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Completing Form 8833 Treaty-Based Return Position

Disclosure: Claiming Income Tax Treaty Benefits

WEDNESDAY, NOVEMBER 7, 2018, 1:00-2:50 pm Eastern

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NOVEMBER 7, 2018

Completing Form 8833 Treaty-BasedReturn Position Disclosure

Jack Brister, TEP, Partner

International Wealth Tax Advisors, New York

[email protected]

Kimberlee S. Phelan, CPA, MBA, Tax Partner

WithumSmith+Brown, Princeton, N.J.

[email protected]

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

Completing Form 8833, Treaty-Based Return Position Disclosure:

Claiming Income Tax Treaty Benefits

Kimberlee S. Phelan, CPA, MBA, CGMAPartner, International Service Practice Leader

WithumSmith+Brown, PC

6

<Company Name>Introduction

7

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

U.S. INCOME TAX TREATIES - INTRODUCTION

8

ArmeniaAustraliaAustriaAzerbaijanBangladeshBarbadosBelarusBelgiumBulgariaCanadaChinaCyprusCzech RepublicDenmarkEgyptEstoniaFinlandFrance

U.S. INCOME TAX TREATY COUNTRIESGeorgiaGermanyGreeceHungaryIcelandIndiaIndonesiaIrelandIsraelItalyJamaicaJapanKazakhstanKoreaKyrgyzstanLatviaLithuaniaLuxembourg

MaltaMexicoMoldovaMoroccoNetherlandsNew ZealandNorwayPakistanPhilippinesPolandPortugalRomaniaRussiaSlovak RepublicSloveniaSouth AfricaSpainSri Lanka

SwedenSwitzerlandTajikistanThailandTrinidadTunisiaTurkmenistanUkraineUnion of Soviet Socialist Republics (USSR)United KingdomUnited States ModelUzbekistanVenezuela

9

(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.

IRC SECTION 6114

10

Treaty-Based Return Positions(a) Reporting Rule(1) General Rule –

(i) effects (or potentially effects) a reduction in tax(ii) 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

TREASURY REGULATION SECTION 301.6114-1

11

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.


12

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.


13

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)


14

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


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

Strafford PublicationsPresented by: Jack R. Brister

• 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

Tax Treaties

16

• 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.

Tax Treaties

17

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.

Tax Treaties

18

TODAY’S PRESENTATION WILL FOCUS ON:

•THE GIFT AND ESTATE TAX; AND•INCOME TAX TREATIES

Tax Treaties

19

• 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”

Estate and Gift Tax Treaty

20

• 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

• 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



22



23

Income Tax Treaties

24

Income Tax Treaties

25

Income Tax Treaties

www.irs.gov/pub/irs-utl/Tax_Treaty_Table_3.pdf

26

• 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.

Income Tax Treaty Articles

27

• 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

• Defines real property


28

• 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

• 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

• 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

• 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

• 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

Income Treaty Articles

33

• 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

Income Treaty Articles

34

• 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

IRC v. Treaty

35

• 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

IRC v. Treaty

36

• 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)

Limitation of Benefits

37

• 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

Limitation of Benefits

38

40

<Company Name>Treaty Articles: Residency

Personal Services IncomeInterest/Dividends/Royalties

Pensions/Social Security

41TREATY: 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

42U.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

43DUAL RESIDENCY

Treaty Benefits – Tie Breaker Rules

Permanent Home

Center of Vital Interests

Habitual Abode

National/Citizen

Competent Authority

44PERSONAL SERVICES INCOME

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.


Directors’ Fees may taxed in source stateProfessors/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


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.

47INTEREST

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

48DIVIDENDS

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

49DIVIDENDS – 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 publicly-traded 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.

50ROYALTIES

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.

51PENSIONS

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).

52SOCIAL 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.

• 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)

Impact of TCJA

53

• 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

Impact of TCJA

54

• 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

Impact of TCJA

55

• 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

Impact of TCJA

56

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 otherU.S. assets, pre-immigration planning, U.S. expatriation matters, U.S. persons inreceipt of gifts and inheritances from non-U.S. persons, non-U.S. account and assetreporting, 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 internationalengagements. Jack has also been named a Citywealth Top 100 U.S. WealthAdvisor.

[email protected]

Professional Profile

57

59

<Company Name>Completing the Forms: Form 8833

Form 8802/6166Forms W-8

Forms 1042/1042-S

60FORM 8833

Identifying Information

Check Boxes Disclosing “As Required by Section 6114”

Dual-Resident disclosing “As Required by Reg. 301.7701(b)-7”

Treaty Country/Article

IRC Provision(s) overruled or modified

Payor

Provisions of the Limitation on Benefits Article

Specifically Required pursuant to 301.6114-1(b)?

Explanation

61FORM 8833

62FORM 8802 / 6166FEE! $85 per Application (Electronic Payment)Identifying Information Address during calendar year for which certification is

requested Mail to Address Appointee

“Applicant is. . .” Check BoxesReturn FiledYear for which Certification is Requested Penalties of Perjury Statement may be required

Tax period on which certification is basedPurposeCountry Selection

63FORM 8802 – PAGE 1

66FORMS W-8W-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

67FORM W-8BEN

68FORM W-8BEN-E, PAGE 1

69FORM W-8BEN-E, PAGE 2

70FORM 1042-2

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

71FORM 1042-S

72

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