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.