Monday, November 18, 2019

Memo of Advice to Mr. US on Taxation System Case Study

Memo of Advice to Mr. US on Taxation System - Case Study Example The tax rates are applied to taxable income which is arrived after deducting all expenditure incurred by the individual as specified in IRS. Every US citizen (Mr.US) working and residing abroad is bound to report income from sources outside the United States under Form 1099 from foreign payer (Publication 525, 2010). According to Arnold and McIntyre (3) individuals confront serious risks of having to pay excessive levels of tax as Mr. US being citizen of US and resident of UK may have to deal with tax laws of both countries. However dual residence problems are generally resolved through the tie breaker in tax treaties between the two countries i.e. US and UK. Mr.US can be benefited from the double taxation treaty which follows the OECD Model Tax Convention. Mr. US shall file a report of Foreign Bank and Financial Accounts (FBAR) as his account is maintained by foreign organization in Mauritius, a labor agency which contracts the services of Mr. US to Newco in London for the period of five years. Tax Exchange Information Agreements between US and UK are incorporated in Double Taxation Treaty and Mr. US will have to comply with the double taxation treaty of filing the FBAR reports and paying income tax for his income earned for his services. Similarly, Labor Agency in Mauritius will pay taxes for its income from UK in Mauritius as well as United Kingdom as per the double taxation treaty existing between these two countries. As evident from the case study, Mr. US could face dual source issues arising through varying definitions in tax jurisdictions i.e. in US and UK. Mr. US may seek tax exemption within double taxation treaty between United States and United Kingdom. Mr. US may claim tax deduction in double taxation through exemption, credit or tax deduction through structured finance and possible exemptions in form of dividends and capital gains (Arnold and McIntyre,Ch. 15). It is informed that many tax jurisdictions do not grant deductions for future risk loss o r contingency provisions while some countries permit deduction for pension provisions. Mr. US shall get tax exemption from pension provision granted by Mauritius broker firm. The Mauritius broker company intends to open a discretionary trust in favor of Mr. US family owned by Mauritius firm. It is mentioned that shareholders dividends do not in any legally relevant sense arise in the taxing state which means the taxation belongs to the country to which the corporation belongs, i.e. Mauritius where the firm will be established (Arnold and McIntyre,Ch.3 53). The discretionary trust, where the remaining $225k have been diverted will be paid by the trust wholly under double taxation treat between two countries; United States and Mauritius, as the residence of trustees is in US while the trust is incorporated in Mauritius (Arnold and McIntyre,Ch.1, 21). Works Cited Arnold Brian J and McIntyre Micheal J International Tax Primer, Chapter

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