with FATCA, as well as a previously announced exception for retirement plans. The regulations will phase-in FATCA reporting requirements over an extended transition period.

She noted that the Treasury Department is trying to resolve conflicts with privacy or other laws in foreign countries by communicating with a number of major U.S. trading partners about bilateral approaches to overcome legal impediments and facilitate FATCA compliance. The United States has in place a network of agreements with more than 60 countries, which already permit the a foreign government to provide the IRS with FATCA type account information.

Ms. McMahon suggested that one solution may be to allow a foreign financial institutions to report the information required by FATCA to their home country government, which would then transmit the information to the IRS. She noted that the Treasury Department expects to offer foreign countries reciprocity by providing information on U.S. accounts. Information regarding U.S. bank accounts is already available upon request to the IRS. Regulations have been proposed to ensure that the IRS has this information when requested by a foreign government. Information exchange agreements have been designed to safeguard such confidential information and to limit its use to legitimate tax enforcement purposes.

Finally, the Treasury Department will continue to develop multilateral, global approaches to the exchange of financial account information for tax purposes over the long term, under multilateral frameworks such as the Global Forum on Transparency and Exchange of Information, the OECD Treaty Relief and Compliance Enhancement project, and the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

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