Tax technical updates: PwC's Law Firm Services News Alerts

Please read below for highlights on new legislation, discussions of relevant tax cases, analysis of revenue rulings and procedures, and insight as to how these developments may impact your firm and/or its partners.

September 2014
South Korea is expected to extend for an additional 2 years the 18.7% flat rate of income tax currently available to foreign expatriate workers
Foreigners working in Korea can generally elect to have their employment income taxed at a flat rate of 18.7% (including resident surtax) rather than the normal progressive income tax rates of between 6.6% to 41.8% (including resident surtax). The 18.7% rate is currently subject to a sunset clause and expires on December 31, 2014.

August 2014
Changes to New York’s Metropolitan Commuter Transportation Mobility Tax will affect US Law Firms and their Partners Subject to this Tax
A recent change by New York State to the Metropolitan Commuter Transportation Mobility Tax (“MCTMT”) will affect US law firms and their partners in several respects: the due dates for making estimated payments and the annual filing have changed for some taxpayers, as well as the method of filing this tax by effectively combining the MCTMT with the personal income tax filing; New York residents must pay their own MCTMT and may no longer be a member of the MCTMT group return; NY nonresidents must either file their own MCTMT return or join the New York Group Returns for Nonresident Partners (Form IT-203-GR) and report both personal income and MCTMT on this group return, as it appears that nonresident partners will no longer be able to make differing group elections for personal income tax versus MCTMT purposes; and, the law firm partnership must withhold on each nonresident partner that is not participating in the New York Group Returns for Nonresident Partners (Form-IT-203-GR), unless the partner meets one of the exceptions.

Mexico’s Tax Authorities Announce Rules for Entities’ Standard Electronic Accounting
On July 4, the Mexico tax authorities published the Second Resolution of Modifications to the Miscellaneous Tax Resolution (“MTR”) for 2014 in the Official Gazette, which includes rules concerning compliance and delivery of electronic accounting records via electronic media.
The tax authorities specify deadlines for the delivery of trial balances and the catalog of accounts using the XML file format. The authorities may also request information on accounting vouchers issued.

June 2014
IRS issues instructions for Form W-8BEN-E enabling foreign entities to comply with FATCA
On June 25, 2014, the Internal Revenue Service (IRS) released the instructions for Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities). Form W-8BEN-E, which was issued without instructions in March 2014 (with a February 2014 revision date), is used by non-US entities to document their status as a payee under Chapter 4 and as a beneficial owner under Chapter 3 of the Internal Revenue Code (Code). In addition, Form W-8BEN-E is used by non-US entities to document their entitlement to a reduced rate of withholding pursuant to an income tax treaty. An entity that does not document its Chapter 4 status (commonly referred to as its FATCA status) may be treated as a recalcitrant account holder or nonparticipating foreign financial institution, and subject to a 30% withholding when receiving certain withholdable payments.

May 2014
Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts (FinCEN Form 114)
Effective July 1, 2013, all filers must file Foreign Bank and Financial Account Reports (“FBARs”) electronically using the BSA E-Filing System maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). FBAR Form 90-22.1 has been discontinued and is replaced by FinCEN Form 114.

April 2014
Deadlines loom for San Francisco's new Gross Receipts tax
San Francisco voters in 2012 approved significant changes to the San Francisco business tax regime. The first tax filings affected by these changes will be the installment payments due April 30, 2014 and the registration/fees due May 31, 2014.

March 2014
French tax audit new obligations for French law practices
The 2012 Amended Finance Bill provides that the presentation of computerized and other non-paper based accounting records in computerized format for the purposes of a tax audit becomes compulsory.

December 2013
UK Releases Draft Legislation Addressing whether a UK LLP Partner is an Employee or Self Employed for UK Tax Purposes
Draft legislation was issued on December 10, 2013 concerning the tests which are to apply from April 6, 2014 to determine whether a member of a UK LLP should be regarded as employed or self-employed for UK tax purposes. If a member of a UK LLP meets three criteria set out in the legislation they will be regarded as an employee for UK tax purposes and potentially subject to payroll taxes and employers National Insurance at 13.8%.

UK Position on Short Term Business Visitors (STBVs)
HMRC’s approach to STBV arrangements has changed. It used to be the case that -- providing a double taxation treaty applied to protect an employee from income tax in the UK (and employers had appropriate systems in place to identify who qualified under the treaty) – no PAYE (Pay-As-You-Earn tax) penalties would be applied by the HMRC even if PAYE was not accounted for under the circumstances mentioned above.

November 2013
Belgium VAT Exemption for Legal Services Ends January 1, 2014
The Belgian VAT exemption that is currently enjoyed by lawyers providing services in Belgium will end effective January 1, 2014. As a result, VAT must be applied to all fees and costs charged for lawyer services rendered as of January 1, 2014. To do so, all Belgian based law firms and all individual lawyers will need to register for VAT before year-end and set up an appropriate VAT accounting from 2014 and onwards.

October 2013
Update on China's VAT - State Administration on Taxation Issues Long-Awaited Guidance on VAT Exemption for Export Services
China's State Administration of Taxation ("SAT") has released SAT Notice [2013] No. 52 ("Notice 52") which provides implementation guidance on the VAT exemption for export services.

September 2013
New rules proposed in South Korea for applying the flat income tax rate to foreign workers
Foreigners working in Korea can elect to have their employment income taxed at the flat tax rate of 18.7% (including resident surtax) rather than the normal progressive income tax rates. The 18.7% rate is currently available for all foreign expatriates and employees until at least December 31, 2014.

Illinois – Composite returns eliminated, non-resident withholding required, alternative apportionment updated
On August 16, 2013, Illinois Governor Pat Quinn signed H.B. 3157, which will eliminate composite returns effective for tax years ending on or after December 31, 2014. While the new legislation also requires partnerships, S-corporations, and trusts to withhold tax on "nonbusiness income" distributable to their respective non-resident partners, shareholders, and beneficiaries, this provision is not expected to apply to compensation paid by, or distributions from law firms.

August 2013
Recent Changes in Pennsylvania's Tax Code May Affect Some Law Firms
A number of changes introduced recently by Governor Tom Corbett (H.B. 465) to Pennsylvania's tax code may affect U.S. law firms with offices and/or clients in Pennsylvania.

India Drops Requirement that Tax Residency Certificate Contain Certain Information; Introduces New Form 10F to be Provided by Nonresident Payees Claiming Benefits Under a Treaty
In the Finance Act, 2013, India has amended Section 90(4) by omitting the requirement that a tax residency certificate must contain certain information in order to be valid for purposes of claiming the benefits of a tax treaty. Instead, new Form 10F may be submitted by a nonresident to an Indian payor when claiming Treaty benefits.

Recent China Regulations Tighten Restrictions on Visa Issuance
The Legislative Affairs Office of the State Council recently released regulations pursuant to the new Exit-Entry Administration Law, which became effective July 1, 2013. The law was intended in part to curtail illegal residency and employment in China. As of September 1, 2013, the new regulations introduce various new visa types and clarify the administrative procedures and required supporting documentation.

Massachusetts Enacts Market Sourcing and Sales Tax on Computer Services
Effective for tax years beginning on or after January 1, 2014, H.B. 3535 sources sales, other than sales of tangible personal property, to Massachusetts if the taxpayer’s ‘market for the sale’ is in the state. With respect to determining a taxpayer’s market, the legislation provides that a market is considered to be in Massachusetts if and to the extent the services are ‘delivered’ to a location in the state.

Cook County Use Tax is No Longer In Force -- Law Firms with Offices in Chicago Should No Longer Remit This Tax, Pending Outcome of Litigation
On July 24th, a judge of the Circuit Court of Cook County issued an injunction enjoining enforcement of the Cook County use tax. By granting the plaintiff's motion for a preliminary injunction, the court has effectively ruled that the tax is no longer in force. The plaintiffs, including several law firms, argued that the ordinance violates an Illinois statute, as well as the Illinois and U.S. Constitutions. Judge Robert Lopez Cepero agreed, finding that the tax violated the Illinois Counties Code, the Illinois Constitution's prohibition against imposition of an ad valorem tax on personal property, and the U.S. Constitution's commerce clause.

July 2013
Patient-Centered Outcomes Research Institute (PCORI) Fee is due July 31, 2013
The Affordable Care Act (Public Law 111-148, amended by Public Law 111-152) imposes certain fees on employers. The Patient-Centered Outcomes Research Institute Fee (PCORI), due July 31st of each calendar year, is a fee to fund the research institute for medical research. Each individual employee and their dependents covered under the health insurance and self insured health plans or policies during the year will be used in computing the fee.

New York Appellate Court Overturns Decision Striking Down Metropolitan Transportation Authority Payroll Tax
On June 26, 2013, the Supreme Court, Appellate Division, overturned a 2012 decision that held the state’s Metropolitan Transportation Authority (MTA) payroll mobility tax violated home-rule provisions contained in the State’s Constitution (Mangano et al., v. Silver, et al., New York Supreme Court, Appellate Division, 2013 NY Slip Op 04783, June 26, 2013).

Belgium to End Exemption from VAT for Certain Lawyers' Fees
On 30 June 2013, the Belgian government reached an agreement on the 2013-2014 federal budget, including the decision to abolish the Belgian VAT exemption for lawyers (VAT exemption without input VAT credit). Hence, as from 1st January 2014, all lawyers' fees will become subject to 21% VAT in Belgium.

Pennsylvania to End Personal Income Tax Credit for Taxes Paid to Foreign Countries
On July 9, 2013, Pennsylvania Governor Tom Corbett signed H.B. 465, which makes significant changes to Pennsylvania taxes, including the elimination of the personal income tax credit for taxes paid to foreign countries. The credit allowed for taxes paid to other US states will remain in effect. This change will be effective for tax years beginning after December 31, 2013.

June 2013
India Appellate Tribunal Holds Professional Services Income Taxable Only as to Services Performed in India
On May 13, 2013, a Special Bench of the Income Tax Appellate Tribunal sitting in Mumbai issued an Order in favor of an assessee U.K. law firm, holding that the income of the non-resident law firm related to India would be taxable only to the extent attributable to services performed in India. Secondly, the Special Bench determined that, in interpreting Article 7(1) of the India-U.K. Tax Treaty as it relates to businesses with a permanent establishment in India, consideration attributable to services rendered in the resident State (U.K.) is not taxable in the source State (India).

May 2013
UK HMRC Issues Guidance on Partnership Abuse Items of Concern
As announced in the 2013 UK Budget, HMRC released a consultation document on 20 May in relation to a review of two aspects of the partnership taxation rules in the UK: the removal of the presumption of self-employment for partners in limited liability partnerships (LLPs); and countering the artificial allocation of profits or losses to partners in LLPs and other partnerships (including using a company, trust or similar vehicle) to secure tax advantages.

Expanded German Insurance Premium Tax liability for international law firms with insured operations in Germany
International law firms often conclude umbrella insurance contracts, also known as master policies. These policies cover either all or the main insured risks cases of their permanent establishments (PE) or subsidiaries around the world, including Germany. In this context the risk of taxability of the paid premiums has increased due to the amendments of the German Insurance Premium Tax Act (VersStG) which came into effect on 1 January 2013.

Law Firms and Indirect Taxes from a German VAT Point of View
This information covers – from a German VAT point of view - some of the key developments and current issues affecting law firms in indirect taxes, in particular with regard to the EU changes to VAT invoicing rules meant to be taking effect from January 2013.

March 2013
House Ways & Means Committee Issues Technical Explanation on Tax Reform with respect to Pass Through Entities
On March 12, 2013, the House Ways and Means Committee issued a "small business" tax reform discussion draft featuring proposals affecting large and small partnerships, and S corporations.
India and Ministry Certification Rules
The India Ministry of Finance, in September 2012, issued new rules regarding residence certifications for purposes of claiming benefits under double tax treaties. These new rules have caused a dramatic increase in the number of clients requiring withholding as IRS Form 6166 does not meet the new requirements.

Update on the classification of foreign legal consultant office in Korea
With the recent opening of the legal market in Korea in 2012, several US and UK law firms have established Korean offices. Since many of these law firms are structured as limited liability partnerships (LLP) in various jurisdictions, and with Korea having no comparable entity structure, there was no clear guidance as to how to treat these Korean offices for local tax purposes.

February 2013
Maryland's failure to provide a tax credit for local portion of personal income tax for out-of-state income is ruled unconstitutional
Maryland imposed a personal income tax on all of the income of a Maryland resident, regardless of whether that income is earned within the state or outside the state. The personal income tax includes a 'state income tax' and a 'county income tax'.

Tax Court Reaffirms Principle that Law Firms Cannot Deduct Contingent Case Advanced Expenses Until Case is Closed
On January 17, 2013, the United States Tax Court (“Tax Court”) issued a Memorandum Opinion in Humphrey, Farrington & McClain, P.C. v. Commissioner, T.C.Memo. 2013-23, concerning the proper treatment of advanced expenses incurred by a law firm with respect to contingent fee cases. The Internal Revenue Service (“IRS”), as well as numerous court rulings, have consistently held that such expenses are not immediately deductible and must be treated as loans, even if the eventual recovery of the advances is contingent.

January 2013
French Constitutional Court Strikes Down Application of 75% Surtax to Income Earned in 2012, and 14.5% Social Security Tax Applicable to Foreign Source Income covered by an Income Tax Treaty
French Constitutional Court struck down the 75% tax provision of the Finance Act with respect to 2012 income. However, the grounds for invalidating the provision were very narrow and the government has announced its intention to draft new legislation in the future taxing high income earners.This alert shares insight around the impact to law firms.

Recent U.S. Tax Law changes create new top tax bracket and extend certain business tax incentives impacting law firms
President Barack Obama on January 2 signed into law H.R. 8, the "American Taxpayer Relief Act of 2012," which includes permanent extensions of certain 2001 and 2003 tax provisions for individuals with incomes below $400,000, and joint filers with incomes below $450,000. This alert shares insight around the new top tax bracket and incentives impacting law firms.

November 2012
PwC Law Firm Services News Alert - New York State Provides Extension Through 11/14 for Employers Affected by Hurricane Sandy to File Protective Claims in connection with the Metropolitan Transportation Authority Payroll Tax
The New York State Department of Taxation and Finance has granted an extension of time to employers to file protective claims with respect to the Metropolitan Transportation Authority Payroll Tax.

October 2012
PwC Law Firm Services News Alert – New York State Provides Guidance and Procedures for Filing Protective Claims in connection with NY Court Decision Striking Down the Metropolitan Transportation Authority Payroll Tax
The New York State Department of Taxation and Finance has posted information on its website containing instructions for taxpayers that wish to file protective claims with respect to the Metropolitan Transportation Authority Payroll Tax.

PwC Law Firm Services News Alert - France's Proposed Social Security Financing Law for 2013 Eliminates Cap on Health Insurance Contributions
The draft bill of the French Social Security Financing Law for 2013 includes, specific measures regarding social contributions due by self-employed individuals, such as law firm partners.

PwC Law Firm Services News Alert – France's Proposed Finance Bill Includes a 45% Income Tax Rate and an Exceptional Surtax of 75% on Very High Earned Income
In its proposed finance bill announced September 28th, the French government has recommended a number of changes to the tax code that would affect law firm partners and employees.  As explained in the attached Tax Alert from our colleagues at Landwell, a new 45% income tax rate would be added to the code to apply to income earned on or after January 1st, 2012, in excess of Euro 150,000.  Moreover, a 75% surtax would be applied on all income in excess of Euro $1 million per earner.  This surtax is deemed temporary and, if enacted, would only apply to the 2012 and 2013 tax years only.

September 2012
PwC Law Firm Services News Alert - Follow-up on Questions About Filing Protective Claims for Refund Following NY Court Decision Striking Down the Metropolitan Commuter Transportation Mobility Tax
As reported by PwC Law Firm Services in our August 30, 2012 news alert, a New York court has struck down the Metropolitan Transportation Authority Payroll Tax. A number of law firm clients have contacted PwC's Law Firm Services group about this alert, presenting questions and some rumors that have been circulating. At this time, we would like to provide several follow-up points.

August 2012
PwC Law Firm Services News Alert - NY Court Strikes Down Metropolitan Transportation Authority Payroll Tax
The 10th District of the New York State Supreme Court, located in Nassau County east of New York City, struck down the state’s Metropolitan Transportation Authority payroll mobility tax on the basis that it violated home-rule provisions contained in the state’s Constitution.

PwC Law Firm Services News Alert - Singapore Enacts Measures to Attract Foreign Law Firms to Obtain Qualifying Foreign Law Practice Licenses
The Singaporean government has introduced several measures in recent years to liberalize its legal industry, providing significant tax and profit incentives to attract foreign law firms applying for Qualifying Foreign Law Practice (QFLP) licenses, effective immediately through August 31, 2012. To date, six foreign law practices were issued the QFLP licenses during the first round of applications in December 2008.

July 2012
PwC News Alert - IRS ITIN Processing Revision may impact Foreign Partners of Law Firms that file in the US
The Internal Revenue Service has revised its procedures for processing Individual Taxpayer Identification Numbers ("ITINs"). These revisions are expected to result in an increased administrative burden on law firm foreign partners that apply to receive an ITIN.

May 2012
PwC Law Firm Services News Alert - French Supreme Court Decision on French State Health Insurance Contributions May Impact French partners of US and UK Law Firms with Non-French Source Income
A recent French Supreme Court ("FSC") decision may have a costly impact on the French resident partners of US and UK law firms that receive foreign source income.

March 2012
PwC Law Firm Services Alert - China May Extend VAT Pilot Program for Certain Law Firms with Offices in Beijing
As first reported in an earlier PwC Law Firms Services' News Alert, China has introduced a VAT Pilot Program in Shanghai. Several US and UK law firms with offices in Shanghai were invited to participate in the Pilot Program, which replaces the 5% Business Tax with a 6% VAT. To review the Shanghai Pilot Program, which details the potential impacts of participation in the VAT Pilot Program, please click here: http://www.pwc.com/us/en/law-firms/assets/2012/China-LiFTS-Memo-January-10-2012.pdf. Beijing tax authorities appear to be seeking permission from China's Ministry of Finance ("MOF") and State Administration of Taxation ("SAT") to join this Pilot Program. If permission is granted, law firms with offices in Beijing may be approached to join the Pilot Program with an unofficial date of July 1, 2012, being circulated for Beijing to join the Pilot Program.

PwC Law Firm Services News Flash - IRS Issues Revenue Procedure 2012-17 Regarding Electronic
K-1s

On February 13, 2012, the Internal Revenue Service issued Revenue Procedure 2012-17, which provides that partnerships may furnish their partners with an electronic copy of their Schedule K-1 if the partner has affirmatively consented to receive the K-1 in electronic format, such as in pdf form in an email.

February 2012
PwC Law Firm Services News Flash -- Insight for Firms Investigating the Opening of an Office in South Korea
The Korean Supreme Court on January 27 issued its ruling on the applicable Korean tax treatment of a U.S. Limited Partnership. This ruling provides much-needed clarification when considering the best entity for holding a Korean office.

January 2012
PwC Law Firm Services Alert on China - China Introduces a VAT Pilot Program for Certain Law Firms in Shanghai
China has introduced a Pilot Program that would replace the business tax with a VAT system for selected industries. Certain US law firms with operations in Shanghai have been approached to participate in the Pilot Program, and more may be approached in the future. This LFS Alert addresses the important facts about the Pilot Program that every firm with operations in China should know, and potential impact upon your firm.

December 2011
PwC Law Firm Services News Alert on the Russian Court tax ruling that potentially impacts US and UK Firms 
This recent Russian court case has resulted in firms reexamining their engagement procedures and may greatly impact PwC law firm clients with branches in Russia. The case addresses how foreign companies operating in Russia through a permanent establishment (“PE”) should determine taxable income and deductible expenses.

September 2011
PwC Law Firm Services News Alert for Law Firms with Attorneys in China - September 2011
China has issued formal guidance on its new Social Security Law. Contributions will be required of U.S. law firms and their attorneys practicing in China beginning October 15, 2011.
In the effort to create a more uniform social insurance scheme in China, the Ministry of Human Resources and Social Security has issued detailed guidance on implementing the new social security scheme. Several provisions will have a profound impact on US law firms that practice in China.

PwC Law Firm Services News Alert on the UK's residency law reform and remittance regime - September 2011
The UK Government has announced several important tax-related proposals to take effect in early 2012, including reform of the UK's residency law and expansion of the remittance regime. This memo provides helpful information for any US law firm with UK resident partners or any relocated non-UK partners making their way to Great Britain.

August 2011
News Alert for International Law Firms with Offices in Germany - August 2011
Changes in who may hold equity in a UK law firm (i.e., non-lawyers), and challenges in the US on the same issue, will impact whether the German trade tax applies to a firm's operations in Germany. Normally, an international law firm's German source income is exempt from the trade tax. However, as our colleagues at PwC Germany explore in their memorandum, unwary firms may inadvertently become subject to this tax.

LiFTS Email on the IRS "Attorneys Audit Technique Guide" manual - August 2011
The manual gives insight into what the IRS is looking for when reviewing an attorney's returns. It addresses, among other things, the use of personal service corporations by attorneys. It also outlines a variety of expenses common to attorneys, with recommendations for document requests, the types of files to review, and other key areas. It also details the types of forms that attorneys should be filing (1099s, FBAR, etc) and the databases available to IRS professionals for checking on such compliance.

July 2011
New Tax Treaty Guidance Issued by China Provides Insight on US-China Tax Treaty Language Applicable to the Establishment of a Service Permanent Establishment in China - July 2011
The China State Administration of Taxation recently issued Circular 75, which contains guidance on what activities constitute a service permanent establishment. This guidance is especially noteworthy for US law firms providing services to clients in China since it may be applied by local-level tax bureaus in China to determine whether a service permanent establishment has been created under the China-US Tax Treaty.



Additional LiFTs memos

June 2010
Japan News Alert
Japan has announced the proposed deregulation of its Practicing Attorney Law to allow foreign law firms to operate in Japan through a Legal Professional Corporation ("LPC"). In the attached memo, our colleagues at PwC Japan have outlined the primary advantages and disadvantages associated with a foreign law firm operating in Japan as a partnership and as an LPC.

April 2010
India imposes requirement to obtain a Permanent Account Number
Effective April 1, 2010, every non-resident that receives income from India is required to obtain a Permanent Account Number ("PAN") from the Indian Income Tax Authorities and provide it to the Indian payor.

February 2010
Setback for foreign law firms hoping to establish operations in India
The Bombay High Court has ruled that the practice of law in India by US and UK law firms is not allowed unless foreign lawyers abide by the Advocates Act that governs the practice of the profession of law in India.

Governor Paterson announces proposed changes to MTA mobility tax
Law firm partnerships with offices in New York City face higher proposed rate of tax.

Advice on paying the China Business Tax for US multinational law firms with clients in the People's Republic of China

October 2009
VAT changes that will impact law firms
On January 1, 2010 law firms with offices in the EU which make taxable supplies of legal services to business customers in other EU countriesl have new monthly VAT reporting obligations. Failure to comply with these monthly reporting obligations can result in severe penalties being imposed.

September 2009
UK Finance Act 2009 impacts US law firms operating in the UK
The 2009 finance bill, which received Royal Assent on July 21, 2009 and was enacted as Finance Act 2009, contains a number of elements which will have a significant impact on US law firms operating in the United Kingdom.

August 2009

New Jersey ruling on credit determination
New Jersey tax court finds for resident partner of large US partnership — Taxpayer correctly calculated credit for personal income taxes paid to other state.

The Israeli legal market is opening to foreign firms
Israel has opened its legal market to allow for foreign lawyers and law firms to practice law in Israel. Foreign lawyers will be allowed to provide advice and legal opinions of the law in the country in which they are authorized to practice, but cannot practice Israeli law.

New York provides group filing options for the Metropolitan Commuter Transportation Mobility Tax — Update to May 2009 Law Firm Services memorandum
In May 2009, the New York State Senate passed legislation to enact the Metropolitan Commuter Transportation Mobility Tax ("MCTMT").  At the time the MCTMT was signed into law, the New York State Department of Taxation and Finance, who administers the tax, did not provide a method for group filings.  The Department has now released guidance providing partnerships the ability to file a group MCTMT return and make estimated payments for all participating partners, as well as for non-participating nonresident partners.

July 2009
Recent developments on taxation of law firms in China
Recent changes in requirements for paying China's business tax and corporate income taxes have substantially increased the complexity for law firms doing business in China. Similarly, China's new TPD requirements present an additional burden for firms that routinely provide services to clients located in China.

May 2009
New York enacts payroll tax on employers and self-employed individuals
Events are continuing to unfold regarding the new Metropolitan Commuter Transportation Mobility Tax, including the need for law firm partners to make individual estimated payments and filings (no composites) on their share of income from New York City and surrounding counties.

April 2009
People's Republic of China changes business tax filing requirements to reach international law firms providing services to clients located in China
China has expanded the legal services that are subject to their 5% business tax and retained the sourcing rules of Circular 82. This will have a direct impact on firms providing services in China as well as services provided outside China for clients in China.

March 2009
India enacts LLP statute
With the passage of an LLP statute, India has moved another step closer to opening the market for foreign law firms. The LiFTS memo attached summarizes the new statute and the new ability for foreign firms to open office in India.

Federal, state and local government entities required to withhold 3% on payments for services
The IRS has issued new proposed regulations that will require federal, state and local governments to withhold tax on payments for services. Law firms that perform services for government entities, such as bond offerings, will be impacted by these new regulations.

February 2009
Taxation in India of foreign law firms
India continues to be a challenge. This recent court ruling should bring a more reasonable approach to determining what is taxable in India.

New York State has expanded the scope of its residency rule by eliminating the "temporary stay" safe harbor.
New York State expands the scope of its residency rule and who must file a return with the elimination of the "temporary stay" safe harbor.

January 2009
France expands reach of social contributions tax to certain individuals with non-French source income
Beginning January 1, 2009, France will levy a social contribution tax on individuals with non-French source income that is normally exempt from French tax under a treaty or other international agreement. The social contribution would apply to French tax residents and non residents subject to the French social security system in connection with their professional service income.

December 2008
Internal Revenue Service issues revised foreign account reporting form
In light of the recent scandal involving a well-known foreign bank’s involvement with American taxpayers that the Internal Revenue Service ("IRS") believes may have avoided certain reporting rules, the IRS is increasing its oversight of accounts held by American taxpayers with foreign banks. The IRS has recently posted a version of Treasury Form 90-22.1, "Report of Foreign Bank and Financial Accounts," on its Website. This form changes the filing requirements for, and definitions of, people with any financial interest in or authority over qualifying foreign financial accounts. This form must be used for any filings made after December 31, 2008.

March 2008
German Federal Fiscal Court decision dated October 17, 2007 on the subject-to-tax clause in the DTT Italy
The German Federal Fiscal Court stated in its decision dated October 17, 2007 that Art. 24 para. 3 letter a of the 1989 double tax treaty between Italy and Ger-many (DTT Italy) contains a subject-to-tax clause. This decision could have an impact on structures established to create "white income" which rely on the interpretation that the 1989 DTT USA (in effect until the end of 2007) does not contain an effective subject-to-tax clause.

Proposed UK legislation will institute yearly £30,000 charge to remittance-based, non-domiciled taxpayers
From April 6, 2008, a claim for the remittance basis will need to be made by all UK residents who are eligible to claim and who wish to be taxed on that basis in relation to employment income, investment income and capital gains.

August 2007
New York State 2007 tax legislation affecting personal service corporations
New York has enacted aggressive legislation against attorney-owners of personal service or S-corporations who are not residents of New York. The LiFTS memo explains this change and how it is likely to be applied.

July 2007
Changes in French tax treatment of UK limited liability partnerships (LLP) distribution
A ruling from French authorities that signals changes in the tax treatment of distributions for UK limited liability partnerships in France. This memo discusses the scope of the recent ruling that initiated the change and its ramifications for UK firms considering an LLP conversion or those already in or contemplating alliances with French firms.

February 2006
Reducing withholding on nonresident alien partners by utilizing individual partner losses
Treasury regulations now allow, under certain circumstances, for foreign partners to certify deductions and losses to a partnership in order to deduct the withholding tax imposed under Internal Revenue Code Section (IRC Sec.) 1446. Moreover, the regulations now permit partnerships to consider the relevant type of income or gain when determining the highest rate of tax to apply against the effectively connected income.

January 2006
Updated NYS exemption certificates
The New York State Department of Taxation and Finance ("Department") issued forms that must be completed and signed by each nonresident person or entity claiming exemption from the New York State withholding rules. All existing certificates expire February 1, 2006. The certificates apply to tax years 2006 & 2007 and will expire on February 1, 2008. Access the corporate and individual forms below. December 2005
IRS audits for Section 1441 compliance may affect law firms
In 2005, the IRS targeted other taxpayers (e.g., banks, broker dealers, insurance companies, etc.) for Section 1441 audits. Now, we believe that the IRS is starting to focus on law firms. Some proactive planning/defense may be helpful.