Friday, October 30, 2009

SOUTH AFRICA: Barry Tannenbaum's Ponzi Scheme - Take care

Prof D N Erasmus
2009/10/30

Further to an earlier post, the Tannenbaum Ponzi scheme is in the news with government announcing that 800 investors from 7 countries are involved, and that the estates of Dean Rees and Barry Tannenbaum are being sequestrated to ensure some of the monies can be clawed back. A more ominous risk resides beneath all of this. SARS is actively conducting desk audits on all the big investors and apparently are finding that some of them have not kept their tax affairs up to date. With a SARS hungry for money, it can be anticipated that a number of David King styled investigations will take place. In addition many of these participants are actively co-operating with the authorities on a voluntary basis, not knowing that the information they are divulging may be used in a second onslaught against them, as opposed to getting the money back from the fraudsters. Co-operating the CORRECT way with the authorities is the clever way to do this. But what is that correct way? Many would have missed this perfectly legitimate trick...So what is the correct way? Now that would be giving away my intellectual property - so if you are interested in learning more - please contact me on daniel@dnerasmus.com As to whether or not you were an investor in the scheme? Think that through carefully as well. MY EARLIER POSTING So if you read the BUSREP.CO.ZA article by a journalist quoting hungry for money SARS, in your panic you may make the wrong classification choices on how to treat your investment (or not?) in the Ponzi-scam by Barry Tannenbaum. If you classify it as an investment, you may have participated in a broader unlawful transaction breaking every rulebook in the Banks Act. On the other hand...and wouldn't you like to know? A Special Report of the likely tax consequences on the Barry Tannenbaum Ponzi Scam is available to order - currently being researched and written. One copy for the first 5 subscribers is available for a charitable contribution of R50,00 to the SPCA. The stray dogs and cats need it! Everyone after that - the research and tax direction to help you get the taxman to pay for your mess, will cost you R950,00 per report. Cheap, considering your losses may come down by your marginal tax rate.

BUSREP.CO.ZA Article
Tax shock may await Tannenbaum's investors
June 18, 2009

By Roy Cokayne

Investors in the Ponzi-type investment scheme operated by Barry Tannenbaum, which allegedly fleeced billions of rands from about 400 people, could be in for a painful tax surprise even if they rolled over their investments and lost both their capital and profits.

Provided it was not an illicit scheme, the SA Revenue Service (Sars) would regard any profit from the investment as a dividend and therefore taxable, Sars spokesman Adrian Lackay said yesterday.

However, if it is proved to be an illicit scheme, participants might be forced to pay money they made to liquidators.

Lackay added that there might be a capital loss, but the profits were of a revenue nature and therefore taxable, stressing that a "normal pyramid scheme" was taxable.

Sars taxed the Krion Financial Services pyramid scheme, which raised about R1.5 billion from about 10 000 investors largely in the Vaal triangle before it was liquidated in July 2003.

Lackay said Sars' approach in the Krion scheme was that the orchestrators had no intention to repay all the money they raised and the purpose was to enrich themselves. The funds were not illicit and were therefore taxable in their hands.

I predicted this over a year ago

Prof D N Erasmus
2009/10/29

The government is running low on money as tax collections are suffering. The former commissioner is now Minister of Finance. I predicted MAJOR cash flow problems over a year ago. The writing was on the wall of SARS Annual Report. See my prediction below:

Tuesday, July 22, 2008


THE TRUTH ABOUT SARS EFFICACY

OK. So let me get this right. SARS boasts the following results in 2007:

69 270 audits

This in practical terms means, for a two man team of auditors to conduct 4 (100hr) audits per month, they had 2886 persons dedicated to this task. These audits would earn roughly R1,03bn in salaries, excluding bonuses!

R6,6bn was raised in revised assessments from these audits.

What does this mean? What the short form table of results (in their annual report published on the SARS web site) does not tell you, is that R6,6bn was not collected. That is what was merely assessed through revised assessments. For each R1 spent, they earned R6,6. What’s wrong with that? You ask! Well, a little closer look at the following scant numbers published by SARS, prints the following picture. SARS collected 3.75% of its debt (R17,7bn collected) which we presume is mainly revised assessments (or the like), which is the same type of assessments’ as the R6,6bn – not collected yet. Except for that small 3.75%.

That tells us that 96,25% of the revised assessment debt due to them is bad, or potentially bad. Remember only 3.75% has been collected! Now applying this logic through to the boasted about R6,6bn assessments that their close to 70 000 audits have earned, means that only R247,5m is probably collectable (out of the total R6,6bn). Against a cost of just over R1bn! That’s not good business. They are spending over R1bn to collect R247,5m!

We don’t know all the reasons why 96,25% is not collected of the debt due to SARS, but guesses are out there that a lot of it is improper and hasty audits, giving rise to ‘funny’ numbers for SARS, which are simply not collectable.

Turning to their heightened criminal prosecutions. We see similar statistics emerging. 447 guilty verdicts out of 1909 prosecutions. That is a success factor of only 23,4%. The worst part of it is that 1462 individuals had to be dragged through the shameful process of criminal prosecution. Have you ever witnessed the criminal prosecution of a person? It’s not a nice experience, even if you are not convicted.
These statistics are horrendous. And show a lack of respect and application of Constitutional principles in SARS exercising their important duty of administering tax law and not merely being a monetary hitman!

When will someone start recognising the clear trend that is developing within SARS management, and demand that some of these questions be answered and prove, beyond a reasonable doubt, that my simple analysis is wrong!

Taking this to a positive conclusion for SARS. In light of the obvious bad business sense that prevails in its methodology in audits, they would be better of settling along the lines about to be proposed. Lets recap:

1. Of the R6,6bn, only R250m (rounded up) is collectable;
2. That translates to R3650 per taxpayer audited;
3. Each audit costs R15 000.

If SARS settles all its audits by simply asking for payment of an extra R18 650 from each audited taxpayer it would achieve two things:

1. It will be R15 000 better off per audit, covering its costs (which is not the case now);
2. It would be saving the taxpayer huge sums in tax advisor fees, justifying the R18 650 payment.

In fact, if Mr Gordhan really wanted to stretch the boundaries of being taxman entrepreneur of the decade, he should take his randomness technique of selecting taxpayers for audits, extract 70 000 taxpayers for audit and do the following:

1. Offer them the option of paying R18 650, no questions asked (like an insurance fee) and face no audit;
2. Save R15 000 out of the R18 650 (because he doesn’t need the SARS auditors to do anything);
3. Only audit those who justifiably should be audited after proper investigation;

The effect will be threefold:

1. An extra pot of tax guarantee money for less harassed taxpayers;
2. Less SARS auditors to pay, who are not turning out to be profitable;
3. More successful and focussed audits catching the real tax crooks – not chasing after political agenda’s and slanted random audits (like the one that will be planned against me after publishing this article!)


Watch this space!

Thursday, October 22, 2009

Daylight Robbery

Daniel N Erasmus
2009/10/22

Caius Servius rode his white stallion laden with military regalia, befitting his position as Lieutenant in the 3rd Division of the Britannica Legion. A small troop of soldiers marched behind him in precision formation along the cobbled roadway, paved by the Empire’s engineers. He was en route to several villages in the area.

Caius Servius rode his white stallion laden with military regalia, befitting his position as Lieutenant in the 3rd Division of the Britannica Legion. A small troop of soldiers marched behind him in precision formation along the cobbled roadway, paved by the Empire’s engineers. He was en route to several villages in the area.

The morning was still crisp and fresh. The beginnings of the warm morning sun flowed over the countryside stretching the shadows of the occasional coppice. The rolling green covered in a fine sparkling mist looked fresh. He admired the beautiful English landscape around him. It was a fine day.

In the distance he noticed the remnants of last night’s fireplace wisping away, twirling slowly into the fresh morning sky. A cottage in a small village. Next to a bubbling stream in the valley below him. He noticed a child running out of the door, chasing a few chickens. Next minute, what must have been his mother, clad in a large apron, charged out the door after him, wagging her finger furiously. The setting looked so beautiful, so peaceful. What a wonderful place to live.

He sighed as his thoughts drew back to the parchment rolled up in his saddlebag. A decree issued by the Governor for May. ‘Taxa omnes fenestras per quas lucem cotidianam iter facit’. A tax on every window through which daylight passed. It had been decreed that all those home dwellers who fit into the wording of the decree would pay the tax. Although it was primarily aimed at the wealthy with large dwellings containing many windows, it also affected all small home dwellers. The locals aptly referred it to as ‘daylight robbery’.

Caius was en route to execute his orders to collect the tax from the country folk. He was given charge of a small band of soldiers to assist in executing his orders as the tax collector anticipated rebellious behaviour. Quite so, he thought to himself. Most of the country dwellers would find it difficult to find the extra coinage to pay for this sudden tax. He pitied them.

Nevertheless, he had orders to execute and obey them he must.

His small party of men continued to wind their way down the hill towards the peaceful village.

On arrival at the entrance to the village he noticed that these folk must mostly be craftsmen of high standard. The village and its construction was immaculate. The dwellings were all neatly built in pristine condition. Everywhere there was evidence of superb craftsmanship, beautifully carved pillars, pole fencing, neatly trimmed awnings, stylish wagons, well kept implements. He was astonished!


Equally astonishing was the fact that there was not a soul or animal in sight. The village was dead quiet, as if everyone had disappeared. All the doors were shut closed. Then he noticed something extra-ordinary, every single cottage he passed had beautifully designed wooden shutters in front of what would previously have been the windows. All the windows had been closed up with these shutters.

He stopped for a moment and admired not only the craftsmanship, but also the ingenuity of these folk. Not one window allowed light to pass through it. They had heard of the ‘daylight robbery’ and had carefully planned a way around it, using their own brand of expertise. How clever. How ingenious. How creative. He chuckled to himself, shouted an order to his men, and continued marching through the village, on his way. At the end of the day, there was no tax to collect here.

A LESSON for us all from the past, tax planning should always result in creating something of sustainable nature, other than just saving tax. Like the shutters before the windows and the taxman should acknowledge this. Ingenuity of value is valuable. It is what helps us to advance and develop. It should always be encouraged and promoted. Sometimes the imposition of tax gives rise to such a seedbed.

IRS Commissioner on Tax Risk Management

2009/10/21

EDITORIAL - The Commissioner of the IRS makes comments in his speech to the NACD corporate governance conference that reiterates the principles we teach through the International Tax Institute and apply at www.TaxRiskManagement.com to our corporate clients worldwide.

Prepared Remarks of IRS Commissioner Doug Shulman before the NACD Governance Conference

WASHINGTON -- Thank you for that warm introduction and welcome.

I realize that the IRS Commissioner has not customarily addressed the NACD’s corporate governance conference…but what I want to discuss with you this afternoon is the important role that boards of directors can play in overseeing tax risk and tax strategies of corporations. After all, taxes are one of the biggest expenses of a corporation, so how they are managed is very important to most corporations.

Clearly, corporate boards of directors play an incredibly important role in the vibrancy of businesses and our economy. Boards are a source of creative ideas, strategic thinking, and, importantly, governance and oversight. Boards hold management accountable, and in that role, understanding the risk posture of the company is critically important.

So today, I want to share with you some observations of what I have seen since I’ve taken the helm of the organization responsible for collecting 96% of all federal receipts – around $2.5 trillion.

To begin, I understand that many of you – actually most of you – are not tax experts and you were not installed on the board because of your tax expertise. You bring other critical skills, experiences and expertise to the boardroom.

And I also understand that even with all of your sophistication, expertise and experience in business and financial affairs, it’s difficult to understand the tax consequences of a complicated business transaction, such as a tax-free reorganization or a hedging transaction, let alone the corporation’s overall tax profile as it relates to federal, state and international taxes. That’s why you need to have strong tax departments and outside tax advisors. After all, you have finance experts to help you understand the economic value of hedging transactions, and you need tax experts to help you understand the myriad and complex tax issues facing your company.

Now, my motivation to create this dialogue with you is based in part on personal and professional experience. I moved from the business world where I interacted with boards… to FINRA, the largest independent securities regulator in the U.S. ….to the IRS, where I am focusing on major trends, such as the globalization of tax administration, and innovative ways to strengthen and improve our tax system. In all of these roles, I have seen the importance of board oversight of major areas of risk.

So, I know first hand that in the post-Sarbanes Oxley world, corporations have invested significant time and resources on compliance issues and internal controls. In the tax arena, some have instituted regular meetings between the Audit Committee and the tax director to ensure an open dialogue.

As I mentioned earlier, tax issues should remain on your radar screen – and for good reason. It’s one of the biggest expenses on your income statement. In addition, a number of public companies have reported material weaknesses in internal controls related to taxes. Tax strategies can also present a financial and restatement risk, and sometimes when the cases are high profile, a significant risk to corporate reputations. In today’s business climate, the general public has little tolerance for overly aggressive tax planning that can be viewed as corporations playing tax games.

So, although the complexity of the tax code may make your eyes glaze over, Board members – like you –are critically important to making sure that the tax system works well and is worthy of the confidence of the American people.

But how can you increase your oversight of tax compliance given the limited amount of time you have available and the competing business issues you face?

Well, you probably know or could figure out, that the IRS conducts risk assessments of its own when determining how to use its time and resources and whom to audit. Similarly, the board of directors can assess its corporation’s tax risk profile, internal controls, and relationship with its corporate tax department, to help determine the tax matters of which it should be aware.

Now, we recognize that many businesses are trying to get it right. Positions taken in tax returns may be well-grounded and taken in good faith. Other tax positions taken may be more aggressive and use elaborately structured transactions or arrangements to push tax planning up to the edge, or beyond acceptable bounds.

Enter FIN 48, which establishes the financial statement accounting for uncertain tax positions, including recognizing and measuring their effect on financial statements.

Under FIN 48, companies must identify their material uncertain tax positions. They must quantify the company’s maximum exposure and estimated likelihood of winning or losing the issue if challenged by the IRS. And they must record as a liability a specified amount of money relating to these uncertain tax positions. In other words, FIN 48 is a very significant window into tax risk, liability and management in your company.

FIN 48 paints a picture of tax risk by indicating how much money a corporation has to book in tax reserves to reflect the risk should one or more of its tax positions go south.

But let’s get behind the reserve numbers for a moment. What are they telling you – the board directors – beyond the dollars in the tax reserve?

They’re saying that the audit committee needs to know and influence what tax posture the tax planners are taking. They and you need to know whether that multi-million – or in some cases multi-billon-dollar bet – you and your company are making could be too aggressive and therefore risky.

So where does that bring us? What are the next steps?

Before I get to that, I want to be clear about what I “do” intend and “don’t” intend in this dialogue.

We don’t intend to second-guess legitimate and thoughtful business decision-making by corporate leaders. And we don’t expect that you will always agree with us on identifying and quantifying the risk of various tax positions. But we do want to engage corporate leaders about their roles and responsibilities in conducting appropriate assessment and oversight of tax risk.

I am suggesting that you, the leaders of your organizations, should have a mechanism to oversee tax risk as part of your governance process. For example you might want to:

- Set a threshold confidence level for taking a tax position…
- Discourage or eliminate opinion shopping by tax departments by having an independent tax firm, which has some direct dialogue with the board of directors, review major tax positions …
- Specifically address transfer pricing and the relative profit allocated to low-tax jurisdictions, and make sure they reflect real economic contributions made in those jurisdictions.

And diving down a little deeper, here are some questions you might ask of your tax director and your external auditors relating to FIN 48:

- What was the process for identifying uncertain tax positions and how do you know all material issues have been identified?
- How did you go about determining the maximum tax exposure relating to each uncertain tax position? What makes you comfortable that it accurately reflects your maximum exposure?
- How did you go about quantifying the likelihood of winning or losing uncertain tax positions? Do you plan to litigate the issue if the IRS challenges the position? Does the external auditor or tax advisor agree with the tax director’s assessment?
- Could the company be subject to potential penalties, such as for underpayment of tax, negligence or worse? If so, are they appropriately recorded, and perhaps more important, what does this say about how aggressive the company’s position is regarding those issues?

There are already some IRS programs in place that help provide greater certainty and can give a board more comfort that there won’t be second guessing down the road. For example, our compliance assurance program, or CAP where we agree on issues with the taxpayer before a corporate return is filed, envisions full disclosure by the taxpayer in exchange for real time tax certainty. And the Advance Pricing Agreement program, where we agree with a taxpayer on pricing methodology before a return is filed, provides certainty in the complex and uncertain area of transfer pricing.

Now, we’re not the only government thinking about the notion that corporate taxpayers that employ sound management and governance practices on tax matters are more likely to be compliant.

One example is Australia. The Australian Tax Office publishes a Governance Guide for Board Members and Directors that suggests useful questions – similar to the ones I just posed – that a corporate director can ask of management.

Some of the Australian Tax Office’s questions include: Is there a material difference between the losses reported for accounting purposes and the losses claimed for tax purposes? If so, can the difference be satisfactorily explained? Is the structure and financing for your business or a major transaction complicated, perhaps more complex than necessary to achieve the commercial objectives? These questions give you a flavor of what some other countries are thinking about and doing in the corporate governance area.

On a broader scale, the Organisation for Economic Co-operation and Development has charted a worldwide trend of increased boardroom attention to issues of taxation. A recent guidance document outlines good corporate governance principals in relation to tax, based on advice from governments around the world.

In summary, my main observation to share with you is this: Taxes are an important expense, and like any important expense, management responsible will try to control it. In the case of taxes, controlling it can expose the company to challenge, which can result in reputational damage and perhaps large, unexpected expenses. So you need to understand how management controls this expense and how it decides how aggressive to be. You also need to be certain that reporting is effective.

Tax expense in this sense is no different from other expenses. Manage it too loosely and you give up profit. Manage it too aggressively and there are bad consequences. You, the board, have to oversee how management manages it. That means some level of understanding, a set of policy principles and then a control system of reporting that assures you that the policy is being carried out.

My goal here today was to start a discussion about the board of directors’ role in overseeing tax risk. I encourage you to have the dialogue, and offer the IRS as a resource as you continue to evolve your thinking about this topic. At the end of the day, my proposition is that the board needs to have the tools, not to do tax planning, but to oversee tax strategies and risks.

I see my time is up today. I hope it was a good start and that this beneficial dialogue will continue and mature in the weeks and months ahead. Thank you.

Tax Snippets - Private Equity Taxation

Tax Snippets
2009/10/21

EDITORIAL - A classic case of tax planning to reduce tax exposure. If the business is sold, the funds will generate Capital Gains Tax, and the dividend in the hands of the investor will also result in taxation. By borrowing money, the interest in the USA is tax deductible, and only the dividend is subject to tax in the hands of the investor. In commonwealth tax jurisdictions the interest would not be tax deductible in line with basic common law tax principles.

By far the most significant way of realizing on a successful investment by a fund was to dispose of it (sell it or bring it public) once the company had grown to sufficient size and become sufficiently valuable. In the early years of this decade, the tax laws were changed so that dividends were taxed at the same rate as were capital gains. Once this occurred, sophisticated fund sponsors and investment bankers determined that the fund could borrow money against the increasing value of the company, take the proceeds of that loan, and distribute it as a dividend to fund investors, resulting in no greater tax to such investors than if the company had been sold. If fund documents did not deal with dividends, the general partner would often receive a larger share of proceeds than had been intended by the drafters of the partnership agreement.

Wednesday, October 21, 2009

China Clarifies Tax Treatment of Equity-Based Incentive Compensation Submitted

by Zsuzsanna Blau
2009/10/20

EDITORIAL - It seems that China is following other OECD country trends in the treatment of stock options - on accrual of an appreciated sum, or realization of growth in the stock.

In late August 2009, China’s State Administration of Taxation (SAT) has issued Guo Shui Han No. 461, the ‘Notice on Individual Income Tax Issues Concerning Stock Incentives’. The SAT, together with the Ministry of Finance had previously issued a number of tax circulars (such as Cai Shui [2005] No. 35, Guo Shui Han [2006] No. 902 and Cai Shui [2009] No. 5) concerning the individual income tax treatment of stock options, restricted stock and stock appreciation rights.
The new tax circular, Guo Shui Han No. 461, stipulates that an individual is taxed at the time he or she receives payment from his or her employer with respect to a stock appreciation right.

‘Stock appreciation right’ is the right to receive a cash payment based on the appreciation of stock. A company will pay the employee in cash equal to the difference between the grant price and market price of stock when employees exercise their stock appreciation right.

The taxable income of restricted stock is computed using a specific formula: taxable income equals (closing share price on share registration date plus closing share price on vesting date for current installment) divided by 2 times the number of shares vested in current installment minus total payment by employee times (number of shares vested in current installment divided by total number of shares received).

The tax treatment of restricted stock appears more favorable than that of stock options. However, the favorable computation formula is not applicable in the following situations–the stock appreciation rights, stock options, and restricted stock are awarded by a non-listed company; the incentive plan is adopted by a company before listing and employees receive incentive income after the company is listed; the company fails to file the required data with the tax authority in charge; or an individual is an employee of an affiliate of the listing company issuing stock and the listing company directly or indirectly owns less than 30 percent stock of the affiliate, or the affiliate is not a first-tier or second-tier subsidiary.

US-SACU Free Trade Agreement - Trade and Investment Development Cooperation Agreement

bilateral.org
2009/10/17

What does this have to do with tax? If norms are agreed to between two states in a bilateral agreement, and these norms are transgressed by domestic tax legislation, the opportunity arises for the offended foreign investing party to approach their state to invoke diplomatic protection and hold the offending state that they are investing into responsible for any harm that they may have suffered. Even after they have exhausted normal court channels in the offending state and lost. The offending state is held responsible for its courts' actions, where the obligation transgressed by the offending state is contrary to international law norms - what is contained in the treaty. On 16 July 2008, the US Trade Representative and the SACU Trade Ministers signed a Trade and Investment Development Cooperation Agreement. The TIDCA is meant to be a stepping stone to a full FTA, so the process is still in motion.

The US began negotiating a free trade agreement with the Southern African Customs Union — composed of South Africa, Botswana, Namibia, Lesotho and Swaziland — in June 2003. The talks first got stalled in mid-2004, largely because of the US’ extreme and inflexbile demands regarding intellectual property rights. Around July-September 2005, officials started trying to reignite the process by chopping the FTA negotiating items into "bite size pieces". By early 2006, the process was looking like it would still go nowhere and in April that year it was suspended. From the start, the prospects of a US-SACU accord raised a lot of fears in the subregion, if past US free trade agreements are anything to go by. The demands put forward by the US — especially in terms of investment and intellectual property, including patents on drugs and seeds — would be quite radical for the SACU countries. While the talks were stalled, the US administration reportedly began looking into the possibility of negotiating bilaterals FTAs with individual sub-Saharan African countries. Washington also proposed that the US and SACU adopt a Trade and Investment Cooperation agreement — more than a TIFA, but less than an FTA — as step towards a full-fledged FTA. On 16 July 2008, the US Trade Representative and the SACU Trade Ministers signed a Trade and Investment Development Cooperation Agreement. The TIDCA is meant to be a stepping stone to a full FTA, so the process is still in motion.

Monday, October 12, 2009

State Responsibility in Taxation Matters

Daniel N Erasmus, Adjunct Professor, Thomas Jefferson School of Law, USA
2009/10/11

State Responsibility in Taxation Matters

Hans Pijl in his interesting article, ‘State Responsibility in Taxation Matters’ states that international tax law is part of international law. The engagement of state responsibility in cases of breaches of tax-related treaties is an element of international tax law. The article gives an overview of the rules of state responsibility in international law.


The article takes further some of what I have taught on a 'rule of law' approach in applying international tax principles to facts in the greater international law arena.

In one interesting case, where US resident shareholders of a Barbados Co. invested into a company in South Africa, SARS (the tax authority) are refusing to refund overpaid tax, paid in error. The shareholders in the company are disinvesting, and SARS, by refusing to refund an overpayment of taxes (made by mistake by the company), will indirectly affect the US shareholders.

Once the company has exhausted its options in the court system in South Africa, assuming they do not win, the US shareholders may approach the State Department of the USA to exercise their discretion to invoke "diplomatic protection" on their behalf against the South African government and claim reparation and damages, for failure to repay the overpaid taxes (unjust enrichment) in terms on international law.

In another interesting case, APEH of Hungary are imposing harsh record keeping VAT provisions on marketing functions performed by a consumer product company to promote its product, applying old Hungarian tax rules that are contrary to EU law.

Under the international doctrine of "diplomatic protection", once this company has exhausted in Hungary its VAT dispute through the court system, and assuming it gets no positive result, its shareholders, at different levels, as there are a number of intermediate companies to the holding company, can approach the most sympathetic State to intervene on their behalf, and institute action against the State of Hungary for reparation and restitution for the VAT, penalties, interest and any other foreseeable damages caused, by virtue of the wrongful conduct of APEH enforcing the VAT provisions contrary to EU law.

Both South Africa and Hungary would be embarrassed having to face such an action, as the plaintiff would be another State.

For more information about this topic, or any international law and international tax law related issue, please do not hesitate to make contact with me at daniel@dnerasmus.com.
www.TaxRiskManagement.com

IRS ISSUES NEW E-MANUAL ON ADVANCE INTERNATIONAL TAXATION- SEE IT HERE

Brian Dooley
2009/10/10

We have assembled the the new IRS E-Manual on International Taxation with the Hyper Links.

http://www.linkedin.com/news?viewArticle=&articleID=76829165&gid=1509927&articleURL=http%3A%2F%2Fwww.intltaxcounselors.com%2Fblog%2F%3Fp%3D1706&urlhash=r3jy&trk=news_discuss

21.8.1.11 Aliens

21.8.1.12 Dual-Status Aliens

21.8.1.13 Joint Returns with a Nonresident Alien Spouse

21.8.1.14 Manual Refunds to Nonresident Aliens That Include Interest

21.8.1.15 Community Property

21.8.1.16 Self-Employment Tax – U.S. Citizens and Aliens Living Abroad

21.8.1.17 Retirement Withholding: Survivor Benefit Annuities (SBA’s) – Survivor Benefit Plans (SBP’s)

21.8.1.18 VISA Holders – General

21.8.1.19 Totalization Agreements- Bilateral Social Security Agreements

21.8.1.20 General Organization for Social Insurance (GOSI)

21.8.1.21 Form 8288 and Form 8288-A

21.8.1.22 Withholding Tax on Foreign Partners – Form 8804

21.8.1.23 Withholding Certificates

21.8.1.24 Form 3520 and Form 3520-A

21.8.1.25 Form 5471 – Information Return of U.S. Persons with Respect to Certain Foreign Corporations

Exhibit 21.8.1-1 Housing Expense Limitation Chart

US How is the IRS Criminal Department Doing?

Brian Dooley
2009/10/10

How is the IRS Criminal Department Doing? Not as much as one would think. About 80 Americans a year are convicted. Here is the report found by www.IRSWizard.net The USA is nearly 10 times larger than South Africa in population size and much bigger in terms of taxpayers and taxable income. The prosecutions reported in SA are 518 successful prosecution with a 99% success rate. (SARS Annual Report, 2008/2009)

How is the IRS Criminal Department Doing?

Published
by
Brian Dooley
on October 9, 2009
in IRS.Gov

How is the IRS Criminal Section Doing? Not as much as one would think. About 80 Americans a year are convicted. Here is the report found by www.IRSWizard.net


How to Interpret Criminal Investigation Data

Since actions on a specific investigation may cross fiscal years, the data shown in cases initiated may not always represent the same universe of cases shown in other actions within the same fiscal year.

The following statistics represent IRS Criminal Investigation’s investigative efforts involving promoters, clients and other individuals involved in abusive trust schemes.


FY 2009 FY 2008 FY 2007

Investigations Initiated 185 147 152

Prosecution Recommendations 105 106 104

Indictments/Informations 88 88 86

Sentenced 79 71 77

Incarceration Rate* 75.9% 81.7% 80.5%

Avg. Months to Serve 38 35 33

Friday, October 9, 2009

US Senator Carl Levin's speech on striking out offshore tax abuse

Editorial comment by Prof Daniel N Erasmus
2009/10/08

Stop Tax Haven Abuse Act, S. 506 and S. 569, the Incorporation Transparency and Law Enforcement Assistance Act are being promoted by Senator Carl Levin as a measure to combat tax abuse. Tax avoidance or tax evasion? The term tax abuse seems aptly coined in an attempt to cover both. The first (avoidance) is not fraud, whereas the second is. Anti-tax avoidance measures are promulgated by jurisdictions world-wide. On the other hand blatant tax evasion, tax fraud, is a crime! Structuring one's affairs, not to pay too much tax, and around tax avoidance provisions, is lawful, and secrecy or privacy piercing measures should not deem these lawful activities to be unlawful. Otherwise, the rule of law will be eroded in the opposite direction of what the good Senator is proposing now. Tax evasion is where US and other residents hide money that should be taxable, in Swiss numbered bank accounts, without declaring that money to the IRS or other tax authorities. Obtaining dispositions from discretionary trusts set up in offshore jurisdictions, and declaring those receipts to tax authorities is not unlawful. Legitimate structures encourage savings, investment and healthy returns, which are taxed on withdrawal. That's not unlawful, nor should it be. But then, advising any client on an offshore discretionary trust would include peeking into the proposed legislation. If it is enacted in the US, others will follow suit. The speech of the Senator follows:

Keynote Address by Senator Carl Levin at the Conference on Increasing Transparency in Global Finance: A Development Imperative

Remarks as prepared for delivery

I’m pleased to be with you tonight to discuss an issue of great importance to me, and I know to you as well: the scourge of offshore tax abuse.

It is highly encouraging that you are meeting to discuss how illicit money arising from tax scams, corporate misconduct, foreign corruption, and other wrongdoing has hurt economic development, emerging civil societies, and the rule of law. It is also a pleasure to be introduced by so accomplished a scholar as Professor Fukuyama, who once famously proclaimed “the end of history.” I’d settle for the end of abusive tax havens.

We’re actually making some progress on doing that, but the battle is far from over.

Let me begin with something of a spy story. Now, maybe you wouldn’t expect somebody like me – who Time Magazine once described as “balding and … rumpled” – to be spinning James Bond-like tales of secret codes, smuggled diamonds, and sudden betrayals. But what’s been happening in the offshore tax haven world reads like the stuff of a novel. It involves billions of dollars in hidden assets, secret documents, clandestine meetings, and scheming in cities around the world. It involves conflict among some of the world’s richest nations. And in recent months, political events have caused a near earthquake in the offshore world that has shaken the marbled headquarters of some of the world’s richest private banks serving some of the world’s wealthiest people.

As many of you know, for the last ten years we have been investigating tax havens and offshore tax abuse at the Permanent Subcommittee on Investigations, which I chair. Our Subcommittee has jurisdiction and broad subpoena authority to investigate wrongdoing. Our probe, which has enjoyed bipartisan support, has yielded a series of hearings and reports over the years exposing how some financial institutions and professionals aid and abet tax evasion and help taxpayers dodge their tax obligations.

My interest in the offshore world was first triggered by our 1999 investigation of U.S. banks that were offering private banking services, including offshore shell companies and bank accounts, to some foreign heads of state and their relatives suspected of hiding their illicit funds. That was followed by a 2001 investigation into how small offshore banks were using major U.S. banks to move criminal proceeds deposited by drug traffickers and financial fraudsters, and a 2002 investigation of Enron that was using phony offshore transactions to inflate its revenues and minimize its taxes. Enron alone formed 440 shell companies in the Cayman Islands, and one small building in the Caymans, called the Ugland House, provides the mailing address for 12,000 shell companies. In 2003, we investigated how major U.S. accounting firms like KPMG were designing and marketing abusive tax shelters, including some with offshore transactions. In 2004, we investigated a bank in Washington, D.C., that formed offshore entities for Augusto Pinochet, former president of Chile, and the sitting president of Equatorial Guinea. In 2006, we presented six case studies of how U.S. taxpayers were using tax haven jurisdictions to hide assets and dodge their U.S. taxes.

Over the last year, we held dramatic hearings showing how two tax haven banks in particular, LGT Bank in Liechtenstein and UBS in Switzerland, used their bank secrecy laws to help wealthy U.S. residents conceal billions of dollars in assets in secret financial accounts which are supposed to be disclosed to the IRS, but which weren’t. Of course, these banks didn’t limit themselves to U.S. clients; they provided the same assistance to tax cheats in Germany, France, the United Kingdom, Canada, Australia, and many other jurisdictions.

Hiding assets offshore is blatantly unfair to the vast majority of taxpayers who comply with their civic obligations and have to shoulder the additional tax burden when others don’t pay what they owe. It deprives government treasuries of money needed to protect our citizens and provide the services that make our nations more secure and prosperous. In the United States alone, we’ve estimated that offshore tax abuse deprives the U.S. Treasury of approximately $100 billion in revenues each year.

Offshore tax cheating also undermines the justice of our tax systems, leading taxpayers to conclude that the systems favor those with the means to shield income from tax officials and building resentment, distrust, and anger. In other nations, and in particular developing nations where legal and societal frameworks are less robust and more vulnerable to abuse, I believe these problems can be even more damaging than in the United States, sending needed resources out of the country, draining government treasuries, and poisoning civil society.

But back to the spy story. It starts with Heinrich Kieber, a computer technician at LGT, with is owned by the Liechtenstein royal family. Mr. Kieber saw how LGT was helping taxpayers around the world hide income and assets, and decided to expose the wrongdoing. He provided names, account numbers, and account information to tax authorities in the United States and other nations and to my Subcommittee. He disclosed how LGT bankers developed code names for prized customers, used pay phones to conceal calls to clients, set up corporations and foundations to hide account ownership, and used elaborate means to move money in and out of accounts to conceal the audit trail. In 2008, when his information went public following high profile arrests in Germany, it snowballed into a worldwide scandal focused on how LGT was helping hundreds if not thousands of taxpayers evade payment of taxes.

For his trouble, Mr. Kieber is now in hiding. There is a warrant out for his arrest, and a $10 million bounty placed on his head by unknown individuals. In July of 2008, when he testified before my Subcommittee about LGT’s misconduct, we had to use complex security procedures to protect his new identity, including taking his testimony on videotape without showing his face to the world.

Mr. Kieber’s revelations shook the offshore world. He was followed by Bradley Birkenfeld, a former UBS banker who went to law enforcement officials with evidence that peeled back the curtain of secrecy hiding UBS’s years-long, flagrant violations of U.S. tax law. He told of UBS bankers who secretly visited U.S. clients to manage accounts hidden from the IRS, used encrypted computers to conceal client data, received counter-surveillance training to deflect U.S. inquiries, and opened accounts in the names of offshore corporations to conceal their true owners. He admitted helping one U.S. client hide $200 million in Swiss and Liechtenstein accounts, and another smuggle diamonds into the United States in a tube of toothpaste. Mr. Birkenfeld has since pleaded guilty to aiding and abetting U.S. tax evasion. UBS has admitted that Swiss accounts opened by U.S. taxpayers held more than $18 billion in assets and income hidden from the IRS.

The banking activities described in the Kieber and Birkenfeld revelations were so detailed, so brazen, and so startling that they fueled worldwide outrage at tax haven banks, the use of bank secrecy to facilitate tax evasion, and the complicity of offshore governments in the misconduct, producing what may be our best chance in decades to put a stop to offshore tax abuse.

That’s why, in our spy story, for the moment at least, the good guys are on the march. In the fight against tax havens, we have made more progress in the last year than the previous ten years combined. Let me outline some of the developments.

* Liechtenstein and Switzerland have reversed decades of resistance and agreed to enter into Tax Information Exchange Agreements in line with the model agreement developed by the Organization for Economic Cooperation and Development (OECD). Both countries have already initialed such agreements with the United States and other countries.
* UBS has entered into a deferred prosecution agreement with the United States in which it admitted conspiring with some clients to defraud the United States out of tax revenues, paid a $750 million fine, and agreed not to open any more U.S. client accounts without alerting the IRS. Think of it: UBS, the largest private bank in the world, has said that it will no longer offer hidden Swiss accounts to U.S. residents. When UBS first announced that radical change in policy at one of my Subcommittee hearings, it almost knocked me off my chair.

* In addition, as part of the deferred prosecution agreement, UBS and the Swiss Government broke decades of practice and turned over between 250 and 300 names of U.S. clients to the U.S. Justice Department. To settle a civil lawsuit brought by the U.S. Justice Department, UBS and the Swiss have also recently promised to turn over about 4,500 additional client names over the next year.

* As G-20 leaders signaled a new willingness to take action against uncooperative tax havens, the changes made by Liechtenstein and Switzerland set off a chain reaction in other bank-secrecy nations. Places like Luxembourg, Austria, Andorra, Monaco, and others also pledged for the first time to share tax information and cooperate with international tax enforcement.

* Last week, at a meeting in Mexico City, the OECD announced that all 87 countries in its Global Forum on Transparency and Information Exchange had agreed to adopt the OECD model agreement on tax information sharing. Essentially, those 87 nations – including some of the most notorious tax havens in the world – pledged to no longer allow bank secrecy laws to be used to carry out tax evasion.

* In the United States, indictments have begun to be filed against tax cheats and the lawyers, accountants, and others who helped them set up their secret Swiss accounts at UBS. We’ve been told that cases involving other tax haven banks may follow.

* In addition, U.S. tax officials have initiated a voluntary program allowing U.S. taxpayers with tax haven bank accounts to come clean, pay their back taxes, and avoid criminal prosecution. Hundreds of tax evaders are coming forward in a development that could restore a billion dollars or more in unpaid taxes to the U.S. Treasury.

Together, these events reflect an upheaval in the offshore tax haven world – a growing worldwide consensus that bank secrecy laws can no longer be relied upon to carry out tax evasion. This progress resulted from bank insiders willing to disclose offshore misconduct, law enforcement officers willing to pursue wrongdoing in the courts, and international leaders willing to demand change. It shows the power of Congressional oversight. And it shows that the scourge of offshore tax abuse is not an inevitable evil we have to live with, but misconduct that we can expose and hopefully eliminate.

Of course, the battle to end offshore tax abuse is far from over. And I am concerned that in our spy story, the good guys may declare victory and relax before the villains are vanquished. We need to take action now to ensure we get a happy ending.

Our first opportunity comes next week when the G20 summit meets in Pittsburgh to discuss financial reform, and tax havens are on the agenda. I recently urged the Obama Administration to work with our G20 partners to support the longstanding effort of the OECD to establish a system of international sanctions that can be taken against tax havens that don’t cooperate with international tax enforcement.

While 87 nations have now pledged to adopt the OECD’s model tax information exchange agreement, it is critical that the international community ensure that these pledges are followed by concrete actions – that tax havens not only sign tax sharing agreements but implement them. If words are not followed by deeds, the international community must have a way to respond.

In my letter, I highlight one possible tax haven sanction that our G-20 partners could consider, which would replicate the successful approach the United States has already pioneered to combat international money laundering. That approach allows the U.S. Treasury to take a series of increasingly tough steps against financial institutions or jurisdictions that pose money laundering concerns, including authority to bar U.S. financial institutions from doing business with the offending bank or jurisdiction and essentially locking them out of the U.S. financial system.

That same lock-out approach could be applied to tax haven banks or jurisdictions that fail to cooperate with international tax enforcement. The G-20 or a smaller subset like the G-7 nations could act as a group to bar their financial institutions from doing business with uncooperative tax haven banks or jurisdictions. Tax haven banks facing that type of united action would have a much harder time turning law enforcement away empty handed. And putting the necessary legal mechanism in place now to stop tax haven abuses in the future would give the international community a powerful new tool to use when the next offshore tax scandal hits.

Here in the United States, there are additional steps we can and should take to stop offshore tax abuse. As a legislator, my priority is to enact two pieces of legislation now before the Congress.

The first is the Stop Tax Haven Abuse Act, S. 506, which I and four colleagues have introduced in the Senate. Congressman Lloyd Doggett and some of his colleagues have introduced the bill in the House. President Obama cosponsored this legislation when he was a member of the Senate, and he endorsed its passage again earlier this year. This bill would enact a long list of measures to combat offshore tax abuse, including measures to enable the United States to take steps against offshore financial institutions or jurisdictions that impede U.S. tax enforcement as I just discussed. It would also simplify U.S. tax enforcement actions by allowing courts to presume that U.S. persons who form, send money to, or receive money from offshore entities control those entities; tighten reporting requirements for financial institutions that establish offshore accounts or entities for U.S. taxpayers; give law enforcement more time to pursue offshore tax cheats; and toughen penalties against those who aid or abet tax evasion. Passage of this legislation holds significant promise of reducing the current $100 billion drain on the U.S. treasury from offshore tax abuse each year.

The Senate Finance Committee and the House Ways and Means Committee have both said they would enact bills addressing offshore tax haven abuses this year. Everyone with an interest in this issue, at home and abroad, should urge the Committees to do just that and to include the key provisions of the Stop Tax Havens Abuse Act in the final product. We could sure use that revenue to help fund health care reform.

The second piece of legislation would take important steps to put our own house in order by ending a form of corporate secrecy in the United States. Today, our 50 states form nearly two million corporations and limited liability companies each year and, in almost every case, do so without requesting the names of the beneficial owners – the people behind the newly formed company’s activities. The failure to request beneficial ownership information creates U.S. corporations with hidden owners who can more easily engage in tax fraud, money laundering, or other misconduct. This corporate secrecy frustrates law enforcement. It also violates our international anti-money laundering commitments and undermines U.S. efforts to persuade offshore jurisdictions to identify the beneficial owners of the companies they form.

S. 569, the Incorporation Transparency and Law Enforcement Assistance Act, which I have introduced with Senators Grassley and McCaskill in this Congress and which was cosponsored by President Obama in the last Congress, would eliminate this weakness in U.S. law. Many groups – some represented in this room – have endorsed the bill, including the Federal Law Enforcement Officers Association, Fraternal Order of Police, Citizens for Tax Justice, and Global Financial Integrity which is helping sponsor this conference. Again, I hope all of you will help us get this bill enacted into law.

Another step we need to take is to support the efforts of the U.S. Justice Department and IRS to take abusive tax haven banks to court, stop their misconduct, and identify their clients. Some would like to shut down that enforcement effort; I want to strengthen it and expand it beyond the groundbreaking UBS case.

In addition, while recognizing the UBS case has been the most aggressive, innovative pursuit of a tax haven bank in U.S. history, we need to recognize that victory is far from complete. A 2004 document indicated that UBS had 52,000 U.S. clients with hidden Swiss accounts. UBS and the Swiss have agreed to disclose only about 5,000 client names. Clearly, some tax cheats will evade investigators, and we will have to rely on UBS and the Swiss government to give us the names of the worst offenders. Before we pop the champagne corks, we need to see how the UBS agreement plays out and how effective it is in identifying the tax offenders.

Next, while widespread adoption of the OECD model tax information sharing agreement is a breakthrough, we shouldn’t kid ourselves that it will solve the offshore tax abuse problem. For one thing, we have to see how many nations that are now promising to sign and implement these agreements actually do so. For another, and this is key, the model agreement has traditionally been interpreted as requiring a country to supply information only when a requesting jurisdiction has the name of a specific, suspect taxpayer. Most governments take the position that if the requesting jurisdiction doesn’t have the taxpayer’s name, no information can be shared, even if bank secrecy laws make obtaining that taxpayer’s name difficult or impossible.

That has to change. That restrictive interpretation has been a key barrier to effective use of international tax information exchange agreements, and it must be broadened. The first step has already been taken in the UBS case. Switzerland has agreed that, in response to a U.S. treaty request, UBS can supply the names of some of their U.S. clients as well as their account information. This concession by the Swiss is a major development that needs to be recognized and pressed worldwide, so that tax information exchange agreements can be used to obtain information not only in cases where the requesting jurisdiction has a specific taxpayer name, but also where the requesting jurisdiction identifies a specific entity that is facilitating tax evasion — such as a bank, attorney, or corporate administrator — and requests the names of that entity’s clients.

Finally, offshore tax abuse needs to be taken into account when developing international trade policy. Specifically, there ought to be a policy against rewarding trading partners that refuse to adopt the growing global consensus against tax evasion. The nation of Panama, for example, hopes to conclude a free trade agreement with the United States in the near future. But at the same time, after pledging in 2002 to negotiate a tax information exchange agreement with the United States, Panama is stonewalling. The United States should insist that Panama and other nations agree to tax information sharing before extending to them the advantages of a free-trade agreement.

We have the means to end offshore tax abuse if we have the political will to act. Offshore tax evasion currently deprives countries of billions of dollars in needed revenues, benefiting the wealthy few who have the resources to hide assets offshore while offloading their tax burden onto the backs of honest taxpayers. When that happens, tax haven abuse undercuts the tenets of fairness and shared sacrifice on which free societies rely.

Tax evaders reap enormous benefits from civil society — they enjoy the security our military and law enforcement agencies provide; they invest and prosper thanks to the rule of law and sanctity of contract which our regulators and court system enforce; and they build their economic future on the financial, communications, and transportation infrastructure that taxpayers finance. What we ask in return is that all members of society pay that share of their income that they owe, so that governments can continue to protect fundamental rights and provide basic services. If that social contract breaks down and some refuse to pay their share, the effects on civil society are caustic. Ending offshore tax abuse is about more than money; it is about protecting the principles upon which our economic and political systems are built.

As Justice Oliver Wendell Holmes famously said, “Taxes are the price we pay for civilization.” Those who seek to avoid their tax obligations are not just free loaders, they are weakening that civilization. But if we take the right steps, together across the globe, we can finally end the scourge of offshore tax abuse.

Thank you for listening, and thanks for the work you do to combat offshore abuse in all its forms.

Monday, October 5, 2009

USA Deductibility Ponzi scheme losses

Natalie Bell Takacs
2009/10/05

In March 2009, the IRS issued Rev. Rul. 2009-9 and Rev. Proc. 2009-20, which provided guidance on the tax treatment of theft losses from Ponzi-type schemes. Although it is evident from the provisions of Rev. Proc. 2009-20 that it was intended to offer a 2008 theft loss deduction to victims of the Madoff scheme, its provisions apply to victims of all Ponzi-type thefts.


The content of Rev. Rul. 2009-9 and Rev. Proc. 2009-20 was covered in the May 2009 issue of The Tax Adviser ("IRS Issues Guidance on Losses from Ponzi Schemes," p. 334). This item will address some practical issues that practitioners may encounter in preparing returns for taxpayers who have been victims of the Madoff Ponzi scheme.

Determining Whether a Loss Is a Theft Loss

Regs. Sec. 1.165-8(d) states that theft is "deemed to include, but shall not necessarily be limited to, larceny, embezzlement, and robbery." Rev. Rul. 72-112 expands on this definition by defining "theft" as a taking of property that was illegal under the law of the jurisdiction in which it occurred and was done with criminal intent. Various IRS pronouncements and court cases have distinguished between theft losses and other types of losses (e.g., worthless securities, bad debt, gifts, etc.). These pronouncements and cases are the topic of other articles and thus will not be discussed in this item; however, it is important to note that the Madoff Ponzi scheme's unique nature may raise issues that have not been previously addressed. For example, certain funds used swap transactions to leverage their investments into the Madoff strategy. In addition to multiplying the amount of the fund's losses, the use of such Madoff derivatives presents some complex and ambiguous tax issues that remain unanswered, including whether the affected investors in the swap transactions will be eligible for an ordinary loss. To the extent that the losses from the swap transaction are considered ordinary under other Code provisions, taxpayers may concede that such losses are not theft losses; however, to the extent that the losses from the swap transaction are considered capital losses, taxpayers can be expected to advance arguments that such losses are theft losses.

Safe-Harbor Election

In Rev. Proc. 2009-20, the Service and Treasury acknowledge that whether and when investors meet the requirements for claiming a theft loss for an investment in a Ponzi scheme are highly factual determinations that taxpayers often cannot make with certainty in the year the loss is discovered. The revenue procedure goes on to indicate that the safe harbor's purpose is to provide a uniform manner for taxpayers to determine their theft losses, and it explicitly states that use of the safe harbor is optional (i.e., use of the safe harbor requires an election).

The revenue procedure permits taxpayers who choose to use the safe harbor to deduct either 75% or 95% of the loss in the discovery year. Section 4.04 of Rev. Proc. 2009-20 defines the discovery year as the year in which the indictment, information, or complaint establishing the qualified loss is filed. For the Madoff Ponzi scheme's victims, the discovery year is 2008.

The use of the safe harbor is limited to "qualified investors" as defined in Rev. Proc. 2009-20, [section]4.03. This section effectively precludes persons that had actual knowledge of the investment arrangement's fraudulent nature prior to its becoming known to the general public from using the safe harbor. It also limits the use of the safe harbor to investors that transferred cash or other property to the fraudulent arrangement, thus ruling out investors who invested in the fraudulent arrangement through a fund or other entity. Presumably, however, such indirect investors may claim a safe-harbor deduction if the fund or other entity makes the safe-harbor election.

Section 8.01 of Rev. Proc. 2009-20 explicitly states that taxpayers who do not use the safe harbor to claim a theft loss must establish that the loss was from theft, that the theft was discovered in the year the taxpayer claims the deduction, and that no claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery in the year in which the taxpayer claims the loss.

Despite Rev. Proc. 2009-20's stipulation of 2008 as the year in which a taxpayer can deduct Madoff theft losses under the safe harbor, it is not certain that a taxpayer who does not use the safe harbor could claim a Madoff theft loss deduction in 2008. It is possible that the Service could make an argument that the taxpayer must defer the loss to a future year because as of December 31, 2008, the trustee of the Madoff bankruptcy estate had not completed his investigation into Madoff's assets.

In addition, for taxpayers who invested with Madoff through another investment fund, the IRS could argue that as of December 31, 2008, such taxpayers had a realistic prospect of recovery in the form of lawsuits against third parties and that the amount of the potential third-party recovery could not be reasonably estimated. Thus, taxpayers for whom a 2008 theft loss is valuable must carefully consider whether it is necessary to use the safe harbor in order to ensure a 2008 theft loss deduction.

By making the safe-harbor election, however, taxpayers are precluded from the following:

* Deducting losses in excess of the 75%/95% amount in the discovery year;

* Filing returns or amended returns to exclude or recharacterize income reported with respect to the investment arrangement in tax years preceding the discovery year;

* Applying the claim-of-right provisions of Sec. 1341; or

* Applying the doctrine of equitable recoupment or the mitigation provisions in Secs. 1311-1314.

Although use of the safe harbor, which will result in a 2008 theft loss for victims of the Madoff Ponzi scheme, may be advantageous for many taxpayers, it is possible that certain victims of the Madoff Ponzi scheme may prefer to defer the loss to a future year. Perhaps the taxpayer realized a significant capital gain in 2008 and prior years (taxable at 15%) but expects a significant amount of ordinary income in the future that, under President Obama's proposed budget, would be taxed at a rate of 39.6%.

Third-Party Recovery

Section 5.02 of Rev. Proc. 2009-20 provides that an investor can deduct 95% of the qualified investment in the discovery year as long as the investor is not pursuing third-party recovery; however, the percentage is 75% for an investor who is pursuing third-party recovery. Taxpayers who compute the amount of their safe-harbor deduction using the 95% are required to sign a statement--under penalties of perjury--that they have not pursued and do not intend to pursue any potential third-party recovery.

Section 4.10 of Rev. Proc. 2009-20 defines the term "potential third-party recovery" as the amount of all actual or potential claims for recovery that are not attributable to potential insurance/Securities Investor Protection Corporation (SIPC) recovery and potential direct recovery (e.g., against the responsible group).

Unfortunately, Rev. Proc. 2009-20 does not define how to determine whether an investor is "pursuing" third-party recovery. By way of illustration, consider the following two examples:

Example 1--class action lawsuits: Investor X (who is not otherwise pursuing third-party recovery) is included in a class action suit. Does X's passive inclusion as a member of the class cause him to be considered as pursuing third-party recovery?

Funds that decide to make the safe-harbor election in particular will need to carefully consider whether to compute the amount of the theft loss deduction using 75 % or 95%. Investors can be expected to pressure funds that are not currently pursuing third-party recovery to calculate the loss using the 95% rate; however, such funds should carefully consider the impact of using the 95% rate on the safe-harbor election should they decide to pursue third-party recovery in the future.

Example 2--lawsuit against feeder funds: Y is an investor in Fund A, which holds a direct account with Bernard L. Madoff Investment Securities, LLC (BMIS). Although A is not pursuing third-party recovery, Y is pursuing recovery against A. A files its tax return using the safe harbor and reports a theft loss equal to 95% of its qualified investment.

Can Y deduct 95% of the theft loss reported on its Schedule K-1 issued by Fund A, or is Y required to reduce the amount of the deduction to 75% or some other amount? Unfortunately, Rev. Proc. 200920 does not address this issue.

Amending Returns to Eliminate Fictitious Income

Rev. Rul. 2009-9 concludes that the amount of a theft loss is increased by the amount of the fictitious income (e.g., amounts reported to the investor as income prior to the fraudulent arrangement's discovery) that is reinvested in the fraudulent arrangement.

It should be noted that this conclusion is very favorable to the investors because it is inconsistent with the holding in Kaplan, No. 8:05-cv-1236-T-24 EAJ (M.D. Fla. 2007). In Kaplan, the court denied taxpayers a theft loss deduction for income allegedly earned on purported investments in a Ponzi scheme because the taxpayers could not produce evidence that such income ever existed; thus, the taxpayers could not show that such income was unlawfully taken (a prerequisite to the theft loss deduction).

Prior to the issuance of Rev. Rul. 2009-9, it was uncertain whether taxpayers would be able to recover taxes for fictitious income amounts attributable to years for which the statute of limitation had closed.

For taxpayers who choose to use the safe harbor, the only permissible treatment for fictitious income is to include it as basis for determining the amount of the theft loss to be deducted in the discovery year. Taxpayers who do not use the safe harbor have the option of filing amended returns for open years to exclude fictitious income; however, such taxpayers must establish that the amounts sought to be excluded in fact were not income that was actually or constructively received by the taxpayer (Rev. Proc. 2009-20, [section]8.02).

Despite this additional burden, in certain circumstances taxpayers may be able to increase the value of their theft loss tax refunds by opting out of the safe harbor and filing amended returns for open years. Taxpayers that are considering filing such amended returns should be mindful of the statute of limitation and may find it necessary to file protective refund claims.

SIPC Recovery Issues

Both Rev. Proc. 2009-20 and Rev. Rul. 2009-9 require taxpayers to address the amount (if any) to be received from the SIPC. The amount (if any) to be received may be affected by whether an investor was a direct investor that had an account at BMIS or an indirect investor in a fund that had an account at the firm. It is generally believed that the $500,000 SIPC limit will be determined on a per account basis, which means that the amount of SIPC recovery to an investor in a fund with many partners will be limited; however, even if the claims of indirect investors are initially rejected by the SIPC, it is possible that litigation may subsequently be brought against the SIPC to require that claims by indirect investors be covered.

In addition, it generally is believed that the amount of the SIPC recovery is limited to the investor's net unrecovered investment and that the SIPC will not provide reimbursement for fictitious income.

Due to these complexities, tax preparers should refrain from calculating the amount of the SIPC recovery and should require that the client stipulate the amount, preferably based on the advice of the client's attorney.

Recordkeeping Issues

To use the safe-harbor provisions of Rev. Proc. 2009-20, a taxpayer must attach a statement--signed under penalties of perjury--to its tax returns stating that it has written documentation to support the amount of the loss; however, the revenue procedure does not specify the source, form, or required content of the documentation.

Many Madoff victims made their investments as early as 1992. Although the IRS does require taxpayers to maintain documentation to support their tax basis, in many instances the statements issued by BMIS indicated that all the positions in the account were liquidated as of the end of the year; thus, taxpayers may have discarded their records following the expiration of the three-year statute of limitation. For taxpayers that did not retain records, recreating the missing records may be next to impossible, especially given the large number of acquisitions/mergers that have occurred among financial institutions. Even the Service has indicated it may provide transcripts to taxpayers only for the past six years.

Madoff investors will likely have copies of recent BMIS statements; however, it is possible that the IRS could challenge whether the amounts reported on these statements represent the taxpayer's basis in its BMIS investment.

Partnership Allocation Issues

When a theft occurs at the partnership or other passthrough entity level, only the partnership or other passthrough entity may make the safe-harbor election. The partnership presumably will then allocate the safe-harbor theft loss amount to its partners and report the amount of the safe-harbor loss on the Schedule K-1 it issues to each partner.

The Code allows securities partnerships to use alternative methods to allocate realized gains and losses (see Bellamy, "Tax Allocations for Securities Partnerships," 34 The Tax Adviser 473 (August 2003)). Although all methods are required to preserve the character and other tax attributes of each item of gain or loss, which are determined under a consistently applied approach, the different methods can render different results. Thus, the allocation method used by the partnership can affect the amount of the Madoff theft loss allocated to the taxpayer.

Consider, for example, the following issue related to the allocation of the SIPC recovery amounts received by a partnership:

Example 3: Partnership ABCD is formed in 1997 and each partner contributes $250,000 for a 25% interest in the partnership. The $1 million is invested with BMIS in 1997. By 2007, fictitious income of $1 million had been reinvested, bringing the total value of the BMIS account to $2 million. At the end of 2007, Partner A withdraws his 25% interest from the partnership, leaving a balance of $1,500,000, consisting of a net unrecovered investment of $750,000 and fictitious income of $750,000. On January 1, 2008, Partner E invests $500,000 in the partnership, increasing the BMIS account balance to $2 million, consisting of a net unrecovered investment of $1,250,000 and fictitious income of $750,000. The partnership receives an SIPC recovery of $500,000, which constitutes 50% of its net unrecovered investment and allocates $125,000 to each partner. Under this methodology, the amount of the SIPC recovery allocated to Partner E constitutes 25% of her $500,000 net unrecovered investment, while the amount of the SIPC recovery allocated to Partners B, C, and D is 50% of their $250,000 net unrecovered investment.

If a partner reports items on his or her tax return that are not consistent with the items as reported on Schedule K-1 from a partnership, S corporation, estate, or trust, Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), must be attached to the partner's return. Form 8082 is required not only when the taxpayer disagrees with the amounts reported on the Schedule K-1 but also if the partnership has not filed a tax return or issued a Schedule K-1 by the time the individual must file his or her tax return (including extensions), as may be the case with a fund that, as a result of its Madoff and/or other losses and/or investor lawsuits, is unable to timely file its tax return.

Reportable Transaction Issues

Regs. Sec. 1.6011-4(a) requires every taxpayer that has participated in a reportable transaction and is required to file a tax return to attach to its return a disclosure on Form 8886, Reportable Transaction Disclosure Statement. The fact that a transaction is reportable does not affect the legal determination of whether the taxpayer's treatment of the transaction is proper.

Included among the categories of reportable transactions are loss transactions. A loss transaction is any transaction that results in the taxpayer's claiming a loss under Sec. 165 that surpasses the following thresholds specified in Regs. Sec. 1.6011-4(b)(5)(i):

* For corporations, $10 million in any single tax year or $20 million in any combination of tax years.

* For partnerships that have only corporations as partners (even if the losses do not flow through to the partners), $10 million in any single tax year or $20 million in any combination of tax years.

* For all other partnerships (even if the losses do not flow through to the partners), $2 million in any single tax year or $4 million in any combination of tax years.

* For individuals, S corporations, or trusts (whether or not any losses flow through to one or more shareholders or beneficiaries), $2 million in any single tax year or $4 million in any combination of tax years.

* For individuals or trusts (whether or not the loss flows through from an S corporation or partnership), $50,000 in any single tax year if the loss arises from a Sec. 988 transaction (relating to foreign currency).

In determining whether a transaction results in a loss that exceeds the threshold amounts, only losses claimed in the tax year that the transaction is entered into and the five succeeding tax years are combined.

The IRS was aware that many nonabusive transactions could result in Sec. 165 losses. To address this situation, the Service announced several exceptions to this definition. Section 4.03 of Rev. Proc. 2004-66 provides an exception for theft losses under Sec. 165(c)(3); however, because Rev. Rul. 2009-9 specifies that Ponzi-type losses are deductible under Sec. 165(c)(2), this exception is not available. Thus, to the extent that a Ponzi-type theft loss exceeds the applicable thresholds, the taxpayer may be required to report the loss on Form 8886.

Net Operating Loss Issues

Rev. Rul. 2009-9 explicitly states that Sec. 172(d)(4)(c) treats any deduction for theft losses allowable under Secs. 165(c) (2) or (3) as a business deduction and that a theft loss an individual sustains after December 31, 2007, is considered a loss from a "sole proprietorship" within the meaning of Sec. 172(b)(1)(F)(iii). Accordingly, an individual taxpayer may be eligible to elect either a three-, four-, or five-year net operating loss (NOL), provided the $15 million gross receipts test in Sec. 172(b)(1)(H)(iv) is satisfied.

When a theft loss results in a net operating loss, tax preparers should be careful to analyze whether to elect to forgo the NOL carryback and, if the NOL is to be carried back, whether to elect either a three-, four-, or five-year expanded carryback period.

Because tax rates may be different for different carryback years, in many instances it will be necessary for preparers to compute the value of the potential carryback for all four potential carryback years (two-, three-, four-, or five-year carryback). Because the Code requires consistent carryback treatment for both regular tax and alternative minimum tax (AMT) NOLs, preparers should compute not only the value of the regular tax carryback but also the value of the AMT carryback. It should be noted that the 90% of AMT income limitation was not lifted (as it was for the expanded carryback that was permitted for 2002 NOLs), so the carryforward and carryback of 2008 NOLs can offset only 90% of AMT income.

Timing Issues

As a result of the Madoff Ponzi scheme, tax refunds may constitute a significant portion of an investor's net worth. Understandably, such taxpayers may be anxious to file not only their tax returns for the discovery year but also the accompanying amended returns and/or tentative carryback claims to carry their theft losses back to prior years. In the case of fund investors, in many instances they will not receive their 2008 Schedule K-1s until September 15, 2009 (the extended due date for 2008 calendar-year partnerships, corporations, estates, and trusts). This may delay the receipt of the refund attributable to the overpayment of 2008 taxes.

Corporations may be entitled to an expedited refund using Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. However, a corporation must file Form 4466 before the sixteenth day of the third month after the end of the tax year. An extension of time to file the corporation's tax return does not extend the time for filing Form 4466.

Unfortunately, a quick refund is not available for individual taxpayers. Nonetheless, if the 2008 tax refund is attributable to the application of the taxpayer's 2007 overpayment and the Madoff-related tax refunds constitute almost the entire remaining net worth of an investor, the taxpayer may wish to contact the IRS to see if the Service would be willing to adjust the taxpayer's 2007 account to refund (versus apply) the 2007 overpayment.

In most instances, refunds attributable to the carryback of NOLs will be filed using either Form 1045, Application for Tentative Refund, or Form 1139, Corporate Application for Tentative Refund. Although Forms 1045 and 1139 ordinarily are due within 12 months after the tax year of the NOL, a taxpayer that seeks to make a timely Sec. 172(b)(1)(H) election using Form 1045, Form 1139, or an amended return must file the form within six months after the due date (excluding extensions) of the return for the tax year of the NOL (e.g., September 15, 2009, for calendar-year entities and October 15, 2009, for calendar-year individuals).

Sec. 6411(b), Regs. Sec. 1.6411-3(a), and Temp. Regs. Sec. 1.6411-3T(a) require the IRS to act on a claim for a tentative carryback refund within 90 days from the later of the date the application was filed or the last day of the month containing the last date prescribed by law (including extensions) for filing the return for the tax year of the NOL from which the carryback results. In the case of extended, calendar-year individual income tax returns for 2008 for which a tentative carryback claim is filed by October 31, 2009, the Service is not required to act on a claim until January 29, 2010.

If the amount of a taxpayer's refund exceeds $1 million and the taxpayer requests that the IRS electronically deposit this amount, the taxpayer must attach Form 8302, Electronic Deposit of Tax Refund of $1 Million or More, to its refund claim.

If the amount of a taxpayer's refund exceeds $2 million, Sec. 6405(a) provides that the IRS may not issue the refund until 30 days after it submits a report to the congressional Joint Committee on Taxation (JCT). The report must state the name of the person to whom the refund or credit is to be made, the amount, and a summary of the facts and the Service's decision. Although the JCT has oversight as opposed to approval authority, if the JCT disagrees with or questions the Service's position in the report, the Service's general policy is to delay processing the refund until the dispute is resolved.

Conclusion

Although the availability of the safe-harbor provisions of Rev. Proc. 2009-20 may be beneficial for many taxpayers, careful analysis will be required to determine the combination of tax strategies that will maximize the value of the theft losses incurred by a taxpayer.

Given the complexity and number of outstanding issues that must be addressed by tax preparers in preparing returns that contain theft loss deductions related to the Madoff Ponzi scheme, if the IRS wishes to achieve its stated objective of alleviating the compliance and administrative burdens on both taxpayers and the IRS, it should issue additional guidance--in particular for the investors of the Madoff feeder funds--in time for such guidance to be applied to the preparation of 2008 tax returns.

From Natalie Bell Takacs, CPA, M. Tax., Cohen & Company, Ltd., Mentor, OH

Bulletin: Tax Risk Management

Marius van Blerck
2009/10/05

This is an excellent article looking at Tax Risk Management from an International perspective, published by the IBDF. Marius is a well recognized tax specialist having headed up the internal tax departments of a number of multi-national corporations - Standard Bank Ltd and Anglo-American Ltd.

Please click here to download the article.

A USA National Sales Tax is Coming?

Washington
2009/10/04

The imposition of VAT on a national basis in the USA is being strongly reconsidered. This is a regressive form of taxation, that taxes consumption, and not the rich only.

[T]he administration should consider a tax on consumption, such as a value-added tax [VAT] system similar to that in use in the European Union. Mr. Podesta suggested that its impact should be limited to protect lower-income people, who otherwise might be hit particularly hard.

The center’s president and chief executive, John Podesta, who is an Obama adviser, said the administration should consider a tax on consumption, such as a value-added tax system similar to that in use in the European Union. Mr. Podesta suggested that its impact should be limited to protect lower-income people, who otherwise might be hit particularly hard.

“As progressives we need to debate the policy merits [of] a range of options, including designing a small and more progressive value-added tax,” Mr. Podesta said in a statement Tuesday.

The report, which will be released on Wednesday, said the administration can’t rely on taxing richer Americans and companies to reduce the deficit to sustainable levels by 2014 because those groups would see 40% tax increases.

Harnessing Your Creative Powers: Think Like a Genius

Questia
2009/10/04

According to author Michael Michalko, "Even if you're not a genius, you can use the same strategies as Aristotle and Einstein to harness the power of your creative mind and better manage your future."

Harnessing Your Creative Powers:
Think Like a Genius

According to author Michael Michalko, "Even if you're not a genius, you can use the same strategies as Aristotle and Einstein to harness the power of your creative mind and better manage your future."

In The Futurist article "Thinking like a Genius: Eight Strategies Used by the Supercreative, from Aristotle and Leonardo to Einstein and Edison," he explains that "geniuses think productively, not reproductively.

"When confronted with a problem, they ask 'How many different ways can I look at it?'... and 'How many different ways can I solve it?' instead of 'What have I been taught by someone else on how to solve this?' They tend to come up with many different responses, some of which are unconventional and possibly unique."

Michalko notes, "Geniuses prepare themselves for chance. Whenever we attempt to do something and fail, we end up doing something else. That is the first principle of creative accident. We may ask ourselves why we have failed to do what we intended, which is a reasonable question. But the creative accident provokes a different question: What have we done? Answering that question in a novel, unexpected way is the essential creative act. It is not luck, but creative insight of the highest order."

And "Geniuses produce. A distinguishing characteristic of genius is immense productivity. Thomas Edison held 1,093 patents, still the record. He guaranteed productivity by giving himself and his assistants idea quotas. His own personal quota was one minor invention every 10 days and a major invention every six months. Bach wrote a cantata every week, even when he was sick or exhausted... T.S. Eliot's numerous drafts of "The Waste Land" constitute a jumble of good and bad passages that eventually was turned into a masterpiece."

Check out more thinking strategies of creative geniuses, keeping in mind Michalko's advice that "Recognizing and applying (them) could help make you more creative in your work and personal life."

Non-residents Mauritius tax opportunities

Integritax (SAICA) revisited for Int'l Tax Planning LLM Course
2009/10/03

Non-residents 599. Mauritius tax opportunities August 1998 From a South African tax perspective, Mauritius has particular significance. Mauritius is in close proximity to Southern Africa, is a member of SADC and of Lomé, has strong ties with Africa and Asia and is a preferred location with the South African Reserve Bank.

In addition, it has a well-developed double taxation agreement (DTA) network - quite unusual for a country regarded by many as a tax haven.
The tax sparing article in the new South African-Mauritius DTA offers interesting planning opportunities for South African corporates. This article allows for a tax credit for Mauritian tax, at their standard rate of 35%, against the South African tax liability of a South African resident. What is interesting about this is that the actual rate of Mauritian tax paid is ignored for purposes of calculating the credit. Instead of a South African investor receiving a credit against its South African tax liability for Mauritian tax at the incentive rate of, say, 0,5%, he is given a credit at the normal tax rate in Mauritius, i.e. 35%. Without the tax sparing provision, the tax liability may simply be moved from the country of source to the country where the recipient resides. The tax sparing provision allows the recipient to retain the benefit of the incentive rate given to him in Mauritius. He is thus spared from paying a higher tax than the incentive tax rate, and it therefore remains an attractive option for him to invest in Mauritius.

An example illustrates the benefit. A South African company registers a branch as an offshore company (OC) in Mauritius. The effective rate of tax is 3%. It earns investment income from various sources. Assuming that such income is also taxable in South Africa (in terms of section 9C, for example, because the branch does not meet the requirements of being a "substantive business enterprise") the benefit of the Mauritian tax incentive would, in the absence of the tax sparing provisions, be lost. The tax sparing provisions in the SA-Mauritius treaty provides for a tax sparing credit equal to 35% of the Mauritian income which can be used to offset the SA tax liability in relation to such income.

The same would apply to any income liable to tax in terms of section 9D (being the anti-avoidance legislation taxing controlled foreign entities (CFE) and foreign trusts in certain circumstances).

It should he noted that an OC will no longer be able to select its own tax rate. Instead income will be taxed at an effective rate of 3%.

As an alternative to relying on the tax sparing provision, a South African company could incorporate a subsidiary as an OC in Mauritius to co-ordinate and manage its trading operations in African or Asian countries, which have DTAs with Mauritius. By extracting profits from the foreign trading companies into Mauritius by way of interest, royalties and management fees, the overall tax burden of the group may be substantially reduced. It is important that the Mauritius subsidiary has sufficient substance to fall outside the scope of the South African CFE legislation.

In the absence of a DTA between South Africa and the People’s Republic of China, only unilateral double taxation relief measures are available for transactions directly between these countries. By interposing Mauritius, which has DTAs with both South Africa and China, favourable withholding tax rates are available for extracting dividends, interest and royalties, while effective relief is given for Chinese capital gains tax. Similarly, Mauritius might be used effectively in international structures involving South Africa and India, even though South Africa itself has a treaty with India.

As with a number of other tax havens, Mauritius offers the more general benefits of no capital gains tax, no exchange controls and no VAT. It also has incentives for expatriates working in Mauritius. Unlike the more traditional tax havens, freeport facilities arc available to further enhance an international structure.


KPMG

IT Act:S 108

IT Act:S 9C

IT Act:S 9D

Non-residents tax-sparing clauses

Integritax (SAICA) revisited for Int'l Tax Planning LLM Course
2009/10/03

Non-residents 650. Tax-sparing clauses December 1998 Tax-sparing is a concept encountered in numerous double taxation treaties, nearly always when one party to the treaty is a "developed country" and the other a "developing" or "emerging" one. Sometimes, however, the signatories agree to reciprocal sparing concessions.


Tax-sparing usually applies to categories of income such as dividends, interest and royalties; in other words, what would be called "passive investment income" in South Africa. In some cases, however, it is applied to "active" income as well.

Most tax treaties provide that residents of one country will be taxed on passive income arising in the other country at a particular rate. This rate usually varies between about 10% for interest and 15% for dividends, with royalties falling somewhere in that range. When a tax-sparing agreement forms part of the treaty, it is invariably accompanied by tax concessions in the form of credits offered by the "developing" or "emerging" country. If a resident of the "developed" country earns passive income from a source in the other country, which then grants a tax credit in respect of that income, the "developed" country undertakes to impose tax on its subject as if the subject had actually been taxed in the emerging country. That is, the credit is allowed twice; once in the "developed" country and once in the "developing" country. The incentive for taxpayers in the "developed" country to invest in the other country is obvious.

For example, say, a taxpayer resident in D, the "developed" country, earns royalties from a source in E, the "emerging" country, a country with which it has a double taxation treaty which contains a tax-sparing clause. The gross royalties amount to 10 000, which in F attract tax of 2 000. At the same time E gives the taxpayer a tax credit of 2 000 as part of an incentive package to encourage investment. D, in calculating the tax payable by the taxpayer, will arrive at the total tax owing and then deduct 2 000 as a credit as if it had actually been paid to E. In so doing, D is clearly encouraging its subjects to invest in F.

There are variations on this theme. For example, Germany (which has several tax-sparing agreements), allows a credit against the foreign income at the German tax rate, even though the actual tax rate in the other country may be less. To illustrate this by example:

R
Domestic income 80 000
Gross foreign royalty income
foreign tax paid 2 000) 10 000
Taxable income 90 000
Tax at 45% (the German corporate rate)
40 500
Less tax-sparing credit at 45%
(instead of the actual 2 000)
4 500
Tax payable 36 000


Section 788(5) of the Income and Corporate Taxation Act in the UK specifically provides for tax-sparing agreements in tax treaties.

Tax-sparing provisions appear in only two of South Africa’s double taxation agreements. The agreement with Mauritius operates in favour of Mauritius, while that with Romania benefits residents of both countries. (There is a sparing clause in the agreement with Israel, but it only applies to the now defunct Undistributed Profits Tax.) Perhaps the scarcity of this concept has to do with our strange position of being partly developed, partly emerging and partly developing.

Incidentally, South Africa now has over 40 tax treaties, almost as many as the Netherlands, which has historically been the world leader in offshore tax planning. Perhaps our potential as a tax haven will finally be recognised soon.

Deneys Reitz

IT Act:S 108

Thursday, October 1, 2009

I truly enjoy your blog and the service you're providing to the tax industry.

I truly enjoy your blog and the service you're providing to the tax industry. I would like to return the favor and pass on a link to a free whitepaper discussing the convergence of tax and finance, which was recently published in The Tax Executive (the journal of the Tax Executives Institute).

http://vertexinc.web101.hubspot.com/convergence-blogs-paper/?utm_campaign=Convergence-White-Paper&utm_source=Daniel-Erasmus

This paper discusses the changes in tax reporting and its growing similarities to financial reporting, which is increasing the demands of tax technology solutions. Having worked on the development of this white paper, I have witnessed the response to starting this conversation and I am now working to spread the word.

I hope you find value in this whitepaper and share it with your readers. A free webcast is also in the works to continue the dialogue. It will take place on October 6th and discuss convergence technology trends like:
· Moving beyond departmental to enterprise-class tax solutions

· Reducing the operational complexity of tax management

· Building strong relationships with the CFO and CIO

· Developing tighter integration of financial and tax data

· Delivering optimal strategic value

Thanks again for putting out such great content on your blog!

Sincerely,

Rob Patey
Interactive Communications Leader
Vertex Inc.
Where Taxation Meets Innovation