domingo, 6 de setembro de 2009

Small talk over US Income Tax (Second Part).

Dlm2 Advogados Associados.
Written by Fabiano Lins.
Attorney at Law/Advogado.

“Until 1962 investors in foreign mutual funds avoided US taxation on earnings from the funds. As foreign corporations with foreign-source income, the funds were not subject to US tax. US investors deferred US Tax because they received no dividends from the funds, and, with the funds usually owned by US and foreign investors in small percentages, the CFC and FPHC rules were not generally applicable”(Gianni, Monica RIA group, “Practical Tax Strategies”, West Law 1999).

Consequently, the US Congress took action against mutual funds operated abroad and enacted an antideferral law in order to prevent Americans from deferring income tax. Prior to this rule, US investors were taxed on income operated by foreign mutual funds only when they sold their interest in the funds. In other words, the taxation on income occurred only when the investors earned capital gains.

“Under the FIC rules, a US citizen’s gain on the sale or exchange of stock in an FIC is recharacterized as ordinary income to the extent of the taxpayer’s ratable share of the foreign corporation’s post-1962 E&P that was accumulated the taxpayer owned the stock”(Gianni, Monica RIA group, “Particle Tax Strategies”, West Law 1999). We must say that the United State taxation is slightly generous with capital gains realized in the long-term (after one year). Ordinary income and short-term capital gains are treated with 39.6 % on earned income.

On the other hand, long-term capital income tax is around 28%. Indeed, if the person dies, under United State tax law, he or she would be exempt from any income tax. It is necessary to understand that it is not the long-term capital that should be treated specially by American authorities, but the “net long-term capital”(an account made by a calculation of short-term losses and gains against long-term losses and gains).

Now, we can understand how important it is to American citizens to defer income tax as long as they can.

In this sense, what should be the Brazilian approach for the matter raised?

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