International Tax & Compliance Handbook: Special Emphasis on India-U.S. Taxes

By Cecil K Nazareth

The Handbook is a fountain of knowledge for both tax practitioners and individuals who need a basic understanding of International tax issues or cross-border transactions. Using his unique lens as a global citizen, practitioner, teacher and coach, Nazareth draws on a myriad of practical examples and case studies he has collected from years in th

• Language: English
• Publisher: Pat Creedon Design, Inc.
• Release date: Feb 14, 2019
• ISBN: 9780578465241

Book preview

International Tax &

Compliance Handbook

Special emphasis on India–U.S. taxes

PRACTICAL EXAMPLES

FORMS AND TEMPLATES

TAX TREATIES

SPECIFIC INDIA–U.S. TAX ISSUES

By Cecil K. Nazareth ACA, CPA, MBA

International Tax and Accounting Professional

International Tax & Compliance Handbook

Special Emphasis on India – U.S. Taxes

By Cecil K. Nazareth

© 2018. All rights reserved.

No part of this publication may be reproduced or retransmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, recording or any information storage retrieval system, without the prior written permission of the publisher. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages. 

Additionally, neither the publisher nor the authors are engaged in rendering legal, medical, accounting, financial, consulting, coaching or other professional service or advice in specific situations. This publication should not be utilized as a substitute for professional advice in specific situations. Laws and practices often vary from state to state and if legal, medical, accounting, financial, consulting, coaching or other professional advice is required, the services of the appropriate professional should be sought. 

The author will make recommendations for solutions for you to explore. Any recommendation is always based on the authors’ research and experience. Neither the author nor the publisher may be held liable in any way for any interpretation or use of the information in publication. 

The information contained herein is accurate to the best of the publisher’s and authors’ knowledge; however, the publisher and author can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. 

For additional details on data sources, please visit www.NazarethCPAs.com to contact a representative.

©Nazareth CPAs

Acknowledgments

This book is dedicated to the memory of my parents, Albert and Josephine Nazareth.

Thank you to my wife, Lumina, who encouraged and supported me through this and all my journeys, and to my kids, Marc and Joanne, who motivated me to write this book.

To my siblings—Noreen and Rose for keeping me grounded; Clem and Chris, who, as CPAs and Chartered Accountants, paved the way for me to succeed.

Thanks to my professors and teachers who coached me through my academic pursuits; my advisor, Professor Yusif Simaan; my students who keep me learning; and the support of Fordham University.

Gratitude to my mentors Sidney Kess, JD (Harvard), LLM, CPA, and Dr. Paden Neeley, for their wisdom and generous counsel. Finally, thanks to my editor, Hank Berkowitz, who convinced me to convert complex tax laws to user-friendly guidance.

Technical review, United States: Jim Grimaldi, JD, CPA, and Ron Carlen, CPA (Citrin Cooperman & New York State Chair of International Tax Committee).

Technical review, India: Manoj Kumar G., CA (Ganapathraj & Co., Bengaluru, India).

Editing: Udayan Gupta, Harvard-trained economist and a senior special writer for the Wall Street Journal.

TARGET AUDIENCE

U.S. taxpayers (especially high-net-worth individuals)

U.S. corporations, multinationals

U.S. small businesses that want to do business in India

Foreign small businesses that want to do business in the United States

Foreign taxpayers (especially high-net-worth individuals)

Indian corporations doing business in the United States

This book is written in a conversational style rather than as a textbook because I wanted more readers to get a basic understanding of international tax law and achieve full compliance with the law in both the United States and internationally. I did not quote any sections or tax code references.

This book is a primer on international tax. It is intended to inform users and practitioners on the basics of international tax reporting and compliance.

This book is written from a U.S. perspective. It discusses U.S. federal level (IRS) international tax and tax credits. It does not discuss U.S. state or local level taxes.

U.S. persons are generally defined as domestic individuals, corporations, partnerships, estates and trusts. Inbound and outbound transactions will require different filing forms. Most of the forms are informational returns. For the purpose of this book, reporting will be required for a U.S. Person with foreign-sourced income or investments (considered outbound), and a non U.S. person with U.S.-sourced income and investments (considered inbound).

Included in the book are chapters on India–U.S. issues because of the unique nature of my practice and clientele. India’s equivalent of the U.S. Internal Revenue Service (IRS) is called the Central Board of Direct Taxes (CBDT). Indian income tax law was formed back in 1961. This Act was amended in 2016 and the Finance Act of 2016 was also passed.

I am sure you will benefit from the practical examples. The case studies, templates, and international tax forms listed will give you a better understanding of international tax law and guide you with international tax compliance. Chapters 13 and 14 were added to include the more recent tax law changes as outlined in The Tax Cut and Jobs Act 2017 (TCJA) which passed on December 22, 2017.

Disclaimer

This book was written to educate and inform clients and practitioners, and to provide helpful information on the topics discussed. It is not provided as legal advice. The book is not meant to be used, nor should it be used, as such, and it should not be construed as such. Nothing in this book should be construed as tax advice, as the facts and circumstances in each case vary. The author does not assume responsibility for guidance provided and is not liable for any losses, damages, or negative consequences as a result of the information provided. Readers and users of this book are responsible for their own choices, actions, and results. Please consult your local Certified Public Accountant, Chartered Accountant, tax attorney, or tax professionals.

Foreword

by Sidney Kess, JD (HARVARD), LLM, CPA

Cecil Nazareth, ACA, CPA, MBA, has an outstanding worldwide reputation as a teacher, lecturer, practitioner, and mentor. He has led hundreds of training sessions and seminars about international tax and accounting and has helped countless young professionals advance their careers in the Certified Public Accountant (CPA) profession.

In today’s hyper-speed global economy, every practitioner should have a basic understanding of international tax regulations. The rules change constantly and the penalties for noncompliance are steep, as the Report of Foreign Bank and Financial Accounts has taught us.

All business is global. Unfortunately, the severe shortage of knowledgeable international tax professionals leads to poor decisions and noncompliance at both the personal and corporate levels. Due to a lack of resources and understanding, noncompliance can be both voluntary and involuntary. Thanks to thought leaders like Cecil Nazareth, the knowledge void is being filled.

I highly recommend Nazareth’s book both to tax practitioners and to individuals who need a basic understanding of international tax issues or cross-border transactions. This publication could not have come at a better time!

International tax compliance has become a major focus for the U.S. Internal Revenue Service and for intergovernmental agencies. The Panama Papers and the Paradise Papers are just two high-profile examples of the increased spotlight on international tax havens.

International Tax and Compliance Handbook is an excellent introduction to international taxation with a special emphasis on India–U.S. taxation and international real estate.

Nazareth’s book is intended as a handbook for those engaged in international transactions. Rather than a textbook, International Tax and Compliance Handbook is an easy read and resource for people who want to get up-to-speed quickly on international tax rules and compliance. The forms and templates are helpful to practitioners, and the book is chock full of useful tips, charts, and real-world client examples drawn from Nazareth’s 30 years in the CPA profession and as an international practitioner.

I look forward to future updates of this body of work. It is a significant contribution to our profession.

Why I Am Writing This Book Now

Due to dual citizenship and ease of travel, money is flowing across borders all over the world. No one Certified Public Accounted (CPA) or Chartered Accountant (CA) can know all the rules, and no one CPA can opine on all international issues. There are U.S. citizens of Indian origin who still have assets in India that may not be reported. They must comply with new sets of tax laws in both India and the United States. Report of Foreign Bank and Financial Accounts (FBAR) has been in effect since 1972 but was never enforced, and many people were not in compliance on the U.S. side because they did not think they had to report these assets or international income. But after FBAR was enforced, more U.S. citizens of Indian origin have started reporting in India as well as in the United States.

In summary, there are international transactions—at both the corporate and individual level—that have far-reaching consequences.

Many U.S. citizens of Indian origin have several bank accounts in India. When they left India decades ago, they never kept track of them, but U.S. law requires that you report all those different bank accounts if there is more than $10,000 (USD), and you must also include the interest on those bank accounts on your U.S. tax return and Form 8938, provided you meet certain thresholds.

Then there are the global banking giants and Swiss banks that wealthy individuals have used to hide their money, assets, and income in offshore bank accounts. The U.S. Department of the Treasury/Internal Revenue Service decision to enforce FBAR rules has helped collect over $11 billion in tax revenue it had lost from hidden foreign assets and related income.

Why now?

This situation is only going to grow as the level of complexity in international transactions grows. The opportunities are not only in the United States but also all over the world.

A U.S. investor may prefer to invest abroad rather than at home, or vice versa, due to different tax reporting rules across borders. It’s very important, it’s complex, and there is no book I know of that does justice to this issue—and there is certainly nothing that you would call a light read that the lay person can pick up and understand when it comes to taxes or investment issues involved with moving money abroad. There are very few U.S. CPA or tax firms that understand cross-border transactions, especially between three of the most populous countries in the world—India, China, and the United States. Firms report the income and try to follow compliance rules, but they are really not conversant in issues such as:

International tax formations

Structure of an entity

Reporting procedures for both sides domestic and international

Foreign Tax Credits (FTC)

Tax agreements and treaties between countries

There is a lot to learn for the global tax and accounting community. International taxation is not just an add on to a conventional tax practice. If your tax preparer does not deal with many of these topics on a regular basis, you will be better served by choosing a CPA who practices in U.S. and international taxation.

Tax law changed in December 2017

The Tax Cuts and Jobs Act (TCJA 2017) has significantly changed the landscape. All tax strategies will have to be revisited both for individuals and corporations.

International tax laws have changed. Dividend repatriation has been a big priority for the current administration. Most companies that have foreign earnings are not taxed on that money until it is repatriated to the United States. The approximate untaxed earnings are estimated to be about $2.3 trillion in money sitting outside the United States. The recent TCJA 2017 changed the law to tax the previously untaxed foreign earnings. There is a mandatory one-time tax of 15.5% on liquid assets (cash and cash equivalents) and 8% on illiquid assets. The United States currently follows the credit system of taxation, but TCJA 2017 has changed it to a quasi-territorial system.

Table of Contents

Chapter 1: An Overview of International Taxation and Taxing Jurisdiction and Philosophy

1.01 Overview—Broad Principles of Taxation

1.02 International Taxes Credit System vs. Territorial System

1.03 Selected International Tax Forms

1.04 Common Misconceptions

1.05 Tax Year-End and Cash vs. Accrual System

Chapter 2: Residency, Filing Status, and Filing Thresholds

2.01 U.S. Residency—Individual

2.02 Indian Residency

2.03 U.S. Corporations

2.04 U.S. Entities—Organization and Structure

2.05 Nonresident Indian (NRI) and Indian Income

Chapter 3: Source of Income Rules and Taxability

3.01 General Taxation Principles and Common Misconceptions

3.02 Nonresident Indian (NRI)

3.03 International Sources of Income

3.04 Foreign Earned Income Exclusion (Basics)

Chapter 4: International Tax Allocation and Apportionment

4.01 Effectively Connected Income (ECI)

4.02 Permanent Establishment (PE)

4.03 Allocation

4.04 Apportionment

Chapter 5: Foreign Tax Credits

5.01 General International Taxation Principles

5.02 Foreign Tax Credits and Limitations

5.03 Carryback and Carryforward of FTCs

5.04 General Category vs. Passive Category

Chapter 6: U.S. Taxation of Outbound (Foreign) Transactions

6.01 Foreign Operations—Organization and Structure

6.02 Controlled Foreign Corporation (CFC)

6.03 Subpart F Income

6.04 Foreign Earned Income Exclusion

6.05 Passive Foreign Investment Company (PFIC)

Chapter 7: U.S. Inbound Transactions

7.01 Sources of Income

7.02 U.S. Trade or Business

7.03 Effectively Connected Income (ECI)

7.04 Branch Profits Tax (BPT)

Chapter 8: Real Estate Taxation

8.01 Overview of Real Estate Taxation

8.02 Purchase and Structure of Real Estate Transactions

8.03

Reviews for International Tax & Compliance Handbook

[Jacob J. Walker · Rating: 5 out of 5 stars]

The business world is now international. Even the small business world. If you buy something on Amazon and it is shipped from China, that is international business. If you pay someone from India on Fiverr to make you a logo, then you have done international business... But what are the tax rules for these things???? Trying to read the tax law about this is confusing as all get out (and I'm pretty good about doing legal research, and it was confusing for me!!!) So finding this book was extremely valuable, and I think that all small business owners should have this in their library (or virtual library).