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US Territories Seek Clarity On Net Investment Income Tax

Monday, August 18, 2014

The American Institute of Certified Public Accountants (AICPA) has written to the United States Congress requesting clarification on the applicability of the net investment income tax (NIIT) to residents of the US Virgin Islands (USVI), Guam, and the Commonwealth of the Northern Mariana Islands (CNMI).

The NIIT was introduced in 2013 to help fund President Barack Obama's health care reforms. It applies at a rate of 3.8 percent on the lesser of an individual's net investment income or the excess of the individual's modified adjusted gross income, over a threshold amount. It has already been confirmed by the IRS, within its tax guide for individuals with income from the US Possessions that was issued in March this year, that the NIIT applies to bona fide residents of the two other territories – Puerto Rico and American Samoa.

The letter, co-signed by the Virgin Islands Society of Certified Public Accountants and the Guam Society of Certified Public Accountants, asks for clarification as to whether the NIIT is a mirrored tax to be collected by tax authorities of the USVI, Guam, and CNMI. Under the "mirror code" system of taxation, the substantive provisions of the US tax code are also applicable as the income tax laws of the territories.

The letter states that, while "the wording of proposed and final [Internal Revenue Service (IRS)] regulations regarding NIIT appears to exempt from the NIIT bona fide residents of the US Territories, the VIBIR [Virgin Islands Bureau of Internal Revenue] has issued a statement, and the GDRT [Guam Department of Revenue and Taxation] Deputy Tax Commissioner has stated, that the NIIT applies to bona fide residents, causing much confusion among taxpayers and practitioners."

"The AICPA, VISCPA, and GSCPA believe – as a matter of clarity and fair interpretation and application of congressional intent – Congress should request that Treasury provide clarification on whether the NIIT applies to bona fide residents of the mirror code US Territories," the letter says. "In addition, if bona fide residents of mirror code US Territories are exempt from the NIIT, the extension of this exemption to mirror code US Territories' estates and trusts should be clarified as well." They have asked for confirmation before the extended due date of October 15, 2014, for the filing of 2013 tax returns.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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