Tag Archive for tax treaty

Sending Non-Canadian Resident Employees To Canada

Larry Stolberg

Regulation 102 of the Income Tax Act (ITA) requires payroll withholding on income derived by virtue of employment. This applies to, say, a U.S. employer sending its employee to Canada to work on an assignment. Withholding would include income tax and contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI).

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Reporting A “Treaty-Based Position”—Internal Revenue Code S. 6114 Using Form 8833

John Richardson

The United States has many tax treaties with many nations. As a general principle the “savings clause” prevents Americans abroad from having the benefit of treaty provisions. That said, there are situations where a U.S. citizen abroad can benefit from the specific provisions of a specific treaty.

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Part 2: Why Justice Martineau’s Decision Has Handed @ADCSovereignty The Framework For Ultimate Victory – The Importance of “Staying The Course”

Introduction – what this post is about …

I attended the hearing in Vancouver, B.C. on August 4, 5 2015. At that time I wrote a group of posts (here and here) discussing my perception of the hearing. Those posts included expressions of my opinion that Justice Martineau was highly engaged, was working hard on understanding the issues, and was affording all parties a fair hearing. Although, disappointed with his decision (handed down on September 16, 2015), and not agreeing with his conclusions, I reaffirm my sentiments in the previous posts.

This post is more about the “system” than it is about Justice Martineau specifically. In a judicial system, it is possible for “reasonable people” to have “reasonable Read more

Part 1: Justice Martineau Provides @ADCSovereignty The Only Thing Worse Than A Root Canal

This post is Part 1 of my thoughts on Justice Martineau’s decision.

I  left my root canal appointment this afternoon to a message announcing that Justice Martineau had rendered his decision. We did not win round 1. Notice that I did NOT say that the Government won round 1.

Here is the decision:

T-1736-14 decision sept-16-2015

Before, I comment specifically on the decision, I want to be clear on the following points: Read more

BEPS And Planet Mars

NASA recently announced that your name can be put on the planet Mars. This is incredibly great news for the people with good fortunes who are thrilled by the opportunity to gain their foothold in the universe and enhance their fame. However, in another space mission, scientists are attempting to find out if any life exists in other planets.

Think about it. If they indeed were able to find the life on Mars and if the inhabitants there happen to be much more advanced than the humans on earth, they are likely to have a tax law that can tax such inbound activities. Beware and think before you make that tempting decision.

Putting your name on a planet may have its other side. If “cross planet” law applies and Read more

U.S. Law Firms Consulting In India – Trap For The Unwary

International legal and independent professionals consulting in India often have issues receiving funds from their clients in India. India has stringent exchange control regulations contained in the Act called Foreign Exchange Management Act – FEMA. Accordingly all foreign remittances must go through certain procedures. Additionally, Income Tax Department asks for “Tax Residency Certificate” (TRC) from the US service provider so that the treaty benefits can be allowed. If TRC is not produced, the payer must withhold tax from the income remitted to US service provider. This is true regardless of where the services were provided.

Until recently, it was mandatory that TRC issued by foreign tax authority must contain all items required by the government of India in order to exempt any tax withholding Read more

Green Card Holders: Residency In Foreign Country And Treaty Benefits!

Tracking Storm Linus on the weather websites, watching the storm blow around the white stuff all day long, snow piling up 16 inches and more on it’s way, sneaking peeks at the Super Bowl while trying to write up this post- I realized how far we have come–long, long ways from being Green Card holders.

But I do remember that the transition to Green Card holder from a visa holder can be a somewhat exhilarating, somewhat frustrating journey. This process can take a long time and comes with a lot of trials and tribulations.

The tax rules for a green card holder remain fairly the same as a US citizen or a long time US resident for most purposes. The complications come into play when the Green Card Read more

Investments In Foreign Pensions And Annuities

I always liked the interestingly unique name, Phileas Fogg from “Around The World in Eighty Days”. Having traveled the world through books, I always wondered how different life would have been if I had the chance to live and work in many different countries!

Not so much any more as I encounter clients, many US citizens who were based out of the country for a few years. Especially those who could have contributed into or had employers contribute into their then resident country’s retirement accounts. These were either mandated by the resident’s country’s employer rules or were used as a tax saving strategy.

What is a foreign pension or foreign annuity?

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The OECD v. Tax Havens: Part III – New Concerns

On July 13, the OECD issued a new paper titled, Action Plan on Base Erosion and Profit Shifting. The purpose of this paper was to outline the OECD’s new round of concerns regarding tax havens and their use in international tax planning. It is important to understand first what is behind the issuing of this new report:

Over time, the current rules have also revealed weaknesses that create opportunities for BEPS. BEPS relates chiefly to instances where the interaction of different tax rules leads to double non-taxation or less than single taxation.

One of the central purposes of the OECD’s original tax treaty was to divide taxing rights and Read more

REITs – A South African perspective as an OTC investment option

iStock_ Africa Money and Flag XSmallReal Estate Investment Trusts or REITs is a well known internationally known appropriate business structure yet South Africa only adopted its tax law as of April 1st, 2013 and its stock exchange listed or publicly listed trading rules to accommodate REIT’s as of May 1st, 2013.

Since then many property groups not only converted to a listed REIT but also restructured their balance sheets to remove the debt linked to a unit or a share. Now, on September 6th, the first American Depositry Receipt (ADR) status was granted to a South African listed REIT. One ADR unit equals 10 REIT units on the Johannesburg Stock Exchange. Despite the ZA Rand being at a 3 week high, the more recent currency exchange is circa R10=1U$D.

Real Estate Investment Trusts (REIT)

REIT’s are tax transparent or tax through flow investment vehicles that invest in and derive their income from real estate properties and mortgage, without necessarily paying tax on their trade result. To qualify for the South African REIT dispensation, a the REIT (either a company or a trust) must be tax resident in South Africa and be listed as an REIT in terms of the JSE (Johannesburg Stock Exchange) listing requirements.

REIT profits are distributed as tax deductible expenses (effectively pre-tax income) which is then received and taxed in the investors’ hands as taxable dividend income. As of 1 January 2014 the SA dividend withholding tax at 15% or the treaty governed rate where the investor is resident in a treaty country, will apply to nonresident investors. Read more

3.8% Medicare Investment Tax on CFC’s and PFIC’s Income?

A new 3.8% tax, commonly known as the “Medicare tax,” is scheduled to take effect for taxable years following December 31, 2012.

The tax is imposed on the lesser of net investment income (“NII”) or the excess of a taxpayer’s modified adjusted gross income over a threshold amount. For married taxpayers filing jointly, the threshold is $250,000; filing separately, $125,000; and for single taxpayers, $200,000.

NII is defined in IRC §1411(c)(1) as the excess of (A) the sum of (i) gross income from interest, dividends, annuities, royalties, and rents, (ii) other gross income derived from a trade or business which is a passive activity with respect to the taxpayer or which trades in financial instruments or commodities, and (iii) net gain attributable to the disposition of property over (B) properly allocable deductions.

Gain and income for purposes of IRC §1411 is generally recognized when recognized for federal income tax purposes. However, income inclusion and distributions from CFCs, PFICs, and QEFs are treated differently under the proposed regulations.

For purposes of IRC §1411, however, income inclusions from CFCs or QEFs are not included in NII.

Instead, income, previously included in gross income by a taxpayer after December 31, 2012 under the CFC or QEF rules, will be included in NII only when cash is actually distributed to the taxpayer.

Net gain from the disposition of stock in a CFC or QEF will be included in NII.

There is no similar addback of possessions-source income that is excluded under §931 for residents of American Samoa or under §933 for Puerto Rican residents. Thus, a resident of those possessions would only be subject to the §1411 tax if he realized substantial income from sources outside the possession where he is resident.

The regulations clarify that, in the case of residents of the other three U.S. possessions, all of which have so-called “mirror” Codes; Guam, the U.S. Virgin Islands, and the Northern Marianas,  the §1411 tax will not apply because it has not been imposed by Congress on those three possessions, and because residents of those possessions pay income tax on their worldwide income to the government of the possession where they are resident.

Section 1411(e)(1) exempts a “nonresident alien” from the §1411 tax. The proposed regulations confirm that the term “nonresident alien” is determined in accordance with the “resident alien” definitional rules of §7701(b). However, the regulations give no guidance on how to apply §1411 when an individual is a U.S. citizen or resident alien for part of the year, and a nonresident alien for the balance of the year.

The regulations do not discuss the status of so-called “treaty tie-breaker aliens” who are classified as resident aliens under §7701(b), but who are also classified as income tax residents of a country having an income tax treaty with the United States under the “tie-breaker” rules of the treaty. Regs. §301.7701(b)-7(a)(1) provides that a tie-breaker alien will be classified as a nonresident “for purposes of computing that individual’s United States income tax liability under the provisions of the Internal Revenue Code and the regulations thereunder … .” Thus, whether a treaty tie-breaker alien is exempt from the §1411 tax probably depends on whether the §1411 tax is an “income tax” within the meaning of U.S. income tax treaties.

The Application of the New 3.8% Medicare Tax on CFC’s & PFIC’s Got You Confused?

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