By Sam Willie

The New York Times reports on an attempt by Chinese tax authorities to more strictly enforce taxes on Chinese citizens who earn income abroad. Since 1993, Chinese citizens and companies have been required to pay domestic taxes on the entirety of their income, regardless of where it is earned. In reality, reporting of income earned abroad is infrequent and tax avoidance common. Going forward, it is predicted that China will pursue high profile enforcement actions against those engaging in international tax avoidance on income earned abroad as a means of sending a message to wealthy individuals and corporations alike.

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February 02, 2015

By Sam Willie

Reuters reports a delay in the opening of the much-anticipated “Stock Connect” scheme between the Hong Kong and Shanghai stock exchanges. The scheme was meant to provide investors in Hong Kong and mainland China direct access between markets, and was considered an impressive move by the Chinese government in their efforts to liberalize their equity markets. It is thought that a lack of regulatory approval and a disagreement over capital gains tax has caused this delay. Hong Kong does not charge capital gains, whilst the mainland has a 10% tax, and a further 5.6% tax on business profits. Even when open, it is unlikely that investors will flock to “Stock Connect” until they know the true extent of their tax liability.

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November 18, 2014

By Sam Obenhaus

Senators Carl Levin (D-MI) and John McCain (R-AZ) are seeking the extradition of 60 Swiss bankers and financial advisers who allegedly assisted U.S. citizens in evading taxes.  On March 18, they sent a letter to Assistant Attorney General James Cole pushing the Department to request extradition, something it has been reluctant to do.  

“Even if a request is unsuccessful,” they claim, “it will inform both Switzerland and its citizens that the United States is ready to make full use of available legal tools to stop facilitation of U.S. tax evasion and hold alleged wrongdoers accountable.”  

Levin and McCain are Chairman and Ranking Member, respectively, of the Senate’s Permanent Select Committee on Investigations. The Washington Post and Wall Street Journal have more on this story. 

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March 24, 2014

By Sam Obenhaus

Does Americans’ right to privacy extend far enough to protect their hidden foreign bank accounts?  Will a law requiring foreign financial entities to disclose information on all American account holders lead those institutions stop doing business with Americans?  The Republican National Committee (RNC) says yes and voted to repeal the Foreign Account Tax Compliance Act (FATCA) at its winter meeting.

The Act was passed in 2010 but goes into effect this July.  Its principle objective is to make it harder for U.S. citizens – primarily those living within the U.S. – to evade taxes by stashing money in offshore accounts.  However, banks, libertarians, and non-resident U.S. citizens, among others, are all opposed to a law that some call “overzealous.”

The heart of the conflict, the burden on U.S. citizens living abroad, comes about because of the U.S.’s unique extraterritorial taxation system.  Unlike all other developed nations, the U.S. taxes its citizens living in foreign countries.  One legitimate concern is that these Americans will find it harder to find a local bank willing to deal with them because of the increased regulatory burdens imposed by FATCA.

Undeterred, the U.S. government is forging ahead and recently signed an intergovernmental agreement with Canada to facilitate the sharing of bank account information.  This is the 22nd such agreement.

You can see the RNC resolution here and an article about their vote over at Reuters.  Bloomberg BNA has an article on the U.S.-Canadian agreement.

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February 20, 2014

By Sam Obenhaus

While the United States has one of the highest corporate tax rates in the developed world, it is often pointed out that the effective tax rate – what corporations actually pay – is significantly lower than the official rate.  For a number of tech companies, this is largely due to one man: Feargal O’Rourke, the head of PricewaterhouseCoopers’ tax practice in Ireland.

Ireland, of course, is at the center of many tech companies tax strategies.  O’Rorke is a chief architect of many of these plans, including those used by Google, LinkedIn, and Facebook.  Each of those companies funnels its profits through Ireland on their way to other tax havens, such as Grand Cayman and the Isle of Man.  These strategies are estimated to cost the U.S. federal government and its European counterparts an estimated $100 billion per year in lost revenue.

With austerity gripping much of Europe and sequestration in the United States, Ireland has found itself in the middle of a controversy.  Governments need more revenue, and some U.S. lawmakers have started calling Ireland a tax haven.  But O’Rourke – perhaps Ireland’s biggest defender – is undeterred. 

He points out that Ireland’s tax strategies have led many multinational corporations to set up offices in Ireland.  These operations are estimated to employee approximately 100,000 people.  Further, he notes that the United States and other countries could tip the balance overnight by simply changing their own tax laws.  What O’Rourke may be less willing to discuss is his role in shaping Ireland’s tax policies. 

Bloomberg has more on O’Rourke, while Reuters reports on Ireland’s recent moves to shed its image as a tax haven.

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October 29, 2013

By Joe Vladeck

Applied Materials, a California-based manufacturer of equipment for producing semiconductors, recently announced its acquisition of competitor Tokyo Electron. Following that acquisition the newly-wed companies took an increasingly popular step: They eloped to the Netherlands.  The reason?  Tax savings.

Regulations have made it more difficult for American companies to reincorporate in infamous tax shelters such as Bermuda.  As a consequence, U.S. companies like Applied Materials are increasingly acquiring smaller competitors abroad and then using the opportunity to re-incorporate in foreign jurisdictions.  Applied Materials estimates that will reduce its tax burden by 5 percent, or approximately $100 million annually. 

This "inversion" technique is growing in popularity. Of the 50 corporate "inversions," 20 have occurred in the past 18 months.  Dealbook has details on the practice.

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October 14, 2013