The § 965 Transition Tax Caused The Moore's To Pay $14,712 Moore In Double Taxation

In my last post I discussed the fact that the U.S. Supreme Court has agreed to hear the Moore’s challenge to the 965 Transition Tax.

A direct link to the Supreme Court site which will track the progress and filings of all briefs (including what are expected to be a large number of amicus briefs) is here.

Although the 965 Transition Tax was the fact that prompted the litigation, the issue as framed for the Supreme Court was:

22-800 MOORE V. UNITED STATES
DECISION BELOW: 36 F.4TH 930
CERT. GRANTED 6/26/2023

QUESTION PRESENTED:
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A taxpayer who is a U.S. resident for purposes of a U.S. income tax treaty is generally entitled to request assistance from the U.S. “competent authority” where the actions of a treaty country or the United States would (i) cause double taxation or (ii) taxation that is inconsistent with the treaty.  Competent authority assistance is only available with respect to countries that have an applicable tax treaty with the United States.  Our Treaty Resource Page provides an overview of every U.S. tax treaty and the tax system of each such country.

A taxpayer seeking assistance from the U.S. competent authority should always first consult any applicable treaty articles, including the Mutual Agreement Procedure (MAP) article, before requesting assistance.  In addition to filing a request for assistance with competent authority, the taxpayer should consider (i) filing a timely protective claim for credit or refund; and (ii) take any required actions that are necessary under the procedures of the foreign country to avoid losing the right to appeal or obtain competent authority review under that country’s income tax laws.

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IRS On Repatriation and Double Taxation

The IRS announced that the agency has become aware of limited circumstances in which it may be appropriate to provide relief from double taxation resulting from application of the repatriation tax under section 965, as amended by the Tax Cuts and Jobs Act (TCJA).

The IRS has determined that in unique circumstances, such as where a corporation paid an unusual dividend for business reasons, not because of the enactment of TCJA, it may be appropriate to provide relief from double taxation. When the same earnings and profits of foreign corporations are taxed both as dividends and under section 965, double taxation could result.

The IRS is open to considering relief from such double taxation where there is no significant reduction in the resulting tax by application of foreign tax credits, such that the taxpayer would be required to pay more tax than it would have if the dividend had not been paid.

Taxpayers who have fact patterns that may fit these limited circumstances may raise them with the IRS by contacting the Office of Associate Chief Counsel (International) at 202-317-3800.

 

Double Taxation Related To Repatriation

The IRS announced that the agency has become aware of limited circumstances in which it may be appropriate to provide relief from double taxation resulting from application of the repatriation tax under section 965, as amended by the Tax Cuts and Jobs Act (TCJA).

The IRS has determined that in unique circumstances, such as where a corporation paid an unusual dividend for business reasons, not because of the enactment of TCJA, it may be appropriate to provide relief from double taxation. When the same earnings and profits of foreign corporations are taxed both as dividends and under section 965, double taxation could result.

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THE SPANISH SYSTEM HAS TWO TYPES OF PERSONAL INCOME TAX:

-PIT for Spanish resident individuals and

-NRIT for individuals who are not resident in Spain

Spanish resident individuals are generally liable to PIT on their worldwide income wherever it arises. Non-resident individuals are chargeable to NRIT on their Spanish source income only.

RESIDENCE

An individual is liable to Spanish tax based on his or her residence. An individual is deemed to be Spanish resident if he or she spends more than 183 days in the tax year (i.e. the calendar year) in Spain or if the individual’s main centre of business or professional activities or economic interests is located in Spain.

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The USA is almost unique in taxing U.S. citizens even when they live abroad. This means that expats who earn over $10,000 ($10,300 for 2016, to be precise, or just $400 of self-employment income) are required to file a U.S. federal tax return, regardless of where their income originates, or whether they are also paying taxes elsewhere.

While expats still have to pay any U.S. tax they may owe by April 15th, they have until June 15th to file, with a further extension available on request to October 15th. Read More

Retiring abroad is more popular than ever, thanks to perceptions of a better quality of life, more affordable health care, and a warmer climate.

Americans living abroad earning over $10,000 a year (or just $400 of self-employment income) are still required to file a U.S. tax return though, declaring their world wide income. This includes expats who have retired or settled permanently abroad. Read More

American citizens and green card holders, including people who have the right to U.S. citizenship, are required to file a federal income tax return each year declaring their worldwide income, wherever in the world they live. They may also have to pay U.S. taxes.

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Ephraim Moss, foreign tax credits, expat, tax professional

One of the fundamentally important tax concepts for U.S. expats to know is that the U.S. tax system has built-in mechanisms for preventing the “double taxation” of your income (i.e., tax in both your new host country and in the United States). These mechanisms provide a measure of relief for U.S. expats who remain subject to U.S. taxation, despite living and working abroad.

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John Richardson

I wrote a post on August 7, 2016 which discussed the August 5, 2016 decision of the United States Court of Appeals – District of Columbia Circuits in the Esher case. In this case, Justice Millet ruled that:

That extreme reading of the Totalization Agreement rests on nothing more than the Commissioner’s own say-so. It lacks any grounding in the Agreement’s text or in any principle governing the interpretation of international agreements. The tax court’s corresponding disregard of the Totalization Agreement’s textual direction concerning the role of French law in resolving undefined terms and in determining the content of the laws enumerated in Article 2(1)(b) was error and requires reversal.

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John Richardson

On July 12, the U.S. Treasury released its 2016 Model Tax Treaty. I suspect that people will interpret this in terms of how it affects their individual tax situations. This gives a huge clue with respect to information exchange and how the U.S. views “double taxation,” citizenship-based taxation, and related issues.

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TaxConnections Picture - Dollar In OceanU.S. citizens and residents are taxed on their income from all sources worldwide. Worldwide taxation by the U.S. does not disarm the taxing power of other countries. Americans pursuing income outside of the U.S. are bound to encounter tax collectors asserting their own national claims. The world is awash in possibilities of double taxation. Below is a hypothetical illustrating international double taxation and its main cause: inconsistent sourcing rules in different countries imposing overlapping taxes.

A CONTRACT IN YEMEN

John is a lawyer who practices in NYC. One day, he gets a call from Ali, a client in Yemen. Ali asks John to do some research on a question and to send his findings in the form of a memorandum. John goes ahead and does the work, consisting of some research and some writing, which takes twenty hours of his time.

John’s final product is a memorandum, which he sends to Ali, along with a bill for $ 4,000 reflecting his hourly rate of $ 200. A check for $ 4,000 arrives by return mail and John gives the matter little further thought.

At the end of the year, John receives an official-looking letter from the Treasury of Yemen, adorned with a seal and crests, asking him to pay $ 2,000 in income tax to the Yemeni Treasury with respect to his $4,000 of Yemen-source income. The letter explains that the rate of Yemeni income tax on the Yemen-source income of foreigners from professional services is 50%. Read More