Search

The article focuses on a court case of the European Court of Justice (ECJ) wherein the plaintiff investment company has filed for input tax deductions. Topics discussed include recent developments in the court ruling, deduction of input tax, tax liability of companies, tax exemption of rental of office buildings.

Exchange traded funds (ETFs) are a popular alternative to mutual funds for investing in a diversified pool of securities. One reason for ETFs' popularity is that they are far more tax-efficient than mutual funds. Unlike mutual funds, most ETFs make virtually no capital gains distributions -- which would be taxable to the recipient shareholders -- in a typical year. The reason is the way that ETFs are able to take advantage of section 852(b)(6), which permits regulated investment companies (RICs) to deliver appreciated portfolio securities to redeeming shareholders without recognizing any gain. Because of the way they are structured, ETFs are able to redeem institutional investors "in-kind" in the normal course of their operations, while mutual funds generally need to satisfy shareholder redemptions in cash. The original purpose of section 852(b)(6) was to enable traditional mutual funds to satisfy redemptions in-kind under extraordinary circumstances in which cash redemptions could cause the funds undue harm. But ETFs now use section 852(b)(6) to avoid recognition of virtually any of their investment gains. This use provides ETF investors with an unwarranted tax break that mutual fund investors and direct investors in securities do not enjoy, and it constitutes a costly and indefensible tax expenditure. To eliminate this inequitable and expensive loophole in the current law, section 852(b)(6) ought to be revised in a way that prevents ETFs from continuing to use the measure to circumvent any and all capital gains taxation. This article recommends amending section 852(b)(6) to incorporate a rule that would reduce an ETF's basis in its remaining portfolio securities by the amount of its excluded gain on an in-kind-redemption distribution. Under the proposed rule, an ETF would subsequently recognize portions of the previously-excluded gain when it sells portfolio securities in taxable sales. As a result, ETFs would no longer be able to escape ever recognizing any of their investment gains. Instead, taxation of much of their gain would merely be deferred -- not avoided for all time. [ABSTRACT FROM AUTHOR]

The article discusses the factors to be considered by trustees with regard to taxation of managed investment trusts (MIT) in Australia as of 2016. Topics include the attribution model in taxing MIT, the withholding tax and reporting requirements, the implications of the legislation for trustees and the tax return and schedules for MIT.

The article offers information on developments that occurred in federal tax in Australia in December 2015. Topics include 10-year capital gains tax (CGT) exemption on investments made in start-ups; introduction of Tax Laws Amendment to amend the income tax law to introduce a new tax system for managed investment trusts; and implementation of Organization for Economic Co-operation & Development's Common Reporting Standard for the automatic exchange of financial account information.

The RIC Modernization Act of 2010 (the "Act") significantly changed the federal tax law governing how a regulated investment company (RIC) must utilize capital losses incurred in tax years after its enactment. The Act affects when a RIC must take capital losses into account in determining its net capital gain (and earnings and profits). Exactly when a RIC is entitled to use its capital losses can be a key consideration when applying corporate tax law governing a RIC reorganization. In the event that a RIC is party to a reorganization, it is important for the RIC and its adviser to fully understand the Act's implications so as to avoid potentially adverse consequences. [ABSTRACT FROM AUTHOR]

As of 2012, roughly 23% of US. households' assets and 50% of retirement assets are invested in mutual funds, thus making mutual funds one of the most important investment vehicles for U.S. households. The federal taxation of mutual funds and mutual fund shareholders has played a vital role in the development of mutual funds and their appeal to U.S. investors. Despite the significant amount of mutual fund assets held in retirement accounts, there has been very little analysis of the issues that arise when taxable and tax-exempt shareholders invest together in the same mutual fund. A substantial body of research shows that managers are attuned to the tax consequences of their investment activities, but only very recently have researchers begun to explore how the presence of tax-exempt investors affects managers' investment strategies. The current tax regime governing mutual funds imposes tax externalities on both taxable and tax-exempt shareholders. When tax- exempt shareholders predominate, fund managers focus less on managing fund tax liability and thereby generate higher taxes and lower after-tax returns for taxable shareholders. When taxable shareholders hold a significant portion of a mutual fund's assets, the fund manager, focusing on minimizing fund taxable income, may undertake trades that reduce fund income but do not add economic value. These trades impose costs on all shareholders but benefit only taxable shareholders. This Article considers various options to mitigate these costs, such as requiring funds to disclose the percentage of tax-exempt investors, adopting principles from partnership taxation to better match taxable and economic income, and prohibiting a fund from being offered to both taxable and tax-exempt investors. This Article concludes that tax externalities resulting from taxable and tax-exempt investment in the same mutual fund are unavoidable absent substantial changes to the basic architecture of mutual fund taxation. Because such changes seem unlikely and would create other issues, this Article suggests revising the tax law to permit the creation of a special class of mutual fund, the "Retirement Mutual Fund," solely for retirement accounts. A Retirement Mutual Fund would be subject to an alternative tax regime that would mitigate tax externalities for both tax-exempt and taxable shareholders. [ABSTRACT FROM AUTHOR]

In a recent Chief Counsel Memorandum, the IRS employed a detailed analysis and several judicial doctrines (including the step-transaction and substance-over-form doctrines) to disallow a taxpayer's attempt to deduct 100 percent of the dividends it received from a regulated investment company after purposefully routing those investments abroad via a controlled foreign corporation. The memorandum is noteworthy in that it demonstrates the Service's position regarding highly structured transactions undertaken with a principal purpose of generating a dividends-received deduction--a position at odds with numerous earlier private letter rulings. [ABSTRACT FROM AUTHOR]

The rich, it turns out, are different from the rest of us. The wealthy, for example, can assemble a diversified portfolio of securities or can invest through hedge and private equity funds. When the rest of us invest, we do so largely through mutual funds. Nearly half of American households own mutual funds, and mutual funds represent a significant portion of the financial assets held by U.S. households. The tax rules governing mutual funds create an investment vehicle with significantly worse tax treatment than investments available to the wealthy. In particular, the tax rules governing mutual funds force shareholders to pay taxes on "forced realization income" even though such income does not increase their wealth. Because mutual fund investors must pay taxes on non-existent gains, but the wealthy can use alternative investment strategies to avoid such taxes, the taxation of mutual funds violates the tax policy objective of vertical equity. To correct the inequities faced by mutual fund investors, the tax law needs to permit low- and middle-income taxpayers to exclude from their income 10% of the capital gain dividends they receive each year. [ABSTRACT FROM AUTHOR]

Over the past decade, business development companies (BDCs) have become an increasingly popular investment vehicle because of several structural advantages over private equity funds. Of course, there are still securities and tax law rules that BDCs must follow. The authors outline what BDCs are and how they are structured, how they are regulated, and how the BDC model has developed over time, and then briefly consider the future of this investment vehicle. [ABSTRACT FROM AUTHOR]

The article describes reforms related to taxation of income held in trusts in Australia and examines the issue arising due to this change. It mentions that trust in Australia conducts activities which in other countries are restricted to corporate or partnership form. It highlights complexity caused by different trust reform projects including project rewriting the rules for taxing the income of resident investors with interests in foreign trusts, and taxation of managed investment trust.

This article summarizes recent U.S. and E.U. developments that affect the taxation of and tax reporting on various types of asset accounts and funds and could have significant impact on fund managers and/or investors. The authors outline new holdings and pronouncements, and recommend next steps for taxpayers. [ABSTRACT FROM AUTHOR]

By making an annual tax election, open-ended mutual funds can treat redeeming shareholders as if they have been allocated a pro-rata share of taxable gains, when in fact they have not (known as ‘‘equalization’’). Equalization provides significant benefits to shareholders and funds; however, it also leads to additional fund-level costs. In this study, we use equalization elections to examine how managers weigh the costs and benefits of tax minimization. Overall, our results suggest both are important in the decision-making process. Even though funds and investors both benefit, only 10 percent of funds use equalization. Funds in larger fund families and with higher expense ratios, both proxies for the additional infrastructure necessary to calculate equalization dividends, are more likely to use equalization. Equalization is also used when its benefits are highest, such as by funds with greater redemptions and larger unrealized gains. [ABSTRACT FROM AUTHOR]

This article presents information on the tax system in Sweden in 2011. It discusses changes to the country's company and personal income tax rules. It notes the implementation of participation exemption rules for dividends and capital gains. It also shows proposals to amend the tax rules for investment funds and CFC legislation issued by the Swedish Tax Agency. In addition, the article describes a case law to govern the taxation of employee stock awards. An overview of taxation services offer by firms such as Ernst & Young and PricewaterhouseCoopers is given.

This article provides an overview of the tax system in the Czech Republic in 2011. It provides the country's tax rates, including corporate profit, capital gains, branch and withholding taxes, as well as dividends, interest and royalties. It notes the imposition of a corporate tax on investment funds, mutual funds and pension funds and a withholding tax on interest payments. In addition, the article describes a range of taxation services offer by Ernst & Young and PricewaterhouseCoopers in the country.

The article examines the structure of investment funds and the types of compensation given to investment fund managers in the U.S. It discusses how taxation applies in the carried interest and its bill that remains in the Congress that would change the tax computation. Also details the proposal for taxing investment fund managers on their carried interest on a simplified mark-to-market basis to resolve the issue of taxation.

The article focuses on the latest proposals for tax reform in the U.S. such as carried interest, the profit interest of a fund manager. It states that the administration of U.S. President Barack Obama have proposed a tax increase on carried interest with regard to the country's budget plan. Furthermore, it suggests that the U.S. Congress must follow an approach on tax policy that fits the structural background of the investment partnership fund fee.

Existing empirical studies find little evidence that mutual fund managers time the market. Repealed in 1997, Internal Revenue Service Code Section 851 (b)(3), known as the ‘short-short rule,’ requires that mutual funds derive less than 30 percent of their gross income from the sale of securities held for less than three months. Failing to comply with the rule means that the Internal Revenue Service taxes the fund's entire gain at the 35 percent corporate tax rate. The short-short rule likely hinders mutual fund managers from timing the market, as it constrains hedging and trading strategies involving short-term trades. In this paper we exploit the natural experiment arising from the repeal of the tax regulation. We find that the timing performance of mutual fund managers improves significantly after the short-short rule repeal. This result suggests that the perverse timing ability documented in the previous literature is partly due to the tax regulation imposed on mutual funds. [ABSTRACT FROM AUTHOR]

The article reports on various recent legislative changes, judicial cases and rulings concerning investment companies of the U.S. New provisions have been added to the American Jobs Creation Act of 2004, which permit a regulated investment company (RIC) to designate certain dividends as "interest-related dividends" and "short-term capital gain dividends." The provisions also permit to include income from certain qualified publicly traded partnerships. There are several new guidelines for non-qualified deferred compensation arrangements and the tax shelter reporting rules. Concerning the issue of capital account maintenance, the new regulation section 1.704-1(b)(2)(iv)(f)(5)(iii) expands the rules regarding a partnership's right to adjust capital accounts. In Private Letter Rulings 2004-28-023 and 2004-28-024, issued on March 24, 2004, the U.S. Internal Revenue Service has ruled that a closed-end RIC's redemption of its stock pursuant to a tender offer will constitute a single and isolated transaction that does not result in a section 305 deemed distribution to any shareholder.

Examines the discussion paper on real-estate investment trust (REIT) released by the government of Great Britain on March 2005. Commitment of the British government towards making REIT a tax-neutral property vehicle; Improvements in the proposals of the British Treasury regarding REIT; Technical concerns regarding REIT taxation; Opportunities revealed in the REIT discussion for industries.

Copyright of Canadian Tax Journal / Revue Fiscale Canadienne is the property of Canadian Tax Foundation and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Looks at developments on the taxation of regulated investment companies in the U.S. Regulation issued concerning corporate reorganizations; Methods of accounting provided by the Internal Revenue Service for commissions paid for incurred by a mutual fund distributor; Scope of a Service ruling on allocations of gains and losses.

Discusses important developments on the taxation of regulated investment companies in the United States for the year 2000. Distributions of earnings and profits; Deficiency dividend procedures; Constructive ownership transactions.

Focuses on important developments on the taxation of regulated investment companies in the United States. Tax-free exchange of assets by a common trust fund; Foreign shareholders; Controlled corporation transfers; Review of related cases and rulings; Preferential dividend.

Focuses on the regulations for the taxation of investment companies in the United States. Prevention of tax-free diversification of assets through transfers in investment companies; Modification of government securities to determine total assets; Discussion on publicly traded partnerships.

Examines the legislative changes for the taxation of regulate investment companies (RIC) in the United States. Implementation of permanent exempt shareholder expenses for publicly offered RIC; Definition of phantom income tax; Reduction of applicable load charge due to reinvestment rights.

Reports legislative changes on the taxation of regulated investment companies in the United States. Repeal of the General Utilities provisions; Treatment of income for a partnership; Rules for determining the diversity of investments of companies.

The article discusses important federal tax developments in Australia during May 2014. Topics discussed include the introduction of a temporary budget repair levy on people with more than 180,000 dollars taxable incomes, the government's move to refine the consolidation integrity package, and the move to defer the start date of the new tax system for managed investment trusts.

Focuses on tax liabilities which are usually overlooked by multinational corporate tax advisers when re-investing foreign earnings in the U.S. Dividend withholding tax implemented on U.S. mutual funds; Information on passive foreign investment company issues; Discussion on foreign currency hedging.