Below are four International Tax topics to look out for:
Get the Facts on FATCA! What You Need to Know About the Latest FATCA Guidance
What is the Foreign Account Tax Compliance Act (FATCA)? Who does it affect, and what do you need to know about it? It is legislation that was signed into law in 2010 with a delayed effective date. It adds a new chapter, “Taxes to Enforce Reporting on Certain Foreign Accounts”, to the Internal Revenue Code. Under FATCA, taxpayers are susceptible to a 30% withholding penalty for failure to provide financial information between countries from their financial institutions. If not addressed, this could mean big penalties for taxpayers.
- Taxation of Dividend Equivalents
Dividends paid by U.S. corporations to foreign individuals and entities are generally subject to a 30% withholding tax, although that tax rate is usually reduced by an applicable tax treaty between the U.S. and the resident country of the recipient. Foreign shareholders have attempted to avoid the withholding tax by taking “dividend equivalents,” such as securities lending transactions, sales-repurchase agreements, or notional principal contracts, in lieu of actual dividends. FATCA makes it clear that such dividend equivalents are to be treated as U.S.-source dividends for tax purposes.
- Increased PFIC Reporting
FATCA imposes new reporting requirements for passive foreign investment companies (PFICs). A PFIC is a foreign corporation that generates passive income, i.e., interest and/or dividends, and is often used as an investment vehicle. Foreign hedge funds are usually PFICs. The government is concerned that U.S. taxpayers are not properly reporting their PFIC income, and FATCA requires that U.S. taxpayers who are PFIC shareholders file an annual report with the IRS.
New Subpart F Income Rules
New subpart F income rules repeal certain exclusions from deferral for taxable years beginning after December 31, 2014. U.S. Shareholders are subject to tax on their pro rata share of only certain types of income, withdrawals, and investments of the controlled foreign corporation (CFC). Specifically, these include (1) Subpart F income, (2) previously excluded Subpart F income withdrawn from certain investments, and (3) the amount of the CFC’s earnings invested in U.S. property.
Current Developments Affecting U.S. Foreign Tax Credit Benefits
A per-country foreign tax credit limitation has been reinstated by limiting the available credits with respect to taxes paid or accrued in a foreign country or U.S. possession.
2012 Offshore Voluntary Disclosure Program
The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012. The IRS is offering people with undisclosed income from offshore accounts another opportunity to get current with their tax returns. It is important to act now because the IRS may end the program at any time in the future.
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