Cross border personal tax services - Building a better ...File/EY-Cross_border_personal_tax_services.pdf · Page 6 Cross-border personal tax services for executives ... Case study

Cross-border personal tax services for executivesAre you under attack?

27–30 October 2013

Page 2 Cross-border personal tax services for executives

Disclaimer

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► This presentation is © 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.

► The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP or its professionals.


Presenter

► Marnix van Rij► Ernst & Young Belastingadviseurs LLP► [email protected]


Under attack


The current tax landscape

► 2007 – 2011: from a financial crisis to a government debt crisis

► Increased attention on paying a “fair share”: focus on tax evasion by multinational corporations (MNCs)

► Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) action plan

► At the same time, the concrete actions of tax authorities have focused primarily on individuals


The current tax landscape

► High-net-worth individuals (HNWI) as source for increased revenues:► HNWIs pay a relative large proportion of the income tax that

governments collect► Political statement: income equalization► Complex financial affairs (international/business connected/trusts)► Aggressive tax planning/tax avoidance/tax evasion


Trends in HNWI taxation

► Raise tax rates and broaden tax base



► Increase of (automatic) exchange of information by tax authorities

► Jurisdictions committed to improving transparency and establishing effective exchange of information in tax matters:

Source: OECD

Andorra Cook Islands Malta San Marino

Anguilla Cyprus Marshall Islands Malta Seychelles

Antiqua and Barbuda Dominica Mauritius St. Lucia

Aruba Gibraltar Monaco St. Kitts and Nevis

Bahamas Grenada Montserrat St. Vincent and the Grenadines

Bahrain Guernsey Nauru Turks and Caicos Islands

Bermuda Isle of Man Netherlands Antilles US Virgin Islands

Belize Jersey Niue Vanuatu

British Virgin Islands Liberia Panama

Cayman Islands Liechtenstein Samoa



► Development of the number of tax audits

0%

5%

10%

15%

20%

25%

30%

35%

2008 2009 2010 2011 2012

US individual income tax return examination coverage

Average$500k – $1m$1.1m – $5m$5.1m – $10m> $10m

Source: IRS Data Book




What to do

► Conduct a tax compliance and risk assessment for your current worldwide tax situation

► Develop and assess your “tax” philosophy to ensure that the tax positions taken are consistent with their level of risk tolerance

► Stay abreast of potential tax legislative and policy changes and maintain flexibility to adjust to changing tax environment


What to do

► Evaluate your overall global tax position both from personal and business perspective so that your global tax obligations are minimized and situations that might give rise to double taxation are avoided

► Develop a team of advisors with competence and breadth of capabilities to match your personal, business and investment planning and tax compliance needs


The Rackspace experience


Introduction

► Kris Blue► Director, Mobility Compliance► 17 years in global mobility

► 13 years in Big Four► 4 years corporate


Overview of Rackspace

► IT and web hosting provider with global HQ in San Antonio, TX

► Publicly traded as of Aug. 8, 2008 (NYSE)► 5,400+ employees globally► Offices located in US, UK, Netherlands, Switzerland, Hong

Kong, Australia► Expansion into two additional, significant countries planned for Q4

2013/early Q1 2014

► Approximately 50 international assignees


Setting the stage: global mobility program and policy

► Compensation philosophy:► Mid-range base pay► Large bonuses► Generous commissions► Heavy on equity

► Streamlined relocation and assignment benefits► No “true” tax equalization for international assignees

► Relocation and assignment related payments are tax equalized► Assignee responsible for home and host country tax on base,

commissions, bonus and equity► Company provided home/host tax prep services in year of

departure, repatriation only *


Setting the stage: global mobility program and policy

► Assignee make up► “Permanent” transfers► “Traditional” assignees ► Approx. 85 – 90% are “individual contributors” (permanent

transfers)► Remainder are mission critical, senior executives (traditional

assignees)► “Problem children” from an expat tax perspective

► Individual contributors employed by RAX prior to Aug. 8, 2008

► Executives…none of whom stay in one place


Income elements to consider

► RAX income► Bonus payments► Equity awards► Equity as a result of acquisition

► Non-RAX income► Real estate► Stock portfolios► Income (loss) from outside business(es)

► Spouse business► Angel investors► Start-ups


What works

► Compliance mindset► Right people in right roles► Awareness, communication, partnering

► At appropriate levels► Across functions

► Tax planning for new jurisdictions► Close partnering with tax vendor


What works

► “Fanatical Support”► Supported in house

► Tax pre-orientation► Financial advisory services► Withholding “sanity checks”

► Supported via EY► Executive tax orientations► Executive tax return preparation► Additional tax planning services on case-by-case basis► Tax return preparation for two years following

repatriation/deployment to next assignment► Subsidy for two more years, if needed


What we can do better

► More focus on strategic planning► Initiative for 2014: Take advantage of UK planning strategies

► Earlier involvement of tax team in cross border transfer planning

► Business traveler compliance► International► Domestic (US in particular)

► Better education of/communication with senior leadership team

► Simpler, more consistent tax policy relative to global assignments


Case study


Case study

► EY advises:► Owners of family businesses and other private companies, as well

as, single and multifamily offices► Owners and managers of private equity firms and hedge funds► C-suite and senior corporate executives


Case study

► Facts and circumstances:► Jan and his wife, Ada, are Dutch nationals.► Jan and Ada were married under Dutch law in 1993.► Jan and Ada have two children who are minors. ► In December 2003, the family moved from the Netherlands to the

US (California). ► Jan works as a CFO for a US multinational.► Jan is tax equalized to the Netherlands up and until December

2017.


Case study

► Jan and Ada’s wealth is compiled as follows:► Primary home in California (value: $5m, mortgage: $4m)► Second home in the Netherlands (value $3m, mortgage: $1m)► 100% of the shares of a (French) “Société civile immobilière” (SCI)

(value: $15m, purchase price: $3m)► Vested equity grant (value: $8m) of his US employer► Cash (value: $5m)

► Jan and Ada intend to transfer shares of the SCI to their children by way of gift

► Jan would like to make cash donations to charitable institutions in the Netherlands


Case study

► Income tax: ► Tax equalization► Shares in SCI

► Ordinary income► Capital gains► Wealth tax

► Charitable donations


Case study

Estate/gift tax – which country is entitled to levy tax?

US Netherlands FranceSitus Yes No Yes

Residency Yes Yes Yes (both deceased/donor and beneficiary/donee)

Nationality Yes Yes No


Case study

US Netherlands France

Situs ► Shares in SCI

Residency ► Shares in SCI► Charitable

donations

Nationality ► Shares in SCI► Charitable

donations

Gift tax – which country is entitled to levy tax?


Case study

► Estate tax:► International private law:

► Applicable matrimonial property law► Applicable inheritance law:

► Will► Trust documents


Case study

Estate tax – which jurisdiction is entitled to levy tax?US Netherlands France

Situs ► US home► Equity grant

► Shares in SCI

Residency ► Worldwide estate

Nationality ► Worldwide estate


Thank you

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Cross border personal tax services - Building a better ...File/EY-Cross_border_personal_tax_services.pdf · Page 6 Cross-border personal tax services for executives ... Case study