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United States

Tax Planning &


Compliance
AN OVERVIEW OF UNITED STATES CROSS-BORDER TAX
AND IMPLICATIONS IN THE PHILIPPINES SETTING
About Us
Countries outside the U.S. where more than 100,000 Americans reside

• Manrkē is a global professional services firm • Australia • Israel & The West Bank
specializing in US cross-border tax. We work • Canada • Italy
closely with businesses and individuals • Dominican Republic • Mexico
• France • Philippines
providing valuable tax compliance and
• Germany • Spain
consulting expertise, business advisory on • Greece • United Kingdom
industry leading practices, tax
accounting/preparation and global employer
services.
• In the Philippines, we anchor our relationship
in providing US tax compliance with the
intricacies of cross-border US tax requirements.
Our target market include the 220,000 US
citizens and US permanent residents domiciled
in the country and Philippine businesses
transacting with US entities that trigger US tax
compliance requirements.
United States Tax

• The USA is one of a handful of


countries that requires their
citizens to file and report on
their worldwide income.
• This requires careful planning
and strict compliance with the
US Tax code.
Discussion Topics
A. The Filipino-American: Requirements for U.S. taxes, “U.S. Person,” “Accidental
American”
B. An American employee in a Filipino company
C. U.S. Person in the Philippines: Forms and Due Dates
D. Foreign Financial Holdings: FATCA, FBAR, FinCEN
E. Avoiding Penalties, Interests and IRS Investigations
F. Manrkē Professional Services
G. Open Forum & Networking
A The Filipino-American: Requirements for U.S. taxes,
“U.S. Person,” “Accidental American”
B

C • If you are a U.S. citizen or resident


alien, your worldwide income
generally is subject to U.S. income tax,
D regardless of where you are living.
Also, you are subject to the same
income tax filing requirements that
E apply to U.S. citizens or resident aliens
living in the United States.

G
A
Who is considered a “U.S. Person?”
United States Persons Foreign Persons
B
• A citizen or resident of the United States • Nonresident alien individual
• Substantial presence test • Foreign corporation
• A domestic partnership • Foreign partnership
C
• A domestic corporation • Foreign trust
• Any estate other than a foreign estate • A foreign estate
D • Any trust if: • Any other person that is not a
• A court within the United States is able to U.S. person
exercise primary supervision over the
E administration of the trust, and
• One or more United States persons have the
authority to control all substantial decisions of
F the trust
• Any other person that is not a foreign person.
G
A The Accidental American

B
• Citizen of a foreign country who
may also be considered a US citizen
C • Birth in a foreign country to one US
citizen parent
• Born to both US citizen parents
D
residing in a foreign country
• What are the implications?
E • US Passport requirement
• FATCA

G
A An American “employee” in a Filipino company
• Are there implications and potential reporting
B requirements of Philippine companies for “employing”
Americans?
• Wages paid to a U.S. citizen or resident alien for
C services performed outside the United States for a
foreign employer are subject to U.S. federal income
tax. However, such wages are not subject to the U.S.
D federal income tax withholding to the extent that such
wages are already subject to the income tax What precautions and actions should
withholding of a foreign country. Philippine companies do?
E • Form 5471 & 5472 – Information return of U.S.
Persons with respect to certain foreign corporations:
F Requires the disclosure by certain U.S. citizens and
residents who are officers, directors, or shareholders in
certain foreign corporations.
G
A U.S. Person in the Philippines: What are the Filing
Requirements?
B

Forms Due Dates


C
• 1040 • April 15

D • FinCEN 114 • June 15 (automatic 2-month extension)

• 5471 • October 15 (application for extension)


E
• 3520
F

G
“Record Number of Americans
dump U.S. Passports"

– CNN Money February 8th, 2016


A Foreign Financial Holdings: FATCA, FBAR, FinCEN
• FATCA = Foreign Account Tax Compliance Act
B • The Foreign Account Tax Compliance Act (FATCA), which
was passed as part of the HIRE Act, generally requires that
foreign financial Institutions and certain other non-financial
C foreign entities report on the foreign assets held by their
U.S. account holders or be subject to withholding on
withholdable payments. The HIRE Act also contained
D
legislation requiring U.S. persons to report, depending on
the value, their foreign financial accounts and foreign
assets.
E

• Form 8938, Statement of Specified Foreign Financial Assets


F • Maximum value of specified foreign financial assets, which
include financial accounts with foreign financial institutions
and certain other foreign non-account investment assets
G
A Foreign Financial Holdings: FATCA, FBAR, FinCEN
• FBAR = Foreign Bank Account Reporting
B
• FinCEN = Financial Crimes Enforcement Network
• FBAR refers to Form 114, Report of Foreign Bank and
C
Financial Accounts, that must be filed with the Financial
Crimes Enforcement Network (FinCEN), which is a bureau
D of the Treasury Department. The form must be filed
electronically and is only available online through the BSA
E-FilingSystem website .
E

G
Foreign Financial Holdings: FATCA, FBAR, FinCEN

• How does FATCA affect Americans in the Philippines?

• What was the motivation behind implementing FATCA?

• Banks, Insurance Companies, Brokerage Firms and other financial institutions will require
that the accountholder confirm under penalties of perjury:
• W-9 – Request for Taxpayer Identification Number and Certification for US persons
• W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding and Reporting (Individuals) for non-US persons
• W-8BEN-E - Certificate of Status of Beneficial Owner for United States Tax
Withholding and Reporting (Entities) for non-US entities
Avoiding Penalties, Interests and IRS Investigations
A
• What are some key things to do while living abroad in order to help avoid penalties, interests
and IRS investigations?
B
• Can the IRS really assert power to assert penalties?
• They will apply these penalties, even if you’re abroad [Edward S. Flume v. Com’r
C TCM 2017-21].
• House Resolution 22 – FAST Act: Revocation or denial of passport in case of certain
unpaid taxes
D
• What are some typical penalties?
• FinCen 114 Foreign Bank Account Report up to $10,000 per account
E
• 8938 Specified Foreign Financial Assets $10,000
• 3520 Foreign Trust 35% of property transferred or received
F • 5471 Foreign corporation $10,000
• 8865 Foreign partnership $10,000
• 8858 Foreign disregarded entity $10,000
G
Avoiding Penalties, Interests and IRS Investigations
• U.S. Department of State

• New Section 7345 completely modifies how U.S. citizens living and traveling around the
world have to now consider very seriously actions taken by the Internal Revenue Service. It
is the IRS which now holds the power under this new law that requires the U.S. Department
of State to revoke or deny to issue a U.S. passport in the first place.

• New Section 7345(e) provides in relevant part as follows: “upon receiving a


certification described in section 7345 of the Internal Revenue Code of 1986 from the
Secretary of the Treasury, the Secretary of State shall not issue a passport to any
individual who has a seriously delinquent tax debt described in such section. . . ”
[emphasis added].

• This new law mandates (not at the discretion of the DOS) that various U.S. passports be
denied at the direction of the IRS. Once the IRS issues the certification of “seriously
delinquent tax debt.”
Avoiding Penalties, Interests and IRS Investigations
A

• Edward S. Flume
B • Franchise Food Services de Mexico S.A. de C.V.
(FFM)
• FFM was incorporated in Mexico in 1995 to
C operate two fast food franchises that petitioner
owned.
• Petitioner timely filed his Forms 1040, U.S.
D Individual Income Tax Return, for the years in issue
but did not attach Forms 5471 to any of his
originally filed returns.
E • Petitioner was assessed a penalty of $20,000 for
2001, two penalties of $10,000 each for 2002,
and penalties of $10,000 for each year from
F
taxable year 2003 through 2009.

G
Avoiding Penalties, Interests and IRS Investigations
A

• Manny Pacquiao
• Pacquiao claims he paid his income taxes for 2008
B
and 2009 in the United States, and that a two-
country treaty protects his money from being taxed
C twice.
• The dispute is all about his boxing earnings in the
U.S. Proving how much Pacquiao paid the IRS would
D help reduce his Philippine bill, but the IRS slapped on
a Federal Tax Lien for $18.3 million in allegedly
unpaid taxes for 2006 through 2010.
E • Foreign athletes must file U.S. income tax returns and
face special withholding rules so they don’t just
pocket the money and run. They generally must pay
F
U.S. income tax on their U.S.-source income.

G
Unreported Accounts, Options to Remedy Delinquent
A
Returns or Incorrect Filings
• IRS Offshore Voluntary Disclosure Program (ended Sept 28, 2018)
B • 8 years back tax returns
• 8 years FBAR
• Volumes of supporting documents
• Streamlined Procedures (still available)
C
• 3 years of back tax returns
• 6 years FBAR
• When accepted into the procedure, no late penalties or 5% penalty
D • IRS FAQ
• Does the closing of the 2014 OVDP signal a change in IRS priorities towards offshore tax
noncompliance?
E • No. Stopping offshore tax noncompliance and evasion remain top priorities of the IRS. The IRS
enforces offshore compliance with tax and FBAR requirements using information received under
the Foreign Account Tax Compliance Act (FATCA), the network of intergovernmental agreements
F between the U.S. and partner jurisdictions, automatic third-party account reporting, and other
data-rich sources such as the Department of Justice’s Swiss Bank Program and various John Doe
Summonses. The IRS leverages information resources using enhanced data analytics to continue
G
to make it more difficult to evade tax by hiding offshore.
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Open Forum
• Questions