The United States has entered into income tax treaties with several countries that provide for the exchange of information.[i] But only “five treaties provide for assistance in collecting tax judgments against U.S. citizens living abroad.”[ii] Those are with the following countries: Canada, France, Holland, Denmark and Sweden.[iii]

Let me explain to you what I mean by “collection of tax judgments.” Specifically, I’m referring to the ability of the United States to collect tax claims against its own citizens who happen to be living in one of these five countries.[iv] Because these treaties are bilateral, the reverse is also true: partner countries may collect tax claims against their own citizens who happen to be living in the United States.[v] Read More

The Australian Taxation Office (ATO) has just issued a guidance paper stating: “The ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes.”

Furthermore, the ATO says: “Bitcoin is, however, an asset for capital gains tax (CGT) purposes.”

For businesses that use Bitcoins (or any other crypto-currencies) to buy and sell trading stock, the transactions will be treated for tax purposes as a bartering arrangement. Buying trading stock with Bitcoins will require businesses to charge the 10% GST on the coins. Selling trading stock for Bitcoins will mean the business can claim an input tax credit for Read More

Substantiation and Reconstruction of Records –

We all know that in an exam situation the IRS is all about records. In the case of a casualty or disaster the rules are relaxed slightly. The IRS is aware that in most cases when a major casualty occurs there is a good chance that the records you would normally use for substantiation are victim of the casualty. The IRS has several great resources out there to help in this event including Publications 584, 584B, and 2194 as well as a Disaster Assistance Hotline (1-866-562-5227).

Of course, the best records are a listing and pictures or videos of your property kept off site and updated regularly. And some clients, especially those that have been through this or Read More

Ponzi Schemes –

The United States Securities and Exchange Commission (SEC) defines a “Ponzi Scheme” as follows:

The schemes are named after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. At a time when the annual interest rate for bank accounts was five percent, Ponzi promised investors that he could provide a 50% return in just 90 days. Ponzi initially bought a small number of international mail coupons in support of his scheme, but quickly switched to using incoming funds from new investors to pay purported returns to earlier investors. Read More

Calculation of Casualty/Theft Gains or Losses –

Once you have determined that you have an actual casualty or theft you must calculate the taxable effect of the event. These calculations are done on Form 4684 in Section A for personal use property, Section B for business/investment use property and Section C for Ponzi Scheme losses. It is possible to have a taxable gain on a casualty or theft. There are several pieces of information you will need to make these calculations regardless of the type of property.

1. Description of the property (type, location and acquisition date).
2. The type of event (casualty fire, hurricane, theft, etc.) Read More

Presidential Declared Disaster Areas and Types of property –

A federally Declared disaster Area means any disaster, and the specifically designated land area involved, subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Some of the tax advantages to your casualty being in a designated disaster area are as follows:

1. The loss can be taken either in the year of the loss or the preceding year in order to expedite a refund.

2. Taxpayers may be eligible for non-taxable disaster grants or low interest loans. Read More

What is Not a Casualty/Theft –

Things that do not by their nature qualify as a casualty generally do not satisfy the “sudden, unexpected, and unusual” requirement. These include but are not limited to:

1. Accidental breakage under normal conditions

2. Damage due to a family pet (Dyer v. Comm’r, T.C. Memo. 1961-141)

3. Any act of willful damage by the taxpayer or someone on behalf of the taxpayer.

4. Damage due to poor construction issues that are the underlying cause of the damage due to a sudden, unexpected or unusual event. (Portman v. U.S., 683 F.2d 1280 (9th Cir. Read More

What is a Casualty/Theft –

Normally, a casualty occurs when a taxpayer’s property is damaged as the result of a storm, fire, accident, natural disaster, or other similar event. A casualty loss is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, and unusual. This includes flooding, even if there is no flood insurance coverage, as long as it meets the unexpected and/or unusual definition. (Rev. Rul. 72-592 and IRC §165(h))

IRC §165(c)(3) provides an abbreviated listing of the types of casualties that are commonly allowed for deductions and the courts, in some of the cases listed here, have expanded that Read More


A casualty is a sudden unusual and unexpected event that damages or destroys your property. A sudden event is one that is swift. Unexpected is an event that is not anticipated and is unintended. An unusual event is one that is not-day-to day and is not typical of the activity for which the asset is normally used. To have a casualty, chance or a natural phenomenon must be present. Examples include fires, windstorms, tornadoes, hurricanes, floods, sudden landslides, vehicle accidents, theft, broken water pipes, and vandalism. Loses that are progressive and occur gradually over a period of time are not qualifying casualty losses. Examples are rust, erosion, drought, water damage from leaking windows or gutters, and termite damage. Lost items are also not casualties. Read More

The first and very important note to make, in dealing with South African tax issues: tax year 2014 ends on the last day of FEBRUARY 2014. The South African tax year for most individuals, are 1 March until the last day of February in the next calendar year. Corporates can change their tax year-end to align with the last day of their financial year-end, yet Trusts partners in a JV or partnership, are obliged to file assuming a tax year-end on the last day of February, despite their financial year-end being the last day of another month.

Yes, sadly this date, Friday 28th 2014, is not even listed on the SARS webpage on important dates, yet is an extremely important tax deadline.

SARS has two webpages namely: and Read More

VATThere is a global trend toward increasing VAT rates and broadening the grounds for charging VAT. Governments increase their tax revenues in this way as a means of combating increasing budget shortages due to the financial crisis and/or for financing the reduction of direct taxes (corporate tax, income tax, etc.).

Numerous multinational companies use very many different tax codes and risk facing a “shortage” of necessary tax codes. Companies face bottlenecks with SAP‘s 2 character tax codes and the many necessary modifications in SAP in the event of VAT rate changes.

It seems therefore a straightforward matter, however in practice a considerable amount of activities are required to get this properly implemented in SAP.

The reason is that VAT codes in SAP are not set-up with validity dates and therefore for every VAT rate change a new VAT code has to be created. Due to the complexity in SAP, the creation of a new code is just the starting point to get SAP up and running.

Below you find a non-exhaustive list of required activities in case of VAT rate changes. It depends on the current configuration of VAT functionality whether all activities listed below are required. The opposite is also possible that more activities are necessary. Read More

The business models of many enterprises have radically changed over the last years and have become increasingly complex.

SAP, however, has failed to keep up, which has resulted in the standard functionality of SAP being no longer sufficient for complying with VAT obligations. Practical solutions must be found within the flexibility and static structure of SAP regarding indirect tax.

Because of this, SAP Indirect Tax Consultants in the market can only patch up the existing SAP framework. Regarding indirect tax, the structure of native SAP has hardly, if at all, changed over the last 20 years.

Richard Cornelisse

As a result of globalization, the business models, on the other hand, have considerably changed. With the aim of creating new sales markets and achieving cost savings, business activities are spread all over the world. Cross-border chain transactions with third parties or within a company (intercompany transactions) have become the rule rather than the exception.

Nontransparent mix

This results in a highly diverse mix of transactions in which drop shipments – deliveries to the final customer of the purchasing party – are often the main point of focus. Transactions between different international stock locations of one and the same legal entity (plants abroad) take place more and more often.

1211947_95300596At the same time, cost considerations lead to a high degree of centralization of administrative functions, whereby compliance and purchase more frequently take place via Shared Service Centers. Many companies also deal with the outsourcing of the production of parts and components of the final products to mostly low-wage countries such as India and China.

Enterprises set up their business models and transactions in such a way that they can allocate the profits in the fiscally most beneficial way. The advantage of this is a low tax burden for the corporate tax. The indirect tax is typically late, if at all, incorporated in this fiscal strategy.

The consequence of worldwide business practices, the emerging complexity of business models and the centralization of financial functions is that companies get VAT obligations in multiple countries. Combined with the lack of harmonization of regulations in different countries, maintaining the VAT position is extremely complicated.

Without the right VAT regulations, regular ERP systems are not able to process data correctly, thereby risking incorrect calculation of VAT, failure to comply with local VAT obligations, and transactions that cannot be commercially executed.

From emergency patches to eliminating risks

Automatic determination of VAT obligations in chain transactions is not possible in the standard functionality or regular ERP systems, such as SAP. This is due to the fact that essential tax parameters are missing and that it is not possible to link the different transactions in the entire chain (sale-purchase-sale). In actual practice, these flaws in SAP are often patched up in order to keep the system running.

1211947_95300596These emergency patches usually focus solely on one specific problem instead of the entire flow of goods within the company or concern. In that case, the emergency patch is a pre-defined configuration (hard-coding) of assumptions about how transactions will take place. This entails definitively prescribed VAT determination and the risk that this might not match reality.

A delivery from a different stock location in a different country or from a different supplier then results in an incorrect VAT determination. These risks can be eliminated by adding missing tax parameters and linking master and transaction data of all relevant transactions to each other. This paves the way towards automatic determination of VAT obligations.

When this is combined with a Tax Control Framework for real time fiscal monitoring of transactions, companies can eliminate VAT risks.

Beside the highly improved preventive controls regarding risk management, they lay the foundation for more efficient business processes and increased productivity.

Richard Cornelisse, Director Strategy & Sales at Taxmarc™