$26 Billion Jobs Bill Requires Better International Tax Planning by Mid Market Companies

On Tuesday, August 10, Congress passed and the President signed a jobs bill (HR 1586). The bill contained some international tax provisions designed to tax the big evil multinationals. Two provisions may also have an impact on mid market companies. The rules are fairly technical, as with many things international.

Summary of Jobs Bill International Tax Provisions

1. Foreign tax credit may be disallowed in part following certain acquisitions of foreign companies. The disallowed amount is in proportion to the U.S. “step up” of basis in excess of foreign step up.

2. The benefit of two tax planning techniques will be limited.

a. Deemed dividends under section 956 may have less benefit, and

b. Use of “splitter” structures is out.

3. The rules on cross chain sales of subsidiaries have changed. Some international tax planning benefits may be gone.

4. All assets of 80% foreign subsidiaries are now included in the base for interest expense apportionment of a consolidated corporate return group if the subsidiary does over half its business in the U.S.

5. Foreign tax credit can’t be improved for items “re-sourced” under U.S. treaties as foreign source.

6. There’s a technical correction to one statute of limitations item.

Mid Market Concerns

The two key provisions impacting mid-market companies are the asset acquisition and 956 changes. Each of these may affect fairly common international tax planning for mid market companies. Careful planning can reduce the impact of these changes.

U.S. taxpayers get a credit reducing their U.S. tax for foreign taxes paid. The credit is limited to that part of U.S. tax caused by foreign source taxable income. The jobs bill changes attempt to limit this credit in some situations.

Asset acquisitions subject to these provisions are only those that result in an increase in basis of acquired assets under U.S. tax rules as compared to foreign tax rules. For example, assume Smith LP acquires a UK company that is treated as a flow-through entity for U.S. purposes. Smith LP allocates its purchase price to the assets of the UK company. For UK purposes, the company shares were acquired, not the assets, so the asset basis stays the same. Smith LP and its partners get higher U.S. depreciation than they would if the basis had not been stepped up. The new provision prevents use of part of the UK tax as a foreign tax credit for Smith’s partners.

This has an impact under each of the following situations common in mid market international acquisitions and formation of joint ventures:

– Acquisitions of “check the box” entities treated for U.S. tax purposes as asset acquisitions.
– Stock acquisitions for which a 338 election is made to step up basis of assets.
– Contributions of assets to partnerships for which a 754 election is made to step up basis of assets.

The new provision reduces foreign tax credit in the ratio of the depreciation or amortization of U.S. basis step up to the foreign taxable income. Thus, if assets with a 10 year life were acquired with a $500,000 step up, foreign tax on $50,000 of income each year would be effectively disallowed. The disallowance is permanent, not a timing difference.

This alters how to plan international acquisitions. It may be better after this to pay some foreign tax to get a foreign step up. This planning should be before the deal is structured.

956 Planning

This change affects only U.S. corporations with foreign subsidiaries. One technique often used in planning is known as a “super-charged dividend.” A C corporation owning 10% or more of the shares of a foreign corporation gets a credit for taxes paid by the foreign corporation when the foreign corporation pays a dividend. The amount of tax credit depends on the amount of tax the foreign corporation has paid in relation to earnings. If a foreign subsidiary had losses recently but paid lots of tax in the past, a dividend may cause more foreign tax credit than the U.S. tax the dividend causes. The U.S. corporate shareholder of the foreign corporation can thus get a U.S. tax refund when the foreign corporation pays a dividend.

Another aspect of U.S. tax law (section 956) requires U.S. shareholders of controlled foreign corporations (CFCs) to pick up a deemed dividend if the foreign corporation loans the U.S. person money. This was designed to prevent U.S. owners of CFCs from getting the benefit of the money without picking up the income. When such a deemed dividend happened, it was direct from the CFC, hopscotching over any intervening foreign corporations. Good tax planning often resulted in low tax foreign holding companies owning both high tax and low tax foreign subsidiaries. When lower tier subsidiaries pay dividends up the chain, the tax rates are effectively blended at the upper tier. By contract, the hopscotch effect of section 956 prevented the foreign taxes on the deemed dividend from being diluted in the holding company. This allowed companies to create high foreign tax credit deemed dividends from lower tier subsidiaries.

Under the new provision, the foreign tax credit on a section 956 deemed dividend is limited to the amount that would have resulted if the amount had been an actual dividend up the chain. Thus, if an upper tier foreign corporation had lower taxes in relation to earnings than the foreign corporation loaning money to the U.S. corporation, the U.S. corporation’s foreign tax credit would be reduced. This can result in increased cost of repatriation, or decreased benefit of the hopscotch effect.

But the provision does not completely kill planning. Super-charged dividends are still available, and careful structuring can preserve tax pools.

Other Changes

The other changes in the bill likely will have minimal impact on mid market companies.

Splitter techniques have been used in international tax planning for well over a decade. The idea is to separate foreign taxes from foreign income. The taxes are taken as foreign tax credits before the income is recognized for U.S. tax purposes. Alternatively, the splitter could be used to create low and high tax pools of earnings so the section 956 deemed dividend could be used to access more credits, and pay less U.S. tax. The implementation costs of these structures generally prevented mid market companies from using them. The new bill prevents the present form of structures from being effective after 2010.

Properly structured cross chain sale of a foreign corporate subsidiary may have the effect of moving earnings and tax pools in a way that improves foreign tax credits. The extremely difficult set of rules related to these sales has now been changed. Congress clearly hopes this change will limit benefits from this planning technique.

U.S. corporations that are 80% commonly owned may file a consolidated income tax return. When they do, the foreign tax credit is computed for the entire group as if it were a single company. Interest expense of the group is apportioned between U.S. and foreign source income to determine the limits on this credit. Interest is apportioned based on the U.S. group’s assets. This includes the basis in stock of foreign subsidiaries, but does not now include assets of non-U.S. companies. The jobs bill changes this to require that assets of 80% owned foreign subsidiaries deriving over half their income from a U.S. business be included. The effect will be to decrease the foreign tax credit for a few U.S. multinational corporations.

Two very technical changes, relating to re-sourcing of income due to treaties and a specific aspect of the statute of limitations, are likely to affect only a handful of taxpayers.

In summary, the jobs bill potentially increases tax on mid market companies with foreign acquisitions after 2010. It also may increase tax for C corporations that must include deemed dividends from their foreign subsidiaries. Are you one of these companies? If so, you need a careful international tax planner more than ever. Call Steve Fox today to find out how to turn these changes into opportunities.

Personal Injury Law and ‘Compensation Culture’

In recent times, personal injury law has been criticised from both within and outside the law industry. But like it or not, this law is a niche area that has cemented its importance and prominence in Australian courts and the legal world. This law deals with injury to the body, mind or emotions and is most commonly used to refer to a type of lawsuit that claims a plaintiff’s injury was caused by the negligence of another.

Personal injury law has been the subject of much criticism for a few main reasons, most notably for the so-called ‘compensation culture’ it is believed to have created. Compensation culture refers to a growing belief that one who has experienced or suffered personal injury is able to seek compensation through legal action from someone connected with the injury.  As such, personal injury law and compensation culture has made it legally possible and often lucrative to shift the blame or accountability of an injury to someone else.

The lawyers in this area of law have also got swept up in the criticism of this area of the law, often being referred to as ‘ambulance chasers’ who plant the seed of litigation in injured persons.

There is, however, another side to personal-injury law, and those interested in jobs in this area should not be deterred. Defending those who have been injured at the expense of another person or corporation is also an important piece of the law puzzle.

  • What kind of injury law jobs are available? As with other types of law, there are a number of options facing those looking to get involved with this law, including solo practices or small, mid or large sized law firms.
  • Different areas of personal injury law.  This law can be broken down into a number of smaller areas of specialisation. Some personal lawyers, for example, choose to specialise in accidents, medical malpractice, product liability or wrongful death among others.  Some will deal with work place injury or areas of employment law. Jobs as non-specialised personal injury lawyers will allow you to work on a variety of cases if you don’t want to commit to a particular area.

For those looking to get involved in personal injury law, there are a number of different law jobs and career avenues and areas of exploration for a rewarding career in a niche area of law that plays an important and prominent role in the law industry. Legal candidates can also take advantage of Australian resources like http://www.austlii.edu.au to become more familiar with the local legal precedents.

State Labor Laws to Safeguard the Rights of Office Employees

West Virginia is one of the famous states that is situated in the Mid-Atlantic and Appalachian region in the United States. This beautiful state is enclosed by Virginia, Kentucky, Ohio, Pennsylvania and Maryland. This state has a favorable working condition.

Following are some of the state labor laws that are applicable in West Virginia.

1. Labor law poster
The employment laws of the West Virginia states that each and every owner has to post a compulsory West Virginia labor poster in their organization. It id done to let the workers know their rights. They must circulate precise posters which should have entire information about the minimum wages, unemployment insurance, health and safety protection and notices of worker right.

2. Laws Related To Hiring
Federal Law states that an employer may not hire his employees in accordance to the color, age, creed, arrest record, nationality, sex, race, disability, ancestry etc. Each and everyone should be treated as equal. There should not be any partial treatment.

3. Laws Related To Employment At Will
According to this law at-will employee can be terminated due to any cause. But for the termination it is necessary that the reason should be legal. The law is in accordance to the contract so one has to follow the contract. In case one abides the law then that person will have to face the law.

4. Laws Related Work Place Injury
According to this law, the owner is completely responsible for any type of injury on the work place. In case of death of the worker his dependents will be given compensation.

5. Laws Related To Work Place Safety
The Federal and State law states that it is the responsibility of the owner to provide a decent working condition to his employees. There should be no compromise with the regulations, occupational health and safety, rules and standards. In case the employer does not provide a good working condition then he should be answerable towards the questions of the employees.

6. Laws Related to Harassment
If the employer is found to be a guilty of harassment of any kind then he will have to face the legal proceedings. This law ensures the safety of women in company.

7. Laws Related To Minimum Wages
According to this law the employer shall not pay less than $7.25 per hour to his employees. But in case of special conditions of training of 90 days, the employer can pay at the rate of $5.15 per hour to his employee.

Above are some of the State Labor Laws that are followed in West Virginia. Hope that this article would have helped you to get information about these laws.

Mid Size Law Firm Marketing – Why Online Video Will Convert Visitors

Lawyers who work in a law firm with 5-20 lawyers may think video should not be part of their marketing plan to gain new clients. They’d be 100% wrong. Lawyers fail to look at marketing from a potential client’s eyes.

Think about why you even have a website: To provide information to online viewers.

How do you distinguish yourself from other mid-size lawfirms? With pictures? With flash animation? With your credentials? With your results? With the articles you and other lawyers in your firm have written?

Most mid-sized law firms have pictures of their office building; a photo of generic, well-dressed people in a waiting room; photos of their law library; a photo of a senior partner standing lawyerly and formal while looking at a law book. Here’s my question: “So what?” What good does any of that do to help you distinguish yourself to your online viewer? The answer is likely nothing.

Here’s why: Your viewer doesn’t care about your office building. They don’t care about your law library. They also don’t care about those people in your waiting room or your custom cherry wood cabinets lining your office. Most viewers searching for an attorney online assume that you are qualified to practice; that you’ve passed the bar; that you have (some) experience. Static pictures simply don’t cut it. Static websites are not helpful. Lawyer directories are useless. Flashing your credentials and whether you were on moot court or law review doesn’t really help a viewer distinguish you from a hundred other lawyers in your field of law.

Know what works best? Video.

Video shows you’re human; you’re approachable; you’re confident; and you interact with your viewer- regardless of whether that viewer is a consumer or another attorney looking to hire you. Remember, a viewer is sitting (usually) in the comfort of their home or office or maybe Starbucks. They want to know more about your firm. They want to see you; hear you; and learn information about you. Video is the key to converting visitors. Currently, it’s the best way to get a viewer to pick up the phone and ask for more information.