Ecovis in Australia

PFIC rules: US passive foreign investment company rules

27.06.2022

Many taxpayers are surprised to learn that they are investors in a passive foreign investment company and that this can have negative tax consequences. The experts from Marcum LLP* can provide a detailed analysis of a taxpayer’s PFIC exposure, US tax liability from PFIC investments, and planning opportunities to improve their effective global tax structure.

US PFIC rules are meant to curtail the deferral of current US taxation on passive investments. A PFIC is defined as a foreign corporation that is owned less than 50% by US person(s) and:

• generates primarily passive income (i.e. 75% or more of its annual gross income is passive income) or
• has primarily passive assets (i.e. 50% or more of the average percentage of assets generate passive income).

Disadvantages of owning a PFIC

• US taxation on certain distributions from a PFIC may be taxable at the maximum rate of 37% plus interest for US individuals regardless of their graduated income tax rate;
• 20% long term capital gains (“LTCG”) rates are not available on the sale of PFIC shares; and
• Generally, tax-free transactions with PFICs are disallowed (e.g., mergers).

Contact us for an analysis of your global tax burden or other international matters.

Benny Taveras, CPA, Marcum LLP*, Miami, Florida, USA

Common PFIC Pitfalls

The following are the most common investment scenarios that trigger PFIC status:

• Foreign pensions or life insurance policies that hold underlying investments in foreign entities, such as foreign pensions that hold foreign ETFs or unit linked insurance plans (“ULIPs”);
• Foreign real estate companies that rent properties, but do not have their own active employees to manage such properties; and
• Foreign corporations that offer a separate class of stock to fund the acquisition of passive income-generating investments.

Exceptions and elections that may apply to PFICs

Exceptions

• Start-up rule:
  • Not a PFIC for the “start-up year” (i.e., first taxable year such corporation earns gross income) if it was not a PFIC in prior years or two years after the start-up year.
• Change of business rule:
  • Not a PFIC if it was never a PFIC, and it sold its trade or businesses to start a new venture that will not be a PFIC.

Elections:

• QEF election:
  • By having an annual inclusion of the PFIC’s ordinary and capital gains income by the US shareholder, regardless of distribution, the PFIC rules can be avoided. Note that the PFIC’s income must be calculated on a US basis and the books and records of the company must be available for IRS inspection.
  • Future distributions of previously taxed amounts are not taxable again upon distribution.
• Mark-to-market election:
  • By having the US taxpayer include the annual built-in stock gain of the PFIC, the taxpayer may also be able to avoid the PFIC rules. Note that this exception is only available if the PFIC’s value is easily obtainable on the open market.

For further information please contact:

Benny Taveras, CPA, Marcum LLP*, Miami, Florida, USA
Email: benny.taveras@marcumllp.com

*Marcum LLP is the exclusive associated partner of ECOVIS International for accounting, tax and audit in the United States of America.

 

Cybercrime Germany – increasing prosecution for a worldwide phenomenon

23.06.2022

In 2021, the police registered more than 146,000 cyber-attacks in Germany alone. To be able to identify and convict the people behind these attacks, which were often launched from abroad, the German public prosecutor’s offices are upgrading and investigating together with the local authorities abroad.

In the age of the Internet of Things, cybercrime can take place anywhere. The almost limitless availability of the internet makes crime possible wherever people can use computers or smartphones. In the office, at home and on the street – a kind of “crime to go”. Moreover, the crime scene is not necessarily identical with the place where the crime is committed because it takes place in the virtual world – hundreds of kilometres can lie between the two. However, if the victim is based in Germany, the offence is also punishable under German criminal law, explain the Ecovis lawyers.

German prosecutors are taking action against cybercrime from abroad

Due to this special feature of the criminal law, there are now an increasing number of cases in which the German public prosecutor’s office is also investigating abroad in close cooperation with the local authorities.

Technically, a distinction is made between “cybercrime in the narrower sense” (crimes directed against the internet, data networks, information technology systems or their data) such as the use of malware, spam and phishing, or the creation of fake websites and “cybercrime in the broader sense” (crimes committed by means of information technology). Money laundering and cryptocurrency fraud may also fall under the definition of cybercrime.

In Germany, due to the increase in cases in the field of cybercrime and due to the complexity of the cases, separate investigation units have been formed at public prosecutor’s offices, e.g. the Central Cybercrime Unit Bavaria (ZCB).

Are you under investigation for cybercrime in Germany? We defend you against the charges in Germany.

Janika Sievert, lawyer and specialist in criminal law and tax law, Ecovis L+C Rechtsanwalts GmbH, Wuerzburg, Germany

An example: How investigators work with their colleagues on location

Bavarian media recently reported on one such special unit case (Bayerischer Rundfunk, retrieved 16.02.2022, only available in German). The case led to the arrest of 11 members of a group acting in Georgia and Tel Aviv and pretending to invest funds profitably in online platforms worldwide.

Following a report from an injured party from Bavaria, the special unit of the public prosecutor’s office took over the proceedings already pending on the online platforms and contacted the competent local investigating authorities with the help of Eurojust. The evidence gathered in Germany and abroad led to the issuing of arrest warrants by the Bamberg district court. After the arrests, extradition was requested. The accused are now awaiting criminal proceedings in a German court.

The high degree of specialisation of the investigating authorities also requires specialist defence for the accused. As experienced criminal defence lawyers in white-collar and criminal tax law, we also defend such complex cases throughout Germany.

For further information please contact:

Janika Sievert, lawyer and specialist in criminal law and tax law, Ecovis L+C Rechtsanwalts GmbH, Wuerzburg, Germany
Email: janika.sievert@ecovis.com

EU Corporate Sustainability Reporting Directive: Businesses need to rethink

21.06.2022

On 21 April 2021, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which will eventually amend the existing reporting requirements of the Non-Financial Reporting Directive (NFRD). From 1 January 2024, companies that fall within the scope of the directive must adapt their reporting to the CSRD requirements for the 2023 financial year. The Ecovis experts explain exactly what companies must do.

Under the NFRD, large public-interest companies with more than 500 employees are obliged to report information about their entity’s handling of:

• Environmental matters
• Social matters
• Treatment of employees
• Respect for human rights
• Anti-corruption and bribery
• Diversity

We discuss with you how the CSRD affects your company and prepare you for the reporting obligations.

Dr Roberta Avellino Pulé, Senior Legal Consultant, ECOVIS Malta, Mosta, Malta

In its strong belief that consumers and investors alike deserve accurate information to assess the sustainability impact of businesses across the board, the European Union has proposed a directive, which:

• Extends the scope of reporting obligations to
  • All large companies meeting at least two of the following criteria:
    • 250 employees
    • EUR 40 million turnover
    • EUR 20 million total assets
  • All companies listed on regulated markets (except listed micro-enterprises)
• Requires the reported information to be subjected to an audit (assurance)
• Introduces more detailed reporting requirements
• Enhances accessibility of information through a dedicated section of company management reports

This newly proposed infrastructure under the CSRD will include the adoption of EU sustainability reporting standards, developed by the European Financial Reporting Advisory Group (EFRAG), which companies will be required to follow in their reporting obligations arising out of the directive.

For further information please contact:

Dr Roberta Avellino Pulé, Senior Legal Consultant, ECOVIS Malta, Mosta, Malta
Email: malta@ecovis.com