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RSUs and the Expatriation Tax

RSUs and the Expatriation Tax

Tax Law
By Anthony Diosdi A restricted stock unit (“RSU”) is a form of stock based compensation used to reward employees. Restricted stock units vests at some point in the future. Unlike stock options, RSUs have some value upon vesting. That is, unless the underlying stock becomes worthless. An RSU is a grant whose worth is based on the value of the company issuing the stock. Until a grant of RSUs vest, there is no U.S. tax consequence. In other words, until an RSU vests, it is nothing more than an unfunded promise to issue a share to the holder of the grant until some point in the future. The U.S. Tax Consequence of the Vesting of an RSUOnce an RSU vests, the recipient is taxed on the value of the shares…
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Planning for Foreign Investors Investing in U.S. Real Estate to Eliminate                                                      the U.S. Estate and Gift Tax

Planning for Foreign Investors Investing in U.S. Real Estate to Eliminate the U.S. Estate and Gift Tax

Tax Law
 By Anthony Diosdi In the individual foreign investor setting, inbound tax planning often requires a balancing of U.S. income tax considerations and U.S. federal gift and estate tax considerations. While U.S. federal income tax rates on the taxable income of an individual foreign investor are the same as those applicable to a U.S. citizen or resident, the federal estate and gift tax as applied to individual foreign investors can and often results in a dramatically higher burden on a taxable U.S. estate or donative transfer of a foreign investor than for a U.S. citizen or domiciliary. As a result, for many individual foreign investors, the most important U.S. tax consideration is the U.S. federal estate and gift taxation. The United States imposes estate and gift taxes on certain transfers of…
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IRS Aims to Clear Backlog by 2023

IRS Aims to Clear Backlog by 2023

Tax Law
Like most companies and government agencies, the Internal Revenue Service (IRS) fell behind on its work during the height of the COVID-19 pandemic. The agency is trying to overcome a significant backlog, and its goal is to do so by 2023. Currently, the IRS has 11 million returns from 2021 to process and millions more filed in 2022. While many people have received refunds, others are waiting. If you have not yet filed your taxes for 2022, now is the time to do so, and you should always have help from a skilled San Francisco tax attorney. The IRS hired additional staff and has additional funding to catch up and get on top of its tax return processing for 2022. No matter whether the IRS is on top of its…
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The Taxation of RSUs in an International Context

The Taxation of RSUs in an International Context

Tax Law
By Anthony Diosdi The following is a general summary of the cross-border tax consequences associated with the grant of restricted stock units (“RSUs”). A restricted stock unit (“RSU”) is a form of stock based compensation used to reward employees. Restricted stock units vests at some point in the future. Unlike stock options, RSUs have some value upon vesting. That is, unless the underlying stock becomes worthless. It is common for U.S. multinational corporations to assign U.S. employees to overseas affiliates for short or long term assignments. These employees may have received RSU grants before their foreign assignment began. This can trigger income and social security tax consequences related to the RSUs in multiple jurisdictions. The rules relating to the taxation of RSUs in an international context are often complex and…
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The Tax Consequences Associated With Making Loans or Advances to a Foreign Corporation

The Tax Consequences Associated With Making Loans or Advances to a Foreign Corporation

Tax Law
By Anthony Diosdi Once a foreign corporation is established, it must decide how to raise funds. Like domestic corporations, foreign corporations often raise capital through issuing stocks or through borrowing. The investor who acquires stock holds an equity interest in the corporation while the lender holds a debt or creditor interest in the foreign corporation. In either case, the investor or lender expects a return on the investment. Shareholders may receive that return from dividends paid on stock and from profit upon later sale of the share. On the other hand, lenders receive their return on their investment in the form of interest payments. Many U.S. investors do not wish to hold an equity investment in a foreign corporation because of the harsh GILTI or subpart F income tax consequences…
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Exploitation of Intangible Property Abroad: The Use of Cost Sharing Arrangements to Avoid the Transfer Pricing Rules

Exploitation of Intangible Property Abroad: The Use of Cost Sharing Arrangements to Avoid the Transfer Pricing Rules

Tax Law
By Anthony Diosdi In considering the U.S. and foreign tax aspects of exploiting abroad intangible property rights, such as rights to patents, copyrights, trademarks, confidential knowhow, and trade secrets, it is convenient to analyze transfers of intangible property between commonly controlled parties. For example, Corp A, U.S. corporation owns the copyright in a computer program, Program X, and Corp A transfers a disk containing Program X to Corp B, wholly owned subsidiary, a Country Z corporation, and grants Corp B “an exclusive license for the remaining term of the copyright to copy and distribute an unlimited number of copies of Program X in the geographic area of Country X, prepare derivative works based upon Program X, make public performances of Program X and publicly display Program X. Corp B will…
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A Foreign Investor’s Guide to U.S. Real Estate Investment Trusts

A Foreign Investor’s Guide to U.S. Real Estate Investment Trusts

Tax Law
By Anthony Diosdi In the United States, a Real Estate Investment Trust or “REIT” is a common vehicle for earning income from rental property. A REIT can be thought of as a modified passthrough entity similar to a partnership that avoids corporate level taxes by utilizing a dividend paid deduction. However, unlike partnerships, REIT distributions are treated as a dividend, which may be favorable to foreign investors. Although dividends are subject to a 30 percent withholding tax under the so-called “FDAP” rules, tax treaties generally provide for the reduction or elimination of the 30 percent withholding tax. In addition, a properly structured REIT may avoid FIRPTA withholdings. Another advantage of a REIT is from a compliance perspective. A foreign investor may invest in U.S. real estate without having to apply…
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How to Treat IRA and 401(k) Plans in an Expatriation

How to Treat IRA and 401(k) Plans in an Expatriation

Tax Law
By Anthony Diosdi This article discusses how U.S. retirement accounts (i.e., IRA and 401(k) plans) are treated for expatriation tax purposes. Before discussing how a U.S. retirement account is treated for expatriation tax purposes, this article will provide an overview regarding the expatriation tax.Section 877A and the “Exit” TaxUnder Section 877A of the Internal Revenue Code, a “covered expatriate” is required to recognize gain on their worldwide assets as part of a deemed sale the day before the expatriation date. However, gain of up to $767,000 (for the 2022 calendar year) is not subject to the deemed sale provisions of Section 877A. A “covered expatriate” is an individual who: 1) relinquishes his or her U.S. citizenship or permanent residence (but only if the expatriate was a U.S. resident during 8…
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The United States- Hungary Income Tax Treaty- Last Call!

The United States- Hungary Income Tax Treaty- Last Call!

Tax Law
By Anthony Diosdi On July 8, 2022, the Biden administration announced that it will terminate the U.S.-Hungary Income Tax Treaty as a result of that country’s resistance to the implementation of a minimum 15 percent corporate tax. A Treasury spokesperson said that since Hungary lowered its corporate tax rate to 9 percent (less than half the U.S. rate), the tax treaty unilaterally benefits Hungary. There are only a few examples of the United States unilaterally terminating a tax treaty. Probably the most relevant historical precedent is in June 1987 when the Treasury announced the termination of the tax treaty with the Netherlands Antilles. The termination of the U.S.- Hungary Income Tax Treaty is expected to be completed after the Treasury Department sends formal notification to the relevant Hungarian authorities. As…
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Exploitation of Intangible Property Rights Abroad: The Tax Incentives to Licensing under FDII

Exploitation of Intangible Property Rights Abroad: The Tax Incentives to Licensing under FDII

Tax Law
By Anthony Diosdi A U.S. corporation’s lease or licensing of property and license of intellectual property to non-U.S. customers may be subject to U.S. federal tax at a rate of only 13.125 percent. This reduced tax rate can apply to cross-border licenses of software, apps, streaming of audio or video, and proprietary knowhow that is essentially secret or confidential information not known to the public. This article explains the general framework for the Foreign Derived Intangible Income (“FDII”) deductions available to U.S. corporations that license intellectual property to non-U.S. entities or persons and foreign tax considerations associated with cross-border licensing agreements. Tax Incentives to Cross-Border Licensing Tax considerations often create major incentives for licensing of intangible rights to unaffiliated and foreign affiliates controlled by the licensor as a result of…
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