Tag: Proposed

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Green card applicants are likely to face fee hikes under proposed changes : NPR

Green card applicants are likely to face fee hikes under proposed changes : NPR

U.S. Citizenship and Immigration Services relies nearly entirely on fees to operate.

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U.S. Citizenship and Immigration Services relies nearly entirely on fees to operate.

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After two decades of waiting, Patricia Ramirez of New Mexico was filled with joy when she finally became eligible for a green card a few months ago. To Ramirez, who came to the U.S. undocumented, becoming a lawful permanent resident would give her more security living in the U.S., allow her to visit her family in Mexico, and put her one step closer to becoming a U.S. citizen.

Now, the main obstacle getting in her way is the cost of applications. Ramirez, a house cleaner, has been saving for months to afford the $2,225 in fees for a green card and other forms. Under a new federal proposal, her paperwork may become even more expensive.

“It’s already been a very difficult process, difficult to get information, difficult to save money,” Ramirez told NPR. “I’m so worried and stressed about this and what sacrifices I’ll have to make to afford this.”

U.S. Citizenship and Immigration Services, the federal agency that oversees legal immigration, is planning to raise costs for an array of applications including ones required for citizenship naturalization, to obtain a green card, or to legally work in the U.S. as a noncitizen.

The increases vary, but many immigration attorneys are concerned that the fee hikes could place an undue burden on low-income immigrants — particularly those seeking lawful permanent residency, commonly known as a green card, which allows immigrants long-term stay in the U.S. It is also an important step to become eligible for citizenship.

Under the proposal, Ramirez’s applications will cost $1,500 more than before, according to legal representative Shalini Thomas, who represents Ramirez through the New Mexico Immigrant Law Center.

She added that Ramirez is not the only one who finds the immigration applications unaffordable.

“I’ve had plenty of clients come in and I say, ‘We believe you’re eligible, here is everything that you need, including the fees,’ and I just never hear from them again because I know they can’t save up,” she told NPR. “These changes do not make that better.”

The new costs have not been finalized. USCIS is currently holding a public comment period until March 6.

The federal agency says it needs the increased fees to deal with backlogs and a budget crunch

USCIS primarily relies on fees to operate — which proved to be an issue during the pandemic.

As fewer people applied for immigration benefits, the federal agency’s revenue plummeted, leading to widespread furloughs and a backlog in immigration cases.

Nearly a million adults became U.S. citizens this past year

To fully recover, the federal agency said it needs to raise application fees, adding that the proposed prices are expected to generate $1.9 billion more per year than current application costs.

“This is the amount necessary to match agency capacity with projected workloads, so that backlogs do not accumulate in the future,” USCIS wrote in its proposal released in early January.

The federal agency generally updates its fee schedule every few years, the last time being 2016. During the Trump administration, there was an attempt to raise costs dramatically, as well make it harder for poor immigrants to qualify for fee waivers, but federal judges eventually blocked those changes.

Karen Sullivan, the director of advocacy at Catholic Legal Immigration Network, Inc., said she wants to see USCIS fully funded, fully staffed and operating efficiently, but questions whether low-income immigrants should have to bear that responsibility.

“All of us should want migrant communities to have access to the benefits that they qualify for,” Sullivan told NPR. “So, I think that Congress should take notice, as far as appropriations go, in helping USCIS with additional funding.”

In fiscal year 2022, the federal agency did receive $275 million from Congress to reduce the current backlog. USCIS expects to continue needing congressional support to fully eliminate it.

The proposed fee changes are a means to allow USCIS to keep up with incoming inventories and avoid future backlogs, the agency said.

A family of four would pay up to $7,460 for green cards and work permits

Under the proposal, applying for a green card with biometrics, or biological measurements, will go up from $1,225 to $1,540. Biometrics — which include fingerprints, a photo and signature — are often required for green cards and other forms.

Although people are currently allowed to apply for a green card and work permit together, the proposed rule will unbundle the forms — which would, in turn, raise costs.

Applications to apply for citizenship may go up by $120; visas for religious workers may increase by $555; and petitions to remove conditions on residence with biometrics, which can allow spouses of green card holders to transition to lawful permanent residents, would increase by $515.

Those fees can especially add up for families filing together.

According to Kathy Klos, an attorney with the Immigrant Law Center of Minnesota, a family of four applying for green cards and two work permits would currently pay $3,950 in fees if filing on paper. That price would go up to $7,460 if they file on paper, and $7,270 if they file online.

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“From under $4,000 to almost $7,500 is ridiculous,” Klos told NPR.

The hefty price tag is only one of the hoops to jump through in order to gain legal status in the U.S. Forms can be complicated, processing times can be long and appointments for biometrics or interviews can be a serious inconvenience to students or working adults.

“For people who are born here and never had to deal with the immigration system, they don’t have a great understanding of how difficult it really is,” Klos said.

Fee waivers only help to some extent

USCIS does offer fee waivers to some low-income immigrants and fee exemptions for humanitarian reasons, such as for refugees, asylum-seekers and domestic violence victims.

Generally, households that make less than 150{c024931d10daf6b71b41321fa9ba9cd89123fb34a4039ac9f079a256e3c1e6e8} of the federal poverty line are eligible for discounted applications to a number of immigration benefits. That could include a single adult who makes less than $21,000 per year or a family of four that earns $45,000.

USCIS expects that more than a million applicants — about an eighth of the total — will benefit from fee exemptions or fee waivers each year. But some say the process to apply for one can be long and difficult.

“The fee waivers are not automatic, they add more time to your case,” Daniel Santiago, an attorney with Mabel Center for Immigrant Justice in Boston, told NPR. “And our clients are desperate to get the paperwork done.”

Under the proposed changes, some applications filed online will be cheaper than on paper. USCIS says online applications are easier and cheaper to process than paper ones. But some immigration attorneys find that unfair.

“To offer a discount if you’re filing online helps the most privileged of immigrants, but truly doesn’t help the most marginalized,” said Thomas of the New Mexico Immigrant Law Center.

Thomas said her client, Ramirez, is ineligible for a fee waiver because she is applying for a green card through a family member.

Ramirez has been waiting for an opportunity to become green card eligible for 22 years. Although she’s close to filing the paperwork, Ramirez has a sense that the process has just begun.

“It took me months to pay the current costs. If they go up, I might have to look for another job or get a loan,” she said. “Right now, my plan is to get my application done as soon as possible.”

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Labor’s proposed family law overhaul makes some important changes, but omits others

Labor’s proposed family law overhaul makes some important changes, but omits others

There is a lot to be energized about in Legal professional-Common Mark Dreyfus’s draft Relatives Law Amendment Bill 2023, the first in a projected series of reforms that promise to place children’s desires and interests back at the centre of family regulation.

But the proposed reforms cease quick of the radical alter that is needed.

To improve the tradition of the courtroom, little ones have to have lawful legal rights – not just a rubbery set of “best interests”. And the courtroom have to be dependable for making certain children’s rights are safeguarded.

A central dilemma is that the adversarial lifestyle of the court marginalises small children, and can profoundly silence them, including when young children categorical fears about their protection.

On the upside, the proposed laws will demand the Federal Circuit and Relatives Court docket, and Spouse and children Court docket of Western Australia, to additional sufficiently prioritise children’s basic safety problems than it has completed in the past.



Examine far more:
Reserve extract: ‘Broken’ — requiem for the spouse and children courtroom

Ending the presumption of ‘shared parental responsibility’

It abandons the presumption of “shared parental responsibility”, which has been broadly misunderstood to indicate shared treatment. This may perhaps be an achievable goal for family members that do not require to go to court docket to make safe and sound arrangements for their children’s care, but is unsuitable if not risky for households with the sophisticated demands and hazard components that come before the court docket. This contains domestic abuse and family members violence, youngster sexual abuse, drug and alcoholic beverages addiction, and really serious mental wellness problems.

In its place, the monthly bill proposes that the child should be at the centre of each and every lawful resolve.

Noticeably, the child’s views will be supplied larger prominence in the laws, alternatively than remaining dealt with as optional extras.

Impartial children’s lawyers – whose function is to make sure evidence relevant to the child’s “best interests” is place prior to the courtroom – will also find it more challenging to circumvent the prerequisite to in fact talk to the youngsters whose “best interests” they are meant to stand for.

The new laws will get rid of the onus on ‘shared parental responsibility’, which has normally been misconstrued as ‘equal’ parenting time.
Cassiano Psomas/Unsplash

Offering young children a voice

The fact that children’s security and views have not been the guiding concepts in family law for nearly two many years ought to be a issue of community shame.

In 2023, Australian small children have much less rights under the Loved ones Regulation Act than they did in 1975, when it was 1st enacted by the Whitlam authorities.

This devaluing of children’s rights has contributed to the courts’ failure to sufficiently recognise the autonomy of more mature small children. This contains the ideal of young persons to make age-suitable choices about their life, these types of as what subjects they will research, in which they will live, and who they will see.

In some instances, young people today have been subjected to unnecessarily traumatic and expensive litigation. One these kinds of example is a demo – the next of two last hearings – that sought to establish irrespective of whether a younger male a handful of months shy of 18 was permitted to settle for a hockey scholarship.

The hazards that show up at extremely adversarial relatives courtroom proceedings have been lifted in proof in successive inquests into baby deaths, this sort of as the murders of Jack and Jennifer Edwards by their father, the murders of Jane and Jessica Cuzens by their mother, and the murders of Darcey Freeman, Eeva Dorendahl, Jessica and Patrick Dalton, and Luke Batty, by their fathers.

Beneath courtroom orders, small children are routinely forced against their will into supervised (and unsupervised) contact arrangements with alleged perpetrators of domestic violence and baby sexual abuse – including cases in which abuse has been considered most likely, probable, or even proven.

The court docket really should not be exempt from obligations below the Countrywide Concepts for Baby Risk-free Organisations, an end result of the Royal Fee into Institutional Responses to Little one Sexual Abuse. It should really also be required to conform to Australia’s human legal rights obligations, as a signatory to the UN Conference on the Legal rights of the Little one.



Study additional:
Are you and your lover pondering of separating? Here is how to safeguard the kids’ mental health and fitness

The proposed variations

The draft Relatives Legislation Amendment Monthly bill offers outcome to essential tips in the Australian Legislation Reform Commission’s 2019 evaluation of the spouse and children regulation program. These changes had been shamefully stalled by the former Morrison federal government.

The proposed legislation will have to have loved ones report writers and Chapter 15 industry experts – who tender evidence and offer expert services to the court docket – to at lengthy last be regulated for criteria and top quality.

The court’s failure to adequately control these requirements has led to evident injustices, this sort of as the notorious case in which an accused paedophile was applied as a court docket pro to offer information on allegations of boy or girl sexual abuse.

Lawyer-General Mark Dreyfus’ draft monthly bill goes some way to providing youngsters much more say in choices that specifically have an effect on their lives, but it desires to go even further.
Lukas Coch/AAP

The bill can make some attempt to deal with litigation abuse, a greatly documented phenomenon in which a perpetrator seeks to weaponise the authorized process – at times launching various steps across a assortment of lawful jurisdictions – in buy to intimidate, harm, inflict money hurt, threaten and harass a victim. The courtroom will be presented more electrical power to toss out these cases than it has at present.

There are also adjustments developed to far better protect sensitive info, to safeguard towards conditions in which perpetrators use subpoenas to get obtain to a victim’s healthcare or therapeutic data in buy to inflict harm.

Lots of elements of the monthly bill seek out to explain current arrangements, this sort of as placing out the situation in which a parenting get can be improved.

This may perhaps have some impression on litigation abuse, but it is not likely to help victims who have agreed to unsafe children’s preparations out of dread, or a absence of monetary methods. It also does not support, for illustration, a self-represented litigant whose English-language competencies are not at the degree that a quickly-paced adversarial lawful motion demands.

A latest report commissioned from Australian Institute of Household Reports demonstrates that contraventions of courtroom orders typically manifest because young children and young folks are not specified age-appropriate opportunities to participate in choice-making that directly affects their life. The report also observed a major amount of young children topic to court orders are dwelling in unsafe arrangements.

Reining in all those who profit

One more obtrusive omission is the want to much more strongly regulate the actions of the personal legal profession, like obscene profiteering.

The monthly bill addresses some unintended repercussions of privacy provisions contained in the act. But it does not enable grown ups whose mother and father went to court docket when they were little ones to overtly talk about the approaches in which the court’s choices impacted their lives.

Privacy provision ought to not be utilised to conceal injustice or silence victims.

Small children do not out of the blue remodel from dependence to autonomy on reaching the age 18. It is by building age-appropriate selections about their life that young folks work out how to stay and – in the long run – what sort of citizen they would like to be.

In 1975, the Whitlam governing administration approved that a younger individual at 14 had a correct to actively make decisions about their life, except there have been compelling reasons for a court to intervene.

It is time to go back to the long run – and put children’s safety and rights at the centre of family law.

Camilla Nelson is co-writer of Damaged: Small children, Mothers and fathers and Relatives Courts, Black Inc/La Trobe University Press.

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Mortgage Recording Tax on Mezzanine Debt, Preferred Equity Again Proposed in N.Y. Senate | Insights

Mortgage Recording Tax on Mezzanine Debt, Preferred Equity Again Proposed in N.Y. Senate | Insights

Laws to impose a tax on the creation of mezzanine financial debt and favored equity was reintroduced on Jan. 4, 2023, in the last two periods of the New York state legislature, by the very same state senators who proposed it previously. The only change is the invoice number, which is now S-318 as an alternative of S-7231. Amid actions, the Mezzanine Financial debt Monthly bill:

  • would impose the home loan recording tax on mezzanine financial debt and favored fairness investments, as well as involve that the mezzanine loan company or most well-liked fairness holder file a Uniform Commercial Code financing assertion (UCC-1) to best its safety curiosity in its collateral (i.e., the membership pursuits or shares of the borrower)
  • helps prevent a secured party from imposing a protection curiosity except if the funding statement is submitted with the condition and the county in which the residence is positioned and the home finance loan recording tax has been paid
  • targets serious estate transactions, whilst there is a pretty real probability that it could be interpreted to consist of any financing transaction that even indirectly entails real estate, which could include things like company transactions in which the target enterprise or its subsidiaries include genuine estate used in its operations

Described Conditions

The invoice amends Section 291-k of New York’s Real Home Regulation to outline “mezzanine financial debt” and “desired fairness investments” as:

“debt carried by a borrower that may possibly be subordinate to the major lien and is senior to the common shares of an entity or the borrower’s fairness and documented as assets for the reasons of funding such key lien. This shall involve non-conventional financing methods these types of as a direct or indirect expense by a funding resource in an entity that owns the [equity] passions of the fundamental house loan in which the financing supply has special legal rights or chosen rights this kind of as: (i) the correct to receive a distinctive or desired rate of return on its cash investment and (ii) the right to an accelerated reimbursement of the trader[‘]s money contribution.”

The reference to “non-traditional financing strategies” need to be considered as troubling simply because it is open up-ended and could enable practically any romantic relationship to become matter to the property finance loan recording tax.

The Mezzanine Debt Invoice also modifies Segment 250 of the New York State Tax Regulation and Area 9-601 of New York’s UCC to specify that “each time a house loan instrument is recorded in the office of the recording officer of any county, any mezzanine personal debt or favored equity expense related to the real home upon which the house loan instrument is filed shall also be recorded with this kind of mortgage loan instrument.” The Mezzanine Debt Bill also delivers that “mezzanine financial debt and preferred equity investments” are taxable, and that the tax will be measured by the quantity of “principal debtor obligations” that could be secured by a protection settlement “in relation to serious property on which a mortgage instrument is filed.” A consequence of the recording need is that counties and towns could also impose a tax on the recording of the financing assertion, which would make the efficient tax fee equal to the mortgage loan recording tax amount, which is 2.85 percent of the “debt” secured for industrial authentic assets located in New York Metropolis and having a value of more than $500,000.

The Mezzanine Credit card debt Bill also amends Segment 9-601 of the UCC to present a new prerequisite that recording of a funding assertion in the pertinent county records is required to ideal “a safety fascination in mezzanine debt and/or a most well-liked fairness investments.” This is especially troubling because Section 291-k of the Authentic House Legislation would supply that:

“No treatment or else accessible to a secured party less than report 9 of the uniform commercial code shall be readily available to enforce a security settlement pertaining to mezzanine credit card debt funding and/or desired equity investments in relation to true house on which a house loan instrument is submitted that is evidenced by a funding statement, except if that funding statement is filed and the tax imposed pursuant to the authority of subdivision 4 of area two hundred fifty-a few of the tax law, has been paid.”

Unintended Penalties

Whilst the Mezzanine Personal debt Bill targets serious estate transactions, there is a pretty actual risk that it could be interpreted to include things like any financing transaction that even indirectly includes genuine estate, which could consist of company transactions in which the focus on business or its subsidiaries consist of actual estate utilized in its operations. There is also the trouble of multistate transactions that either involve events that individual serious estate in New York or in other places, which also raises issues as to which state’s regulations would govern real estate in New York in a transaction obtaining a nexus with a different condition. In reviewing the Mezzanine Personal debt Monthly bill, it is apparent that, if enacted, it will make New York additional high-priced and is likely to make mezzanine personal debt and preferred equity significantly less accessible than in the other 49 states.

The Sponsor’s Justification demonstrates that the bill’s writer does not completely understand the roles mezzanine personal debt and favored fairness participate in in authentic estate finance and treats mezzanine credit card debt and preferred fairness as one more variety of mortgage financing, which is the opposite of the purpose that they play. It is the availability of mezzanine financial debt and chosen equity to make assets extra financeable by expanding the fairness part of the personal debt stack and has become a prerequisite for considerably home loan funding, especially construction funding, which generally carries a great deal of danger. Dealing with mezzanine financial debt and chosen fairness as a home finance loan could adversely affect its use as supplemental equity enabling the borrower to be capable to get hold of mortgager funding.

The sponsor also argues that there is a thing unfair mainly because homebuyers are not able to attain mezzanine funding, despite the fact that the legislature and the state’s banking regulators and Dobbs-Frank Act would in no way let homebuyers to give the fairness in their residences to a third get together, nor would the legislature permit a third occasion to make decisions concerning the assets, which would be vital for the financial institution to protect its collateral. In addition, thinking about the complexity concerned in foreclosing a mortgage loan in New York, the legislature would in no way allow a UCC auction to terminate the homeowner’s legal rights to their property devoid of a long time of litigation, which would defeat the incredibly purpose of mezzanine debt and preferred equity financing.

Summary and Concerns

If enacted, it is predicted that this laws would end result in fewer offered funding for design and other dangerous funding, which would make another rationale for builders, traders and lenders to go their business to Florida, Texas or other low-tax, reduced-regulatory states. Though it might be aimed in portion at elevating income, the bill also results in a disincentive for financing in New York and could consequence in New York Town and the condition actually getting less earnings, mainly because the mezzanine and most popular fairness funding resources would abide by the mortgage loan financing to one more, additional hospitable point out.

For much more facts, speak to the writer.

Facts contained in this warn is for the typical education and knowledge of our readers. It is not created to be, and should really not be utilized as, the sole source of facts when examining and resolving a authorized issue, and it ought to not be substituted for authorized guidance, which relies on a distinct factual examination. What’s more, the rules of every single jurisdiction are distinctive and are constantly changing. This information and facts is not meant to make, and receipt of it does not constitute, an lawyer-client relationship. If you have specific concerns regarding a unique simple fact scenario, we urge you to check with the authors of this publication, your Holland & Knight consultant or other skilled legal counsel.

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Queensland given first glimpse of proposed new Property Law regime

Queensland given first glimpse of proposed new Property Law regime

Queenslanders have now been given their very first glimpse of Queensland’s proposed new home regulation routine with the new release of the community exposure draft of the Residence Regulation Invoice 2022.

If passed, the Invoice will repeal and replace the just about 50-yr-aged Assets Legislation Act 1974 (Qld) with a new residence law regime supposed to modernise assets law in Queensland. In unique, the Invoice aims to repeal outdated clauses in its predecessor and involve more modern language and provisions which improved reflect recent industrial techniques.

The Bill is primarily based upon 232 recommendations by the Queensland University of Know-how subsequent its assessment of the Home Legislation Act at the request of the State’s Lawyer-Normal in 2013. The Invoice is in its extremely early session phases, with the Federal government owning just done the procedure of getting submissions from the public and stakeholders to tell its closing plan positions on the Invoice.

As the Invoice will work as a total replacement of the Property Regulation Act, it involves a large array of small and big proposed adjustments to the current regime, 3 of the noteworthy adjustments proposed are:

Limitation Periods for deeds: The time limitation for an motion based mostly on a deed will be lowered from 12 several years to 6 decades.

We say: At this time, the time limitation for an motion dependent on a contract is 6 decades and based mostly on a deed is 12 many years. The United Kingdom has earlier thought of shortening the limitation period of time for deed (but has not but) and New Zealand lessened it to 6 decades in 2010. Other jurisdictions in Australia have at present retained 12-15 12 months limitation durations. There are many other explanations to use a deed as an alternative of an settlement (or vice versa), but shortening the limitation period of time will take absent a person of the major distinctions among the two and one particular of the key rewards in using a deed as opposed to an agreement.

It appears from the session draft of the Bill that the new limitation time period is meant to only use to new deeds, and is not proposed to have an impact on the limitation intervals below present deeds or versions of them.

The remaining Monthly bill will may possibly in the end glance pretty unique to the latest draft, even so the exposure draft has presented an interesting glimpse of the means in which Queensland’s assets regulation regime is most likely to modify. The home marketplace will continue to keep an eye on the Bill quite carefully as it progresses to its final variety and we will proceed to present updates about any key modifications.

Lease Assignments: It is proposed that a tenant and any guarantor of the tenant’s obligations will be released from legal responsibility below the lease subsequent an assignment by the tenant, and a subsequent assignment to a third tenant. The launch relates to any breach by the subsequent (ie. third) tenant.

We say: The proposed provision are not able to be excluded by agreement. Landlords considering a request from a tenant for the assignment of the lease to a new tenant will need to assure they are happy with the strength of the covenant kind the new tenant and any safety offered.

Seller Disclosure Statements: The Authorities intends to also contain a new statutory disclosure routine for sellers. The proposed regime was the topic of a different, before, general public consultation.

We say: Sellers of land would be required to disclose approved information and facts about the house to a possible Buyer (this sort of as fundamental searches and crucial facts), together with by issuing a Disclosure Statement and applicable Certificates. This is widespread in other States, but a broad disclosure obligation has not been imposed in Queensland for transactions other than “off-the-plan” or group title scheme revenue.

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Proposed U.S. Foreign Tax Credit Rules Provide Relief for Certain Taxpayers and Ideas for Others

Proposed U.S. Foreign Tax Credit Rules Provide Relief for Certain Taxpayers and Ideas for Others

December 1, 2022

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The U.S. Treasury Department recently issued proposed regulations[1] to address certain concerns raised by taxpayers and other stakeholders in response to final foreign tax credit regulations published in January 2022[2].  Although the proposed regulations do not grapple with some of the more fundamental problems previously identified by commentators, they do offer taxpayers relief in certain narrow circumstances.  In general, the proposed regulations are proposed to apply to tax years ending on or after November 18, 2022 (i.e., starting immediately in 2022 for calendar-year taxpayers).  Once the proposed regulations are finalized, taxpayers may choose to apply “some or all of the final regulations to earlier taxable years, subject to certain conditions” described in detail in the notice of proposed rulemaking.  Until the effective date of final regulations, taxpayers may rely on the proposed regulations.  If a taxpayer chooses to rely on a portion of the proposed regulations, taxpayers must consistently follow all proposed rules for that portion of the regulations for all years until final regulations are effective.[3]

Royalties

One of the primary areas of concern for taxpayers after the publication of the January 2022 final foreign tax credit regulations was the introduction of a source-based attribution requirement (described in earlier iterations of the regulations as the “jurisdictional nexus” requirement) that compares foreign laws governing the source of income with United States income tax laws to determine if a foreign tax should be creditable in the United States.  Under the source-based attribution requirement in Treas. Reg. § 1.901-2(b)(5)(i)(B), a foreign tax imposed on a nonresident’s income meets the attribution requirement only if the foreign tax law’s sourcing rules are reasonably similar to the United States sourcing rules.

In the case of gross income arising from royalties, the foreign tax law must impose tax on the royalties consistent with the manner in which the Internal Revenue Code (the “Code”) sources royalty income:  i.e., based on the place of use or the right to use the licensed intangible property.[4]  In this regard, the United States’ place-of-use rule for sourcing royalties is far from representative of a global consensus.  Other jurisdictions source royalties in a manner that does not fall neatly into that category, such as the United Kingdom, where a multi-factor approach is used to source royalties.  As a result, in those countries where withholding taxes on royalties are imposed on the basis of some other approach, royalty withholding taxes would not be creditable against the recipient’s U.S. tax liability even if the licensed intangible property is in fact used within the territory of the taxing jurisdiction.[5]

Complicating this inquiry is the lack of certainty that often arises when determining the location where intangible property is used.  Although it may be easy to identify where certain manufacturing-related intangibles are used (e.g., at a multinational enterprise’s manufacturing facility), it is more difficult in other situations, such as where employees in one jurisdiction use intangibles to generate sales through social media to customers residing in another jurisdiction.

The proposed regulations provide a limited exception to the source-based attribution requirement of the January 2022 regulations for situations in which the taxpayer can show that a withholding tax is imposed on royalties received in exchange for the right to use intangible property pursuant to a single-country license within the territory of the taxing jurisdiction.  For this purpose, a payment is made pursuant to a single-country license if the terms of the license agreement under which the payment is made characterize the payment as a royalty and limit the territory of the license to the country imposing the withholding tax.  Therefore, U.S. taxpayers may need to revise existing license agreements to qualify for the single-country license exception.

Cost Recovery Requirement

The proposed regulations also provide further insight into the net gain requirements that foreign income taxes must meet to give rise to U.S. foreign tax credits.  The final regulations require generally that significant items of expense—including capital expenditures, interest, rents, royalties, wages and research and experimentation—must be recovered against income, but the proposed regulations permit a foreign tax to disallow significant costs and expenses if the disallowance is consistent with any principle underlying disallowances required under the Code.

For taxpayers determining whether a disallowance is consistent with Code-based principles, the proposed regulations provide helpful guidance.  Treas. Reg. § 1.901-2(b)(4)(iv)(J), Example 10, makes clear that taxpayers would be permitted to claim foreign tax credits in respect of taxes paid to foreign taxing jurisdictions that do not allow any deductions for stock based compensation because the Code “contain[s] targeted disallowances or limits on the deductibility of certain items of compensation in particular circumstances based on non-tax public policy reasons, including to influence the amount or use of a certain type of compensation in the labor market,” citing sections 162(m) and 280G.  Without the inclusion of Example 10 in the proposed regulations, it would not otherwise have been obvious that a complete disallowance of deductions for stock-based compensation would be considered to be consistent with (or resemble) the limitations in sections 162(m) and 280G.

For taxpayers analyzing whether any other type of disallowance under foreign tax law resembles a Code-based disallowance, the example and its principles should provide helpful authority in determining whether the net gain requirement is satisfied.

Summary

While the recently released proposed regulations do not address many substantive issues raised by taxpayers and other stakeholders in response to the January 2022 regulations, they do represent an effort to answer narrower problems identified by taxpayers, and they are designed in a way that allows taxpayers the opportunity to make broad arguments in other areas by analogy to these narrow rules.  Given the relief provided in response to high profile comments from the technology and other sectors on royalty withholding issues in particular, interested parties with other specific issues should consider communicating those issues to the Treasury Department and the IRS with proposals for relief or clarification.

Please contact any Gibson Dunn tax lawyer for updates on this issue.

__________________________

[1] 87 Fed. Reg. 71,271, 71,275 (Nov. 22, 2022).

[2] T.D. 9959, 87 Fed. Reg. 276 (Jan. 4, 2022).

[3] Until the effective date of final regulations, taxpayers may rely on the proposed regulations. If a taxpayer chooses to rely on a portion of the proposed regulations, taxpayers must consistently follow all proposed rules for that portion of the regulations for all years until final regulations are effective.  87 Fed. Reg. 71,271, 71,277 (Nov. 22, 2022).

[4] Sections 861(a)(4) and 862(a)(4) of the Code.

[5] Foreign tax on royalties can often be eliminated altogether under United States income tax treaties that eliminate royalty withholding tax, in which case there is no need to claim a foreign tax credit.  But foreign taxes on royalties are a significant focus of many U.S. taxpayers, as other U.S. treaties only reduce the royalty withholding tax, and many substantial U.S. trading partners, including Brazil, Singapore, and Hong Kong, do not enjoy tax treaties with the United States.  We also note that in determining the availability of a deemed paid credit to a U.S. shareholder of a CFC, the IRS and Treasury have taken the position in the January 2022 regulations that a U.S. taxpayer may not rely on a U.S. treaty provision that a country’s royalty withholding tax is creditable in a context where withholding taxes are imposed on royalties paid by one CFC to another CFC.

This alert was prepared by Jeffrey M. Trinklein, Anne Devereaux, John F. Craig III, Michael A. Benison, Eric Sloan, Sandy Bhogal, Jérôme Delaurière, and Hans Martin Schmid.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Tax and Global Tax Controversy and Litigation practice groups:

Tax Group:
Dora Arash – Los Angeles (+1 213-229-7134, [email protected])
Sandy Bhogal – Co-Chair, London (+44 (0) 20 7071 4266, [email protected])
Michael Q. Cannon – Dallas (+1 214-698-3232, [email protected])
Jérôme Delaurière – Paris (+33 (0) 1 56 43 13 00, [email protected])
Michael J. Desmond – Los Angeles/Washington, D.C. (+1 213-229-7531, [email protected])
Anne Devereaux* – Los Angeles (+1 213-229-7616, [email protected])
Matt Donnelly – Washington, D.C. (+1 202-887-3567, [email protected])
Pamela Lawrence Endreny – New York (+1 212-351-2474, [email protected])
Benjamin Fryer – London (+44 (0) 20 7071 4232, [email protected])
Brian R. Hamano – Los Angeles (+1 310-551-8805, [email protected])
Kathryn A. Kelly – New York (+1 212-351-3876, [email protected])
Brian W. Kniesly – New York (+1 212-351-2379, [email protected])
Loren Lembo – New York (+1 212-351-3986, [email protected])
Jennifer Sabin – New York (+1 212-351-5208, [email protected])
Hans Martin Schmid – Munich (+49 89 189 33 110, [email protected])
Eric B. Sloan – Co-Chair, New York (+1 212-351-2340, [email protected])
Jeffrey M. Trinklein – London/New York (+44 (0) 20 7071 4224 /+1 212-351-2344), [email protected])
John-Paul Vojtisek – New York (+1 212-351-2320, [email protected])
Edward S. Wei – New York (+1 212-351-3925, [email protected])
Lorna Wilson – Los Angeles (+1 213-229-7547, [email protected])
Daniel A. Zygielbaum – Washington, D.C. (+1 202-887-3768, [email protected])

Global Tax Controversy and Litigation Group:
Michael J. Desmond – Co-Chair, Los Angeles/Washington, D.C. (+1 213-229-7531, [email protected])
Saul Mezei – Washington, D.C. (+1 202-955-8693, [email protected])
Sanford W. Stark – Co-Chair, Washington, D.C. (+1 202-887-3650, [email protected])
C. Terrell Ussing – Washington, D.C. (+1 202-887-3612, [email protected])

*Anne Devereaux is an of counsel working in the firm’s Los Angeles office who is admitted only in Washington, D.C.

© 2022 Gibson, Dunn & Crutcher LLP

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