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IRS Announces Five New Campaigns

Yesterday, the Large Business and International Division (“LB&I”) of the IRS announced five new compliance campaigns. This is in addition to the 40 previously announced campaigns discussed here.

The new campaigns are:

Individual Foreign Tax Credit Phase II

“Section 901 of the Internal Revenue Code alleviates double taxation through a dollar-for-dollar credit against U.S. tax on foreign-sourced income in the amount of foreign taxes paid on that income.

Individuals who meet certain requirements may qualify for the foreign tax credit. This campaign addresses taxpayers who have claimed the credit but do not meet the requirements. The IRS will address noncompliance through a variety of treatment streams, including examination.”

Offshore Service Providers

“The focus of this campaign is to address U.S. taxpayers who engaged Offshore Service Providers that facilitated the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets, generally, for the purpose of tax avoidance or evasion. The treatment stream for this campaign will be issue-based examinations.”

FATCA Filing Accuracy

“The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the HIRE Act. The overall purpose is to detect, deter and discourage offshore tax abuses through increased transparency, enhanced reporting and strong sanctions. Foreign Financial Institutions and certain Non-Financial Foreign Entities are generally required to report the foreign assets held by their U.S. account holders and substantial U.S. owners under the FATCA. This campaign addresses those entities that have FATCA reporting obligations but do not meet all their compliance responsibilities. The Service will address noncompliance through a variety of treatment streams, including termination of the FATCA status.”

1120-F Delinquent Returns Campaign

“The objective of the Delinquent Returns Campaign is to encourage foreign entities to timely file Form 1120-F returns and address the compliance risk for delinquent 1120-F returns. This is accomplished by field examinations of compliance risk delinquent returns and external education outreach programs. The campaign addresses delinquent-filed returns, Form 1120-F U.S. Income Tax Return of a Foreign Corporation.

Form 1120-F must be filed on a timely basis and in a true and accurate manner for a foreign corporation to claim deductions and credits against its effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than 18 months after the due date of the current year’s return. The filing deadline may be waived, in situations based on the facts and circumstances, where the foreign corporation establishes to the satisfaction of the commissioner that the foreign corporation acted reasonably and in good faith in failing to file Form 1120-F per Treas. Reg. Section 1.882-4(a)(3)(ii). LB&I Industry Guidance 04-0118-007 dated 2/1/2018 established procedures to ensure waiver requests are applied in a fair, consistent and timely manner under the regulations.”

Work Opportunity Tax Credit

“The IRS has agreed to accept the Work Opportunity Tax Credit (WOTC) year of credit eligibility issue into the Industry Issue Resolution (IIR) program (pursuant to Rev. Proc. 2016-19). This campaign addresses the consequences of WOTC certification delays and the burden of amended return filings. The campaign’s objective is to collaborate with industry stakeholders, Chief Counsel, and Treasury to develop an LB&I directive for taxpayers experiencing late certifications and to promote consistency in the examinations of WOTC claims.

Due to delays associated with the WOTC certification process, taxpayers are often faced with the burdensome requirement of amending multiple years of federal and state returns to claim the WOTC in the year qualified WOTC wages were paid. This requirement, coupled with any resulting examinations of this issue, is an inefficient use of both taxpayer and IRS resources. The IIR is intended to provide remedies to reduce taxpayer burden, promote consistency, and decrease examination time to most effectively use IRS resources.”

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As with the other campaigns, if you are a corporate taxpayer under LB&I’s jurisdiction and your return involves identified issues, it would be advisable to anticipate an audit and act accordingly.

 

 

Opportunity to Claim Refund on WHT Overpayment on Dividends Received by Non-EU Investment Funds from Europe – Update

In a recently reported Emerging Markets Series of DFA Investment Trust Company case (C -190/12) the European Court of Justice confirmed that investment funds based outside EU should benefit from the free movement of capital rule regarding investments in Europe (see link for more details). This judgment opens up the opportunity for non-EU investors to claim withholding tax refunds in some EU jurisdictions (in particular Germany, Poland, Spain and the Czech Republic). Follow-up information on selected EU jurisdictions is set out below.

Czech Republic
Czech law imposes a favorable tax regime on certain investment funds established in the EU, Norway and Iceland. It offers investment funds the opportunity to claim tax refunds, which should be of particular interest to non-EU investment funds achieving capital gains or income derived from their Czech-based immovable property.

Peter Varga
peter.varga@dentons.com

France
Since 2012, further to the judgment in Santander Asset Management and others ruling (joined cases 338/11 to 347/11), non-resident undertakings for collective investment in transferable securities (UCITS) are no longer required to pay withholding taxes on dividends received from France. Any withholding taxes collected at source should open up the right to claim refunds under certain conditions.

This ECJ judgment could trigger a legislative response from France which is currently difficult to predict. It could mean the enactment of a specific tax for French UCITS and a specific withholding tax for non-French UCITS. This was in fact the route taken by France after the High Court ruled in 2009 that French WHT  charged on unearned income achieved by non-resident nonprofit organizations (where French nonprofit organizations were tax exempt) was illegitimate. The tax was set at 15%, instead of the original 25% rate that only applied to non-resident nonprofit organizations.

Jessie Gaston
jessie.gaston@dentons.com

Germany
Certain non-German investment funds investing in German companies should also benefit from this decision. German Investment Tax Act provides for a full WHT refund in case of capital income of the fund, but only for those established in Germany and not for comparable funds established abroad. Whether or not non-German funds can be considered comparable to German funds in terms of tax treatment needs a case-by-case analysis. The requirements for the applicability of the German Investment Tax Act changed recently due to the implementation of the AIFM Directive.

Thomas Voss
thomas.voss@dentons.com

Poland
A case was initiated by a Polish court which gives solid grounds for non-EU investors to claim refunds of overpaid WHT. Polish regulations offer income tax exemptions for domestic investment funds and funds based in the EU/EEA and there are exchange of tax information mechanisms with a number of jurisdictions. If tax has been paid on dividends from a Polish company, it should be analyzed if there are conditions for preferential treatment based on the EU principles of freedom of establishment and the free movement of capital.

Rafał Mikulski
rafal.mikulski@dentons.com

Romania
The principles of the case and their applicability are certain to be assessed on a case-by-case basis. It definitely sheds new light on European investments and should be explored especially in conjunction with the new Romanian law on exemption of tax for re-invested profits.

Delia Dragomir
delia.dragomir@dentons.com

Spain
Application of the case in Spain, along with other ECJ precedents (i.e. ECJ joined cases 338/11 to 347/11) would allow to investment funds located outside the EU/EEA to claim refunds of the withholding taxes paid on their Spanish sourced dividend income, on the amount exceeding the 1% tax rate applicable to Spanish resident investment funds. Chances of success would depend on fulfilling the requirements set by the ECJ in the case at hand.

Jose Ramon Vizcaino
joseramon.vizcaino@dentons.com

UK
As the UK does not impose withholding tax on dividends (other than REIT dividends), the impact of the case in the UK is limited.

Jeremy Cape
jeremy.cape@dentons.com

Opportunity to Claim Withholding Tax Overpayment on Dividends Received by Non-EU Investment Funds from Europe

In its verdict in Case C-190/12 (Emerging Markets Series of DFA Investment Trust Company), the European Court of Justice (ECJ) confirmed that investment funds based outside the EU should benefit from the EU’s free movement of capital rule regarding investments in Europe.

Dentons’ global Tax team discusses the implications of this verdict in Europe.

Read more

Karina Furga-Dąbrowska, Cezary Przygodzki, and Rafał Mikulski, all members of Dentons’ Tax practice in Poland, co-authored this article.

New Foreign Tax Credit Regulations Issued

On February 14, 2012, the US Treasury Department (“IRS”) published in the Federal Register regulations dealing with two separate but related foreign tax credit issues. One set of regulations, which are proposed and temporary, provide guidance to taxpayers on how to interpret section 909 of the US Internal Revenue Code which denies a foreign tax credit for certain “foreign tax credit splitting events.” The other set of regulations, which are final, provide guidance on which person is considered to pay a foreign tax and is therefore eligible to claim a credit for the foreign tax paid.

Read more