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US Tax Treaties Non-US Portfolio Companies – Stephen Flott and Joseph Siegmann, Flott & Co GLOBAL TAX WEEKLY ISSUE 107 | NOVEMBER 27, 2014 a closer look SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL GOVERNANCE BUDGETS COMPLIANCE OFFSHORE SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS COUNTRIES AND REGIONS EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU GLOBAL TAX WEEKLY a closer look Global Tax Weekly – A Closer Look Combining expert industry thought leadership and team of editors outputting 100 tax news stories a the unrivalled worldwide multi-lingual research week. GTW highlights 20 of these stories each week capabilities of leading law and tax publisher Wolters under a series of useful headings, including industry Kluwer, CCH publishes Global Tax Weekly –– A Closer sectors (e.g. manufacturing), subjects (e.g. transfer Look (GTW) as an indispensable up-to-the minute pricing) and regions (e.g. asia-pacifi c). guide to today's shifting tax landscape for all tax practitioners and international fi nance executives. Alongside the news analyses are a wealth of feature articles each week covering key current topics in Unique contributions from the Big4 and other leading depth, written by a team of senior international tax fi rms provide unparalleled insight into the issues that and legal experts and supplemented by commentative matter, from today’s thought leaders. topical news analyses. Supporting features include a round-up of tax treaty developments, a report on Topicality, thoroughness and relevance are our important new judgments, a calendar of upcoming tax watchwords: CCH's network of expert local researchers conferences, and “The Jester's Column,” a lighthearted covers 130 countries and provides input to a US/UK but merciless commentary on the week's tax events. GLOBAL TAX WEEKLY ISSUE 107 | NOVEMBER 27, 2014 a closer look CONTENTS FEATURED ARTICLES Getting Advance Approval For A Highly Topical News Briefi ng: Integrated Transfer Pricing System What Do You Do With A Lame Duck? Dr. Alexander Voegele and Philip de Homont, Th e Global Tax Weekly Editorial Team 16 NERA Economic Consulting 5 ‘Deoff shorization’ Draft Law Passed What Do We Expect In Th e Chancellor’s By Th e State Duma Autumn Statement? Andrey Vostokov, Svetlana Yakushina Catherine Robins, Pinsent Masons LLP 8 and Mariam Oganesyan, International Tax Services, Ernst & Young Moscow 18 Topical News Briefi ng: Th e Ball’s In Your Court, Narendra South Africa At Th e Fiscal Crossroads Th e Global Tax Weekly Editorial Team 12 Stuart Gray, Senior Editor, Global Tax Weekly 23 United States Taxation Of Income From Tax Considerations When Acquiring International Shipping – US Tax Treaties Non-US Portfolio Companies – Stephen Flott and Joseph Siegmann, Flott & Co. 13 Mitigating Subpart F Inclusions Daniel N. Zucker, Jeff rey C. Wagner, Th omas P. Ward, and Robert A. Clary, II, McDermott Will & Emery 29 NEWS ROUND-UP US Tax Reform 33 Regional Focus: Europe 38 Wide US Coalition Insists On Tax Extender Renewal Irish Gov’t Overhauls Water Charge Proposals Dynamic Scoring In US Tax Reform Proposals Debated Hungarian Taxpayers Resume Protests Charities Press For Permanent US Tax Provisions Increased Property Taxes Badly Aff ect Italian Builders States Lose Patience Over US Internet Sales Tax Switzerland To Join Multilateral Convention On AEOI Accounting Standards 42 International Trade 48 Talk Of Converging Islamic, IASB Accounting Standards EU–Australia Trade Deal In Th e Offi ng ICC Welcomes G20 Commitment To Bali Package International Tax Planning 43 Mexico Praises Talks Towards Asia-Pac FTA Shell Wins Indian Transfer Pricing Dispute Trade Deal With India Abbott’s Next Priority Australia Discusses International Tax Eff orts TAX TREATY ROUND-UP 51 Regional Focus: Latin America 45 CONFERENCE CALENDAR 52 Venezuelan President Enacts Tax Increases IN THE COURTS 61 Peru Government Proposes Tax Cuts To Boost Economy THE JESTER'S COLUMN 66 Th e unacceptable face of tax journalism Brazil Rejects WTO Panel Requested By EU Over Tax Measures VAT, GST, Sales Tax 47 Japanese Parties Pledge Reduced Sales Tax Rate Finland Says Bitcoin Trading VAT Exempt For article guidelines and submissions, contact [email protected] ©2014 CCH Incorporated. All Rights Reserved. FEATURED ARTICLES ISSUE 107 | NOVEMBER 27, 2014 United States Taxation Of Income From International Shipping – US Tax Treaties by Stephen Flott and Joseph Siegmann, Flott & Co. Contact: sfl ott@fl ottco.com Th is is the fourth in a series of articles on US taxation of income from the transportation of cargo or passen- tax treaties with the United States and identifi es gers to or from the United States or from the provision which types of USSGTI each treaty exempts from of services on the US Outer Continental Shelf, and the US Shipping Tax. Only those countries listed the compliance regimes that apply to companies that in Table II of Revenue Ruling 2008-17 have trea- receive such income. ties that may be used to claim exemption from the US Shipping Tax. Th ere are other international As discussed in prior articles, Section 887 of the US agreements that exist between the United States Internal Revenue Code (the "Code") imposes a 4 and foreign countries, but only "comprehensive tax percent gross tax on US source gross transportation treaties" qualify for the treaty exemption. Diplo- income ("USSGTI"). Th e preceding articles have matic notes exchanged between the United States explained USSGTI, what kinds of income are in- and other countries or agreements regarding infor- cluded in USSGTI, and how to calculate it. Th is mation exchanges are not treaties. Th ey are covered article explains the exemptions to the tax that are under the exclusion provided in Section 883 . available to foreign corporations that earn USSGTI. Foreign corporations subject to the Section 887 tax Each tax treaty is the product of bilateral negotia- imposed on USSGTI have two routes to avoid pay- tions between the United States and a treaty part- ing it: claim the benefi ts of a tax treaty with the ner, and is intended to benefi t persons who are United States, or use the statutory exclusion from residents of the contracting countries, not those of gross income under Section 883 . Th is article ad- third countries. Individual citizens and residents of dresses the treaty exemption. Th e following articles a country are generally easy to identify and separate will address the exclusion off ered by Section 883 . from citizens and residents of third countries. It is far less straightforward to identify the "true iden- Table II of Revenue Ruling 2008-17 [2008-12 IRB tity" of legal persons, such as corporations. Th us, 626, March 24, 2008] lists countries with qualifying one of the primary objectives of modern treaty ©2014 CCH Incorporated. All Rights Reserved. 13 negotiators is to prevent "treaty shopping," that is, Section 883 , because they cannot use the treaty. the use of a treaty by legal persons who are not bona Th e US–UK Tax Treaty contains a very complex fi de residents of the contracting countries. and involved LOB clause, one provision of which precludes UK residents, who pay tax to the United Each treaty has diff erent qualifi cation requirements Kingdom on a non-domiciliary basis, from using depending upon the specifi c negotiations between the treaty and disqualifi es any UK company con- the United States and the partner country. For ex- trolled by such persons, except to the extent that ample, the US–Greece tax treaty requires that a the company carries on an active, substantial busi- Greek company seeking exemption under Art 5 ness in the United Kingdom. (Transportation Income) be organized in Greece and its vessel fl y the Greek fl ag. A Greek corpora- LOB clauses in the United States' tax treaties with tion that owns a vessel that does not fl y the Greek several European countries contain "derivative fl ag does not qualify for treaty benefi ts. Non-Greek benefi ts provisions" which essentially relax the re- companies, owned by Greek nationals resident in quirement that legal entities organized in the treaty Greece, whose vessels fl y the Greek fl ag, do not country be owned or controlled by residents of that qualify under the Greek treaty because the compa- country. In eff ect, companies organized in a treaty nies are not organized in Greece. country can use that country's treaty as long as they are controlled by persons who are bona fi de resi- With very few exceptions (Greece is one of the dents of the European Union ("EU") or the Euro- exceptions), US tax treaties (and those of many pean Economic Area ("EEA"). For example, under other countries) contain quite extensive limitation the US–Malta Treaty, Maltese companies owned on benefi ts ("LOB") articles which are designed by persons who reside outside Malta, but within to do exactly what the title says: limit the benefi ts the EU or EEA, can under certain conditions take of the treaty.
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