Economic activity is not only transnational, but increasingly digital. A business is physically located in one country, sells goods or services in another country and then declares its profits in yet a third country? Who is the taxing authority? Where is the transaction taxed and to which government do taxes get paid? This has never been a simple question internationally, but in today’s digital world, where borderless transactions are more frequent and more common, the leaders of the G-20 countries, in the Summit declaration of 18-19 June 2012 in Mexico, decried the consequences of these developments — tax base erosion and profit shifting to lower-tax jurisdictions. Even the proposed U.S. tax reform currently before the U.S. Congress addresses concerns about tax base erosion.
In 2013 the Organization of Economic Cooperation and Development (“OECD”) began a project to combat tax base erosion and profit shifting and the first action item of their Final Report of 2015 concludes the digital economy cannot be considered separate from the rest of the economy for tax purposes – it is increasingly becoming the economy itself. Significantly, the OECD believes solutions lie not so much in creating new rules, but adapting existing regulations to address the new, digital environment. Meanwhile, the European Union and some countries in Europe are making their own provisions for dealing with changes caused by the digital economy. With its Communication of September 2017, A Fair and Efficient Tax System in the European Union for the Digital Single Market, the European Commission (“EC”) announced a legislative proposal for the Digital Single Market in Europe, that is intended to be available for implementation if an adequate, ready and preferably international solution inside the G-20/OECD project framework is not implemented. The two main policy challenges addressed by the EC are: (1) where to tax digital services provided by companies with little or no physical presence and (2) what is taxable (e.g., the value created by intangible assets, data and knowledge). While a long term approach is favored, the EC is focused on short term measures to address some of these problems quickly such as a tax on untaxed or insufficiently taxed income generated from internet-based business activities (whether creditable against the corporate income tax or as a separate tax); a standalone gross-basis withholding tax on certain payments made to non-resident providers of goods and services ordered online; a levy on revenues generated from the provision of digital services or advertising activity.
In addition to European-wide solutions, some individual countries are also attempting to address the taxation of the digital economy. For example, in September 2016, a bill was introduced before the Italian Parliament regarding tax measures applicable to competition in digital commercial activities (DDL S.2526 “Misure in materia fiscale per la concorrenza nell’economia digitale” del 10 novembre 2016). The bill would not only reinforce the powers of Agenzia delle Entrate, the Italian governmental agency which collects taxes and revenue, but would introduce a “hidden permanent establishment” (“stabile organizzazione occulta”) concept which would consider revenues generated from certain types of international transactions, as income generated in Italy. For example, fees paid to non-Italian companies by Italian consumers for the purchase of software licenses distributed on the Italian market. Thus, if a U.S. company engages in online business regularly, with greater than 500 transactions in any six-month period and collecting more than € 1 Million in that same period, that company would be considered to have a “hidden permanent establishment” subject to tax by the Italian authorities. In addition, the proposed Italian 2018 Budget Law (not yet adopted), includes a proposal for a 6% web tax on services provided by nonresident companies and individuals on revenues generated from the sale to Italian residents of fully “dematerialised services” (e.g., intangible services such as video and audio downloads).
The common theme in these new proposals in the European Union and EU member countries suggests that governments will look increasingly to tax where economic value is delivered. If your business is part of the digital economy you clearly need to monitor these developments and pay attention to the legislative and regulatory initiatives being considered at the national, regional and multinational levels, especially in Europe, an important market and one which appears to be moving more quickly than other regions of the world. You can read the full Client Alert on this issue and if you need more information, have questions or would like assistance, the International Practice Group at Rimon, with an office in Rome, is particularly well suited to serve your needs. Feel free to contact Stephen Díaz Gavin, Partner based in Washington, DC and Rome or Claudio Palmieri, Counsel to Rimon and principal of Studio Legale Palmieri – Rimon Italia, based in Rome. Of course, you can always contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.
– Stephen Díaz, Partner, Rimon, P.C. & Claudio Palmieri, Of Counsel Rimon, P.C. (Principal, Studio Legale Palmieri –Rimôn Italia)
On October 6, 2015, the Court of Justice of the European Union invalidated the so-called “Safe Harbor” that previously governed data transfers between the U.S. and the EU (Case C-362/14 – Maximillian Schrems v. Data Protection Commissioner, 6 October 2015).
As you already know if you read our Legal Bytes’ posting in May concerning the US-EU Data Transfer Privacy Shield, personal data cannot be transferred to from the EU to a non-European Union/European Economic Area country, unless that country can ensure “adequate levels of protection” for such personal data. While the European Commission had identified a number of countries that met the ‘adequate protection’ test, the United States was not one of them and without the Safe Harbor understandings, transatlantic exchanges of data – both for commercial and national security reasons – were at risk of being non-compliant with EU regulations! In an attempt to temporarily address the data transfer issues, the EU and the U.S. proposed a new framework for exchanges of personal data for commercial purposes, known as the EU-U.S. Privacy Shield (“Privacy Shield”) which was formally launched on July 12, 2016.
Further complicating matters, a new EU General Data Protection Regulation (GDPR) comes into effect on May 25, 2018. In furtherance of a formal and more permanent agreement under the Privacy Shield and in contemplation of the new regulations, representatives of the U.S. and the EU have announced they will meet in Washington, DC during the week of September 18, 2017, for the first Annual Review of the Privacy Shield. In advance of the meeting, the EU’s official Working Group (WP 29) sent the European Commission their recommendations and consistent with previous pronouncements, they believe the meeting should focus on enforcement of rights and obligations, as well as changes in U.S. law since the adoption of the Privacy Shield. WP29 recommended discussions focus on these issue and that any formal agreement must deal with both commercial, as well as law enforcement and national security access.
These concerns and considerations are explored in more detail in our full Client Alert: No Certainty in Future of Privacy Shield as Transatlantic Consultations Set to Begin and it is clear that the September consultations may well be an indication of whether the Privacy Shield will prove an adequate regulatory regime for the transatlantic transfer of personal data and whether meaningful progress is likely in the current environment.
If you would like more information, a better understanding or need guidance regarding compliance with these regulations, contact Stephen Díaz Gavin, a Rimon Law Partner based in Washington, DC or Claudio Palmieri is of counsel to Rimon, P.C. and the principal of Studio Legale Palmieri –Rimôn Italia in Rome, Italy. Of course you can always contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.
On August 9, 2017, the Office of Foreign Assets Control (OFAC) at the U.S. Treasury Department, issued a Press Release and identified Mexican national Raul Flores Hernandez and the Flores Drug Trafficking Organization (Flores DTO) as Significant Foreign Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act, also known as the Kingpin Act. OFAC also designated a large number of individuals and 42 entities for involvement with, and acting as fronts for, Raul Flores Hernandez.
Many of these individual and entities are in the sports and entertainment industries, including professional soccer player, Rafael Marquez Alvarez (Rafa Marquez), Mexican singer Julio Cesar Alvarez Montelongo (Julion Alvarez), Mexican Soccer Club Club Deportivo Morumbi and the Grand Casino Guadalajara.
As of the issuance date of these designations, no U.S. persons, companies, nor any individuals in the US, are allowed to conduct transactions with these individuals or entities. Penalties under the Kingpin Act can run as high as $10MM per violation, with individual violators subject to imprisonment for up to 30 years. Even civil penalties for inadvertent violations can run over $1M per violation. It is worth noting that OFAC violations are based on strict liability.
If you would like more information, a better understanding or need guidance regarding compliance with these regulations, contact Jill M. Williamson, a Rimon Law Partner based in Washington, DC. Of course you can always contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.
As I mentioned in my Legal Bytes post a few weeks ago (Forensic DNA and Missing Children: The Legal & Ethical Issues), I had the honor and privilege of being a featured speaker on 25th of May 2017 – International Missing Children’s Day – at this year’s conference for Missing Children and Genetic Identity, organized and chaired by Patrícia Cipriano, President of the Portuguese Association for Missing and Exploited Children [Associaçāo Portuguesa de Crianças Desaparecidas] held at Lusófona University in Lisbon.
Featuring expert investigators, law enforcement, geneticists and forensic scientists, the conference explored how tough police work, forensic science, government legislators, judges and lawyers can work more effectively and cooperatively within and across national borders. It also reminded us that DNA kits and learning aides for use by parents, coupled with greater educational efforts and more timely reporting, can help save children’s lives and futures.
The conference was attended by notable dignitaries, including Charlie Hedges, Police Expert, Missing Children and European Alert Coordinator for Amber Alert Europe, Professor Maria do Carmo Fonseca, President of the Institute of Molecular Medicine, Professor Maria do Ceu Machado, President of Infarmed, members of Portuguese Assembly of the Republic , senior law enforcement and forensic scientists with closing remarks delivered by His Excellency Dr. Fernando Negrão, a jurist and former Minister of Social Security, Family and Children, Minister of Justice, director general of the Judicial Police and chairman of the Board of Directors of the Institute of Drugs and Drug Addiction.
The conference highlighted the work being done in Portugal and, of course, the work that still needs to be done. You can read and download the Conference Agenda & Brochure (Lisbon, PT) and feel free to take a look at my presentation Missing Children – Missing Opportunities, Legal Obstacles in our DNA (Rosenbaum) right here on Legal Bytes.
As always, f you would like to know more about this post, the conference, or the topics discussed at the conference, feel free to contact me, Joe Rosenbaum.
– Melinda Fellner Bramwit, Partner, Rimon, P.C.
Many non-resident individuals and non-resident entities maintain title to real estate and other assets in single member limited liability companies incorporated under state law in the United States, for a variety of reasons. Under Federal tax law, such an entity is disregarded for tax purposes unless the owner elects otherwise. From a corporate perspective, these limited liability companies can be used to harness assets in an entity separate from the owner, providing a layer of corporate protection and perhaps anonymity for the ultimate owner. These entities are also reasonably simple to form and maintain.
Changes to U.S. Treasury Regulations effective December 13, 2016, throw a wrinkle into the use of this malleable entity in some circumstances, which can be managed with some planning.
These changes require that a non-resident owning 100% of a United States limited liability company (“LLC”) file a Form 5472, an information return, when certain transactions occur between certain parties (“related” parties) and the LLC.
The following example from the regulations illustrates a scenario where this filing would be triggered:
In year 1, F, a foreign corporation forms and contributes assets to US-LLC, a U.S. limited liability company that is a disregarded entity for US Federal tax purposes. In year 2, F contributes funds to US-LLC, and in year 3, US-LLC makes a payment to F.
Under the modified regulations, F’s payment to US-LLC as well as US-LLC’s payment back to F are both reportable transactions for which a Form 5472 would be required with respect to US-LLC.
This is a simple, yet common situation which triggers the filing requirement. It is important to note that this requirement is applicable to tax years of entities beginning on or after January 1, 2017 and ending on or after December 13, 2017 (Note: This is not a typo. The date is the 13th, not the 31st). As such, there is a window of opportunity for tax planning to avoid the requirement of this form and if you want to know more or need help, don’t hesitate to contact me, Melinda Fellner Bramwit, a partner here at Rimon, P.C.
For more than 80 years, Section 310(b) of the Communications Act of 1934 has been interpreted as prohibiting direct foreign ownership of more than 20% and indirect ownership of 25% or more of US radio and television broadcast stations. Effective January 31, 2017, this will change as the Federal Communications Commission (“FCC”) has removed longstanding prohibitions against these limitations on foreign ownership, although it has preserved the right, on a case-by-case basis, to block a foreign acquisition of a broadcast license in excess of 25% (e.g., for reasons of national security).
Foreign entities, for quite some time, have already been permitted to acquire control over non-broadcast licenses (e.g., nationwide cell carrier T-Mobile is majority owned by Deutsche Telekom). But the FCC has steadfastly enforced its longstanding foreign ownership control policies over broadcast station licenses. Most famously, Rupert Murdoch had to become a U.S. citizen before being able to acquire control over what we know today as Fox Broadcasting.
Changes adopted to the rules of the FCC will enable approval of up to and including 100% aggregate foreign beneficial ownership (voting and/or equity) by foreign investors in the controlling U.S. parent of a broadcast licensee, subject to certain conditions. The revised rules, which newly define and in certain respects create different rules for “named” and “un-named” investors, they will allow a named foreign investor that acquires less than 100% to increase its controlling interest to 100% at some time in the future. If a named foreign investor acquires a “noncontrolling” interest, that investor will now be permitted to increase its voting and/or equity interest up to and including a “noncontrolling” interest of 49.99% in the future, if it chooses to do so.
Although the FCC’s expansive “public interest standard” in approving sales and investments in broadcast licenses, coupled with input from other Executive government agencies, could significantly delay or block investments from some countries, the strong support of this initiative by the remaining Republican members of the FCC would tend to indicate the FCC will be disposed to allow most transactions to proceed to closing. Indeed, the FCC has already signaled its willingness to do so, by approving just such a foreign ownership acquisition in a recent declaratory ruling issued even before the new rules take effect, ending a decades long back-and-forth haggling over Mexican ownership of Univision.
For more information regarding the new FCC rules or assistance in handling the regulatory and transactional aspects of such an investment, contact the author, Stephen Díaz Gavin, or Phil Quatrini or Sandy Sterrett, all partners at Rimon, P.C.
Of course, you can always contact me, Joe Rosenbaum, the Editor!
On June 13, the Internet Corporation for Assigned Names and Numbers (ICANN) revealed the list of applications for new gTLDs to be launched as part of its proposed expansion of the top-level domain space. A total of 1,930 applications were filed for strings, including brand names, generic words and abbreviations, geographic terms, and non-ASCII strings (such as Chinese or Arabic). If this is allowed to move forward as it is currently envisaged, it will be a striking change to the domain name system, with dramatic new risks and evolving threats, as well as opportunities. Brand owners – applicants or not – need to strategize and prepare now, to protect their marks and brands. Some may also need to decide whether or not to challenge any pending applications.
Rimon has assembled a global team of thought-leaders to counsel and guide you. Experienced lawyers who have been following and assisting for years – ever since the proposal was first announced. Rimon is now offering a teleseminar intended to cover:
- How to develop a strategy to protect your rights – marks and brands
- What brand owners should be thinking about now
- Commenting on and objecting to applications
- The Trademark Clearinghouse and other supposed protections in the new system
- Updates on industry, governmental and regulatory efforts to provide more protection for brands and trademark owners
You can register through the link here: The gTLD Applications Have Been Revealed: What Brand Owners Must Know Going Forward.
As always, if you need legal or regulatory counsel, call me, Joseph I. (“Joe”) Rosenbaum, or any of the lawyers highlighted in the full Client Alert or, of course, the Rimon lawyer with whom you regularly work.
On May 4, 2011, the Chinese government announced it was establishing the State Internet Information Office, an office dedicated to managing Internet information. According to the announcement, this office will be responsible for directing, coordinating, and supervising online content management. The office will also have enforcement authority over those in violation of China’s laws and regulations (see, for example, China sets up office for Internet information management). While there are reports that many believe the purpose of the new office will be to censor political and social dissidents (see, China Creates New Agency for Patrolling the Internet, the office may also have a key role in thwarting illegal spamming and other dubious data practices.
Further, many see the establishment of this office as another step forward for the Chinese in terms of establishing their own data-protection regime. China has long been considered as lagging behind other countries in terms of their data-protection standards (quite possibly by design), and with no comprehensive data privacy law, businesses have had little guidance concerning the handling of personal data. China published the draft Personal Information Protection Measures in 2005, but those Measures have not yet been adopted and little progress seems to have been made since then. However, in February 2011, China issued a draft of the “Information Security Technology – Guide of Personal Information Protection” (“Guidelines”) to address the lack of guidance and standards surrounding online information practices in China. The Guidelines include standards with respect to collecting, processing, and using data, and there are provisions related to the transfer of data to third parties. While the Guidelines are technically non-binding, they still provide important guidance for businesses in China on how to protect the online information of China’s citizens. With the Guidelines still under review, Rimon lawyers will continue to monitor developments to see what form the Guidelines will take in the future.
If you have or are considering a presence in China, you need to know and be attentive to many things, if you are to succeed in the Chinese marketplace. That’s why you should contact Frederick H. Lah in our Princeton office, Zack Dong in our Beijing office, Amy S. Mushahwar in our Washington, D.C., office, me, or the Rimon lawyer with whom you regularly work. When you need legal guidance or have questions about regulations that apply online, on the Web, and across the Internet, in almost any part of the world, let us know. We are here to help.
The Information Commissioner’s Office in the United Kingdom, in furtherance of the European Union’s “browser cookie” laws (EU Privacy and Communications Directive), has just published a set of guidelines that commercial enterprises will need to comply with when the new law goes into effect May 26. Because the laws’ requirements relate to technology and marketing, the intention of the new guidelines is to provide guidance on compliance for businesses.
For background, in case you haven’t been following this closely, in November 2009, the European Parliament amended the Directive of Privacy and Electronic Communications 2002/58/EC (sometimes referred to as the e-Privacy Directive) that mandated that websites give consumers the right to opt out of receiving cookies (in most cases by changing settings on their web browsers). The 2009 amendments reversed the requirement, setting the default as “opt in.” Consumers will have to give permission (informed consent) to a website in advance, to allow a cookie to be placed on their computer.
The UK ICO’s guidance makes it clear that all businesses, private and public, will be required to get consent from the user, in advance of having a browser cookie downloaded and installed on the consumer’s computer. In addition, the ICO has amended the UK Privacy and Electronic Communications Regulations to mandate that clear and thorough information – to ensure informed consent – is provided to end users, explaining why their information is being stored and how it will be used by the commercial enterprise. Expect to see consumer-directed information soon, alerting consumers as to what their rights are and what to expect as businesses comply with the new law and regulations.
As you probably know if you are a loyal and longstanding reader, Legal Bytes in 2009 reported that the major players in the online advertising industry had issued self-regulatory principles concerning online behavioral advertising (Advertising Industry Collaboration Releases Self-Regulatory Online Behavioral Advertising Principles), and intended to create an industry self-policing mechanism, as well as disclosures to consumers concerning the use of their personal information. The self-regulatory mechanisms in the United States – these being similar – have followed an “opt out” approach to consumer privacy and the control of personal information. For multinational and international businesses worried about compliance (and that includes all you web browser publishers) – well, it’s complicated.
As always, if you need guidance for your advertising, marketing, privacy or data protection efforts, call me, Joseph I. (“Joe”) Rosenbaum, or any of the Rimon attorneys with whom you regularly work. Our lawyers deal with these issues every day.