Rémi Fortin
Manager | Eng. | Tax

Scientific research and experimental development (SR&ED) tax credits can be a major source of financing for a technological business in the first years of its existence.

However, it can be complex to determine which projects and activities are eligible for claiming SR&ED tax credits.

 

14 Jun 2018  |  Written by :

Rémi Fortin is your tax expert at Raymond Chabot Grant Thornton for the Sherbrooke office. Contact...

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Welcome to IFRS Newsletter – a newsletter that offers a summary of certain developments in International Financial Reporting Standards (IFRS) along with insights into topical issues.

We begin this second edition of 2018 with the revised Conceptual Framework for Financial Reporting.

We then move on to look at two other recent International Accounting Standards Board (IASB) publications: Amendments to IAS 19 Employee Benefits and the Exposure Draft Accounting Policy Changes (Proposed amendments to IAS 8).

We then consider European  Securities and Markets Authority (ESMA)’s recent report on what European accounting enforcers have been doing during the past year.

Further on in the newsletter, you will find IFRS-related news at Grant Thornton and a general round-up of financial reporting developments.

We finish with a summary of the implementation dates of newer standards that are not yet mandatory and a list of IASB publications that are out for comment.

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Alexandros Gamaletsos
Partner | Tax

Historically, non-US corporations with nexus in New Jersey (“NJ”) have been required to file NJ Corporation Business Tax (“CBT”) returns and calculate their NJ taxable income on a worldwide basis. This requirement stems from New Jersey’s Division of Taxation’s (“DoT”) position/interpretation that under N.J. Rev. Stat. Sec. 54:10a-4(k), non-US corporations are required to include all of their foreign sourced gross income and deductions, including their otherwise treaty-protected income, in their calculation of NJ taxable income. The DoT issued N.J. Admin. Code 18:7-5.2(xi) formalizing its position with respect to the inclusion of foreign-sourced income, which put NJ on the list of “non-treaty” states (i.e. a state that does not follow income tax treaties signed by the US federal government) along with California, New York, Pennsylvania and others.

Infosys decision

On November 28th, 2017, the NJ Tax Court (the “Court”) issued its decision in Infosys holding that the DoT was unable to impose CBT on the portion of a foreign corporation’s income that was not subject to federal income tax. Specifically, the Court held that Infosys, which had been filing federal Form 1120-F, was not required to include worldwide income excluded from its federal Form 1120-F because of application of the treaty in computing its CBT liability. In its analysis of N.J. Rev. Stat. Sec. 54:10a-4(k), which defines entire net income (“ENI”) for CBT purposes, the Court concluded that the NJ legislature’s clear intent was to pair ENI to federal taxable income with enumerated exceptions and that the DoT’s position to require the add-back of foreign sourced gross income and deductions, otherwise excluded from federal taxable income by application of a treaty, was invalid.

On March 19th, 2018, the Court accepted DoT’s motion to reconsider its Infosys decision originally issued on November 28th . In its motion for reconsideration, the DoT argued that the Court did not specifically analyze N.J.S.A. 54:10A-4 (k)(2)(A) in its November 28, 2017 decision, which the DoT asserts requires the add-back of foreign income that is exempted under federal law. The Court granted NJ’s motion for reconsideration. Following an in-depth analysis of N.J.S.A. 54:10A-4 (k)(2)(A), the Court stated: “Had the Legislature wished to provide for the add-back of foreign income excluded by treaties of the United States, it could have done so. The Legislature chose to equate CBT entire net income with “the taxable income, before net operating loss deduction and special deductions, which the taxpayer is required to report… to the United States Treasury Department for the purpose of computing its federal income tax” subject only to specific add-back provisions. To interpret N.J.S.A. 54:10A-4 (k)(2)(A) as broadly as is argued by the Director would be to undercut the Legislature’s clearly stated intent and render it meaningless when determining entire net income of foreign corporations.”

It’s worth noting that, in its analysis, the Court held that i) treaty provisions are not laws of the United States and ii) I.R.C. § 6114 itself distinguishes “a treaty of the United States” from “an internal revenue law of the United States.”

The Infosys decision effectively invalidates N.J. Admin. Code 18:7-5.2(xi), which required the add-back of all foreign-sourced (and otherwise treaty-exempt income), providing CBT relief for nonresident corporations with treaty-protected income.

Refund opportunity

Historically, NJ taxable income has been calculated by apportioning worldwide income. The Infosys decision provides the opportunity for claiming refunds for non-statute barred years for taxpayers that included treaty-exempt income in ENI for those years. Please review your clients’ filings to determine opportunities for filing amended returns and claiming refunds based on the NJ Tax Court ruling in Infosys.

08 Jun 2018  |  Written by :

Alexandros Gamaletsos is a tax expert at Raymond Chabot Grant Thornton. Contact him today!

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Understanding the global transfer pricing landscap − 2018

International taxation is undergoing the biggest shake-up for a generation. The already complex world of transfer pricing is at the front and centre of these disruptive changes, both in the rules that govern it and in the heightened scrutiny it now faces.

The chief driver of change is the global roll-out of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan. More than a hundred countries have pledged to implement at least some of the Action Plan elements.

Demonstrating substance

As part of the global tax reforms, your business needs to demonstrate that transfer pricing reflects the economic substance of value creation and exchange. Substance can appear quite straightforward in areas such as manufacturing, where it’s obvious that a factory or warehouse exists.

However, what we refer to here are the ‘significant people functions’ – where are the people controlling the important risks in the business, such as new product development, or procurement. Where substance gets even more complex, and makes transfer pricing all the more complicated, is in areas such as the creation and development of intellectual property and other intangible assets.

Key questions include: does transfer pricing within your organisation reflect the substance of where and how value is created and exchanged?

Download the document below for more information.