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William Byrnes (Texas A&M) tax & compliance articles

Archive for July, 2015

Please Vote for the International Financial Law Professor Blog

Posted by William Byrnes on July 31, 2015


— Vote for My Blog Please for 100 Best Annual Law Blogs —

The American Bar Association (ABA) is creating its annual list of the 100 best legal blogs, and wants your vote on which blogs it should include.

Go to > ABA Voting for Best Law Blogs < to tell the ABA about the International Financial Law Professor blog please [lawprofessors.typepad.com/intfinlaw]

The ABA may include some of the best comments in its Blawg 100 coverage. But keep the remarks short — a 500-character remarks limit.

Deadline 11:59 p.m. CT on Friday, Aug. 16, 2015: American Bar Association voting link

Much obliged for your continued support and readership – Prof. William Byrnes (Texas A&M Law)

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Dr. Jack Manhire Departs IRS & Treasury for Texas A&M Law School

Posted by William Byrnes on July 30, 2015


Dr. John T. (“Jack”) Manhire, Jr., former Chief of Legal Analysis for the IRS Office of Professional Treasury-Dept.-Seal-of-the-IRS
Responsibility and National Program Chair, Executive Education for the U.S. Treasury Executive Institute, has accepted a position as Director of Program Development at Texas A&M University School of Law.

Last month Texas A & M announced that William H. Byrnes, IV, (co-editor of our International Financial Law Prof Blog) left Thomas Jefferson Law School and joined the faculty of Texas A&M Law.

Including Dr. Manhire and the new University President, Dr. Michael Young, Texas A&M Law has hired 13 significant faculty hires for 2015, and two significant faculty visitors for Spring 2016 through the Texas A&M Institute of Advanced Studies.

For 2016, the law school is seeking to hire several more equally distinguished law professors.  See he previous post  Texas A&M University School of Law 2016-17 Faculty Recruitment Areas of Interest

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What Regulatory Competition Can Teach About Tax Competition

Posted by William Byrnes on July 29, 2015


Tax competition is usually portrayed as a competition over rates.

Critics argue that such competition leads inevitably to a “race to the bottom,” with the result of OECDreducing tax rates and revenue everywhere. They also decry “secrecy” jurisdictions that allow owners of entities to conceal their identities, suggesting that the only reasons for confidentiality can be to cheat tax authorities somewhere out of their due.

But as anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.

Lower rates can attract taxpayers, but allowing more rapid depreciation of capital investment might trump lowering rates for capital-intensive industries, while an honest and efficient revenue agency may matter more than nominal rates for total revenue collections.

Read this article at Competing For Captives: What Regulatory Competition Can Teach About Tax Competition  by authors Dr. Andrew P. Morriss, Dean & Anthony G. Buzbee Dean’s Endowed Chairholder, Texas A&M University School of Law; and Drew Estes, a JD/MBA Candidate, Class of 2016, University of Alabama.

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Attacking BEPS Through ECI? Prof. Jeffery Kadet’s Approach

Posted by William Byrnes on July 29, 2015


Attacking Profit Shifting by Prof. Jeffery Kadet – In recent years the financial press has turned Jeffrey-M-Kadet-244x300increasing attention to MNCs that shift income to low taxed jurisdictions overseas in order to avoid US taxation. What’s generally missing from these discussions is any serious focus on possible IRS attacks on these companies, most of which are CFCs. There’s little apparent concern by anyone that the IRS will try to disallow the profit-shifting structures that have moved so much taxable income out of the US and other countries and into low-taxed foreign jurisdictions.

This is changing. Early this year Caterpillar Inc. in an SEC filing disclosed that the IRS had issued a Revenue Agent’s Report to currently tax certain income earned by one of its Swiss entities. Presumably this is income earned as a result of a certain restructuring conducted in the late 1990s and referred to as the Swiss Tax Strategy when examined in 2014 in hearings held by the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (PSI).

The IRS basis for its RAR, as disclosed by Caterpillar, is application of the ‘substance-over-form’ or ‘assignment-of-income’ judicial doctrines. This, however, is not the only approach that the IRS might have chosen to impose taxation on the shifted profits.

Various Congressional hearing documents, the work of investigative journalists, and other sources (all publicly available) provide evidence that the businesses within some profit-shifting structures continue to be managed and substantially conducted from the U.S. and not from any business locations outside the U.S. Where this is the case, the IRS may have a strong case for imposing direct taxation on the effectively connected income (ECI) of these low-taxed foreign subsidiaries.

Just the threat of imposing direct taxation may cause many MNCs to consider scaling back their profit shifting and for them and their outside auditors to start worrying about exposure on prior years. If the IRS were to sustain such direct taxation, it would mean:

·      The regular up-to-35% corporate tax,
·      The ‘branch profits tax’ applied at a flat 30% rate (unless lower by treaty),
·      A loss of deductions and credits for any tax year if the foreign corporation has not filed Form 1120-F for that year, and
·      An open statute of limitations on IRS assessment of tax for any tax year if the foreign corporation has never filed a US tax return on Form 1120-F for that year.
The combined effect of the above is a 54.5% or higher effective tax rate (lower if tax treaty coverage reduces the 30% branch profits tax rate).

Considering these terribly high effective tax rate percentages, where the IRS chooses to examine for possible ECI and develops a credible case, they can use the high effective tax rate as strong leverage to secure agreement for reversal of profit shifting structures. Such agreements would presumably see MNCs agreeing to current taxation within U.S. group members of the shifted profits that had originally been booked in low-taxed foreign subsidiaries.

To demonstrate how significant ECI likely exists within many MNCs that have conducted profit-shifting planning, this article includes a number of realistic examples inspired by the above-mentioned publicly available information on MNC profit-shifting structures.

Recognizing that it can sometimes be a challenge to apply the very old existing regulations to current business models, the article strongly encourages Treasury to prioritize the issuance of modernized income sourcing and ECI regulations that reflect the business models and structures now commonly used and that are often found in profit-shifting structures.

read the full article on SSRN Attacking Profit Shifting by Prof. Jeffery Kadet

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Educational Teaching Methodologies to Reverse Declining Law School Enrollment

Posted by William Byrnes on July 28, 2015


read the CNN Report about the White Paper “Alternative Methods of Teaching and The Effectiveness of Distance Learning For Legal Education”.

The 26 page White Paper is available on SSRN

“legal education today has to be recalibrated so that it is innovative, cross-disciplinary, simultaneously accessible across global borders, and able to expand without millions of dollars for brick and mortar…”

“law schools are experiencing 40% less enrollment today than in years past and new standards are needed to reverse that decline. These new standards address the three missing elements in legal education today: …”

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Citigroup to Close Banamex for Money Laundering Violation, Pay $180 Million in Fines

Posted by William Byrnes on July 27, 2015


… In taking the action against Citigroup, the FDIC determined that the bank failed to implement an effective BSA/AML 640px-FdicLogoCompliance Program for Banamex over an extended period of time. The institution failed to retain a qualified and knowledgeable BSA officer and sufficient staff, maintain adequate internal controls reasonably designed to detect and report illicit financial transactions and other suspicious activities, provide sufficient BSA training, and conduct effective independent testing.

Read the complete story and links to orders here.

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What Can Regulatory Competition Can Teach About Tax Competition?

Posted by William Byrnes on July 27, 2015


from International Financial Law Prof Blog

Critics argue that such competition leads inevitably to a “race to the bottom,” with the result ofOECDreducing tax rates and revenue everywhere. But Dr. Andrew Morriss, Texas A&M Law explains, that anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.

Read this article at Competing For Captives: What Regulatory Competition Can Teach About Tax Competition  by authors Dr. Andrew P. Morriss, Dean & Anthony G. Buzbee Dean’s Endowed Chairholder, Texas A&M University School of Law; and Drew Estes, a JD/MBA Candidate, Class of 2016, University of Alabama.

Posted in BEPS, OECD, Tax Policy | Tagged: , , | Leave a Comment »

FBME Bank (Cyprus) Permanently Denied Access to U.S. Financial System By FinCEN for Money Laundering

Posted by William Byrnes on July 24, 2015


The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) yesterday issued a final rule, pursuant to Section 311 of the USA PATRIOT Act, which imposes “special FINCENmeasure five” against FBME Bank Ltd. (FBME), formerly known as the Federal Bank of the Middle East. Special measure five prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME.  FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., owned by Ayoub-Farid M. Saab and Fadi M. Saab.

What money laundering activities are FBME accused of facilitating?

read the full story of the money laundering activities at FinCEN Cuts FBME Bank from Access to U.S. Financial System

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Texas A&M University School of Law Hiring Multiple New Faculty in 2016

Posted by William Byrnes on July 23, 2015


see full announcement at International Financial Law Prof Blog.

In 2015, Texas A&M University School of Law hired 11 new faculty members (12 if counting Texas A&M University’s new President, Dr. Michael Young, who is a member of the law faculty).  Below is Texas A&M Law’s announcement for faculty recruitment for the 2016-17 academic year.

TEXAS A&M UNIVERSITY SCHOOL OF LAW seeks to expand its academic program and its strong commitment to scholarship by hiring multiple exceptional faculty candidates:

1)    Candidates who are interested in building synergies with Texas A&M University’s Mays Business School, with an emphasis on scholars engaged in international business law who focus on cross-border transactions, trade, and economic law (finance, investments, dispute resolution, etc.);

2)    Candidates who are interested in building synergies with the broad mission of Texas A&M University’s College of Agricultural and Life Sciences, which include but are not limited to scholars engaged in agricultural law (including regulatory issues surrounding agriculture), rural law, community development law, food law, ecosystem sciences, and forensic evidence; and

3)    Visionary leaders in experiential education interested in guiding our existing Intellectual Property and Technology Law Clinic (with concentrations in both trademarks and patents), Entrepreneurship Law Clinic, Family Law and Benefits Clinic, Employment Mediation Clinic, Wills & Estates Clinic, Innocence Clinic, Externship Program, Equal Justice/Pro Bono Program, and Advocacy Program, with a particular emphasis on candidates who may have an interest in participating in our Intellectual Property and Technology Law Clinic or developing an Immigration Law Clinic.

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UK Amnesty Not Leading to Disclosure of Tax Evasion in Channels. Is It “Much To Do About Nothing” ?

Posted by William Byrnes on July 22, 2015


In 2011, HMRC forecast that it would receive “billions” from the Swiss Disclosure HM_Treasury_logo.svgFacility.  In 2012, HMRC stated that this number would be 5 billion sterling, and another 3 billion sterling from the LDF.  This implies that a couple hundred thousand United Kingdom tax residents are non tax compliant by not disclosing income and income-producing assets overseas, in offshore countries.  As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.

My tables and figures are available at International Financial Law Prof Blog.

The offshore noncompliance problem in the context of all non-tax compliance, and all taxpayers, requires first asking how many individual taxpayers file in the UK? see International Financial Law Prof Blog.

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OECD Launches Tax Inspectors Without Borders

Posted by William Byrnes on July 20, 2015


The Tax Inspectors Without Borders (TIWB) initiative enables the transfer of tax auditOECDknowledge and skills to tax administrations in developing countries through a real time, “learning by doing” approach. Experts – currently serving or recently retired tax officials – are deployed to work directly with local tax officials on current audits and audit-related issues concerning international tax matters, and to share general audit practices.

read the post at International Financial Law Prof Blog.

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UK HMRC Releases New Policy Documents to Tackle Offshore Evasion

Posted by William Byrnes on July 20, 2015


The government announced four consultations as part of its publication Tackling Evasion andHM_Treasury_logo.svgAvoidance.  These take forward HMRC’s strategy for tackling offshore evasion, No Safe Havens.

The four consultations are:  see International Financial Law Prof Blog.

Posted in Compliance, FATCA, Financial Crimes | Tagged: , , , | Leave a Comment »

Haydon Perryman & William Byrnes’ June FATCA GIIN Update

Posted by William Byrnes on July 1, 2015


The FFI GIIN List Update (Lists from June 1, 2014 through June 1, 2015)

On 1 June 2015 the IRS published its thirteenth FATCA GIIN list of “approved FFIs” (a list of theFATCA_rollfinancial firms that have registered on the IRS FATCA portal).

Total approved FFIs reached 165,461, and increase of only 2,851 during the month of May.  This FATCA registration trend since January has been described as lethargic, with April’s increase just 2,600 additional firms joining, 3,734 additional during March, and 2,479 in February.  But when compared to what was forecast by the IRS, by industry, and by the UK, it’s a troubling low figure.

In its FATCA FAQs, the IRS suggested a 500,000 potential FFI registration figure.  Many industry stakeholders suggested that 800,000 – 900,000 firms fall under the expansive definition of financial institution.

Given the broad definition of a financial institution that must register for a GIIN, the UK HMRC estimated that, even with its IGA and its accompanying local regulations, 75,000 UK entities probably are impacted.  Yet, only the UK GIIN population is only 23,256.

If the UK HMRC is correct that 75,000 entities are impacted in the UK, then extrapolated among other large and sophisticated financial service economies like Japan, China, India, and Germany, the IRS estimate of 500,000 may be low.

90 countries and dependencies have entered into a FATCA IGA with the U.S. based on Model 1A (reciprocal), or are awaiting local ratification, accounting for 100,190 of the registrations.  A further eight countries signed a Model 1B (non-reciprocal), accounting for a further 39,564 GIINs.  A final 14 countries signed a Model 2 version IGA, adding 18,458 FFI registrations covered by an IGA.  Thus in total, 158,212, representing 96% of FFI registrations, are from the 112 IGA states and their dependencies.

The 131 countries and dependencies without an IGA have only registered 6,295 FFIs to date, a surprising low number given that the initial implementation of the 30% withholding for non-compliance with FATCA began 1 July 2014.

The UK and its ten dependencies and overseas territories comprised 74,694 of the GIINs, representing 45% of the total, or without the UK included, 49,898 for 30.6%.  The 34 OECD members have produced 79,057 GIIN registrations.

Cayman remains the FFI registration global leader, with 30,868, throughout the entire FATCA registration process.  Ironic that the EU Commission just black listed it last week.

The major financial industries of the four BRIC countries have only led to 8,254 FFI registrations, which is seen as a worrying point for FATCA acceptance among non-OECD states.  BRIC registrations are now just dripping in, up from 8,186 in May, 8,060 in April and 7,962 in March.

OECD Common Reporting Standard signatories for the a multilateral competent authority agreement to automatically exchange information has reached 61.  But a notable holdout of a signatory that has not yet actually ratified the agreement is the U.S.  88 countries and dependencies are signatories to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, the latest being Mauritius which signed June 23.

FATCA IGA Scenarios GIINs Jurisdictions
Model 1A IGA  100,190  90
Model 1B IGA  39,564  8
Model 2 IGA  18,458  14
No IGA  6,295  131
US  886  1
US Territories  68  6
Total  165,461  250

Want to read more GIIN analysis and statistics?  See the International Financial Law Professor blog

I am beginning my new faculty position with Texas A&M University School of Law in a week.  With the resources of Texas A&M Law, my research colleague Haydon Perryman (who is now with UBS Investment Bank where he is responsible for global regulatory reporting of FATCA and the CRS) and I will be able to expand our FATCA and CRS research capacity.  Any readers that want to assist in such research, please contact us at Haydon Perryman or William Byrnes.  Please download my FATCA SSRN article here.

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