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Showing posts from April, 2018

Form 5472 -Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

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We've had several enquiries about Form 5472 by some of our Asian based investors into the US. Therefore it is natural that it be the subject of my next blog entry.

As of 2015, over 6.8 million United States (US) workers were employed by foreign-owned companies. To ensure that foreign investment and foreign business activity is reported and taxed, Internal Revenue Code (IRC) §§ 6038A and 6038C impose reporting and substantiation requirements
on foreign-controlled businesses. IRS Form 5472, Information Return of a 25% Foreign-Owned U.S.
Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is used to report the
information required under IRC §§ 6038A and 6038C. The consequence for failing to file IRS
Form 5472 includes the denial of deductions for payments to related parties, an initial $25,000
failure to file penalty, and continuation penalties of $25,000 per 30-day period until the taxpayer gets
into compliance. Below, we review the reporting and record-…

Events in May / June

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Definition of Foreign Financial Institution for FATCA Purposes

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The US tax code at the Federal level has over 8 million words. It's therefore easy for someone to look at one small part while being unaware of how it fits into the wider picture. One area that has received much scrutiny and been the subject of much discussion is the definition of a Foreign Financial Institution or FFI for FATCA purposes.

According to 26 CFR § 1.1471-1, an FFI is -
(50) Financial institution. The term financial institution has the meaning set forth in 1.1471-5(e) and includes a financial institution as defined in an applicable Model 1 or Model 2 IGA.

So we need to look at BOTH the Regs and the IGA to truly understand the mechanics of FATCA classifications and definitions.

The Final Regulations generally define an FFI as any foreign entity that is a "financial institution" (Treas. Reg. § 1.1471-5(d)). One category of financial institution, in turn, is an "investment entity," which means: "any entity that is described in paragraph (e)(4)(i)(…

Why Tax Professionals Insist on Engagement Letters and Organizers?

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Yes organizers are annoying and many clients do not like them.  What's more, there are some smaller, more "flexible" firms that do not insist on them.  There are the obvious reasons for engagement letters and organizers.  Primarily -
1. They define and make clear who is responsible for what
2. The client has a guide on what is required to reduce her own liability and meet reporting requirements
3 Questions are asked/answered that may often be overlooked.



But for more established firms, there is also the issue of professional liability.  I refer you to the case of  Miksic v. Boeckerman Grafstrom Mayer, LLC, 2017 U.S. Dist. LEXIS 46906 (D MN 2017).  Here's a short summary of the case:

The Internal Revenue Service ("IRS") assessed substantial taxes, monetary penalties, and interest against Plaintiff Boris Miksic for his failure to file U.S. tax forms during tax years 2005 to 2010, and not disclosing his interests in and income from foreign trusts, businesses,…

ESOP Tax Treatment - USA vs Singapore

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In this article I will talk about how the US treats stock options then I will talk about Singapore.  The contradiction between the 2 jurisdictions would be clear.  Many US exposed persons working in Singapore encounter this problem.  The key issue is the deemed exercise rule.  There is not much an employee can do about this rule.  The most that can be done is defer the paying of the tax for some years, but the Singapore employer assumes the risk and the employee is liable for interest.  





USA
Under US law, if you receive an option to buy stock as payment for your services, you may have income when you receive the option, when you exercise the option, or when you dispose of the option or stock received when you exercise the option. There are two types of stock options: ·Options granted under an employee stock purchase plan or an incentive stock option (ISO) plan are statutory stock options.·Stock options that are granted neither under an employee stock purchase plan nor an ISO plan are …

Tax Responsibilities of Digital Nomads in Asia?

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Last week we had a couple clients asking about the tax consequences of working remotely, in Singapore for clients in the USA.  In my other article, I dealt with it from the US perspective -
http://www.mooresrowland.tax/2018/03/non-us-digital-nomads-working-for.html

Today we would look at it from the Asian perspective.  I'll limit my analysis to Singapore, Malaysia, Thailand and Indonesia (including Bali).  In short, the tax treatment is similar.  Moreso Singapore, Thailand and Malaysia which practice territorial taxation.  Indonesia (including Bali) is slightly different in that residents are taxed on their worldwide income.




Singapore -  You will be treated as a tax resident for a particular Year of Assessment (YA) if you are -a Singapore Citizen (SC) or Singapore Permanent Resident (SPR) who resides in Singapore except for temporary absences; or a Foreigner who has stayed / worked in Singapore (excludes director of a company) for 183 days or more in the previous year. i.e. the yea…